<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
CUNO INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1159240
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
400 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 237-5541
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE,
WITH ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CUNO INCORPORATED
PART I
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
---- ------- ---------------------------------
<C> <S> <C>
1. Business ................... "Information Statement Summary"; "Risk
Factors"; "Introduction"; "Management's
Discussion and Analysis of Financial
Condition and Results of Operations."
2. Financial Information ...... "Summary Financial and Other Data"; "Risk
Factors"; "The Distribution"; "Financing";
"Pro Forma Capitalization"; "Selected
Financial and Other Data"; "Management's
Discussion and Analysis of Financial
Condition and Results of Operations."
3. Properties.................. "Business--Properties."
4. Security Ownership of
Certain Beneficial Owners
and Management............. "Ownership of Common Stock."
5. Directors and Executive "Risk Factors--Composition of Board of
Officers................... Directors and Management; Potential
Conflicts of Interest"; "Management"; "The
Distribution--Future Management of The
Company."
6. Executive Compensation...... "Arrangements Between the Company and
Commercial Intertech"; "Management."
7. Certain Relationships and
Related Transactions....... "Information Statement Summary";
"Arrangements Between the Company and
Commercial Intertech"; "Certain
Transactions in Connection with the
Distribution."
8. Legal Proceedings........... "Business--Legal Proceedings."
9. Market Price of and
Dividends on the
Registrant's Common Equity "Information Statement Summary"; "Risk
and Related Shareholder Factors--No Prior Market for the Shares;
Matters.................... Possible Volatility of Share Price"; "The
Distribution--Listing and Trading of the
Common Stock"; "Description of Capital
Stock."
10. Recent Sales of Unregistered
Securities................. Not Applicable.
11. Description of Registrant's
Securities to be "Information Statement Summary"; "Risk
Registered................. Factors--Anti-Takeover Considerations";
"The Distribution--Listing and Trading of
the Common Stock"; "Description of Capital
Stock."
12. Indemnification of Directors "Information Statement Summary"; "Liability
and Officers............... and Indemnification of Directors and
Officers."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
---- ------- ---------------------------------
<C> <S> <C>
13. Financial Statements and "Selected Financial and Other Data";
Supplementary Data............ "Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
14. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure...... Not Applicable.
15. Financial Statements and
Exhibits...................... "Index to Combined Financial Statements."
</TABLE>
<PAGE>
Commercial
[LOGO]----------
Intertech
, 1996
Dear Shareholder:
We are pleased to inform you that on July 29, 1996 the Board of Directors of
Commercial Intertech Corp. ("Commercial Intertech") approved a plan to spin-
off our fluid purification business by declaring a dividend distribution of
100% of the common stock of CUNO Incorporated ("CUNO") on a pro-rata basis to
the holders of Commercial Intertech common shares (the "Distribution"). The
enclosed Information Statement explains the Distribution in detail and
contains important financial statements and other data regarding CUNO. We urge
you to read it carefully.
The Distribution will result in your ownership of shares of two very
different companies. Commercial Intertech will focus on its hydraulic systems
and building systems and metal products businesses and CUNO will focus on its
fluid purification business. Your Board of Directors believes that the
Distribution, by enabling Commercial Intertech and CUNO to develop their
respective businesses separately, should better position the two companies to
enhance their respective businesses and produce greater total shareholder
value over the long- term. The Board is excited about the opportunities each
Company has to offer.
As explained in the Information Statement, each holder of record of
Commercial Intertech common shares at the close of business on August 9, 1996,
the record date for the Distribution, will receive one share of CUNO Common
Stock for every one share of Commercial Intertech common share. No action is
required on your part to receive your CUNO shares. You will not be required to
either pay anything for the new shares or to surrender your Commercial
Intertech shares. No fractional shares of CUNO stock will be issued.
A shareholder vote is not required in connection with this matter and
accordingly your proxy is not being sought.
Sincerely,
Paul J. Powers
Chairman, President and Chief
Executive Officer
<PAGE>
CUNO
Filter Sysytems
----------------
, 1996
Dear Shareholder:
As a result of being a holder of Commercial Intertech Corp. common shares you
are about to become a shareholder in CUNO Incorporated ("CUNO"). On behalf of
all who are a part of this new public corporation, I welcome you as a
shareholder.
CUNO has a long history of leadership in the design, manufacture and
marketing of a comprehensive line of filtration products for the separation,
clarification and purification of liquids and gases. CUNO's products are used
in the health care, fluid processing and potable water markets. CUNO's Board of
Directors believes there are significant opportunities for CUNO and that the
shareholders will benefit from the increased business focus that will come
following the spin-off.
The document that follows contains important financial information and other
data regarding CUNO. I urge you to read it carefully.
Sincerely,
Paul J. Powers
Chairman and Chief Executive Officer
<PAGE>
SUBJECT TO COMPLETION--DATED AUGUST 2, 1996
FOR INFORMATION ONLY
INFORMATION STATEMENT
- ---------------------
Commercial CUNO
[LOGO]---------- Filter Systems
Intertech ----------------
CUNO INCORPORATED
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
----------------
This Information Statement is being furnished to shareholders of Commercial
Intertech Corp. ("Commercial Intertech") in connection with the distribution by
Commercial Intertech to its shareholders of all of the outstanding shares of
common stock of its wholly-owned subsidiary, CUNO Incorporated ("CUNO" or the
"Company").
It is expected that the distribution will be made on or about August 19,
1996, on the basis of one share of common stock of CUNO for one Commercial
Intertech common share, subject to certain conditions. See "Information
Statement Summary--The Distribution--Distribution Date". No consideration will
be paid by shareholders of Commercial Intertech for the shares of common stock
of CUNO to be received by them in the distribution, nor will they be required
to surrender or exchange shares of Commercial Intertech in order to receive
common stock of CUNO. No fractional shares will be issued.
There is no current public market for the common stock of CUNO. Application
has been made to list such shares on the Nasdaq National Market under the
symbol "CUNO."
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
NO SHAREHOLDER APPROVAL IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION, WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY
ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND OTHERWISE IN
COMPLIANCE WITH APPLICABLE LAW.
THE DATE OF THIS INFORMATION STATEMENT IS , 1996
<PAGE>
-------------------------------------
THIS INFORMATION STATEMENT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS SUBJECT TO CHANGES TO REFLECT ANY COMMENTS WHICH THE
SECURITIES AND EXCHANGE COMMISSION MAY HAVE AND ADDITIONAL INFORMATION
RELATING TO THE TERMS OF THE SPIN-OFF OF THE COMPANY.
THIS INFORMATION STATEMENT IS PRELIMINARY AND NOT IN FINAL FORM.
ACCORDINGLY, THERE MAY BE MATERIAL CHANGES BETWEEN THIS INFORMATION STATEMENT
AND THE ONE WHICH WILL BE FURNISHED TO COMMERCIAL INTERTECH SHAREHOLDERS AT
THE TIME THE CUNO COMMON STOCK IS DISTRIBUTED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TABLE OF CONTENTS........................................................ i
INFORMATION STATEMENT SUMMARY............................................ 1
RISK FACTORS............................................................. 6
Absence of History as a Stand-Alone Company............................ 6
Limited Relevance of Historical Financial Information.................. 6
Agreements with Commercial Intertech; Lack of Arm's-Length
Negotiations.......................................................... 6
Potential Change of Control of Commercial Intertech.................... 6
No Prior Market for the Shares; Possible Volatility of Share Price..... 7
Risks Associated With International Operations......................... 7
Patents and Proprietary Techniques..................................... 7
Technological and Regulatory Change.................................... 7
Certain Federal Income Tax Considerations.............................. 8
Competition............................................................ 8
Composition of Board of Directors and Management; Potential Conflicts
of Interest........................................................... 8
Anti-Takeover Considerations........................................... 9
Risks Associated with Acquisitions..................................... 9
Forward-Looking Information May Prove Inaccurate....................... 9
Effects on Commercial Intertech Common Stock........................... 9
INTRODUCTION............................................................. 10
THE DISTRIBUTION......................................................... 11
Background and Reasons for the Distribution............................ 11
Manner of Effecting the Distribution................................... 13
Results of the Distribution............................................ 13
Listing and Trading of the Common Stock................................ 14
Future Management of The Company....................................... 14
Certain Federal Income Tax Consequences of the Distribution............ 14
Conditions; Termination................................................ 15
Reasons for Furnishing the Information Statement....................... 15
ARRANGEMENTS BETWEEN THE COMPANY AND COMMERCIAL INTERTECH................ 16
Distribution and Interim Services Agreement............................ 16
Tax Allocation Agreement............................................... 17
Employee Benefit Agreement............................................. 17
FINANCING................................................................ 18
PRO FORMA CAPITALIZATION................................................. 19
PROJECTIONS.............................................................. 20
Uncertainty of Projections............................................. 20
General................................................................ 20
Methodology............................................................ 21
Projection Periods Presented........................................... 21
Assumptions............................................................ 21
SELECTED FINANCIAL AND OTHER DATA........................................ 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 24
Overview............................................................... 24
Results of Operations.................................................. 25
Impact of Inflation.................................................... 27
Quarterly Results and Seasonality...................................... 27
Liquidity and Capital Resources........................................ 28
Accounting Standards................................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS................................................................. 29
General................................................................ 29
Market Overview........................................................ 29
Growth Strategy........................................................ 30
Products............................................................... 31
New Products........................................................... 35
Competition............................................................ 36
Research and Development and Product Development....................... 36
Manufacturing.......................................................... 36
Raw Material Suppliers................................................. 36
Distribution and Sales................................................. 36
Properties............................................................. 37
Trademarks and Patents................................................. 37
Seasonality............................................................ 37
Government Regulations................................................. 37
Employees.............................................................. 38
Legal Proceedings...................................................... 38
MANAGEMENT............................................................... 39
Executive Officers, Directors and Significant Employees................ 39
Board of Directors..................................................... 40
Committees of the Board of Directors................................... 41
Compensation of the Board of Directors................................. 42
Executive Compensation................................................. 42
EXPECTED COMPENSATION AND EMPLOYEE BENEFIT PLANS FOLLOWING THE
DISTRIBUTION............................................................ 45
Annual Incentive Compensation.......................................... 45
The Executive Management Incentive Plan................................ 45
The Management Incentive Plan.......................................... 45
Employment Agreement................................................... 45
Termination Benefits................................................... 46
Change of Control Agreements........................................... 46
Stock Option Plans..................................................... 47
OWNERSHIP OF COMMON STOCK................................................ 50
Security Ownership of Directors and Executive Officers................. 50
Security Ownership of Certain Beneficial Owners........................ 51
CERTAIN TRANSACTIONS IN CONNECTION WITH THE DISTRIBUTION................. 52
DESCRIPTION OF CAPITAL STOCK............................................. 53
Common Stock........................................................... 53
Preferred Stock........................................................ 53
Certain Corporate Provisions........................................... 53
Delaware Anti-Takeover Law............................................. 54
Stockholder Rights Agreement........................................... 54
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.................. 57
Limitation of Liability of Directors................................... 57
Indemnification of Directors and Officers.............................. 57
ADDITIONAL INFORMATION................................................... 59
INDEX TO COMBINED FINANCIAL STATEMENTS................................... F-1
</TABLE>
ii
<PAGE>
INFORMATION STATEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, including "Risk Factors," and
financial statements (including the notes thereto) appearing elsewhere in this
Information Statement. Unless the context otherwise requires, or it is
specifically indicated otherwise, (i) the information in this Information
Statement gives effect to the spin-off (the "Spin-off") of the Company to be
effected through a distribution of the Company's common stock, par value $.001
per share, to holders of record of Commercial Intertech common shares at the
close of business on August 9 1996 (the "Distribution") and the related
transactions described more fully in "The Distribution," (ii) as of July 23,
1996, an 13,747 to 1 stock split to be effected immediately before the
Distribution and (iii) "CUNO" or the "Company" means CUNO Incorporated after
giving effect to the Spin-off. See "Arrangements Between the Company and
Commercial Intertech."
DISTRIBUTION FROM COMMERCIAL INTERTECH
The Company is currently a wholly-owned subsidiary of Commercial Intertech.
On July 29, 1996, Commercial Intertech approved a plan to spin-off the
businesses and operations that now comprise the Company, and the associated
assets and liabilities of such businesses and operations by declaring a
dividend distribution of all of the common stock of the Company. The Company
and Commercial Intertech have entered into or will, on or prior to the
consummation of the Distribution, enter into certain agreements relating to the
Distribution and governing various interim and ongoing relationships between
the two companies. See "Arrangements Between the Company and Commercial
Intertech."
THE COMPANY
The Company is a world leader in the design, manufacture and marketing of a
comprehensive line of filtration products for the separation, clarification and
purification of liquids and gases. The Company's products, which include
proprietary depth filters and semi-permeable membrane filters, are used in the
health care, fluid processing and potable water markets. These products, most
of which are disposable, effectively remove contaminants that range in size
from molecules to sand particles. The Company's sales are approximately
balanced between international and domestic markets. Significant customers
include Boston Chicken, Inc., Kentucky Fried Chicken Corporation, McDonald's
Corporation, Monsanto Company and Minnesota Mining and Manufacturing Company
("3M").
The Company's objective is to provide high value-added products and premium
customer service. The Company's proprietary manufacturing processes result in
products that lower customers' operating expenses and improve the quality of
customers' end products by providing longer lasting, higher quality and more
efficient filters. As part of the Company's commitment to customer service, the
Company designates its own scientists, each of whom possess particular industry
expertise, to collaborate with customers on specific projects to insure
satisfaction with its products and to create new products.
In mid-1994, the Company realigned its business to accelerate sales growth
and improve operating margins. A new senior management team developed and
implemented the following initiatives, which are key elements of its ongoing
growth strategy: (i) develop new products from core technologies, (ii) decrease
product development cycle times, (iii) develop pre/final filter systems, (iv)
increase customer focus, (v) improve operating efficiencies and (vi) pursue
selective acquisitions. Due principally to these initiatives, net sales
increased from $143 million to $163 million, a 14% increase, and operating
margins improved from 3.5% to 6.7% from 1994 to 1995. Additionally, these
initiatives have resulted in the introduction of 15 new products or product
extensions which have produced over $18 million in aggregate sales over the
last two years.
1
<PAGE>
BACKGROUND AND REASONS FOR DISTRIBUTION
Commercial Intertech believes that the Distribution will allow investors to
better evaluate the merits of the CUNO Business (as defined below) and the
Commercial Intertech Remaining Businesses (as defined below). The Spin-off will
increase the long-term value of Commercial Intertech and its shareholders'
investment. Commercial Intertech also believes that, as a result of the
division of Commercial Intertech into two separate companies, each company will
be able to establish better compensation and incentives for its officers and
employees, including employee stock and cash incentive plans, that will relate
directly to the respective company's performance. In addition, the Company
believes the Spin-off will allow it to acquire other companies in the
filtration industry using the Common Stock (as defined below) as consideration
as well as have better access to the capital markets. In the past, such
acquisitions were more difficult because potential targets did not desire to
hold Commercial Intertech Common Shares (as defined below) because its
performance was not as directly tied to the performance of the CUNO Business.
The Distribution should also enable shareholders to benefit in the near term
from the value of a higher growth and higher multiple CUNO Business, which has
not previously received appropriate market recognition because of Commercial
Intertech's mix of lower multiple industrial businesses.
Commercial Intertech believes that its three businesses, hydraulic systems,
building systems and metal products and the CUNO Business, require different
management experience and capabilities, (due to their distinct marketing and
selling techniques) and strategic planning, in order to maximize their
respective potential growth. Commercial Intertech believes that the
Distribution will allow the management of each company to better develop its
respective businesses and will allow the financial markets to better recognize
and evaluate the different growth characteristics of the two companies.
THE DISTRIBUTION
Distributing Company........ Commercial Intertech Corp., an Ohio corporation
("Commercial Intertech").
Distributed Company......... CUNO Incorporated ("CUNO" or the "Company"),
which on the Distribution Date will own the fluid
purification segment of Commercial Intertech's
operations (the "CUNO Business"). CUNO was
incorporated under the laws of Delaware on May
23, 1985. On the Distribution Date (as defined
below), the Company will become a publicly held
corporation by virtue of the distribution of the
Common Stock to the holders of Commercial
Intertech Common Shares on the Record Date. See
"Summary Financial and Other Data" and
"Business."
Shares to be Distributed....
13,747,432 shares of common stock, par value
$.001 per share (the CUNO common stock and the
Rights (as defined below) are collectively
referred to herein as the "Common Stock"), of the
Company, based on the number of common shares,
par value $1.00 per share, of Commercial
Intertech ("Commercial Intertech Common Share")
outstanding as of July 23, 1996. The shares to be
distributed will constitute all of the shares of
the Common Stock outstanding immediately after
the Distribution. No fractional shares will be
distributed. This number excludes stock options
and performance shares to be granted on the
Distribution Date. See "The Distribution--Manner
of Effecting the Distribution."
2
<PAGE>
One share of Common Stock for each Commercial
Distribution Ratio.......... Intertech Common Share. See "The Distribution--
Manner of Effecting the Distribution."
Federal Income Tax Commercial Intertech received opinions of tax
Consequences............... counsel based on certain assumptions and
representations that the Distribution should
qualify as a tax-free spin-off under Section 355
of the Internal Revenue Code of 1986, as amended
(the "Code"). See "Risk Factors--Certain Federal
Income Tax Considerations" and "The
Distribution--Certain Federal Income Tax
Consequences of the Distribution."
Fractional Shares........... There will be no fractional shares because the
distribution ratio is one for one. See "The
Distribution--Manner of Effecting the
Distribution."
Trading Market and Symbol...
There is currently no public market for the
Common Stock. Application has been made to list
the Common Stock on the Nasdaq National Market
("Nasdaq") under the symbol "CUNO." See "The
Distribution--Listing and Trading of the Common
Stock." It is anticipated that prior to the
Distribution Date, the Commercial Intertech
Common Shares will trade with due bills.
Record Date................. Close of business on August 9, 1996 (the "Record
Date").
Distribution Date...........
The later of August 19, 1996 or the earliest
practicable date following approval by Nasdaq of
the Common Stock for trading thereon and the
commencement of trading (the "Distribution
Date"). The Distribution is subject to there not
being in effect on the Distribution Date any
injunction, order or decree of any court or any
governmental authority which prohibits or makes
illegal the Distribution. On the Distribution
Date, the Distribution Agent (as defined below)
will commence mailing share certificates for the
Common Stock to holders of Commercial Intertech
Common Shares as of the Record Date. Commercial
Intertech shareholders will not be required to
make any payment or to take any other action to
receive the Common Stock. See "The Distribution--
Manner of Effecting the Distribution."
Distribution Agent,
Transfer Agent and ChaseMellon Shareholder Services, L.L.C. (the
Registrar.................. "Distribution Agent").
Principal Office of the The principal corporate offices of the Company
Company.................... are located at 400 Research Parkway, Meriden,
Connecticut 06450; telephone number (203) 237-
5541.
3
<PAGE>
Certain Provisions of the
Certificate of
Incorporation and Bylaws;
Rights Agreement...........
Certain provisions of the Company's Amended and
Restated Certificate of Incorporation (the
"Restated Certificate") and Amended and Restated
Bylaws (the "Restated Bylaws"), contain
provisions that (i) limit a shareholder's ability
to act by written consent, (ii) provide for a
staggered board of directors, (iii) require an
affirmative vote of 80% of the shareholders
entitled to vote to remove directors, which can
only be for cause, to amend certain provisions of
the Restated Certificate or to repeal or amend
the Restated Bylaws and (iv) allow the Company's
Board of Directors (the "Board"), without
obtaining shareholder approval, to issue shares
of preferred stock having rights that could
adversely affect the voting power and economic
rights of holders of the Common Stock. See
"Capital Stock--Certain Corporate Provisions."
The Restated Certificate would eliminate certain
liabilities of CUNO directors in connection with
the performance of their duties. See "Liability
and Indemnification of Directors and Officers--
Limitation of Liability of Directors." The Rights
Agreement (as defined below) will make more
difficult an acquisition of control of the
Company in a transaction not approved by the
Board. See "Description of Capital Stock--
Shareholder Rights Agreement."
Post-Distribution Dividend It is anticipated that, following the
Policy..................... Distribution, the Company will not pay dividends.
Risk Factors................
See "Risk Factors" for matters which should be
considered when evaluating the Common Stock.
Relationship Between
Commercial Intertech and
CUNO after the
Distribution............... Commercial Intertech will have no stock ownership
interest in the Company after the Distribution.
However, the Company and Commercial Intertech
will enter into several agreements relating to
the Distribution and defining their ongoing
relationship. As part of these agreements, the
parties will agree to certain indemnities in
respect of certain tax, employee and other
matters. These agreements also include provisions
for the transfer to the Company of all of the
assets and liabilities of the CUNO Business.
Additional agreements will relate to, among other
things, certain employee benefit and compensation
matters, tax sharing, administrative services and
other miscellaneous matters. In addition, the
Chairman of the Board and Chief Executive Officer
of the Company will also be the Chairman of the
Board and Chief Executive Officer of Commercial
Intertech and the Company and Commercial
Intertech will have certain common Directors. See
"Arrangements Between the Company and Commercial
Intertech."
4
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary financial and other data of the
Company. The selected income statement data for the years ended October 31,
1993, 1994 and 1995 are derived from audited combined financial statements of
the Company. The selected balance sheet data as of April 30, 1996 and the
selected income statement data for the six month periods ended April 30, 1995
and 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended April 30, 1996 are not necessarily indicative
of the results that may be expected for the entire year ending October 31,
1996. The data should be read in conjunction with the combined financial
statements, related notes, other financial information, pro forma
capitalization and pro forma condensed combined financial statements included
elsewhere herein and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
--------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Net Sales............... $130,771 $143,111 $162,699 $162,699 $77,343 $86,094 $86,094
Gross Profit............ 40,605 50,604 62,927 62,927 28,921 34,208 34,208
Operating Income
(Loss)................. (1,678) 4,978 10,840 10,840 4,692 7,624 7,624
Interest Expense........ (281) (706) (691) (3,241) (421) (199) (1,474)
Other (Expense) Income--
net.................... (590) (2,229) (586) (586) (212) 56 56
Income (Loss) Before
Income Taxes........... (2,549) 2,043 9,563 7,013 4,059 7,481 6,206
Net Income (Loss)....... (701) 1,807 6,101 4,553 2,657 5,102 4,328
PRO FORMA PER SHARE DATA:
Net Income Per Share.... $.33 $.31
Shares Used to Calculate
Net Income Per
Share(3)............... 13,747 13,747
OTHER DATA:
Depreciation and
Amortization........... $ 7,664 $ 8,154 $ 7,929 $ 7,929 $ 3,850 $ 3,818 $ 3,818
Capital Expenditures.... 3,245 2,927 5,234 5,234 2,754 2,408 2,408
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital......................................... $ 52,437 $ 14,262(4)
Total Assets............................................ 167,200 167,200
Short-Term Debt......................................... 12,962 12,962
Long-Term Debt, Excluding Current Maturities............ 3,484 33,484(5)
Total Shareholder's Equity.............................. 114,406 46,231(6)
</TABLE>
- -------
(1) Adjusts actual interest expense to reflect the interest expense on the $30
million of long-term debt allocated to the Company from Commercial
Intertech, which will be replaced immediately with the $30 million term
facility from Mellon Bank, N.A., based on an 8.5% per annum interest rate,
as if it had been outstanding for the entire period, and adjusts net income
for the interest expense, net of the related federal and state taxes.
Interest rates under the term facility will be variable with each 1/8%
point movement in the interest rate resulting in a change in annual
interest expense of $37,500 ($22,800, net of tax) based on the $30 million
term facility balance. Does not include the capital gain tax of
approximately $2.5 million, incurred because the Distribution is considered
a change in the ownership group of CUNO Pacific Pty., Ltd. under Australian
tax law, as the capital gain tax results directly from the Distribution and
is a nonrecurring charge.
(2) Operating income has been reduced by an amount equal to the Company's
estimate of the charges and expenses the Company would have incurred during
those time periods presented as if it had operated as a separate, stand-
alone entity.
(3) Shares based on 13,747,432 Commercial Intertech shares outstanding as of
July 23, 1996 and on a distribution of one share of Common Stock for each
Commercial Intertech Common Share.
(4) Adjusts working capital to reflect the dividend, as if the Distribution
occurred as of April 30, 1996, of $35.7 million declared by the Company and
payable to Commercial Intertech and the capital gain tax of approximately
$2.5 million, incurred because the Distribution is considered a change in
the ownership group of CUNO Pacific Pty., Ltd. under Australian Law.
(5) Adjusts long-term debt to reflect, as if the Distribution occurred as of
April 30, 1996, the allocation of $30 million of long-term debt from
Commercial Intertech to the Company, which will be replaced immediately
with the $30 million term facility from Mellon Bank, N.A.
(6) Adjusts total shareholder's equity to reflect, as if the Distribution
occurred as of April 30, 1996, the allocation of $30 million of long-term
debt described in (5) above, the dividend of $35.7 million and the $2.5
million capital gain tax described in (4) above.
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RISK FACTORS
Holders of Commercial Intertech Common Shares will receive shares of the
Common Stock in the Distribution and should therefore consider carefully the
following factors, in addition to the other information contained in this
Information Statement. This Information Statement contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Information Statement.
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
The Company has not recently operated as a stand-alone company. After the
Distribution, the Company will no longer be a subsidiary of Commercial
Intertech, but will operate as a stand-alone company, and Commercial Intertech
will have no obligation to provide assistance to the Company or any of its
subsidiaries except as described in "Arrangements Between the Company and
Commercial Intertech." There can be no assurance that services provided to the
Company by Commercial Intertech under such arrangements will continue to be
provided, and if not, whether, or on what terms, such services could be
replicated. Any termination of the arrangements could have an adverse effect
on certain operations of the Company. See "Arrangements Between the Company
and Commercial Intertech."
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented. The financial information included herein does not reflect
many significant changes that will occur in the funding and operations of the
Company as a result of the Distribution. In addition, the financial statements
of the Company include certain assets, liabilities and expenses which were not
historically recorded at the level of, but are associated with, the businesses
transferred to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview", "Certain
Transactions Related to the Distribution" and financial statements (including
the notes thereto) appearing elsewhere in this Information Statement.
AGREEMENTS WITH COMMERCIAL INTERTECH; LACK OF ARM'S-LENGTH NEGOTIATIONS
In contemplation of the Distribution, the Company will enter into a number
of agreements with Commercial Intertech, including a Distribution and Interim
Services Agreement (as defined below) for the purpose of defining the ongoing
relationship with Commercial Intertech. Although these agreements were not the
result of arm's-length negotiations between independent parties, the Company
believes such agreements contain terms comparable to those that would have
resulted from negotiations between unaffiliated parties although there can be
no assurance of such. See "Arrangements Between the Company and Commercial
Intertech."
POTENTIAL CHANGE OF CONTROL OF COMMERCIAL INTERTECH
On June 27, 1996, United Dominion Industries Limited ("United") offered to
purchase all of the outstanding Common Shares of Commercial Intertech, the
current holder of 100% of the Common Stock. On July 12, 1996, United launched
a tender offer for all of the outstanding Commercial Intertech Common Shares.
On July 19, 1996, United sued in Ohio federal district court to enjoin
Commercial Intertech and its directors from taking steps to effect the Spin-
off until Commercial Intertech's shareholders have the opportunity to vote on
the proposed "Control Share Acquisition" by United at the Ohio Control Share
Acquisition Act meeting on August 30, 1996. As a result, Commercial
Intertech's Common Shares may, either before or after the consummation of the
Distribution, be owned by United or another company. If such a transaction
occurs,
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Commercial Intertech would be controlled by persons who may have different
objectives and goals from the goals and objectives of Commercial Intertech's
present management, which could adversely affect the arrangements with
Commercial Intertech that exist now or will exist on the Distribution Date.
See "Arrangements Between the Company and Commercial Intertech." In addition,
under certain conditions there is a significant risk that such a transaction
could have adverse tax consequences to Commercial Intertech and certain
shareholders of the Company. See "--Certain Federal Income Tax Considerations"
and "The Distribution--Background and Reasons for the Distribution" and "--
Certain Federal Income Tax Consequences of the Distribution."
NO PRIOR MARKET FOR THE SHARES; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the Distribution, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
upon completion of the Distribution or, if it does develop, that such market
will be sustained. The market price for the Common Stock may be significantly
affected by factors such as the announcement of new products or services by
the Company or its competitors, technological innovation by the Company or its
competitors, the growth and expansion of the Company's business, trends and
uncertainties affecting the filtration and separations industry as a whole,
issuances and repurchases of Common Stock, quarterly variations in the
Company's operating results or the operating results of the Company's
competitors, investors' expectations of the Company's prospects, changes in
earnings estimates by analysts or reported results that vary materially from
such estimates and general economic and other conditions.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Approximately 47%, 50% and 54% of the Company's revenues for fiscal year
1993, 1994 and 1995, respectively, were from international sales. The Company
manufactures products in four foreign countries; such operations may be
affected by economic, political and governmental conditions in some of the
countries where the Company has manufacturing facilities or where its products
are sold. In addition, changes in economic or political conditions in any of
the countries in which the Company operates could result in unfavorable
taxation policies, exchange rates, new or additional currency or exchange
controls, governmental regulations, other restrictions being imposed on the
operations of the Company or expropriation. Accordingly, no assurance can be
given that any of the Company's strategies will prove to be effective or that
management's goals will be achieved. In addition, the Company receives a
substantial portion of its revenues in currencies other than the United States
Dollar. Therefore, the Company's operations may be adversely affected by
significant fluctuations in the value of the United States Dollar in
comparison to local currencies in the countries in which it operates. From
time to time, the Company enters into foreign exchange contracts intended to
reduce the Company's exposure to currency fluctuations for identified
transactions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
PATENTS AND PROPRIETARY TECHNIQUES
The Company has a patent portfolio as well as other proprietary information
and manufacturing techniques and has applied and will continue to apply for,
patents to protect its technology. The Company's success depends in part upon
its ability to protect its technology and proprietary products under United
States and foreign patent and other intellectual property laws. Trade secrets
and confidential know-how which are not patentable are protected through
confidentiality agreements, contractual provisions and internal company
administrative procedures. There can be no assurance that such arrangements
will provide meaningful protection for the Company in the event of any
unauthorized use or disclosure. See "Business--Trademarks and Patents."
TECHNOLOGICAL AND REGULATORY CHANGE
The filtration and separations industry is characterized by changing
technology, competitively imposed process standards and regulatory
requirements, each of which influences the demand for the Company's products
and services. Changes in legislative, regulatory or industrial requirements
may render certain of the Company's filtration and separations products and
processes obsolete. Acceptance of new products may also be affected by
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the adoption of new government regulations requiring stricter standards. The
Company's ability to anticipate changes in technology and regulatory standards
and to develop and introduce new and enhanced products successfully on a
timely basis will be a significant factor in the Company's ability to grow and
to remain competitive. There can be no assurance that the Company will be able
to achieve the technological advances that may be necessary for it to remain
competitive or that certain of its products will not become obsolete. In
addition, the Company is subject to the risks generally associated with new
product introductions and applications, including lack of market acceptance,
delays in development or failure of products to operate properly. See
"Business--Competition" and "--Research and Development and Product
Development."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Commercial Intertech has received opinions of Tax Counsel (as defined below)
to the effect that, among other things, for federal income tax purposes the
Distribution should be tax-free under Section 355 of the Code. These opinions
assume that certain factional representations will continue to be true. There
is, however, no assurance that the Distribution will be considered tax-free by
the Internal Revenue Service (the "IRS"). In addition, if a change of control
of Commercial Intertech or the Company occurs pursuant to a tender offer or
other transaction initiated prior to or in connection with the Spin-off, there
is a significant risk that the Distribution will not be tax-free. See "--
Potential Change of Control of Commercial Intertech." If the Distribution is
not considered a tax-free distribution, Commercial Intertech and certain
shareholders of the Company would be held liable for potentially significant
federal taxes. See "The Distribution--Certain Federal Income Tax Consequences
of the Distribution."
COMPETITION
The filtration and separations markets in which the Company competes are
highly competitive. The Company competes with many domestic and international
companies in its global markets. There can be no assurance that the Company's
products will continue to compete successfully with the products of its
competitors. The principal methods of competition in the markets in which the
Company competes are product specifications, performance, quality, knowledge,
reputation, technology, distribution capabilities, service and price. The
Company is under constant pressure from its customers to increase product
efficiency while reducing cost. The Company has a significant number of
competitors, some of which are larger and have greater financial and other
resources than the Company. See "Business--Market Overview" and "--
Competition."
COMPOSITION OF BOARD OF DIRECTORS AND MANAGEMENT; POTENTIAL CONFLICTS OF
INTEREST
Mark G. Kachur, the Chief Operating Officer of CUNO, has previously served
as an executive officer of Commercial Intertech. Paul J. Powers, the Chairman
of the Board of Directors, President, Chief Executive Officer and Chief
Operating Officer of Commercial Intertech is also Chairman of the Board of
Directors and the Chief Executive Officer of CUNO. Commercial Intertech
anticipates that Mr. Powers will generally devote one-half of his time to the
business of the Company. In addition, four of the six initial members of the
Board are also members of the Commercial Intertech Board of Directors. Two of
the initial members of the Board have not served on the Commercial Intertech
Board of Directors. See "Management." These relationships and the contractual
and other ongoing relationships between the Company and Commercial Intertech
following the Distribution may give rise to potential conflicts of interest
should the interests of the Company and Commercial Intertech be different. The
Distribution and Interim Services Agreement provides that following the
Distribution Date, any corporate opportunity, transaction, agreement or other
arrangement which becomes known to a director or officer of the Company, which
officer or director is also an officer or director of Commercial Intertech or
a subsidiary of Commercial Intertech, shall not be the property or corporate
opportunity of the Company, even if such opportunity, transaction, agreement
or other arrangement relates to the fluid purification business. See
"Arrangements between the Company and Commercial Intertech--Distribution and
Interim Services Agreement."
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ANTI-TAKEOVER CONSIDERATIONS
The Restated Certificate and the Restated Bylaws contain provisions that (i)
limit a stockholder's ability to act by written consent, (ii) provide for a
staggered board of directors, (iii) require an affirmative vote of 80% of the
stockholders entitled to vote to remove directors (who can only be removed for
cause), to amend certain provisions of the Restated Certificate or to repeal
or amend the Restated Bylaws and (iv) allow the Board, without obtaining
stockholder approval, to issue shares of preferred stock having rights that
could adversely affect the voting power and economic rights of holders of the
Common Stock. The Company has also adopted a stockholder rights agreement.
Also, Section 203 of the Delaware General Corporation Law and Rights Agreement
restricts certain business combinations with any "interested stockholder" as
defined by such statute. Any of the foregoing factors may delay, defer or
prevent a change in control of the Company. See "Description of Capital
Stock."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's business strategy depends in part on its ability to effect
acquisitions. Future acquisitions could be financed by internally generated
funds, bank borrowings, public offerings or private placements of equity or
debt securities, a combination of the foregoing or effectuated in stock-for-
stock transactions. There can be no assurance that the Company will be able to
make acquisitions on terms favorable to the Company. If the Company completes
acquisitions, it will encounter various associated risks, including the
possible inability to integrate an acquired business into the Company's
manufacturing systems, increased goodwill amortization, diversion of
management's attention and unanticipated problems or liabilities, some or all
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. For a period of two years after
the Distribution, the Company will not be able to receive "pooling" treatment
for any acquisition.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Information Statement contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this document, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions, as
they relate to the Company or the Company's management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Information Statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected. The Company does not intend to update these forward-
looking statements.
EFFECTS ON COMMERCIAL INTERTECH COMMON SHARES
After the Distribution, the Commercial Intertech Common Shares will continue
to be listed and traded on the New York Stock Exchange. As a result of the
Distribution, the trading prices of Commercial Intertech Common Shares will be
lower than the trading prices of Commercial Intertech Common Shares
immediately prior to the Distribution. The combined trading prices of
Commercial Intertech Common Shares and the Common Stock after the Distribution
may be equal to, less than or greater than the trading prices of Commercial
Intertech Common Shares prior to the Distribution. In addition, until the
market has fully analyzed the operations of Commercial Intertech without the
Company's business, the prices at which the Commercial Intertech Common Shares
trade may fluctuate significantly.
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INTRODUCTION
On July 29, 1996, the Board of Directors of Commercial Intertech (the
"Commercial Intertech Board") has authorized management to proceed with the
Spin-off by declaring the Distribution. The Distribution to holders of
Commercial Intertech Common Shares of all of the outstanding shares of the
Common Stock of the Company will occur on the Distribution Date. At the time
of the Distribution, CUNO will own the assets, liabilities and operations
which prior to the Distribution Date comprise the CUNO Business. See
"Business." On the Distribution Date, Commercial Intertech will effect the
Distribution by delivering all of the outstanding shares of the Common Stock
to the Distribution Agent for distribution to the holders of record of
Commercial Intertech Common Shares at the close of business on the Record
Date. CUNO's principal executive offices are located at 400 Research Parkway,
Meriden, Connecticut 06450, and its telephone number is (203) 237-5541.
Shareholders of Commercial Intertech with inquiries relating to the
Distribution should contact the Distribution Agent, telephone number (800)
756-3353 or Commercial Intertech, 1775 Logan Avenue, Youngstown, Ohio 44505,
telephone number (330) 746-8011. After the Distribution Date, shareholders of
CUNO with inquiries relating to the Distribution or their investment in CUNO
should contact CUNO at the above address and phone number or ChaseMellon
Shareholder Services, L.L.C., CUNO's transfer agent and registrar, at (800)
756-3353.
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THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
On January 23, 1996, at a meeting of the Executive Committee of the
Commercial Intertech Board, the Executive Committee discussed a number of
strategic initiatives with respect to Commercial Intertech, including the
possibility of spinning off the Company or Commercial Intertech's Astron metal
buildings division.
On March 5, 1996, Paul J. Powers, Chairman and Chief Executive Officer of
Commercial Intertech, telephoned Tom Walker of Goldman, Sachs & Co. ("Goldman
Sachs") to brief Goldman Sachs on strategic initiatives being considered by
Commercial Intertech, and requested that Goldman Sachs meet with senior
management of Commercial Intertech on March 22, 1996, to discuss possible
actions to enhance shareholder value.
On March 22, 1996, senior executives of Commercial Intertech met with
Goldman Sachs to discuss possible actions that would enhance shareholder
value. The discussion focused upon the value of the higher growth, higher
multiple business of the Company, the fact that the Company had not previously
received appropriate market recognition because of Commercial Intertech's mix
of lower multiple industrial businesses, the Company's difficulties in
attracting and retaining qualified personnel in light of Commercial
Intertech's existing compensation schemes and the impact on the Company of not
having an appropriate equity currency for acquisitions of other technology
companies. On April 17, 1996, representatives of Goldman Sachs met again with
senior executives of Commercial Intertech. At the April 17 meeting, Goldman
Sachs discussed a broad range of strategic alternatives which could enhance
shareholder value, including a 100% spin-off of certain subsidiaries, an
initial public offering of certain subsidiaries and divestitures.
On April 26, 1996, Commercial Intertech telephoned its legal counsel, Katten
Muchin & Zavis ("Katten Muchin"), and instructed Katten Muchin to assemble a
transaction team to prepare for a proposed spin-off of the Company.
On May 6, 1996, representatives from Goldman Sachs again met with senior
executives of Commercial Intertech. This meeting focused on the alternative of
a 100% spin-off of the Company. Goldman Sachs explained the mechanics of a
spin-off and the market perception of such a transaction. The Company's
ability to make acquisitions using its stock after the spin-off was discussed.
By May 16, 1996, Commercial Intertech was focused upon unlocking shareholder
value through a transaction involving the Company. Representatives from
Goldman Sachs and Katten Muchin met with Commercial Intertech officials on
that date. At that time, Goldman Sachs outlined a series of options with
respect to the Company, including: a 100% spin-off; an up to 20% initial
public offering to be followed by a spin-off; a sale for cash; a sale for
stock; and a leveraged buyout.
On May 21, 1996, the Finance Committee of the Commercial Intertech Board met
with Goldman Sachs and Katten Muchin to discuss strategic alternatives for the
Company. Goldman Sachs made a presentation on three alternatives at that
meeting: an up to 20% initial public offering and a subsequent spin-off, a
100% spin-off and a sale. The discussions focused upon either an up to 20%
public offering to be followed by a spin-off or 100% spin-off.
At a June 18, 1996 Commercial Intertech Board meeting, the Commercial
Intertech Board determined to pursue an up to 20% initial public offering of
the Company, to be followed by a spin-off. The Commercial Intertech Board
concluded that an up to 20% public offering of the Company had certain
potential advantages over an immediate 100% spin-off, which included:
establishing an initial trading market for the Company to enable the Company
to begin developing market recognition; permitting it to develop a following
among analysts in the fluid filtration industry; and generating immediate cash
for Commercial Intertech. The Commercial Intertech Board recognized, however,
that the value inherent in the Company, the ability to attract and retain
qualified personnel and the ability to use the Common Stock as acquisition
currency could only be realized by a
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complete separation of the Company and Commercial Intertech in the near
future. The officers of Commercial Intertech contacted Katten Muchin and
Goldman Sachs to pursue this strategy and prepare a registration statement.
Meetings were scheduled with advisers and potential underwriters.
On June 27, 1996, United faxed to Commercial Intertech a letter, which was
released to the news media on the same day, containing an unsolicited proposal
to acquire Commercial Intertech pursuant to a transaction in which Commercial
Intertech's shareholders would receive $27.00 in cash for the Commercial
Intertech Common Shares.
On June 28, 1996, Commercial Intertech retained Goldman Sachs as its
financial advisor with respect to United's proposal.
At a meeting on June 29, 1996, the Commercial Intertech Board discussed
United's June 27 letter. On June 30, 1996, Commercial Intertech issued a press
release which stated that the Commercial Intertech Board, at its meeting on
June 29, 1996, reaffirmed Commercial Intertech's long-standing objective of
creating shareholder value through Commercial Intertech's core businesses and
indicated that the Commercial Intertech Board would review the United proposal
in consultation with its legal and investment advisers. In addition,
Commercial Intertech announced that, as part of its ongoing strategic plans,
Commercial Intertech was preparing a public offering of up to 20% of the stock
of the Company.
Commercial Intertech continued to prepare for the public offering of the
Company until the first week of July 1996. At that time, however, the
Commercial Intertech Board recognized that, if United's proposal were rejected
and United continued to pursue its proposal, it was unlikely that shareholders
of Commercial Intertech would realize the true value of Commercial Intertech's
investment in the Company. Accordingly, at their meetings on July 8 and July
11, 1996, the Commercial Intertech Board again focused on alternatives for
unlocking the value of the Company and concluded that such value could more
readily be realized through an immediate spin-off.
On July 11, 1996, United and a subsidiary announced an unsolicited tender
offer to purchase all of the outstanding Commercial Intertech Common Shares
for a purchase price of $27.00 per share (the "Original Offer"). On the same
date, the Commercial Intertech Board unanimously determined that the Original
Offer was inadequate and not in the best interests of Commercial Intertech,
its shareholders, employees, customers, suppliers, labor organizations, the
communities in which Commercial Intertech does business and its other
constituencies, and did not adequately reflect the long-term value or
prospects of Commercial Intertech. At that meeting, the Commercial Intertech
Board unanimously determined not to proceed with a planned public offering of
up to 20% of the stock of the Company, but instead to proceed with the
previously considered Spin-off.
On July 15, 1996, the purchase price of the Original Offer was increased to
$30.00 per share (the "Revised Offer").
On July 17, 1996, the Commercial Intertech Board unanimously concluded that
the Revised Offer is inadequate and not in the best interests of Commercial
Intertech, its shareholders, employees, customers, suppliers, labor
organizations, the communities in which Commercial Intertech does business and
its other constituencies, and does not adequately reflect the long-term value
or prospects of Commercial Intertech. At that meeting, the Commercial
Intertech Board unanimously reaffirmed the Company's prior determination to
proceed with the Spin-off.
Commercial Intertech believes that the Distribution will allow investors to
better evaluate the merits of the CUNO Business and the Commercial Intertech's
hydraulic systems and metal products divisions (the "Commercial Intertech
Remaining Businesses"). The Spin-off will increase the long-term value of
Commercial Intertech and its shareholders' investment. Commercial Intertech
also believes that, as a result of the division of Commercial Intertech into
two separate companies, each company will be able to establish better
compensation and incentives for its officers and employees, including,
employee stock and cash incentive plans, that will relate
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directly to the respective company's performance. In addition, the Company
believes the Spin-off will allow it to acquire other companies in the
filtration industry using its Common Stock as consideration as well as have
better access to the capital markets. In the past, such acquisitions were more
difficult because potential targets did not desire to hold Commercial
Intertech Common Shares because its performance was not as directly tied to
the performance of the CUNO Business. The Distribution should also enable
shareholders to benefit in the near term from the value of a higher-growth and
higher-multiple CUNO business, which has not previously received appropriate
market recognition because of Commercial-Intertech's mix of lower multiple
industrial businesses.
Commercial Intertech believes that the two Commercial Intertech Remaining
Businesses and the CUNO Business, require different management experience and
capabilities, due to their distinct marketing and selling techniques and
strategic planning, in order to maximize their respective potential growth.
Commercial Intertech believes that the Distribution will allow the management
of each company to better develop their businesses and will allow the
financial markets to better recognize and evaluate the different growth
characteristics of the two businesses.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution was declared by the Commercial Intertech Board on July 29,
1996 and will be made on the Distribution Date to shareholders of record of
Commercial Intertech as of the close of business on the Record Date. On or
prior to the Distribution Date, share certificates for the Common Stock will
be delivered to the Distribution Agent. Commencing on the Distribution Date,
the Distribution Agent will begin mailing such share certificates to holders
of Commercial Intertech Common Shares as of the close of business on the
Record Date on the basis of one share of the Common Stock for every one
Commercial Intertech Common Share held on the Record Date. All such shares of
the Common Stock will be fully paid and nonassessable and holders thereof will
not be entitled to preemptive rights. See "Description of Capital Stock--
Common Stock."
NO HOLDER OF COMMERCIAL INTERTECH COMMON SHARES WILL BE REQUIRED TO PAY ANY
CASH OR OTHER CONSIDERATION FOR THE SHARES OF THE COMMON STOCK TO BE RECEIVED
IN THE DISTRIBUTION OR TO SURRENDER OR EXCHANGE COMMERCIAL INTERTECH COMMON
SHARES OR TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE THE COMMON STOCK.
The Distribution will not affect the number of, or the rights attaching to,
outstanding shares of Commercial Intertech Common Shares. Certificates
representing outstanding Commercial Intertech Common Shares will continue to
represent rights to purchase Commercial Intertech Common Shares pursuant to
the Rights Agreement, dated as of November 29, 1989 between Commercial
Intertech and The Mahoning National Bank of Youngstown, as rights agent.
No certificates representing fractional shares of the Common Stock will be
issued as part of the Distribution because the distribution ratio is one for
one.
RESULTS OF THE DISTRIBUTION
After the Distribution, Commercial Intertech and the Company will be
separate public companies. The number and identity of holders of the Common
Stock immediately after the Distribution will be substantially the same as the
number and identity of holders of Commercial Intertech Common Shares as of the
Record Date. Immediately after the Distribution, the Company expects to have
3,669 holders of record of the Common Stock and 13,747,432 shares of Common
Stock outstanding, based on the number of holders of record and outstanding
Commercial Intertech Common Shares as of July 23, 1996, and the distribution
ratio of one share of Common Stock for each Commercial Intertech Common Share.
The actual number of shares of Common Stock to be distributed will be
determined as of the Record Date. The Distribution will not affect the number
of outstanding Commercial Intertech Common Shares or any rights of holders of
Commercial Intertech Common Shares.
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LISTING AND TRADING OF THE COMMON STOCK
There is not currently a public market for the Common Stock. Prices at which
the Common Stock may trade prior to the Distribution on a "when-issued" basis
or after the Distribution cannot be predicted. Until the Common Stock is fully
distributed and an orderly market develops, the prices at which trading in
such stock occurs may fluctuate significantly. The prices at which the Common
Stock trades will be determined by the marketplace and may be influenced by
many factors, including, among others, the depth and liquidity of the market
for the Company Common Stock, investor perception of the Company and its
business, the Company's dividend policy and general economic and market
conditions.
An application has been filed for listing the Common Stock on Nasdaq. The
transfer agent and registrar for the Common Stock will be ChaseMellon
Shareholder Services, L.L.C. For certain information regarding options to
purchase the Common Stock that may become outstanding after the Distribution,
see "Management--Compensation of the Board of Directors" and "Management--
Executive Compensation."
Shares of the Common Stock distributed to Commercial Intertech shareholders
in the Distribution will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of the Company under the
Securities Act of 1933, as amended, and the rules promulgated thereunder (the
"Securities Act"). Persons who may be deemed to be affiliates of the Company
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with, the Company, and may
include certain officers and directors of the Company as well as principal
shareholders of the Company, if any. Persons who are affiliates of the Company
will be permitted to sell their shares of Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemption
afforded by Rule 144 under the Securities Act. It is anticipated that after
the Distribution, the Company's directors and executive officers will own, in
the aggregate, 393,949 shares or 2.8% of the Common Stock. See "Ownership of
Common Stock."
It is anticipated that, following the Distribution, the Company will not pay
dividends.
FUTURE MANAGEMENT OF THE COMPANY
Following the Distribution, the Company will have substantially the same
operating management as the current CUNO Business. In addition to Mark G.
Kachur, who is currently President of CUNO and Senior Vice President of
Commercial Intertech and who will be President and Chief Operating Officer of
the Company, Paul J. Powers, who has served as Chairman, President, Chief
Executive Officer and Chief Operating Officer of Commercial Intertech since
1987, will serve as CUNO's Chairman and Chief Executive Officer. The other
executive officers of the Company will also be drawn from the executive
officers of CUNO and the officers and employees of Commercial Intertech. See
"Management--Executive Officers."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Commercial Intertech has received opinions from Katten Muchin & Zavis and
Fried, Frank, Harris, Shriver & Jacobson ("Tax Counsel") attached hereto to
the effect that, among other things, the Distribution should qualify as a tax-
free spin-off under Section 355 of the Code. So long as the Distribution
qualifies under Section 355 of the Code, the material federal income tax
consequences of the Distribution will be as follows:
(i) no gain or loss will be recognized by or be includible in the income
of a holder of Commercial Intertech Common Shares solely as a result of the
receipt of the Common Stock upon the Distribution;
(ii) no gain or loss will be recognized by Commercial Intertech upon the
Distribution of the Common Shares;
(iii) assuming that a holder of Commercial Intertech Common Shares holds
such Commercial Intertech Common Shares as a capital asset, such holder's
holding period for the Common Shares received in the Distribution will
include the period during which such Commercial Intertech Common Shares was
held; and
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(iv) the tax basis of Commercial Intertech Common Shares held by a
Commercial Intertech shareholder immediately prior to the Distribution will
be apportioned (based upon relative fair market values at the time of the
Distribution) between such Commercial Intertech Common Shares and Common
Stock received by such shareholder in the Distribution.
Each shareholder should be aware that the opinions of Tax Counsel are based
upon various factual matters supported by representations of management which
if inaccurate or incomplete, or which subsequently become inaccurate or
incomplete, could eliminate the ability to rely on the opinions. In addition,
an opinion of counsel represents only counsel's best legal judgment and has no
binding effect or official status and no assurance can be given that the IRS
will not take contrary positions or that a court considering the issues would
not hold otherwise. No ruling has been or will be requested from the IRS
concerning the federal income tax consequences of the transaction. Tax Counsel
will not update or reissue their opinions as of the Distribution Date.
If the Distribution does not qualify under Section 355 of the Code, then
Commercial Intertech will be treated as if it sold the stock of CUNO in a
taxable transaction resulting in a substantial tax liability to Commercial
Intertech. In addition, the shareholders who receive the Common Stock in the
Distribution will be treated as if they have received a taxable dividend (to
the extent of Commercial Intertech's accumulated and current earnings and
profits) in the amount of the full fair market value of the Common Stock
received.
The opinions of Tax Counsel are based specifically upon the assumption that
(i) United's tender offer for the outstanding Commercial Intertech Common
Shares is not accepted by the shareholders of Commercial Intertech and (ii)
neither Commercial Intertech nor the Company is acquired in a transaction
after the Distribution which was initiated prior to the Spin-off or that could
reasonably be anticipated to occur as of the Distribution Date. Tax Counsels'
opinions express no view as to the reasonableness of that assumption. If that
assumption proves to be inaccurate, Tax Counsels' opinions may no longer be
relied upon and there is a significant risk that the Distribution will not
qualify as a tax-free distribution under Section 355 of the Code. In addition,
legislation proposed by the Clinton Administration would render the Spin-off
taxable to Commercial Intertech if within two years following the Spin-off
there is a more than 50% change in control transaction involving either
Commercial Intertech or the Company which is related to the Spin-off. The
explanation to the proposed legislation indicates that a hostile acquisition
commenced before the Spin-off occurs may be related. The Clinton
Administration proposed that this legislation apply to all transactions
occurring after March 19, 1996, although Congressional leaders have indicated
that it would not be effective until after appropriate Congressional action.
Stockholders who acquire the Common Stock after the Spin-off will not have any
individual federal tax obligation with respect to this potential liability.
However, such new stockholders will be impacted by the effect, if any, on
CUNO's earnings, financial condition and results of operations from such tax
liabilities. See "Arrangements between the Company and Commercial Intertech--
Tax Allocation Agreement."
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION
ONLY. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND AS TO POSSIBLE CHANGES
IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
As soon as practicable following the Distribution, information with respect
to the allocation of tax basis between the Common Stock and the Commercial
Intertech Common Shares will be made available to the holders of Commercial
Intertech Common Shares.
CONDITIONS; TERMINATION
The Distribution is subject to there not being in effect on the Distribution
Date any injunction, order or decree of any court or any governmental
authority which prohibits or makes illegal the Distribution. See "Arrangements
Between the Company and Commercial Intertech--Distribution Agreement."
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Commercial Intertech solely
to provide information to holders of Commercial Intertech Common Shares who
will receive Common Stock in the Distribution. It is not, and is not to be
construed as, an inducement or encouragement to buy or sell any securities of
Commercial Intertech or the Company. The information contained herein is given
as of the date of this Information Statement unless otherwise indicated.
15
<PAGE>
ARRANGEMENTS BETWEEN THE COMPANY AND COMMERCIAL INTERTECH
For the purpose of governing certain of the relationships between the
Company and Commercial Intertech relating to the Distribution, and to provide
mechanisms for an orderly transition, the Company and Commercial Intertech
will enter into the various agreements described in this section. The
agreements summarized below have been filed as exhibits to the Form 10, of
which this Information Statement is a part, and the following summaries are
qualified in their entirety by reference to the agreements as filed.
DISTRIBUTION AND INTERIM SERVICES AGREEMENT
The Company and Commercial Intertech will enter into a distribution and
interim services agreement (the "Distribution and Interim Services Agreement")
providing for, among other things, the principal corporate transactions
required to effect the separation of the CUNO Business from the Commercial
Intertech Remaining Businesses and the Distribution, and certain other
agreements governing the relationship between the Company and Commercial
Intertech with respect to or in consequence of the Distribution.
Subject to certain exceptions, the Distribution and Interim Services
Agreement provides for certain cross-indemnities (including an indemnity of
Commercial Intertech by the Company with respect to certain financial
guarantees by Commercial Intertech) principally designed to place financial
responsibility for the liabilities of the Company and its subsidiaries with
the Company, and financial responsibility for the liabilities of Commercial
Intertech and its other subsidiaries with Commercial Intertech. In addition,
the Distribution and Interim Services Agreement provides that each of the
Company and Commercial Intertech will indemnify the other in the event of
certain liabilities arising under the Securities Exchange Act of 1934, as
amended (the "1934 Act").
The Distribution and Interim Services Agreement also provides for the
allocation of benefits between Commercial Intertech and the Company under
existing insurance policies after the Distribution Date, and sets forth
procedures for the administration of insured claims. In addition, the
Distribution and Interim Services Agreement provides that Commercial Intertech
will use reasonable efforts to maintain directors and officers insurance at
substantially the level of Commercial Intertech's current directors and
officers insurance policy for a period of three years with respect to the
directors and officers of Commercial Intertech who will become directors and
officers of the Company as of the Distribution Date for acts relating to
periods prior to the Distribution Date.
The Distribution and Interim Services Agreement provides that, in general,
except as otherwise set forth therein, in the Tax Allocation Agreement and in
the Benefits Agreement (as defined below), all costs and expenses related to
the Distribution will be paid by Commercial Intertech.
The Distribution and Interim Services Agreement provides that certain
services which have historically been provided to the Company by Commercial
Intertech will continue to be provided to the Company following the
Distribution Date, at rates specified in such agreement, for a period up to
twelve (12) months following the Distribution Date, with certain exceptions.
In addition, the Distribution and Interim Services Agreement provides that
following the Distribution Date, any corporate opportunity, transaction,
agreement or other arrangement which becomes known to a director or officer of
the Company, which officer or director is also an officer or director of
Commercial Intertech or subsidiary of Commercial Intertech, shall not be the
property or corporate opportunity of the Company, even if such opportunity,
transaction, agreement or other arrangement relates to the fluid purification
business.
The Distribution and Interim Services Agreement provides that the
Distribution will not be made until all of the following conditions are
satisfied or waived by the Commercial Intertech Board in its sole discretion:
the later of August 19, 1996 or the earliest practicable date following
approval by Nasdaq of the Common Stock
16
<PAGE>
for trading thereon and the commencement of trading. The Distribution is
subject to there not being in effect on the Distribution Date any injunction,
order or decree of any court or any governmental authority which prohibits or
makes illegal the Distribution.
TAX ALLOCATION AGREEMENT
Through the Distribution Date, the results of the operations of the CUNO
Business have been and will be included in Commercial Intertech's domestic and
foreign income tax returns. As part of the Distribution, the Company and
Commercial Intertech will enter into a tax sharing agreement (the "Tax
Allocation Agreement") which provides, among other things, for the allocation
between the parties thereto of federal, state, local and foreign tax
liabilities for all periods through the Distribution Date. In general, the Tax
Allocation Agreement provides that the Company will be liable for United
States federal, state, local and foreign tax liabilities, including any such
liabilities resulting from an audit or other adjustment to previously filed
tax returns, which are attributable to the Company through the Distribution
Date, and that Commercial Intertech will be responsible for all such taxes of
Commercial Intertech (excluding the Company). In addition all taxes (other
than as described below) attributable to or occasioned by the separation of
the CUNO Business and the Commercial Intertech Remaining Business and the
Distribution shall be CUNO's responsibility.
The Tax Allocation Agreement also allocates between the Company and
Commercial Intertech liability for any taxes which arise solely because the
Distribution does not qualify as tax-free under Section 355. Under the Tax
Allocation Agreement, if the Distribution is determined to be taxable because
a change of control of Commercial Intertech occurs, then the resulting tax
liability shall be borne solely by Commercial Intertech. If the Distribution
is determined to be taxable because of a change of control of the Company,
then the resulting tax liability shall be borne solely by CUNO. Under the Tax
Allocation Agreement, each of Commercial Intertech and the Company will make
certain representations, warranties and covenants to the other party in order
to preserve the tax-free nature of the Distribution. To the extent that either
party violates such representations, warranties or covenants, then the party
in such breach shall be solely liable for the tax liability resulting
therefrom. If a tax liability arises in connection with the Distribution for
any reason not set forth above, then such liability shall be borne equally by
Commercial Intertech and the Company.
Though valid as between the parties thereto, the Tax Allocation Agreement is
not binding on the IRS or other governmental tax authorities and does not
affect the joint and several liability of the Company, Commercial Intertech
and their respective subsidiaries for all federal taxes of the consolidated
group or other income taxes relating to periods prior to the Distribution
Date.
EMPLOYEE BENEFIT AGREEMENT
Commercial Intertech and the Company will enter into an employee benefits
and compensation allocation agreement (the "Benefits Agreement") providing for
the treatment of employee benefit matters and other compensation arrangements
for certain former and current Company employees and their beneficiaries and
dependents, as well as certain former employees of certain former Company
businesses and their beneficiaries and dependents (collectively, the "Company
Participants").
The Benefits Agreement contemplates that the Company will establish certain
pension, retirement savings and welfare plans effective on or before the
Distribution Date which will be similar to the benefit plans currently
maintained by Commercial Intertech, but, without an employee stock ownership
plan feature. The Benefits Agreement provides that the Company's new base
retirement plan will assume all liabilities under the Commercial Intertech
base retirement plan related to all the Company Participants and that plan
assets related to such liabilities will be transferred to the Company's base
retirement plan. The Benefits Agreement provides that after the Distribution
Date the Company will assume all liabilities for benefits under any welfare
plans related to the Company Participants. The Benefits Agreement also
provides that, subject to receipt of any necessary consents, any stock options
for Commercial Intertech Common Shares, Commercial Intertech restricted stock
and other Commercial Intertech stock-based awards held by the Company
employees and the Company
17
<PAGE>
non-employee directors who are not also directors of Commercial Intertech, and
half of such options held by the Company non-employee directors who are also
directors of Commercial Intertech will, as of the Distribution Date, be
replaced with stock options, restricted stock or other stock-based awards, as
the case may be, for Common Stock, in each case adjusted so that the value
thereof after the Distribution Date will equal the value of the replaced award
before the Distribution Date. Finally, the Benefits Agreement provides that,
effective as of the Distribution Date, the Company will become responsible for
all other liabilities to the Company Participants (including, without
limitation, unfunded supplemental retirement benefits).
FINANCING
As reflected in the audited balance sheets for the Company at October 31,
1994 and 1995, the Company has had limited direct third-party indebtedness and
historically has relied on internally generated funds and funds provided by
Commercial Intertech to finance its operations. However, after the
Distribution, Commercial Intertech will no longer provide funds to finance the
Company's operations.
In connection with the Distribution, the Company will assume $30 million of
Commercial Intertech's debt and Commercial Intertech will be released from all
obligations in connection with such debt while retaining the proceeds from
such debt. The Company will not receive any proceeds from the debt assumed.
In connection with the Distribution, the Company has declared to Commercial
Intertech a $35.7 million dividend. Additionally, the Company has a $27.1
million receivable from Commercial Intertech, both of which are expected to be
paid within one year of the Distribution Date. The Company intends to fund the
payment of the dividend primarily from proceeds from the $27.1 million
receivable from Commercial Intertech. The remaining cash payment is expected
to be funded through the Company's internally generated cash flow or existing
unused lines of credit in various foreign countries.
In connection with the Distribution, the Company has received a commitment
from Mellon Bank, N.A., (the "Bank") to provide a credit facility (the "CUNO
Facility") for an aggregate borrowing availability of up to $55 million to the
Company, consisting of a $30 million term facility and a $25 million revolving
facility. The CUNO Facility will be secured by all the domestic assets and 65%
of the stock of the foreign affiliates of the Company and expires on January
30, 1998. The term facility will be completely drawn down immediately after
the Distribution and the proceeds used to repay the $30 million debt assumed
from Commercial Intertech. Therefore, after the Distribution, the Company will
have $30 million drawn under the term facility and nothing drawn under the
revolving facility. The Company may directly or indirectly be required to use
a portion of the CUNO Facility to meet its obligations discussed above.
Borrowings under the CUNO Facility will bear interest at a rate equal either
to the Bank's base rate or the prevailing London Interbank Offered Rate, plus,
in each case, a certain margin, based upon the date of borrowing. If the
Company requires issuance of a letter of credit, a fee will be charged
concurrently with such issuance. The Company also will be required to pay a
commitment fee based upon the unused portion of the revolving credit facility
during the term of the loan.
The CUNO Facility will contain customary representations and warranties and
events of default and require compliance with certain covenants by the
Company, including, among other things: (i) maintenance of certain financial
ratios and compliance with certain financial tests and limitations; (ii)
limitations on the payment of dividends, incurring of additional indebtedness
and granting of certain liens and (iii) restrictions on mergers, acquisitions,
asset sales, capital expenditures and investments.
18
<PAGE>
PRO FORMA CAPITALIZATION
The table below sets forth the capitalization of the Company as of April 30,
1996 and as adjusted to give effect to the Distribution. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements and
notes thereto and pro forma condensed combined financial statements included
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
(IN THOUSANDS)
AS OF APRIL 30, 1996
-----------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
Cash........................................ $ 5,521 $ 5,521
======== =======
Dividend Payable............................ $ -- $ 35,675 (5) $35,675
======== =======
Short-Term Debt............................. $ 12,962 $12,962
======== =======
Long-Term Debt.............................. $ 3,484 $ 30,000 (2) $33,484
Shareholder's Equity........................ 108,696 (30,000)(2) --
(2,500)(3)
(40,521)(4)
(35,675)(5)
As Adjusted Stockholders' Equity:
Preferred Stock, $.001 par value; no
shares authorized actual, 2,000,000
shares authorized as adjusted; no shares
issued and outstanding actual and as
adjusted.................................
Common Stock, $.001 par value; 50,000,000
shares authorized; 13,747,432 shares
issued and outstanding as adjusted(1).... -- 14 (4) 14
Additional Paid-in-Capital................ -- 40,507 (4) 40,507
-------- -------
108,696 40,521
Translation Adjustments..................... 5,710 5,710
-------- -------
Total Shareholder's Equity.............. 114,406
Total Stockholders' Equity.............. 46,231
-------- -------
Total Capitalization................... $117,890 $79,715
======== =======
</TABLE>
- --------
(1) Excludes (i) 314,000 shares of Common Stock issuable upon exercise of
options to be granted upon the Distribution, (ii) 192,000 shares of Common
Stock to be issued upon the achievement of certain performance goals, and
(iii) 694,000 shares of Common Stock reserved for issuance upon exercise
of options that may be granted in the future under the Stock Option Plans.
See "Management--Stock Option Plans".
(2) Reflects the allocation of $30 million of Commercial Intertech long-term
debt to the Company which will be replaced immediately with the $30
million term facility from Mellon Bank, N.A.
(3) Reflects the capital gain tax of approximately $2.5 million incurred
because the Distribution is considered a change in the ownership group of
CUNO Pacific Pty., Ltd. under Australian tax law. The Tax Allocation
Agreement provides for the payment of the capital gain tax by the Company.
(4) Reflects the issuance of 13,747,432 shares of Common Stock.
(5) Reflects the dividend of $35.7 million declared by the Company and payable
to Commercial Intertech in connection with the Distribution. See
"Financing."
19
<PAGE>
PROJECTIONS
UNCERTAINTY OF PROJECTIONS
The Company was the sole preparer of the projected financial information
(the "Projections") set forth herein, which was prepared as of the date of the
Information Statement. The Projections are based on the Company's estimated
results of operations for the Company under the hypothetical assumptions
described in "--Assumptions." The Company does not intend to update or
otherwise revise the Projections to reflect events or circumstances existing
or arising after the date of the Information Statement or to reflect the
occurrence of unanticipated events, even if any or all of the underlying
assumptions do not prove to be valid. Furthermore, the Company does not intend
to update or revise the Projections to reflect changes in general economic or
industry conditions. These Projections are qualified in their entirety by and
should be read in conjunction with the information and financial statements
(and notes thereto) included in this Information Statement. Neither Ernst &
Young LLP, independent auditors for the Company, nor any other firm has
examined or provided any other form of assurance on the Projections and,
consequently, neither Ernst & Young LLP nor any other person has reviewed or
assumes any responsibility for the Projections.
GENERAL
The Company does not as a matter of course publicly disclose projected
financial information but prepared the projected financial information
included in this Information Statement in connection with the Distribution.
The Projections were prepared by the Company and are qualified by and subject
to the assumptions set forth below and the other information contained herein.
The Projections were not prepared with a view toward compliance with published
guidelines of the Commission, the American Institute of Certified Public
Accountants or any other regulatory or professional agency or body, generally
accepted accounting principles or consistency with the Company's audited
financial statements. In addition, Ernst & Young LLP, the independent auditors
for the Company, has neither compiled nor examined the Projections and,
accordingly, does not express any opinion or any other form of assurance with
respect to, assumes no responsibility for, and disclaims any association with,
the Projections. The Projections should be read together with the information
contained under the headings "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
the financial statements and related notes thereto included in this
Information Statement.
Upon declaration of effectiveness of the Form 10, of which this Information
Statement is a part, the Company will become subject to the informational
requirements of the 1934 Act and, in accordance therewith, will file periodic
reports and other information with the Commission relating to the Company's
business, financial statements and other matters. Such filings will not
include projected financial information. The assumptions described herein are
those that the Company believes are most significant to the Projections;
however, not all of the assumptions used in preparing the Projections have
been set forth herein.
THE PROJECTIONS ARE BASED UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES THAT,
WHILE PRESENTED WITH NUMERICAL SPECIFICITY AND CONSIDERED REASONABLE BY THE
COMPANY WHEN TAKEN AS A WHOLE, INHERENTLY ARE SUBJECT TO SIGNIFICANT BUSINESS,
ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY, AND ARE BASED UPON SPECIFIC ASSUMPTIONS
WITH RESPECT TO FUTURE BUSINESS DECISIONS, SOME OR ALL OF WHICH WILL CHANGE.
PROJECTIONS ARE NECESSARILY SPECULATIVE IN NATURE AND IT CAN BE EXPECTED THAT
THE ASSUMPTIONS OF THE PROJECTIONS WILL NOT PROVE TO BE VALID. SEE "RISK
FACTORS." ACCORDINGLY, THE PROJECTIONS ARE ONLY AN ESTIMATE. ACTUAL RESULTS
WILL VARY FROM THE PROJECTIONS AND THE VARIATIONS MAY BE MATERIAL.
CONSEQUENTLY, THIS INFORMATION STATEMENT SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON OF RESULTS THAT WILL
ACTUALLY BE ACHIEVED.
20
<PAGE>
METHODOLOGY
Revenues were projected based on the Company's estimates of volumes of
shipments of the Company's products, changes in the Company's product mix and
pricing assumptions for the projected periods. Projected costs were developed
by the Company after reviewing each process component of the Company's
operations such as raw material purchasing, as well as its corporate functions
such as sales and marketing, human resources, and accounting and finance,
among others. The projections do not include extraordinary or nonrecurring
charges arising in connection with the Distribution. The shares used to
calculate pro forma net income per share have been calculated on the
assumption that preferred shares of Commercial Intertech do not convert into
Commercial Intertech Common Shares prior to the Distribution.
PROJECTION PERIODS PRESENTED
The Company's Projections are for 1996 and 1997.
The following table sets forth financial projections and other data for 1996
and 1997. The data has been prepared in accordance with pro forma and
historical financial statements presented elsewhere herein. The projections
were compiled by each of the Company's operating groups and reviewed and
adjusted by management. Current prevailing foreign exchange rates were used in
translating projected results of the international operations.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1993 1994 1995 1995 PRO 1996 1997
ACTUAL ACTUAL ACTUAL FORMA FORECAST FORECAST
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............. $130,771 $143,111 $162,699 $162,699 $182,346 $202,149
Gross Profit.......... 40,605 50,604 62,927 62,927 72,530 85,345
Operating Income
(Loss)............... (1,678) 4,978 10,840 10,840 17,183 21,820
Interest Expense...... (281) (706) (691) (3,241) (2,725) (2,660)
Other (Expense)
Income--Net.......... (590) (2,229) (586) (586) (5) (450)
Income (Loss) Before
Income Taxes......... (2,549) 2,043 9,563 7,013 14,453 18,710
Net Income (Loss)..... (701) 1,807 6,101 4,553 9,441 11,282
Pro Forma Net Income
Per Share............ $0.33 $0.69 $0.82
Shares Used to
Calculate Pro Forma
Net Income Per
Share................ 13,747 13,747 13,747
Note: Excludes Extraordinary And Nonrecurring Charges Resulting From The
Distribution
OTHER DATA:
Depreciation and
Amortization......... $ 7,644 $ 8,154 $ 7,929 $ 7,929 $ 6,663 $ 7,297
Capital Expenditures.. 3,245 2,927 5,234 5,234 8,805 10,500
BALANCE SHEET DATA:
Working Capital....... $ 36,541 $ 42,227 $ 49,174 $ 10,999 $ 16,259 $ 20,300
Total Assets.......... 145,952 153,071 162,827 162,827 171,593 163,602
Long-Term Debt,
Excluding Current
Maturities........... 5,580 5,175 4,060 34,060 32,415 28,421
Stockholders' Equity.. 103,743 106,466 112,189 44,014 53,455 64,737
</TABLE>
ASSUMPTIONS
In developing the Projections, the Company has made certain assumptions
relating to its business. The major assumptions pertaining to its markets,
sales, prices, strategy and costs, selling, general and administrative
expenses, interest expense, taxes and capital expenditures are outlined below.
In addition, the Company did not take into account when formulating the
Projections the effect of unforeseeable events such as labor disputes, new
technologies or competitors, material changes in political or economic
conditions, changes in legislation or regulations, or any changes in generally
accepted accounting principles, the result of any of which alone or in the
aggregate may have a material effect on the Company's business, financial
condition, results of operations or prospects.
21
<PAGE>
Economic conditions vary widely among the countries in which the Company
conducts business. Assessments of local economic factors have been used
independently to forecast sales and financial results for each business unit.
Taken as a whole, economic growth is generally expected to range from 3% to 5%
per annum over the forecast period. The balance of the anticipated growth in
sales derives from industry-specific factors, expectations for continued
success in market penetration strategies and full realization of the business
potential from introductions of new products.
Net sales are expected to increase to $182.3 million in 1996, representing
an increase of nearly $20 million or 12% over the previous year. Most of the
year-over-year gain is expected to occur in the domestic market segment where
sales are projected to be higher by $12.6 million or 17% in 1996. This growth
is largely projected to be driven by increased demand from customers in the
pharmaceutical and electronics industries. More modest growth rates are
anticipated in the coatings, chemical and petrochemical industry segments over
1995 rates. Further sales gains are expected to be derived from new charged
and uncharged nylon membrane separations technologies recently developed for
customers in the diagnostic products industry. Sales growth for these
diagnostic products is expected to accelerate substantially in 1997. Potable
water sales in the United States are expected to be greater than those in 1995
by 8% due, principally, to the fast-growing food service industry segment.
Sales growth in Australia will be hampered by weak industry conditions while
sales are expected to increase dramatically in Pacific Rim/Asian countries as
a result of strong demand in the electronics industry and general market
penetration. Aggressive market expansion strategies are also responsible for a
projected increase in 1996 for operating units in Brazil and Europe. Sales are
likely to be flat in Japan for 1996 as a result of its relatively stagnant
economy.
Continued growth is projected in all business units for 1997 as sales are
expected to reach $202.1 million for an increase of nearly 11% over projected
net sales for 1996. Accelerating shipments for process filtration products and
a steady climb in demand for consumer products are expected to result in a 12%
increase in domestic sales over those in 1996. Prospects for significant sales
growth in Australia during fiscal year 1997 are less certain, but expectations
for another double-digit growth year in Pacific Rim/Asia and moderate
increases in sales for Brazil and Europe are projected to yield an improvement
in combined overseas sales of 9% when compared to the previous year.
Operating income is forecasted to reach $17.2 million in 1996 representing
an increase over 1995 of $6.3 million or 59%. Operating income is expected to
advance further to $21.8 million in 1997 for a year-over-year increase of 27%.
During this period, the Company projects gross profit to improve continually
from 38.7% of net sales in 1995, to 39.8% in 1996 and 42.2% in 1997. Gains in
projected profit margins will derive principally from increased sales volumes,
higher margins for new product introductions, improved manufacturing processes
for certain operations in the United States and enhanced profitability from
the Company's direct marketing strategies recently implemented in Europe.
Selling, administrative and general expenses will rise in absolute terms
throughout the period as the Company continues its strategic program to
enhance marketing, technical and product development capabilities. Operating
profit margins are expected to improve to 9.4% of sales in 1996 and 10.8% in
1997.
Projected interest expense of $2.7 million in 1996 and 1997 reflects
additional debt assigned to the Company as part of the Distribution. The
effective tax rate is projected to increase in 1997 due to reduced benefits
from utilization of tax loss carryforwards in Brazil and a general increase in
the proportionate share of income earned in higher tax jurisdictions.
Capital expenditures are projected to increase to $8.8 million in 1996 and
$10.5 million in 1997 as the Company invests in manufacturing equipment,
tooling, administrative support systems and cost saving programs necessary to
achieve the revenue growth and margin improvements forecasted for the period.
22
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data of the
Company. The selected balance sheet data as of October 31, 1994 and 1995 and
the selected income statement data for the years ended October 31, 1993, 1994
and 1995 are derived from combined financial statements of the Company which
have been audited by Ernst & Young LLP, independent auditors. The selected
balance sheet data as of October 31, 1991, 1992 and 1993; the selected income
statement data for the years ended October 31, 1991 and 1992; the selected
balance sheet data as of April 30, 1996 and the selected income statement data
for the six month periods ended April 30, 1995 and 1996 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six months
ended April 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending October 31, 1996. The data should be read
in conjunction with the combined financial statements, related notes, other
financial information, pro forma capitalization and pro forma condensed
combined financial statements and other financial information included herein
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
----------------------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
-------- -------- -------- -------- -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DA-
TA(2):
Net Sales.............. $131,019 $128,195 $130,771 $143,111 $162,699 $162,699 $77,343 $ 86,094 $ 86,094
Gross Profit........... 44,337 38,383 40,605 50,604 62,927 62,927 28,921 34,208 34,208
Operating Income
(Loss)................ 5,946 (2,538) (1,678) 4,978 10,840 10,840 4,692 7,624 7,624
Interest Expense....... (1,353) (1,638) (281) (706) (691) (3,241) (421) (199) (1,474)
Other (Expense)
Income--Net........... (528) (638) (590) (2,229) (586) (586) (212) 56 56
Income (Loss) Before
Income Taxes.......... 4,065 (4,814) (2,549) 2,043 9,563 7,013 4,059 7,481 6,206
Net Income (Loss)...... 1,209 (4,300) (701) 1,807 6,101 4,553 2,657 5,102 4,328
PRO FORMA PER SHARE DA-
TA:
Net Income Per Share... $.33 $.31
Shares Used to
Calculate Net Income
Per Share(3).......... 13,747 13,747
OTHER DATA:
Depreciation and
Amortization.......... $ 8,552 $ 8,276 $ 7,664 $ 8,154 $ 7,929 $ 7,929 $ 3,850 $ 3,818 $ 3,818
Capital Expenditures... 8,554 6,729 3,245 2,927 5,234 5,234 2,754 2,408 2,408
<CAPTION>
OCTOBER 31, PRO FORMA
------------------------------------------------ APRIL 30, APRIL 30,
1991 1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital........ $ 41,903 $ 35,784 $ 36,541 $ 42,227 $ 49,174 $ 52,437 $ 14,262(4)
Total Assets........... 153,524 151,135 145,952 153,071 162,827 167,200 167,200
Short-Term Debt........ 7,296 8,582 9,031 9,972 10,440 12,962 12,962
Long-Term Debt,
Excluding Current
Maturities............ 6,450 4,418 5,580 5,175 4,060 3,484 33,484(5)
Total Shareholder's
Equity................ 111,910 107,314 103,743 106,466 112,189 114,406 46,231(6)
</TABLE>
- -------
(1) Adjusts actual interest expense to reflect the interest expense on the $30
million of long-term debt allocated to the Company from Commercial
Intertech, which will be replaced immediately with the $30 million term
facility from Mellon Bank, N.A., based on an 8.5% per annum interest rate,
as if it had been outstanding for the entire period, and adjusts net
income for the interest expense, net of the related federal and state
taxes. Interest rates under the term facility will be variable with each
1/8% point movement in the interest rate resulting in a change in annual
interest expense of $37,500 ($22,800, net of tax) based on the $30 million
term facility balance. Does not include the capital gain tax of
approximately $2.5 million, incurred because the Distribution is
considered a change in the ownership group of CUNO Pacific Pty., Ltd.
under Australian tax law, as the capital gain tax results directly from
the Distribution and is a nonrecurring charge.
(2) Operating income has been reduced by an amount equal to the Company's
estimate of the charges and expenses the Company would have incurred
during those time periods presented as if it had operated as a separate,
stand-alone entity.
(3) Shares based on 13,747,432 Commercial Intertech shares outstanding as of
July 23, 1996 and on a distribution of one share of Common Stock for each
Commercial Intertech Common Share.
(4) Adjusts working capital to reflect the dividend, as if the Distribution
occurred as of April 30, 1996, of $35.7 million declared by the Company
and payable to Commercial Intertech and the capital gain tax of
approximately $2.5 million, incurred because the Distribution is
considered a change in the ownership group of CUNO Pacific Pty., Ltd.
under Australian Law.
(5) Adjusts long-term debt to reflect, as if the Distribution occurred as of
April 30, 1996, the allocation of $30 million of long-term debt from
Commercial Intertech to the Company, which will be replaced immediately
with the $30 million term facility from Mellon Bank, N.A.
(6) Adjusts total shareholder's equity to reflect, as if the Distribution
occurred as of April 30, 1996, the allocation of $30 million of long-term
debt described in (5) above, the dividend of $35.7 million and the $2.5
million capital gain tax described in (4) above.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's combined financial statements, accompanying
notes thereto and other financial information appearing elsewhere in this
Information Statement. The following presentation contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this Information Statement.
OVERVIEW
The Company's financial results improved significantly in fiscal years 1994
and 1995 and the first six months of 1996. This favorable trend results from a
number of business initiatives begun in 1994 by the new senior management
team. These initiatives include developing new products for specific markets,
decreasing product development cycle times, developing pre/final filter
systems, increasing customer focus and improving operating efficiencies.
The Company's products are used in health care, fluid processing and potable
water markets. The main driver of worldwide industry growth in these markets
is the need to eliminate unwanted contaminants to ensure safe, consistent
products or services. This need has taken on increasingly larger importance as
the quality of the world's resources deteriorates, population growth
continues, world industrialization progresses, global manufacturing becomes
the norm, detection levels improve, global quality standards are demanded and
environmental consciousness grows.
The Company believes that a broad and diverse customer base and its
geographic diversity generally insulates it from the adverse effects of
softening demand in any one market segment. The Company receives a substantial
portion of its revenues in foreign currencies. Therefore, the Company's
operations may be affected by significant fluctuations in the value of the
United States Dollar. This is especially true with regard to the Company's
sales in Japan because products for that major market are manufactured in the
United States.
Selling price increases are implemented regularly by the Company to cover
rising costs for wages, benefits, raw materials, purchased components and
other operating needs, but the continuing trend of competitive pressures and
price resistance in the marketplace can sometimes limit the extent to which
cost increases can be passed along to customers in established product lines.
Consequently, the Company relies upon economies of scale efficiencies,
productivity improvements and cost saving measures to offset any shortfall in
price increases and to successfully maintain or improve profit margins.
The Company's increased profitability is principally attributable to
operating cost leverage resulting from increasing revenue on a controlled
fixed cost base and a change in the product mix to higher margin membrane
products. The Company's selling, administrative and general expenses have
increased in absolute dollar terms to support the Company's increased sales
effort, while generally decreasing as a percentage of net sales.
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED APRIL
OCTOBER 31, 30,
-------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Products Sold....................... 68.9 64.6 61.3 62.6 60.3
----- ----- ----- ----- -----
Gross Profit................................ 31.1 35.4 38.7 37.4 39.7
Selling, Administrative and General......... 32.4 31.9 32.0 31.3 30.8
----- ----- ----- ----- -----
Operating Income (Loss)..................... (1.3) 3.5 6.7 6.1 8.9
Other (Expense) Income--Net................. (0.6) (2.1) (0.8) (0.9) (0.2)
----- ----- ----- ----- -----
Income (Loss) Before Income Taxes........... (1.9) 1.4 5.9 5.2 8.7
Provision (Benefit) for Income Taxes........ (1.4) 0.1 2.1 1.8 2.8
----- ----- ----- ----- -----
Net Income (Loss)........................... (0.5)% 1.3% 3.8% 3.4% 5.9%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended April 30, 1996 Compared To Six Months Ended April 30, 1995
Net Sales. Net sales increased $8.8 million, or 11% (12 percent after
adjusting for exchange rate differences). Increased demand from customers in
the pharmaceutical, biomedical, and electronics industry segments contributed
heavily to a 12% improvement in United States revenues while aggressive
marketing strategies and favorable business conditions were responsible for a
17% increase in sales for the Company's operations in Europe when compared to
the prior period. Elsewhere, moderate sales increases were posted in Japan and
Brazil, but revenues were flat in Australia as a result of weak industry
conditions.
Gross Profit. Gross profit increased $5.3 million, or 18%. Gross margins
increased from 37.4% to 39.7%. The increases primarily reflect the increased
sales volumes, higher profit margins for new product introductions and
improved manufacturing processes for certain of the Company's United States
operations. Gross profit margins equalled or exceeded those in the prior
period for all locations except Japan where the impact of a weaker Yen on
imported material caused gross profit margins to decline in 1996.
Selling, Administrative and General Expense. Selling, administrative &
general expenses increased $2.4 million, or 10%, but as a percentage of net
sales, decreased from 31.3% to 30.8%. The decrease in selling, general and
administrative expenses as a percentage of net sales reflects the effect of
increased sales volume partially offset by general cost increases.
Nonoperating Expense. Nonoperating expense decreased from $663,000 in 1995
to $143,000 in 1996. Included in nonoperating income for the first six months
of 1996 is a $100,000 pre-tax gain on the sale of certain property. The
balance of the decrease is primarily due to the decrease in interest expense.
Interest Expense. Interest expense decreased by $222,000, or 52.7%. The
decrease reflects a general decline in effective rates paid on short-term
borrowings and the refinancing of long-term debt in Japan at a lower interest
rate.
Income Taxes. The Company's effective tax rate decreased from 35% to 32%.
The decline resulted from utilization of tax loss carryforwards in Brazil and
proportionately lower income earned in Japan's high tax jurisdiction.
Backlog. Incoming orders for the first half of 1996 were 14% higher than the
same period in 1995 on a parity-adjusted basis. Bookings were higher at all
locations, but most of the year-over-year increase occurred in the United
States where growing demand in the Company's core product lines combined with
new product
25
<PAGE>
introductions for the biomedical industry to push incoming orders 17% above
those in the first half of 1995. The backlog of unfilled orders as of April 30
was 7% higher than the backlog at the beginning of the year.
Year Ended October 31, 1995 Compared To Year Ended October 31, 1994
Net Sales. Net sales increased $19.6 million, or 14%. The increases came
from the continued strength in the United States economy and improved business
conditions for most of the overseas units. Net sales in the United States were
up 4% over the previous year as a mild recovery in the chemical and industrial
processing industry segment enabled the Company to achieve moderate sales
growth in 1995. Sales for the combined overseas operations were up 13% from
the previous year on a parity-adjusted basis with year-over-year improvements
occurring in all of the business units. Sales growth was particularly strong
in Brazil and Europe where sales were up 25% and 15%, respectively, over the
previous year.
Gross Profit. Gross profit increased $12.3 million, or 24%. Gross profit
margins increased from 35.4% to 38.7%. Contributing factors were dramatically
improved results in the consumer water division resulting from higher selling
prices and improved efficiencies following completion of a program to
consolidate manufacturing facilities, and disposal of the unprofitable
ultrafiltration product line late in fiscal year 1994. Also contributing were
the highest operating income in five years for the European operations as a
result of increased demand, concurrent gains in manufacturing efficiencies,
and strong profit margins from changes in distribution and marketing
strategies. Gross profit margins held relatively steady at 38.5% in Japan as
lower costs for imported material resulting from a strong Yen were negated by
price discounting to meet competitive challenges in the marketplace. Gross
margins were lower in Brazil as business conditions deteriorated during the
latter half of the fiscal year 1995 in response to government fiscal policies
designed to restrict the local economy and keep inflation in check.
Selling, Administrative and General Expenses. Selling, administrative &
general expenses increased $6.5 million, or 14%, and as a percentage of net
sales, increased from 31.9% to 32.0%. This increase is a result of the
strategic initiatives begun in 1994 to upgrade the research, technical and
marketing capabilities of the Company.
Nonoperating Expense. Nonoperating expenses decreased from $2.9 million in
1994 to $1.3 million in 1995. Included in this category for 1994 is a $1.1
million loss incurred on the sale of CUNO's unprofitable ultrafiltration
product line located in the United States. In addition, foreign currency
exchange and translation losses decreased to $449,000 in 1995 from $933,000 in
1994. The exchange and translation losses derive principally from operations
in Brazil where currency fluctuations have historically been very volatile.
Interest Expense. Interest expense decreased by $15,000, or 2%. This
decrease reflects a gradual decline over the period of average rates paid on
short-term borrowings. Approximately 69 percent of the total interest expense
in 1995 was incurred in Japan in connection with short-term operating needs
and a long-term commitment related to a major construction project recently
completed.
Income Taxes. The Company's effective tax rate was 36% in 1995 compared to
12% in 1994. The 1994 calculated rate was distorted downward by the reversal
of SFAS No. 109 tax valuation adjustments associated with certain foreign
operations.
Backlog. Incoming orders in 1995 were 10 percent higher than the previous
year on a parity-adjusted basis. Bookings were stronger in both the domestic
and overseas segments. The backlog of unfilled orders to start the new year
was 31 percent higher than the previous year for the overseas units but was
down 10 percent in the U.S.
Year Ended October 31, 1994 Compared To Year Ended October 31, 1993
Net Sales. Net sales increased $12.3 million, or 9% (8% after adjusting for
exchange rate differences). Sales for domestic operations increased by less
than 5% in 1994 as moderate growth in the fluid processing segment was
counteracted by sluggish activity in the consumer product line. Orders
increased in 1994 from United States customers in the pharmaceutical,
coatings, electronics and food and beverage industries while demand remained
26
<PAGE>
weak from the chemical and industrial processing segments. Sales for the
combined overseas operations were up 11% in 1994 from the previous year on a
parity-adjusted basis and were particularly strong in Australia, Asia and
Brazil where the year-over-year gain averaged 23%. Sales growth was moderate
in Europe while sales in Japan were weak for the second consecutive year as a
result of a stagnant Japanese economy.
Gross Profit. Gross profit increased $10.0 million, or 25%. Gross profit
margins increased from 31.1% to 35.4%. The increase came from the strength of
healthier sales volume and the initial benefits of reorganization efforts
begun in 1993 when the Company suffered from a widespread downturn for the
core process filtration product line. Results improved over 1993 for all of
the operating units, but a substantial portion of the year-over-year gain
occurred in the foreign sector reflecting strong sales growth in the Pacific
Rim, improved performance in Brazil, a major turn-around in Europe resulting
from increased sales activity and improved manufacturing efficiencies, and a
significant increase in earnings for the Japanese unit due to the combined
favorable effects of a stronger Yen on imported material and the maintaining
of effective controls over other operating costs.
Selling, Administrative and General. Selling, administrative & general
expenses increased $3.3 million, or 8%, and as a percentage of net sales,
decreased from 32.4% to 31.9%. The decrease in selling, administrative &
general expenses as a percentage of net sales reflects the effect of increased
sales volume partially offset by general cost increases.
Nonoperating Expenses. Nonoperating expenses increased from $0.9 million in
1993 to $2.9 million in 1994. Included in this category for 1994 is a $1.1
million loss incurred on the sale of the Company's unprofitable
ultrafiltration product line located in the United States. Foreign currency
exchange and translation losses of $933,000 in 1994 and $672,000 in 1993
derive principally from operations in Brazil.
Interest Expense. Interest expense increased by $425,000, or 151%. The 1993
interest expense included a reduction of $693,000 in accrued interest to
account for the favorable outcome of certain tax claims from prior periods.
Approximately 52% of the total expense in 1994 pertains to long-term debt,
most of which derives from funding of major construction projects in the
United States and Japan. Remaining interest results from short-term borrowings
to support current operations. Effective interest rates paid were relatively
unchanged in 1993 and 1994.
Income Taxes. The calculated effective tax rate in 1994 of 12% is distorted
by the renewal of SFAS No. 109 related tax valuation adjustments associated
with certain foreign operations. Similarly, the effective rate of 72% in 1993
is distorted by an adjustment in the tax provision to account for the
settlement of a dispute with one foreign tax authority over deductibility of
certain expenses. Excluding this settlement, the effective rate in 1993 would
have been 44%.
Backlog. Incoming orders in 1994 were 5% higher than those in the previous
year on a parity-adjusted basis. Most of the gain occurred in the overseas
segment as bookings increased only marginally in the United States. The
backlog of unfilled orders to start the 1994 fiscal year was up 2% from the
previous year.
IMPACT OF INFLATION
Inflation has not had a material impact on the Company over the past three
years nor is it anticipated to have a material impact for the foreseeable
future.
QUARTERLY RESULTS AND SEASONALITY
The Company's business is typically not seasonal. However, consolidated
sales in the first quarter of each year tend to be lower than the other
quarters due to the holiday season and customary year-end distributor
inventory reductions.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In 1995, the Company's balance of cash and cash equivalents increased from
$4.4 million at the end of 1994 to $6.7 million at the end of 1995, for an
increase of $2.3 million. Cash generated from operating activities held steady
in 1995 as increased net earnings were offset by working capital needs to
support the surge in global business. Capital expenditures amounted to $5.2
million in 1995, $2.9 million in 1994 and $3.2 million in 1993, measured at
historical exchange rates. Nearly 72% of the 1995 spending pertained to
investment in the United States for expansion of production capacity,
equipment upgrades to improve manufacturing performance, installation of
emission control devices, tooling for the manufacture of new product
offerings, and purchase of advanced computer systems to support manufacturing
processes and administrative functions. Capacity expansion, equipment
upgrades, emission controls and office automation in the United States
accounted for the majority of the capital expenditures in the two preceding
years. Long-term debt, including current maturities, amounted to $5.1 million
at October 31, 1995 and consisted of mortgages on two manufacturing facilities
located in Japan and the United States with interest rates ranging from 2% to
5%. Cash used in financing activities was negligible in 1995 while principal
payments of long-term debt and intercompany dividends consumed $2.9 million in
the previous year. Internal cash flows have generally been sufficient to
provide the capital resources necessary to support operating needs and finance
capital expenditure programs. Borrowing rates to start the 1996 year were
generally lower than the same period a year ago, reflecting prevailing market
conditions.
Through the first six months of 1996, cash has decreased $1.2 million from
$6.7 million to $5.5 million due, principally, to dividends paid and increased
receivables in connection with intercompany activity. Net earnings for the
period were nearly double those of last year. Capital expenditures through
April 30, 1996 were $2.4 million. Of this total, approximately two thirds
pertained to the expansion of production capacity, equipment upgrades to
improve manufacturing performance, tooling to manufacture new product
offerings, and advanced computer systems to support manufacturing and
administrative functions in the United States. The remainder of the capital
spending pertained to manufacturing and computer system upgrades in the
overseas units. Authorized but unspent capital expenditure programs totaled
$6.5 million at April 30, 1996, including a significant capital investment
program in its United States membrane manufacturing operation designed to
double productive capacity, to introduce cell-based manufacturing into the
existing process, and to provide higher yields from raw materials, lower labor
costs and reduced scrap rates.
On July 29, 1996, Commercial Intertech's Board of Directors declared a
distribution of 100% of its interest in the Company to existing shareholders
of Commercial Intertech. As part of the Distribution the Company will declare
a dividend of $35.7 million payable to Commercial Intertech and the Company
will assume $30.0 million of Commercial Intertech's debt. In addition, the
Company will enter into a $55.0 million credit facility maturing on January
30, 1998. The credit facility will consist of a $30 million term facility and
a $25 million revolving facility. The term facility will be completely drawn
down immediately after the Distribution and the proceeds used to repay the $30
million debt assumed from Commercial Intertech. The Company believes that
funds available under the revolving facility, cash flow from operations, and
other short-term and long-term borrowings will be sufficient to satisfy future
needs for working capital, capital expenditures, research and development,
debt service and other operating needs for at least the next 12 months, as
well as to meet its dividend obligation to Commercial Intertech.
The Company anticipates using collections on the receivables, including
receivables from affiliates, as an additional source of funds to meet working
capital needs. The dividend payable to affiliate will be funded primarily from
proceeds from the receivable due from affiliate. Additionally, the Company had
available unused lines of credit in various countries totaling approximately
$9.4 million at the end of 1995.
ACCOUNTING STANDARDS
In 1995, the Company adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
This Statement establishes accounting standards for the recognition,
measurement and reporting of impairments to long-lived assets, certain
intangibles and related goodwill when an entity is unable to recover the
carrying amounts of those assets. No adjustments to financial results or
financial position were required by the Company as a result of the adoption.
28
<PAGE>
BUSINESS
GENERAL
The Company is a world leader in the design, manufacturing and marketing of
a comprehensive line of filtration products for the separation, clarification
and purification of liquids and gases. The Company's products, which include
proprietary depth filters and semi-permeable membrane filters, are used in the
health care, fluid processing and potable water markets. These products, most
of which are disposable, effectively remove contaminants that range in size
from molecules to sand particles. The Company's sales are approximately
balanced between international and domestic markets. Significant customers
include Boston Chicken, Inc., Kentucky Fried Chicken Corporation, McDonald's
Corporation, Monsanto Company and 3M.
The Company's objective is to provide high value-added products and premium
customer service. The Company's proprietary manufacturing processes result in
products that lower customers' operating expenses and improve the quality of
customers' end products by providing longer lasting, higher quality, and more
efficient filters. As part of the Company's commitment to customer service,
the Company designates its own scientists, each of whom possess particular
industry expertise, to collaborate with customers on specific projects to
insure satisfaction with its products and to create new products.
In mid-1994, the Company realigned its business to accelerate net sales
growth and improve operating margins. A new senior management team developed
and implemented the following initiatives, which are key elements of its
ongoing growth strategy: (i) develop new products for specific markets, (ii)
decrease product development cycle times, (iii) develop pre/final filter
systems, (iv) increase customer focus, (v) improve operating efficiencies and
(vi) pursue selective acquisitions. Due principally to these initiatives, net
sales increased from $143 million to $163 million, a 14% increase, and
operating margins improved from 3.5% to 6.7% from fiscal year 1994 to fiscal
year 1995. Additionally, these initiatives have resulted in the introduction
of 15 new products or product extensions which have produced over $18 million
in aggregate sales over the last two years.
MARKET OVERVIEW
Filtration is the process of separating particles of various sizes from
liquids or gases. The mechanics of filtration range from the removal of coarse
contaminants, most often particulates, as large as 200 microns such as sand
and sediment, to the elimination of bacteria and viruses at less than .01
micron (human hair is typically 20 microns in diameter). A filtration device
consists of a plastic or metal housing and a filtration medium. Filtration
media, which can be manufactured out of a variety of substances, act as the
separator or barrier in the filtration process.
Filtration media include microporous membranes, glass, synthetic and
cellulosic fibers, porous metals and ceramics. Microporous membranes are thin,
film-like materials with millions of uniform microscopic holes. Membranes are
the most widely used filtration media because they remove specifically-sized
particles and can be configured into a variety of shapes and sizes.
The Company estimates, based on 1995 industry data, that the potential size
and growth rate of the three markets it serves are as follows:
<TABLE>
<CAPTION>
ESTIMATED WORLD ESTIMATED ANNUAL
WIDE POTENTIAL 1995 FIVE YEAR
MARKET MARKET SIZE GROWTH RATE
------ ------------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Health Care............................. $ 900 10%
Fluid Processing........................ 1,200 8%
Potable Water........................... 800 8%
------
Total................................. $2,900
======
</TABLE>
29
<PAGE>
Health Care
The health care market is experiencing rapid growth as a result of the
intensive research efforts to find cures for diseases, the increasing use of
rapid and simpler diagnostic tests to help reduce health care costs, the trend
toward finer and more cost-efficient filtration and increased governmental
regulation. When harmful elements are identified, they are often regulated or
new medical standards of care are implemented to decrease or eliminate
contact. In many cases, fluid filtration can play a key role in eliminating
contact with many harmful elements. Price is not the primary factor in the
customers' filtration decision process, but rather the performance and
reliability of the product.
The health care market applications include pharmaceutical and biotechnology
companies which require cost-efficient filtration and high levels of purity
for production of sterile, contaminate free drugs, as well as producers of
diagnostic test kits which require highly efficacious membranes. In addition,
applications include bacteria-free water and food and beverage products.
Fluid Processing
Major segments in the fluid processing market include chemical,
petrochemical and oil and gas processors, manufacturers of paints and resins,
electronics and semi-conductors and power generation facilities. As
sophisticated manufacturing processes increase and as the adoption of
practices focused on quality increase, the Company believes the demand for
filtration products will also increase. In part, this trend is driven by the
enhanced ability to detect contaminants in process streams. As automation
increases, focus on quality control increases, and as the ability to detect
contaminants progresses, fluid filtration will play a greater role in the
manufacturing process.
The fastest growing segment of the fluid processing market is semi-conductor
manufacturing. The ever increasing demand to place finer circuitry on computer
chips is requiring a cleaner environment and much higher quality standards for
the chemicals and the ultra pure water used in the manufacturing process.
Ultra pure water is used to rinse the chips during manufacture in order to
ensure that the product is particle free and no residual contamination is left
on the chip surface. The industry uses corrosive, high purity chemicals and
gases for the manufacture of computer chips, hard disks, video terminals and
other components. All of the chemicals and gases used are processed through
very fine filtration systems. The rapidly expanding demand for electronic
products and the wider use of computer chips is fueling industry growth.
Potable Water
The potable water segment includes residential, commercial and food service
customers. According to industry data, it is estimated that 1.2 billion people
in the world do not have safe drinking water. Demand is driven both by
consumers' desire to improve the taste and quality of their drinking water and
by the expanded concern of regulatory agencies. The sharpest growth in this
market may occur in Asia/Pacific Rim and South American countries where the
quality of drinking water has been found to be severely deficient in several
regions. Water safety concerns have driven the growth of the consumer bottled
water market to over $2 billion in the United States, as well as the growth in
the water filtration market.
The food service industry has an increasing need for consistent global
product quality. Food service includes water used for fountain beverages,
steam ovens, coffee and tea. Specifically, restaurants have become
increasingly aware of the need for water filtration and control of the taste
and quality of the water used in their businesses.
GROWTH STRATEGY
The Company's goal is to grow at a rate higher than the general filtration
market and to increase the Company's operating margins. Key elements of the
Company's growth strategy include:
Develop New Products for Specific Markets. The Company has initiated a
strategy to develop high value- added products for specific markets.
Historically, the Company offered non-differentiated products and often
30
<PAGE>
competed solely on price. To gain a better understanding of specific markets
and guide new product development, the Company introduced Scientific
Application Support Services ("SASS"). SASS uses scientists with post-graduate
degrees who are experts in the specific industry they serve. They collaborate
with customers who are developing and implementing new processes or products
that have specific filtration requirements. Often these relationships lead to
the development of new market specific products. The Company expects to
introduce in excess of 10 new products over the next twelve months, especially
in the health care market which offers high growth and above average industry
margins. The Company believes that these products will provide its customers
with products that offer greater efficiency, quality, safety and ease of use.
The Company has introduced 15 new products or extensions within the last two
years that have generated aggregate sales of $18 million.
Decrease Product Development Cycle Times. The Company has decreased its
product development cycle times from an average of four to five years to
approximately 18 months to 24 months. This improvement has occurred through
increased market focus, collaboration with leading-edge customers through SASS
teams and the formation of cross-functional product launch teams. The Company
believes it can continue to shorten product development cycle times through
these same methods.
Develop Pre/Final Filter Systems. Many filtration systems have one or more
prefilters to remove large contaminants from the liquid or gas before it
passes through the final filter, prolonging the life of the more expensive
final filter. When these filters are designed together in a system, the
performance of the system is enhanced. The Company has a leading prefilter
market position and is expanding the number of final filters it offers. This
allows the Company to provide its customers with a total filter solution from
one vendor.
Increase Customer Focus. The Company has traditionally sold to the
distributor, who in turn sells to the end-user. The Company's current goal is
to provide unmatched customer service to its end-user customers, while
providing resources for its distributors. In many cases the customer is unable
to define its filtration needs accurately and seeks outside resources to
identify and choose the best filtration alternative. The Company's SASS
professionals meet this need. Management has been training and focusing
distributors on specific market segments and providing additional sales and
marketing support. This enables distributors to provide customers with
superior industry expertise and Company-specific product knowledge.
Improve Operating Efficiencies. The Company believes it can improve
operating efficiencies by implementing cost controls, productivity gains,
profit based compensation for its employees, shifting product mix to higher
margin health care and fluid processing markets and outsourcing production of
certain processes. The Company has recently initiated a $10 million capital
investment program designed to (i) integrate cell-based manufacturing, (ii)
provide higher yields from raw materials, (iii) improve inventory management,
(iv) lower labor costs, (v) reduce manufacturing cycle times and (vi) reduce
scrap rates. The Company had gross profit margins of 31.1%, 35.4% and 38.7% in
fiscal years 1993, 1994 and 1995, respectively, and 39.7% for the six months
ended April 30, 1996.
Pursue Selective Acquisitions. The Company believes that the continuing
trend towards consolidation in certain filtration segments, together with
recent systems trends (prefilter and filter), will provide the Company with
attractive opportunities to acquire high-quality companies and subsequently
allow the Company to expand into new geographic markets, add new customers,
provide new products, manufacturing and service capabilities or increase the
Company's penetration with existing customers. The Company evaluates
acquisition candidates on a regular basis, although the Company is not
currently in discussions with any specific company. In addition, management of
the Company believes that after the Distribution the Company will be in a
better position to use its stock as currency to acquire other companies in the
industry.
PRODUCTS
The Company manufactures a full range of products suitable for each of its
market segments offering its customers solutions to a wide range of filtration
requirements. Many of the products manufactured by the
31
<PAGE>
Company use electrokinetic adsorption, a proprietary chemical process
developed by the Company which alters both membrane and depth filter media
surfaces. Electrokinetic adsorption uses molecular charges on dissolved ions
to bind finer contaminants to the filter surface. This attribute significantly
enhances filtration efficiency by removing contaminants smaller than the
micron rating of the filter.
The Company typically groups its products into the following categories.
Membranes
The typical polymer and nylon membranes that the Company produces resemble
plastic films except for the molecular size pores that are engineered into the
surface and depth of the membrane. By varying pore size and altering the
physical or chemical properties of the membrane, the quantity and type of
substances which can pass through the membrane can be regulated with absolute
certainty. The Company manufactures "absolute rated" products where no
particle above a certain size can pass through the membrane. In many
applications, these membranes can be integrity tested to ensure specific
performance both at the beginning and end of a particular process. A membrane
can be employed in a variety of configurations, including flat sheets, discs
and cartridges which contain high surface area, pleated membrane media.
Containers for filter media or housings can be manufactured from various
metals or plastics and are designed to allow the application of pressure to
create the required flow of liquid through the membrane. Membranes must be
replaced depending on the application and intensity with which they are used.
In some applications, such as in pharmaceutical or biotechnology, they are
changed for each batch. In very clean applications or in totally enclosed
environments, they may be changed weekly, monthly or annually.
Uses of membranes include water purification for electronics and
applications in semiconductor manufacturing, pharmaceutical, biotechnology and
other applications, as well as residential use for drinking water.
The Company's membrane products are sold under the following labels:
Zetapor(R), Microfluor(R), Polypro(R), ZetaBind(R), Electropor(TM),
BevASSURE(TM), Synchro(R), Acro(R) and AC/PH Lithowater(R).
Depth Filters
The Company's disposable depth filters are constructed from a matrix or
formation of very fine and micro-fine fibres such as polypropylene, cotton,
polyester, glass fiber, acrylic, rayon, polymer, carbon and other materials.
The fibre matrix is then processed into a rigid filter media using techniques
such as thermal bonding, resin bonding, pleating or winding. The Company's
technology has a strong emphasis on graded density attributes and
electrokinetic adsorption. Graded density depth technology allows filter media
to be manufactured with very open porous outer layers, progressively becoming
smaller in the size of the pores or void volume through the depth of the
filter media. Graded density construction extends filter life in many
applications and reduces pressure loss across the filtration process thereby
reducing energy costs. The structure of graded density filter media allows
particles to be trapped throughout the depth of the cartridge which minimizes
surface binding, allows for high contaminant capacity and lower pressure drops
than solely trapping particles on the surface of the media.
The Company manufactures depth filters in a wide variety of cartridge and
pore sizes with "absolute" particulate ratings. The filter cartridges are used
in filter housings which can be manufactured in a broad range of metals or
plastics to suit particular customer specifications. Filter housings are
designed for a wide range of temperatures and pressures.
The Company's depth filter products are sold under the following labels:
Zeta Plus(R), Betafine(R), Micro-Klean(R) II, Beta-Klean(R), Betapure(R),
MicroWynd(R) and PetroFit(R).
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<PAGE>
Cleanable Filters and Systems
The Company designs and manufactures an extensive range of self-cleaning
disc filters, backwash strainers and recleanable metal filters. The self-
cleaning disc filters and back wash strainers can be electrically or
mechanically operated with automatic controls to provide for specific
requirements in process applications. The recleanable metal filter elements
are constructed of sintered porous stainless steel or metal screens in tubular
and pleated construction. The recleanable elements can be cleaned in place in
a filter housing or removed for mechanical, ultrasonic or chemical cleaning.
The Company's cleanable filters and system products are sold under the
following labels: Poro-Klean(R), Micro-Screen(R) and Auto-Klean(R).
Housings and Systems
The Company designs and manufactures a wide variety of filter housings to
suit specific process and customer applications. The housings can be of
plastic or metal construction utilizing a broad range of materials including
polypropylene, PVC, nylon, aluminum, copper, brass, steel, stainless steel and
other specialized metals, such as titanium.
Specialized designs include sanitary, electropolished and coated finishes
for chemical resistance and ease of sterilization, sanitization or cleaning.
The Company supplies a broad range of standard housings manufactured from 316
stainless steel in sanitary, polished and electropolished finishes for
enhancing pharmaceutical and electronic applications. Finish specifications
can be measured in terms of Roughness Average (Ra) with average variations in
surface finish measured in microns down to 0.45 micron, the size of small
bacteria.
The Company designs and manufactures proprietary housings and systems such
as CTG-Klean with patented features and a totally enclosed disposable filter
media pack for use in critical applications where housing cleanliness is
essential or when physical separation of toxic or corrosive chemicals from the
metal housing is desired.
The Company's range of housings are designed and manufactured to regulatory
pressure vessel codes, particularly for applications in the oil and gas,
refinery and petrochemicals industries. The Company designs and markets
housings to meet the local regulatory requirements in most countries.
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<PAGE>
The Company's products are principally sold into the health care, fluid
processing and potable water markets. In many cases, the Company's products are
sold into more than one of these end markets. The following table summarizes
the end markets that the Company's products are sold into.
<TABLE>
<CAPTION>
REPRESENTATIVE REPRESENTATIVE
MARKET APPLICATION COMPANY PRODUCTS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE
Pharmaceutical Manufacturing injectible Activated carbon, Zeta Plus(R),
drugs Zetapor(R), Microfluor(R),
Biological Blood plasma fractionation Polypro(R), ZetaBind(R),
Diagnostics Membranes for infectious BevAssure and sanitary filter
disease test kits housings
Biotechnology Cell debris removal
Food and Beverage Wine and beer production
- -----------------------------------------------------------------------------------------
FLUID PROCESSING
Electronics Plating bath solutions Microfluor(R), Betafine(R),
Semiconductors High purity water, Betafine(R)-D, Betapure(R),
chemicals and gases for Electropor(TM), filter housings,
manufacturing computer MicroWynd(R)II, Polypro(R),
chips Beta-Klean(TM), PetroFit(R),
Coatings Processors Paint and resin filtration Micro-Klean(R)II,
Chemical Product clarification Auto-Klean(R), Poro-Klean(R),
Equipment protection Micro-Screen(R), Zeta Plus(R),
Oil, Gas and Removing contaminants from Synchro, Acro,
Petrochemical Refiners oil and gas streams AC and PHP Lithowater(R)
Magnetic Media Coating purity/optical
(recording tape and clarity
floppy disk)
Manufacturers
Commercial and Car wash rinse water
Industrial
Printers and Graphic Manufacturing of high
Art Companies quality inks
- -----------------------------------------------------------------------------------------
POTABLE WATER
Food Service Fountain beverages, steam CUNO Food Service(TM), System
ovens, coffee and tea ONE(R), Coolermate, Aqua Pure(R),
CUNO OCS water filters,
Water Factory Systems(R),
Faucetmate(R) Filter Systems and
Coolermate(R)
Residential Drinking and cooking water
and appliance protection
</TABLE>
34
<PAGE>
NEW PRODUCTS
Historically, the Company offered non-differentiated products and often
competed solely on price. Through SASS, the Company is developing new products
for specific markets. The Company has introduced 15 new products or extensions
within the last two years that have generated aggregate sales of $18 million.
The Company plans to introduce new products to serve the following industries
over the next twelve months:
<TABLE>
<CAPTION>
MARKET NEW PRODUCT DESCRIPTION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE
Pharmaceutical and Polypro II Very high surface area
Biopharmaceutical filters designed to protect
valuable membrane filters
Zetapor II Uncharged nylon cartridges
validated for bacteria
retention
Zeta Plus A self-contained version of
Zeta Plus(R) that allows
small to medium volume Zeta
Plus(R) filtration for
laboratory and pilot scale
development
Food and Beverage BevAssure II Nylon66 membrane filter
Diagnostic and Zeta Bind II Further advancements in the
Laboratory development of ZetaBind(R)
Nylon66 membrane to enhance
the membrane's adaptability
for specific biotechnology
and diagnostic applications
- ----------------------------------------------------------------------------------------------------------
FLUID PROCESSING
Electronic Zeta Plus EC A media for polishing
Manufacturing filtration with enhanced
adsorption characteristics
Electropor II Higher flow rate membrane
filter
Petrochemical Petrofit II New generation rigid resin
bonded depth filter with
greater life
Chemical Polypro III Very high surface area
filters for corrosive
chemicals
Commercial and PROSFR--R.O. system Automated Reverse Osmosis
Industrial systems for car wash rinse
water
- ----------------------------------------------------------------------------------------------------------
POTABLE WATER
Residential Aqua Pure DWS Drinking water system
Aqua Pure countertop Purification system for
filter above counter use
Food Service Scale Guard(R) filters Reduce scale buildup in
steam ovens
</TABLE>
35
<PAGE>
COMPETITION
The markets in which the Company competes are highly competitive. The
Company competes with many domestic and international companies in its global
markets including Millipore Corporation, Pall Corporation, Gelman Sciences
Inc., Memtec Ltd., Osmonics, Inc. and Culligan Water Technologies, Inc. No one
company has a significant presence in all the Company's markets. The principal
methods of competition are product specifications, performance, quality,
knowledge, reputation, technology, distribution capabilities, service and
price. Some of the Company's other competitors are multi-line companies with
other principal sources of income who have substantially greater resources
than the Company; many others are local product assemblers or service
companies that purchase components and supplies such as valves and tanks from
more specialized manufacturers than the Company. Through its SASS teams, the
Company has developed many products in conjunction with its customers, such
customers working closely with the Company in the design and development
process. The Company believes that these relationships provide it with a
competitive advantage over other manufacturers.
RESEARCH AND DEVELOPMENT AND PRODUCT DEVELOPMENT
The Company's research and development activities are conducted in its own
laboratories, supplemented by on-site development and application of custom
design and engineering. The Company's research, development and engineering
expenditures, which consisted mainly of the development of new products,
product applications and manufacturing processes, for fiscal year 1993, 1994
and 1995 were approximately $7.2 million, $7.8 million and $8.3 million,
respectively, and 5.5%, 5.4% and 5.1% of net sales, respectively. The Company
also incurs additional internal costs relating to its sales and service
personnel for product development.
MANUFACTURING
The Company's manufacturing is largely vertically integrated, using unique,
proprietary and patented processes, with many of the major components of its
filtration units manufactured and assembled in its own plants. As stated
above, the Company has begun to outsource some of its manufacturing processes,
such as metal housing manufacturing. The Company believes that it generally
has sufficient manufacturing capacity for the foreseeable future. The Company
has developed a new, more efficient membrane manufacturing process which the
Company believes provides a competitive advantage through the production of
superior products at lower costs.
RAW MATERIAL SUPPLIERS
The primary raw materials used by the Company are cotton, nylon, acrylic,
cellulose and various resins, plastics and metals. The Company has not
experienced a shortage of any of its raw materials in the past three years.
The Company believes that there is an adequate supply of all of its raw
materials at competitive prices from a variety of suppliers.
DISTRIBUTION AND SALES
The Company has over 150 independent distributors of its products in 73
countries. Distributors represent the primary channel in the marketing of the
Company's health care and fluid processing products. The Company has
agreements with all of its major distributors in the United States. In certain
markets outside the United States, the Company uses dedicated sales people.
The Company's potable water products are sold directly to wholesalers, such as
plumbing suppliers, water quality dealers and major resellers, and through
manufacturing representatives and sales managers.
The Company's agreements with its United States distributors are usually for
a period of two years. Such agreements usually assign an exclusive territory,
prohibit distributors from carrying competing products, require that
36
<PAGE>
distributors share market and customer related information with the Company
and require distributors to carry an adequate stock of its products. The
Company does not believe that the loss of any one of its distributors would
have an adverse effect on the Company. The Company's top ten distributors
accounted for approximately 27% of its total sales in fiscal year 1995.
The Company believes that no end-user of any of its products accounts for
more than 5% of sales. As of July 15, 1996, the Company employed 250 people as
sales people. Of such employees, 155 are located overseas.
PROPERTIES
The Company's world headquarters is located in Meriden, Connecticut. This
facility also contains its primary manufacturing and assembly plant. The
following table sets forth the location and approximate size of the Company's
principal properties and facilities, all of which are owned by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY SIZE
LOCATION (SQ. FT.)
- -------- -------------
<S> <C>
Meriden, Connecticut.............................................. 189,000
Enfield, Connecticut.............................................. 120,000
Stafford Springs, Connecticut..................................... 165,000
Kita-Ibaragi, Japan............................................... 40,000
Marinque, Brazil.................................................. 65,000
Calais, France.................................................... 50,000
Mazeres, France................................................... 40,000
Sydney, Australia*................................................ 290,000
</TABLE>
* 40% of this facility is sublet to an unrelated third party.
In addition to the properties listed above, the Company leases one facility
in the United States and 16 facilities outside the United States. These
facilities are generally used as warehouses and/or sales offices.
TRADEMARKS AND PATENTS
Trademarks and brand name recognition are important to the Company. The
Company generally owns the trademarks under which its products are marketed.
The Company has registered its trademarks and will continue to do so as they
are developed or acquired. The Company has over 300 registered trademarks
throughout the world. The Company protects such trademarks and believes that
there is significant value associated with them.
The Company has over 200 active patents throughout the world and over 35
patents pending worldwide. The Company additionally relies on proprietary,
non-patented technologies to a certain extent. Certain of the Company's
employees sign non-disclosure and assignment of proprietary rights agreements.
SEASONALITY
The Company's business is typically not seasonal. However, sales in the
first quarter of each fiscal year tend to be lower than the other quarters due
to the holiday season and year-end distributor inventory reductions.
GOVERNMENT REGULATIONS
Management believes that it is in substantial compliance with applicable
regulations of Federal, state and local authorities regulating the discharge
of materials into the environment.
The Company manufactures certain filtration products that are used as
components in medical devices and the Company must use the Food and Drug
Administration ("FDA") listed materials in the manufacture of these
37
<PAGE>
products. Additionally, the Company maintains Drug Master File ("DMF") files
for certain products sold into the health care market.
Certain medical devices marketed and manufactured by the Company's customers
are subject to extensive regulation by the FDA and, in some instances, by
foreign governments. Noncompliance with FDA requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or premarket approval for devices, withdrawal of
marketing approvals and criminal prosecution. Before a new device can be
introduced into the market, the manufacturer must generally obtain FDA
clearance through either a 510(k) notification or a premarket approval
application ("PMA"). A 510(k) clearance will be granted if the submitted
information establishes that the proposed device is "substantially equivalent"
to a legally marketed Class I or II medical device, or to a Class III medical
device for which the FDA has not called for PMAs. The FDA recently has been
requiring a more rigorous demonstration of substantial equivalence than in the
past. It generally takes from four to twelve months from submission to obtain
a 510(k) clearance, but it may take longer. The FDA may determine that a
proposed device is not substantially equivalent to a legally marketed device,
or that additional information is needed before a substantial equivalence
determination can be made.
In many areas the sale and promotion of water treatment devices is regulated
at the state level by product registration, advertising restrictions, water
testing, product disclosure and other regulations specific to the water
treatment industry. In some local areas certain types of water treatment
products, including those manufactured by the Company, are restricted because
of a concern with the character and volume of water they discharge.
EMPLOYEES
At July 15, 1996 the Company employed over 1,200 people worldwide (exclusive
of employees of independent distributors), with over 700 employees in the
United States and over 500 employees in other countries. In the United States,
approximately 122 employees are members of a union under a contract which
expires on October 31, 1997. Locations outside the United States also employ
union members: France has approximately 100 union employees and Brazil has 38
union employees. The Company believes its employee relations are generally
good.
LEGAL PROCEEDINGS
The Company is a party to various other legal proceedings and claims in the
ordinary course of business. The Company does not believe that the outcome of
any pending matters will, individually or in the aggregate, materially
adversely affect its financial condition or results of operations.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The executive officers and directors of the Company as of the Distribution
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul J. Powers.................. 61 Chief Executive Officer and Chairman of the
Board
Mark G. Kachur.................. 53 President, Chief Operating Officer and
Director
Michael H. Croft................ 52 Senior Vice President
Ronald C. Drabik................ 50 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
John M. Galvin.................. 63 Director
Gerald C. McDonough............. 68 Director
C. Edward Midgley............... 59 Director
Charles L. Cooney............... 51 Director
</TABLE>
Paul J. Powers. Mr. Powers has been a director of the Company and Commercial
Intertech since 1984, and will be Chief Executive Officer of the Company as of
the Distribution. He has also been President and Chief Operating Officer of
Commercial Intertech since 1984 and Chief Executive Officer since 1987. He
holds a bachelor's degree in Economics from Merrimack College and a master's
degree in Business Administration from George Washington University. Mr.
Powers is also a director of Ohio Edison Company, Global Marine, Inc. and Twin
Disc, Inc.
Mark G. Kachur. Mr. Kachur will be President and Chief Operating Officer of
the Company and a director as of the Distribution. From 1994 until joining the
Company, Mr. Kachur was a Senior Vice President of Commercial Intertech and
President of the Company. From 1992 until 1994, he was President and CEO of
Biotage Inc., from 1971 to 1991, he was with Pall Corporation, the last seven
years as a Group Vice President. He holds a bachelor's of science degree in
Mechanical Engineering from Purdue University and a master's degree in
Business Administration from the University of Hartford.
Michael H. Croft. Mr. Croft will be Senior Vice President of the Company as
of the Distribution. From 1993 until the Distribution, Mr. Croft was
President--U.S. Operations of the Company. From 1984 until 1993 he was with
Cuno Pacific Rim operations serving as Managing Director of Cuno Pacific, Cuno
Asia with oversight of Cuno K.K. (Japan). He holds a bachelor's degree in
Engineering (Chemistry) from The University of Sydney and a Certificate in
Marketing from the University of New South Wales.
Ronald C. Drabik. Mr. Drabik will be Senior Vice President, Chief Financial
Officer, Secretary and Treasurer of the Company as of the Distribution. From
July 1996 until joining the Company, he was a Vice-President of Commercial
Intertech. From 1995 until 1996, he was Vice President of Acme-Cleveland
Corporation, a manufacturer of telecommunication and other products. From 1993
until 1995, he was with Met-Coil Systems Corp., a machine tool builder, for
which he served at various times as President, Executive Vice President,
Senior Vice President, Chief Financial Officer and an outside consultant. From
1989 until 1992, he was Vice President of Finance and Chief Financial Officer
of RB&W Corporation, a manufacturer/distributor of engineered fasteners. He
holds a bachelor of arts degree from Baldwin-Wallace College.
John M. Galvin. Mr. Galvin has been a director of the Company and Commercial
Intertech since 1993. Since his retirement in 1992 from The Irvine Company, a
major landowner and developer that also owns a major portfolio of income
property, Mr. Galvin has been a private investor and consultant. From 1987
until 1992, he was Vice Chairman and Director of The Irvine Company. He holds
a bachelor's degree in Business Administration from Indiana University. Mr.
Galvin is also a director of Global Marine, Inc. and Oasis Residential Inc.
Gerald C. McDonough. Mr. McDonough has been a director of the Company and
Commercial Intertech since 1992. Mr. McDonough retired from Leaseway
Transportation Corporation, a trucking company, in 1988, prior
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<PAGE>
to which he had served as Chairman of the Board and Chief Executive Officer
since 1982. He holds a bachelor's degree in Business Administration from Case
Western Reserve University. Mr. McDonough is also a director of York
International Corporation, Brush-Wellman Corporation and Associated Estates
Realty Corporation, and a trustee of the Fidelity Funds.
C. Edward Midgley. Mr. Midgley has been a director of the Company and
Commercial Intertech since 1995. Mr. Midgley has been associated with
PaineWebber Incorporated since 1995 and is currently a Managing Director. From
1992 until 1995, he was Co-Head of Investment Banking, Executive Managing
Director, Head of Mergers and Acquisitions and a Member of the Board of
Directors of Kidder, Peabody & Co. Incorporated. He holds a bachelor of arts
degree in Economics from Princeton University and a master's degree in
Business Administration from Harvard Business School.
Charles L. Cooney. Dr. Cooney will become a director of the Company upon the
Distribution. He has been a Professor of Chemical and Biochemical Engineering
at the Massachusetts Institute of Technology ("MIT") since 1982. At MIT he is
also the acting department head and executive officer of the Department of
Chemical Engineering, the Associate Director of Industrial Involvement for the
Biotechnology Process Engineering Center, the co-director of the Program on
the Pharmaceutical Industry, and associate director, Industrial Involvement,
of the Biotechnology Process Engineering Center. Since 1989, he has served as
the regional editor of Bioseparations, and in 1992, Dr. Cooney became a
founding Fellow for the American Institute for Medical and Biological
Engineering. He holds a bachelor of science degree in Chemical Engineering
from the University of Pennsylvania, a master's degree and a Ph.D. in
Biochemical Engineering from MIT. Dr. Cooney is also a director of Genzyme
Corporation.
Other significant employees of the Company include:
Peter M. Meier. Dr. Meier has been Vice President--Marketing for the Company
since 1994. From 1978 until joining the Company, he held various marketing
positions, including Marketing Manager--Food and Beverage, for Millipore Corp.
He holds a bachelor's of science degree in Chemical Engineering from the
University of Pennsylvania and a Ph.D. in Chemical Engineering from Case
Western Reserve University.
Michael Neuroth. Mr. Neuroth has been Vice President--Manufacturing for the
Company since March 1996. From 1991 until joining the Company, he was
President of Neuroth & Associates. Mr. Neuroth holds a bachelor of science
degree in Electrical Engineering from the Rochester Institute of Technology.
Timothy B. Carney. Mr. Carney will be Vice President--Controller and
Assistant Secretary of the Company as of the Distribution. From 1993 until
joining the Company, he served Commercial Intertech as Cuno Inc. Group
Controller and from 1989 until 1993 he served Commercial Intertech as General
Manager and Controller of Water Factory Systems. He holds a bachelor's of
science degree (Economics) and a master's degree in Business Administration
from Youngstown State University.
Anthony C. Doina. Mr. Doina has been Vice President--Sales for the Company
since 1994. From 1978 until joining the Company, he was with Pall Corporation
where he held the position of Vice President of Sales. He holds a bachelor's
of science degree in Chemistry from State University of New York at Stony
Brook.
Francis J. Disinski. Mr. Disinski has been Vice President--Filtration
Technology since March 1996. From 1995 until joining the Company, he served as
the Company's Vice President--Scientific Services and from 1991 to 1995 he
served as the Company's Vice President--Research, Development and Engineering.
He holds a bachelor's of science degree in Chemistry from the State University
of New York at Corning.
BOARD OF DIRECTORS
Prior to the Distribution, the five persons on the Board will be divided
into three classes. The Board will be composed of one Class I director (Mr.
Galvin), two Class II directors (Messrs. Kachur and McDonough) and two Class
III directors (Messrs. Midgley and Powers). Dr. Cooney will be a Class I
director after the Distribution.
40
<PAGE>
The terms of the Class I, Class II and Class III directors expire on the date
of the 1997, 1998 and 1999 annual meetings, respectively. At each annual
meeting, successors to the class of directors whose term expires at that
annual meeting will be elected for a three-year term. Directors elected by the
shareholders may be removed only for cause. After the Distribution, the
Company intends to add three new directors, one for each of Class I, Class II
and Class III, none of which will be an employee of the Company or an employee
or director of Commercial Intertech.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Audit Committee has the responsibility for recommending the selection of
independent auditors by the Board of Directors; reviewing with such auditors,
prior to the commencement of or during such audit for each fiscal year, the
scope of the examination to be made; reviewing with such auditors the audited
financial reports, any changes in accounting policies, the services rendered
by such auditors (including management consulting services) and the effect of
such services on the independence of such auditors; reviewing the Company's
internal audit and control functions; considering such other matters relating
to such audits and to the accounting procedures employed by the Company as the
Audit Committee may deem appropriate; and reporting to the full Board of
Directors regarding all of the foregoing. This Committee consists of the
following four members: Messrs. Midgley (Chairman), Galvin, McDonough and Dr.
Cooney. No member of the Audit Committee is an employee of the Company.
Compensation Committee
The Compensation Committee has the authority to determine annual salaries
and bonuses for all elected officers and senior management; constitutes the
"Committee" contemplated by the Company's various stock option and award plans
with the responsibility for administering such plans; and has the authority to
approve incentive and deferred compensation plans, and funding arrangements
related thereto, for elected officers and senior management. This Committee
consists of the following four members: Messrs. McDonough (Chairman), Galvin,
Midgley and Dr. Cooney. No member of the Compensation Committee is an employee
of the Company.
Executive and Finance Committee
The Executive and Finance Committee, during the intervals between the
meetings of the Board of Directors, possesses and may exercise all the powers
of the Board in the management of the business and affairs of the Company in
so far as may be permitted by law. The Executive and Finance Committee has the
responsibility for overseeing and ensuring that the Company's financial
resources are managed prudently and cost effectively, with emphasis on those
issues which are long-term in nature, and shall make recommendations to the
Board as to: (i) debt and capital structure; (ii) issuance of shares or
repurchase of outstanding shares; (iii) dividend policy and the declaration of
dividends; (iv) acquisitions and divestitures; and (v) any other financial
matters deemed appropriate by the Committee. The Executive and Finance
Committee shall also have such other powers and perform such other duties as
shall from time to time be prescribed by the Board of Directors. The Executive
and Finance Committee also has the responsibility for overseeing and
evaluating the investments of the Company's pension plan trusts, selecting
fund managers and reviewing their performance and designating the proportion
of pension contributions to be assigned to such managers. The Executive and
Finance Committee consists of the following four members: Messrs. Powers
(Chairman), Galvin, Midgley and McDonough.
Nominating Committee
The Nominating Committee has the responsibility to identify, recruit and
nominate prospective members of the Board of Directors. This Committee
consists of the following six members: Messrs. Galvin (Chairman), McDonough,
Kachur, Midgley, Powers and Dr. Cooney.
Other Committees
The Board of Directors may establish such other committees as deemed
necessary and appropriate from time to time.
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<PAGE>
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are not employees of the Company receive an annual retainer
fee in the amount of $15,000, plus $1,000 for attending each meeting of the
Board and $600 for attending each respective committee meeting. Outside
directors have the option to make an annual election to receive the retainer
and Board meeting fees in deferred stock units instead of cash. Those
directors who opt for the stock unit alternative receive a 20 percent premium
in stock units versus the cash option. Directors who are employees of the
Company do not receive compensation for serving as directors. Outside
directors receive non-qualified stock options to purchase 1,000 shares of
Common Stock annually and biannually receive 1,000 performance shares. The
performance shares are earned based upon the achievement of certain Company
financial targets during a three year cycle. Each outside director will
receive an award of 5,000 additional performance shares at the time of the
Distribution.
EXECUTIVE COMPENSATION
The following information is provided in accordance with SEC rules and
regulations and is not necessarily indicative of the compensation structure
which will exist at the Company following the Distribution.
The following table sets forth information with respect to the cash
compensation paid by the Company for services rendered during the fiscal year
ended October 31, 1995 to its chief executive officer, or person acting in a
similar capacity, and the other executive officers of the Company whose total
annual salary and bonus exceeded $100,000 during such period (each, a "Named
Executive Officer"). The compensation described in this table was paid by
Commercial Intertech but charged to the Company. Mr. Powers is not included in
this summary compensation table because he did not serve as the chief
executive officer of the Company at the end of the last fiscal year.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ---------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARD OPTIONS
---- ---- ---------- --------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark G. Kachur(1)....... 1995 247,500 135,000 38,414(2) 24,008 15,000
President and Chief Op-
erating Officer
1994 134,300 120,000 0 174,375 15,000
1993 -- -- -- -- --
Michael H. Croft(3)..... 1995 183,000 30,000 36,547(4) -- --
Senior Vice President
</TABLE>
- --------
(1) During the years presented, Mr. Kachur was Senior Vice President of
Commercial Intertech and President of CUNO. Mr. Kachur became an employee
of Commercial Intertech on April 11, 1994.
(2) Amount represents relocation and moving expenses and the related gross-up
tax payments.
(3) During the year presented, Mr. Croft was President--U.S. Operations of
CUNO.
(4) Amount represents payments to a supplemental executive retirement plan,
foreign service payments, relocation costs, ESOP contributions and
contribution matches to retirement plans.
The following table sets forth, for each of the Named Executive Officers,
options granted in respect of Commercial Intertech Common Shares during fiscal
year 1995 pursuant to Commercial Intertech's Stock Option and Award Plan. As
set forth in the Benefits Agreement, subject to receipt of any necessary
consents, stock options for Commercial Intertech Common Shares held by CUNO
employees will, as of the Distribution Date, be replaced with stock options
for Common Stock, adjusted so that the value thereof after the Distribution
Date will equal the value of the replaced award before the Distribution Date.
See "Arrangements between the Company and Commercial Intertech--Benefits
Agreement."
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATE OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
----------------------- -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#) (1) YEAR ($/SHARE)(1) DATE 5% ($) 10% ($)
- ---- ---------- ---------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mark G. Kachur.......... 15,000 12.8% $19.375 1/24/05 $182,803 $463,256
Michael H. Croft........ -0- -0- -0- -0- -0- -0-
</TABLE>
- --------
(1) The options listed in the above table were granted subject to a three-year
vesting period, with 50% of the options granted becoming exercisable on
the second anniversary of the grant date and 50% on the third anniversary.
No stock appreciation rights were granted. The exercisability of the
options may be accelerated in the event of a change in control or a
potential change in control.
(2) Potential Realizable Value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains are dependent on the future performance of the Commercial Intertech
Common Shares and the option holder's continued employment throughout the
vesting period. The amounts reflected in the table may not necessarily be
achieved.
The following table sets forth, for each of the Named Executive Officers,
information regarding the exercise of options for Commercial Intertech Common
Shares during fiscal year 1995 and unexercised options held as of the end of
fiscal year 1995 pursuant to Commercial Intertech's Stock Option and Award
Plan. As set forth in the Benefits Agreement, subject to receipt of any
necessary consents, stock options for Commercial Intertech Common Shares held
by CUNO employees will, as of the Distribution Date, be replaced with stock
options for Common Stock, adjusted so that the value thereof after the
Distribution Date will equal the value of the replaced award before the
Distribution Date. See "Arrangements between the Company and Commercial
Intertech--Benefits Agreement."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END(1) ($)
------------------------- -------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Mark G. Kachur.......... -0- -0- -0-/30,000 -0-/20,625
Michael H. Croft........ -0- -0- 750/750 1,531/1,531
</TABLE>
- --------
(1) The value per option is calculated by subtracting the exercise price from
the October 31, 1995 closing price of the Commercial Intertech Common
Shares on the New York Stock Exchange of $16.875.
The following table sets forth, for each of the Named Executive Officers,
long-term incentive awards made during fiscal year 1995 pursuant to Commercial
Intertech's incentive plans. It is anticipated that the Company will have a
long-term incentive plan similar to Commercial Intertech's incentive plans.
See "Expected Compensation and Employee Benefit Plans Following the
Distribution--Annual Incentive Compensation."
43
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE
NUMBER OF PERFORMANCE OR BASED PLANS
SHARES, UNITS OTHER PERIOD ------------------------
OR OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT(1) (#) (#) (#)
---- --------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Mark G. Kachur....... 12,000 1/25/98 6,000 12,000 18,000
Michael H. Croft..... 2,000 1/25/98 1,000 2,000 2,000
</TABLE>
Payouts of awards are tied to achieving specified levels of return on equity
("ROE") over a three-year period. At threshold ROE, 50% of shares will be
distributed. 100% of award will be paid at the target amount and 150% of award
at maximum possible award. The Compensation Committee of Commercial
Intertech's Board of Directors may, at or after grant, accelerate the vesting
of all or part of any Performance Share Award.
- --------
(1) The date in the column represents the date on which award payments will be
made. The amounts of the awards are based on the three-year performance
period ending October 31, 1997.
Pursuant to the Benefits Agreement, the Company will assume Commercial
Intertech's obligations under and thereafter maintain a retirement plan which
provides benefits substantially similar to Commercial Intertech's pension
plans. Commercial Intertech's pension plans provide that employees may retire
with unreduced benefits at age 65 or later with 25 or more years of service.
The table below shows the estimated annual pension benefits provided under the
Commercial Intertech's defined benefit retirement plans for employees in
higher salary classifications retiring at age 65 or later.
ESTIMATED TOTAL ANNUAL RETIREMENT BENEFITS UNDER THE COMMERCIAL INTERTECH
PENSION PLAN FOR
SALARIED EMPLOYEES AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000........................... $ 40,684 $ 54,245 $ 67,806 $ 71,196 $ 74,587
200,000........................... 55,684 74,245 92,806 97,446 102,087
250,000........................... 70,684 94,245 117,806 123,696 129,587
300,000........................... 85,684 114,245 142,806 149,946 157,087
400,000........................... 115,684 154,245 192,806 202,446 212,087
500,000........................... 145,684 194,245 242,806 254,946 267,087
600,000........................... 175,684 234,245 292,806 307,446 322,087
700,000........................... 205,684 274,245 342,806 359,946 377,087
800,000........................... 235,684 314,245 392,806 412,446 432,087
900,000........................... 265,684 354,245 442,806 464,946 487,087
</TABLE>
Benefits under the plans are calculated generally under a formula of 50% of
the participant's final average compensation reduced by 50% of the
participant's estimated social security benefits, reflected in the table in
the form of a straight life annuity. The compensation covered by the pension
plan is base salary as set forth in the salary column of the Summary
Compensation Table above. As of November 30, 1995, Mr. Kachur had one credited
year of service with Commercial Intertech. Mr. Croft was not a participant in
the Commercial Intertech pension plan.
44
<PAGE>
EXPECTED COMPENSATION AND EMPLOYEE BENEFIT PLANS FOLLOWING THE DISTRIBUTION
ANNUAL INCENTIVE COMPENSATION
The Compensation Committee will administer two annual incentive plans for
management. The Executive Management Incentive Plan ("EMIP") will be a
performance-based plan in which payouts will be set in accordance with the
requirements of Code Section 162(m). These requirements are:
. The compensation must be payable on account of the attainment of one or
more pre-established objective performance goals;
. The performance goals must be established by a Compensation Committee
that is comprised solely of two or more "outside directors;"
. The terms of the compensation and the performance criteria must be
disclosed to and approved by shareholders before payment;
. The Compensation Committee must certify in writing that the performance
goals have been satisfied before payment.
In addition, the Compensation Committee will also administer the Management
Incentive Plan ("MIP") which will provide compensation that is not
performance-based as defined in Code Section 162(m), but which will be based
on both objective and subjective evaluations of individual executive
performance.
THE EXECUTIVE MANAGEMENT INCENTIVE PLAN
The EMIP will provide annual incentive compensation opportunities to the
Company's two most senior executives based solely on the achievement of
predetermined financial performance objectives, including corporate operating
and net income, return on net sales, return on assets and cash flow. Target
awards, as a percent of salary, will be 37.5 and 60.0 percent for the two
executive participants.
THE MANAGEMENT INCENTIVE PLAN
The MIP will provide opportunities for executives to earn annual incentives
based on the achievement of a combination of important financial goals
(operating and net income, return on net sales, return on assets and operating
cash flow) and individual objectives. A threshold net income level will have
to be achieved before any payments are made.
The Compensation Committee will likely select about 50 individuals for plan
participation in fiscal 1996. Associated target award ranges will be
determined according to: individual responsibility levels, business judgment
and median market data for comparably sized technology and manufacturing
companies.
The Compensation Committee expects to extend an opportunity to EMIP and MIP
participants to elect to receive their earned awards in cash, restricted stock
or a combination of the two. If participants elect to receive their awards in
restricted stock, such awards will be pursuant to the CUNO Incorporated 1996
Incentive Stock Plan described below. This opportunity will be offered to
enhance executive stock ownership, which the Compensation Committee believes
will be important in a new, publicly-traded company. If the participant elects
to receive all or part of an earned award in restricted stock, the Company may
increase the stock award by a fixed percentage. The vesting period associated
with the stock award will likely be between two and five years, and in the
event a participant voluntarily leaves the Company or is terminated "for
cause," the shares will be forfeited.
EMPLOYMENT AGREEMENT
On December 3, 1993, Commercial Intertech entered into an Employment
Agreement with Mr. Kachur, which will be assumed by the Company in connection
with the Distribution. Mr. Kachur's Employment Agreement is for a term of
three years. Mr. Kachur's Employment Agreement provides for a base salary of
45
<PAGE>
$240,000 and provides for participation in the Commercial Intertech's Senior
Executive Incentive Plan as well as other Commercial Intertech benefit
programs, including group life insurance, hospitalization and medical plans.
His Employment Agreement also provides for the grant of stock options under
certain stock option plans, subject to vesting requirements, and also provide
for participation in a supplemental deferred compensation arrangement. In the
event of a change in control of Commercial Intertech, his employment agreement
provides for a lump sum severance payment in the amount of two years' cash
compensation as well as continued participation in Commercial Intertech
benefit programs for two years following termination.
TERMINATION BENEFITS
On March 25, 1995, Commercial Intertech entered into a Severance
Compensation and Consulting Agreement with Mr. Kachur, which will be assumed
by the Company in connection with the Distribution. This agreement was the
result of a determination by the Commercial Intertech Board of Directors that
it is appropriate and in the best interest of Commercial Intertech and its
shareholders that, in the event of a possible change in control of Commercial
Intertech, the stability and continuity of management would be maintained,
free of the distractions incident to any change in control.
Benefits are payable under this agreement only if a change in control has
occurred and within two years after such change in control his employment is
terminated involuntarily without cause or voluntarily by him for reasons such
as demotion, reduction in base salary, relocation, loss of benefits or other
changes. The principal benefits to be provided to Mr. Kachur under this
agreement is (i) a lump sum payment equal to two times his annual cash
compensation (base salary and incentive compensation) and (ii) continued
participation in Commercial Intertech's employee benefit programs for two
years following termination. If Mr. Kachur's termination occurs after age 62,
separation payments are reduced by a factor based upon the number of months
remaining until he reaches age 65. This agreement is not an employment
agreement, and does not impair the right of Commercial Intertech to terminate
his employment with or without cause prior to a change in control, or the
right of Mr. Kachur to voluntarily terminate his employment. This agreement
terminates on the earlier of the date on which he reaches age 65 or five years
from the date of the agreement, provided that the term of the agreement will
be automatically extended for additional one-year periods until Mr. Kachur
reaches age 65 or Commercial Intertech or Mr. Kachur determines not to extend
the agreement.
CHANGE OF CONTROL AGREEMENTS
The Company is contemplating entering into termination and change in control
agreements with certain of its executives (each a "Termination Agreement")
after the Distribution. Under the Termination Agreement, following a "Change
in Control," (as defined in the Termination Agreement) if certain management
executives (each, an "Executive") are terminated without cause or if the
Executive terminates his own employment for certain reasons, such Executive
will receive (in addition to certain other benefits described below) (i) three
times the sum of the base salary and highest recent annual bonus during the
three preceding years and (ii) the value of any shares, dividends or other
property payable assuming maximum performance with respect to any performance
shares held by such Executive. In certain cases, the Termination Agreement may
require the purchase of the Executive's home.
Following such change in control and termination without cause as defined in
the Termination Agreement or termination by such Executive for Good Reason (as
defined in the Termination Agreement) such Executive should receive his (i)
accrued and unpaid base salary and pro rata portion of his highest recent
bonus, (ii) the actuarial value of accrued benefits under such Executive's
supplemental retirement plan; (iii) all vested nonforfeitable amounts owing
under any comprehensive benefit plans and (iv) certain other benefits and
payments. Immediately prior to such change in control, the Company is
obligated to set aside in trust, sufficient assets to fund all obligations
under the Termination Agreement. During the 30-day period beginning on the
first anniversary of such change in control, the Executives may voluntarily
terminate their employment and continue
46
<PAGE>
to receive all benefits otherwise payable following such change in control. In
addition, payment received by the Executives in connection with such change in
control will be "grossed up" for any excise taxes imposed by the "Golden
Parachute" provisions of the Code. Under the Termination Agreement, each
Executive may not compete with the Company for certain periods of time.
STOCK OPTION PLANS
The Board and Commercial Intertech, as sole Company stockholder, have
adopted the CUNO Incorporated 1996 Stock Incentive Plan (the "Employee Stock
Plan") and the CUNO Incorporated Non-Employee Directors' Stock Plan (the
"Directors' Stock Plan" together with the Employee Stock Plan, the "Stock
Option Plans"), both effective upon the Distribution. The purpose of the Stock
Option Plans is to motivate non-employee directors, officers, key employees
and consultants to the Company ("Participants") by allowing them to
participate in the Company's future, to recognize and reward Participants'
contributions and achievements and business performance through incentives
linked to performance objectives and to enable the Company to attract and
retain these persons by offering them an ownership interest in the Company.
The Stock Option Plans will be administered by the Compensation Committee. The
Employee Stock Plan authorizes the issuance of up to 1,000,000 shares of
Common Stock (plus any unused shares under the Directors' Stock Plan) pursuant
to the grant or exercise of stock options, stock appreciation rights,
restricted stock, performance shares, annual incentive bonuses or deferred
stock to officers, key employees and consultants of the Company. The
Directors' Stock Plan authorizes the issuance of up to 200,000 shares of
Common Stock (plus any unused shares under the Employee Stock Plan) pursuant
to the grant or exercise of stock options, deferred stock or performance
shares to non-employee directors of the Company. Options granted to certain
senior executives, management and other employees will vest or become
exercisable over varied periods which will be determined at the time such
options are granted. Directors who are not employees of the Company or any
affiliate ("Non-Employee Directors") are automatically granted options to
purchase 1,000 shares on the date of each annual stockholder's meeting. Such
options shall be granted at fair market value on the date of grant. Non-
Employee Directors will also be permitted an election to receive their
retainer and meeting fees in the form of deferred stock instead of cash. Non-
Employee Directors who elect to receive their retainer or meeting fees in such
alternate form will receive shares of Common Stock with a value equal to as
much as 120% of the value of the retainer or meeting fees the Non-Employee
Director would have received in cash. Non-Employee Directors who hold office
on the Distribution Date will receive 5,000 performance shares and will also
receive on a bi-annual basis performance shares for 1,000 shares of Common
Stock, the right to receive such shares will be conditioned upon the
successful satisfaction of certain Company financial targets during a
specified period.
Stock Options may be either "incentive stock options" (within the meaning of
Section 422 of the Code) or nonstatutory options (collectively, "Stock
Options"). (Only nonstatutory stock options may be granted to Non-Employee
Directors.) The exercise price per share purchasable under an option shall be
determined at the time of grant by the Compensation Committee. Generally,
Participants will be given ten years in which to exercise a Stock Option, or a
shorter period once a Participant terminates employment. Payment may be made
in cash or in the form of unrestricted shares the Participant already owns or
by other means. At the Company's option it may provide a Participant with a
loan or guarantee of a loan for the exercise price of an option. The right to
exercise an option may be conditioned upon the completion of a period of
service or other conditions.
Stock Appreciation Rights ("SARs") entitle a Participant to receive an
amount in cash, shares or both, equal in value to (i) the excess of the fair
market value of one share over the exercise price per share specified in the
related Stock Option multiplied by (ii) the number of shares to which the SAR
relates. The right to exercise a SAR may be conditioned upon the completion of
a period of service or other conditions. Generally, Participants will be given
ten years in which to exercise a SAR, or a shorter period once a Participant
terminates employment.
Shares of Restricted Stock ("Restricted Stock") may also be awarded under
the Stock Option Plans, which requires the completion of a period of service
or the attainment of specified performance goals by the Participant or the
Company or a subsidiary, division or department of the Company or such other
criteria as the
47
<PAGE>
Compensation Committee may determine. Upon a participant's Termination of
Employment (as defined in the Stock Option Plans), the Restricted Stock still
subject to restriction generally will be forfeited by the Participant. The
Compensation Committee may waive these restrictions in the event of hardship
or other special circumstances.
Performance Share Awards ("Performance Shares") are grants of shares of
Common Stock or the right to receive shares in the future that are subject to
restrictions on transfer and retention based on satisfaction of certain
performance criteria of the Company, the Participant or both. If the specified
performance objectives established by the Committee are attained during the
time period specified by the Committee (which will generally be at least a
two-year period), and if the Participant continues in employment through the
performance period, the restrictions in transfer and retention will be
removed.
Depending on a Participant's responsibilities, the performance criteria will
be based on any of the following, either alone or in any combination, and
either on a consolidated or business unit level, as the Committee may
determine: sales, net asset turnover, earnings per share, cashflow, cashflow
from operations, operating profits or income, operating margin, net income,
net income margin, return on net assets, return on total assets, return on
common equity, return on total capital and total shareholder return. The
Committee will specifically determine these criteria, and may include or
exclude any or all of the following items: extraordinary, unusual or
nonrecurring items; effects of accounting changes; effects of financing
activities; expenses for restructuring or productivity initiatives; non-
operating items; spending for acquisitions; effects of divestitures; and
effects of litigation or settlements. Capital gains may be included or
excluded. The maximum number of performance shares that may be awarded to any
Participant under the Plan for any year is one half of the Shares of Common
Stock reserved under the plan. Performance Shares in respect of whom the
Company's deduction is subject to Section 162(m) of the Code, may only be paid
if the performance objectives are achieved, except where the Participant's
employment is terminated for an extraordinary reason, in which case the
Participant may receive a proportionate award.
Deferred Stock ("Deferred Stock") is stock that can be awarded to a
Participant in the future, at a specified time and under specified conditions.
The Compensation Committee will determine the Participants to whom, and the
time or times at which, any Deferred Stock shall be awarded, the number of
shares of Deferred Stock to be awarded to any Participant, the duration, the
period during which and the conditions under which receipt of the shares will
be deferred and any other terms and conditions of the Deferred Stock.
Annual Incentive Awards ("Annual Incentives") are awards each fiscal year
granted by the Committee and based on the satisfaction of specified bonus
targets. The targets are based on Company performance measurements, as
determined by the Committee, and include the following: sales, net asset
turnover, earnings per share, cashflow, cashflow from operations, operating
profits or income, net income, operating margin, net income margin, return on
net assets, return on total assets, return on common equity, return on total
capital and total shareholder return. The Committee will specifically
determine these criteria, and may include or exclude any or all of the
following items: extraordinary, unusual or nonrecurring items; effects of
accounting changes; effects of financing activities; expenses for
restructuring or productivity initiatives; non-operating items; spending for
acquisitions; effects of divestitures; and effects of litigation or
settlements. Capital gains may be included or excluded. The Committee will
determine each year whether the objectives have been satisfied and only paid
if the deduction is subject to Section 162(m) of the Code, except for an
extraordinary reason for a termination of employment.
Payment may be made in cash or at the election of the Participant in the
form of Restricted Stock. If Restricted Stock is chosen, it will be subject to
limitation on transfer and risk of forfeiture for a designated period
(generally, three years), and may have a value of as much as 130% of the cash
value of the award had it been paid in cash. The maximum compensation that any
Participant may receive in connection with an Annual Incentive, including
Restricted Stock or Deferred Stock worth 130% of the cash value, is $1.5
million.
Amendments and Modifications. The Stock Option Plan, as adopted, is not
limited as to its duration. The Board may amend, alter, or discontinue the
Stock Option Plans, subject to certain limits.
48
<PAGE>
Change in Control. In the event of a Change in Control of the Company (as
defined in the Stock Option Plans):
(1) any SAR and Stock Options outstanding as of the date of such Change
in Control which are not then exercisable and vested will become fully
exercisable and vested to the full extent of the original grant; and
(2) the restrictions and deferred limitations applicable to any shares of
Restricted Stock and Deferred Stock will lapse, and such shares of
Restricted Stock and Deferred Stock will become free of all restrictions
and become fully vested and transferable to the full extent of the original
grant. Also, the performance goals and other restrictions with respect to
any outstanding award of Performance Shares or Annual Incentives may be
deemed to be satisfied in full and fully distributable.
A Change in Control includes any transaction which would result in any
person owning, directly or indirectly, 20% or more of the outstanding Common
Stock of the Company or the voting power of the Company; certain changes in
the members of the board of directors; certain corporate transactions (such as
a merger); and the sale of substantially all of the Company's assets.
Upon the Distribution, employees of the Company will be granted 294,000
Stock Options at a price equal to the fair market value of the Common Stock on
the date of the grant as determined by the Compensation Committee and 192,000
Performance Shares. In addition, each Non-Employee Director of the Company
will receive 5,000 shares of Restricted Stock upon the Distribution at a price
equal to the fair market value of the Common Stock on the date of the grant as
determined by the Compensation Committee.
49
<PAGE>
OWNERSHIP OF COMMON STOCK
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Commercial Intertech will own all of the outstanding shares of the Common
Stock until the Distribution Date. The following table sets forth the
ownership of the Common Stock expected to be received by the Company's
directors, the Named Executive Officers, and all directors and executive
officers as a group, and persons anticipated to be the beneficial owner of
more than 5% of the Common Stock, following the Distribution Date based on the
number of outstanding Commercial Intertech Common Shares on July 23, 1996.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF VOTING
NAME OWNERSHIP(1) SHARES
- ---- ------------ -----------------
<S> <C> <C>
Paul J. Powers....................... 328,005(2)(3)(4)(5) 2.4%
Mark G. Kachur....................... 32,039(3) *
John M. Galvin....................... 5,750(3) *
Gerald C. McDonough.................. 4,500(3) *
C. Edward Midgley.................... 10,000 *
Charles L. Cooney.................... 0 *
Michael H. Croft..................... 13,655(3)(4)(6) *
All directors and executive officers
as a group (seven persons).......... 393,949 2.8%
</TABLE>
- --------
*less than 1%
(1) Does not include any ownership of Commercial Intertech Series B
Convertible Preferred Shares (the "ESOP Shares") under the Commercial
Intertech Employee Stock Ownership Plan (the "ESOP"). The ESOP will not
receive Common Stock unless and until the ESOP Shares are converted into
Commercial Intertech Common Shares prior to the Record Date. Assuming that
the ESOP Shares are not converted into Commercial Intertech Common Shares
prior to the Record Date, the conversion price and, accordingly, the
conversion ratio, of the ESOP Shares, will be adjusted by multiplying the
current conversion price by a fraction, the numerator of which is the
market price of the Commercial Intertech Common Shares, prior to the
Distribution less the fair market value of the Common Stock and the
denominator of which is the market price of the Commercial Intertech
Common Shares prior to the Distribution.
(2) Includes the beneficial interest in 1,630 shares credited by the Trustee
acting under the provisions of Commercial Intertech's Employee Savings and
Stock Purchase Plan.
(3) Includes shares acquirable within 60 days of June 30, 1996 upon exercise
of options issued under Commercial Intertech's Stock Option and award
plans as follows: Mr. Powers--137,250 shares; Mr. Kachur--7,500 shares;
Mr. Galvin--2,250 shares; Mr. McDonough--2,250 shares; and Mr. Croft--
1,500 shares.
(4) Includes shares credited by the Trustee acting under the provisions of
Commercial Intertech's 401(k) plan as follows: Mr. Powers--5,011; Mr.
Croft--1,516.
(5) Includes two shares as a result of participation in the ESOP.
(6) Includes 97 shares credited by the Trustee acting under the provisions of
Commercial Intertech's Nonqualified Stock Plan and 1,465 shares credited
by the Administrator acting under the provisions of Commercial Intertech's
Dividend Reinvestment Program.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The name of any person or "group" (as that term is used in the Exchange Act)
anticipated to be the beneficial owner of more than five percent (5%) of the
Common Stock based on the ownership of Commercial Intertech Common Shares as
of June 30, 1996 is set forth below:
<TABLE>
<CAPTION>
TITLE
OF NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
----- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common National City Bank N.E. 989,707(1) 6.4%
P.O. Box 450
Youngstown, OH 44501
</TABLE>
- --------
(1) This figure includes 172,409 shares held in trust by National City Bank
N.E. (trustee) for the benefit of participants in the Commercial Intertech
Employee Savings and Stock Purchase Plan. This figure includes 1,597
shares held in trust by National City Bank N.E. (trustee) for the benefit
of participants in the Non-Qualified Stock Purchase Plan of Commercial
Intertech. National City Bank N.E. has sole voting power over 644,032
shares and shared voting power over 170,806 shares. National City Bank
N.E. has sole investment power over 277,613 shares and shared investment
power over 712,094 shares.
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<PAGE>
CERTAIN TRANSACTIONS IN CONNECTION WITH THE DISTRIBUTION
The Company is currently a wholly-owned subsidiary of Commercial Intertech.
On July 29, 1996 the Commercial Intertech Board declared the Distribution. The
Distribution will be substantially completed by the Distribution Date. It is
expected that on the Distribution Date, certain employee benefits assets will
be held by Commercial Intertech or employee benefit trusts, subject to
agreements to transfer these assets to the Company or trusts established by
the Company. See "Arrangements Between the Company and Commercial Intertech--
Distribution and Interim Services Agreement" and "--Employee Benefit
Agreement."
The Distribution and the transactions being undertaken in connection
therewith including the Distribution, are being effected pursuant to the
Distribution Agreement. See "Arrangements Between the Company and Commercial
Intertech--Distribution and Interim Services Agreement."
In addition, as contemplated by the Distribution Agreement, the Company and
Commercial Intertech have entered into certain ancillary agreements which
govern various interim and ongoing relationships between and among the two
companies (the "Ancillary Agreements"). The Ancillary Agreements include
agreements with respect to employee benefit arrangements, the provision of
interim services and tax sharing and allocation.
Commercial Intertech has entered into a financial advisory agreement with
each of Cleary Gull Reiland & McDevitt Inc. and Robert W. Baird & Co.
Incorporated (each, an "Advisor"). Each Advisor agrees to provide assistance
in preparing the Form 10 and perform over-the-counter market making and
research activities for the Company following the Distribution. Commercial
Intertech agrees to pay each Advisor $250,000 for such services plus
reimbursement for reasonable expenses. Each agreement contains customary
indemnification provisions.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 2,000,000 shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock").
The following summary of certain provisions of the Common Stock and the
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Restated Certificate and
the Restated Bylaws that are included as exhibits to the Registration
Statement of which this Information Statement is a part, and by the provisions
of applicable law.
COMMON STOCK
As of July 15, 1996, there were 1,000 shares of Common Stock outstanding,
all of which were held by Commercial Intertech. There will be 13,747,432
shares of Common Stock outstanding after giving effect to the Distribution and
excluding shares of Common Stock reserved for issuance upon exercise of
options granted under the Company's Stock Option Plans. The Company has
applied to list the Common Stock on the Nasdaq National Market under the
symbol "CUNO." To date, there exists no market for the Common Stock and there
can be no assurance that a market will develop.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. Holders of Common Stock are entitled to one vote per share in all
matters to be voted upon by shareholders. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preferences of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no rights to
convert their Common Stock into any other securities, and there are no
redemption provisions with respect to such shares. All of the outstanding
shares of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may issue in the future.
PREFERRED STOCK
The authorized class of Preferred Stock may be issued in series from time to
time with such designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions thereof as the Board determines.
The rights, priorities, preferences, qualifications, limitations and
restrictions of different series of Preferred Stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and other matters. The
Board may authorize the issuance of Preferred Stock which ranks senior to the
Common Stock with respect to the payment of dividends and the distribution of
assets on liquidation. In addition, the Board is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board, without stockholder approval, can issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change of control of the Company. The
Company has no present intention to issue shares of Preferred Stock.
CERTAIN CORPORATE PROVISIONS
The Restated Certificate and the Restated Bylaws contain a number of
provisions relating to corporate governance and to the rights of shareholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (a) the classification of the Board
into three classes, each serving for staggered three year terms, (b) the
authority of the Board to issue series of Preferred Stock with such voting
rights and other powers as the Board may determine, (c) notice requirements in
the Bylaws relating to nominations to the Board
53
<PAGE>
and to the raising of business matters at shareholders meetings, (d) a
requirement that a vote of at least 80% of shares entitled to vote generally
for the election of directors is required to amend provisions of the Restated
Certificate relating to the classification of the Board and removal of
directors and (e) a prohibition of stockholder action by written consent.
DELAWARE ANTI-TAKEOVER LAW
The Company is a Delaware corporation that is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203, certain
"business combinations" between a Delaware corporation, whose stock generally
is publicly traded or held of record by more than 2,000 shareholders, and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203 (the Company has not made such election), (ii) the business
combination was approved by the board of directors of the corporation before
the other party to the business combination became an interested stockholder,
(iii) upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the commencement of the transaction
(excluding voting stock owned by directors who are also officers or held in
employee benefit plans in which the employees do not have a confidential right
to tender or vote stock held by the plan) or (iv) the business combination is
approved by the board of directors of the corporation and ratified by two-
thirds of the voting stock which the interested stockholder did not own. The
three-year prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the corporation's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its majority-
owned subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as those shareholders who become beneficial owners of 15%
or more of a Delaware corporation's voting stock, together with the affiliates
or associates of that stockholder.
STOCKHOLDER RIGHTS AGREEMENT
Prior to the Distribution, the Board will adopt a Stockholder Rights
Agreement (the "Rights Agreement") between the Company and Chase Mellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent") pursuant to
which the Company will distribute one preferred share purchase right as a
dividend for each share of the Common Stock (a "Right") to be issued to
holders of Commercial Intertech Common Shares on the Record Date.
Each Right, when it becomes exercisable, entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.001 per share (the "Series A
Preferred Stock"), of the Company at a price of $60 per one one-hundredth of a
share of Series A Preferred Stock (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in the
Rights Agreement included as an exhibit to the Form 10, of which this
Information Statement is a part. This summary description of the Rights does
not purport to be complete and is qualified in its entirety by reference to
the Rights Agreement, which is hereby incorporated herein by reference.
Initially, the Rights will be attached to all certificates representing
Common Stock then outstanding, and no separate Right Certificates (as defined
below) will be distributed. The Rights will separate from the Common Stock
upon the earliest to occur of (i) a person or group of affiliated or
associated persons having acquired beneficial ownership of 15% or more of the
outstanding Common Stock (except pursuant to a Permitted Offer, as hereinafter
defined); or (ii) 10 days (or such later date as the Board may determine)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in a
person or group becoming an Acquiring Person (as hereinafter defined) (the
earliest
54
<PAGE>
of such dates being called the "Rights Distribution Date"). A person or group
whose acquisition of Common Stock causes a Rights Distribution Date pursuant
to clause (i) above is an "Acquiring Person." The date that a person or group
becomes an Acquiring Person is the "Shares Acquisition Date."
The Rights Agreement provides that, until the Rights Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
new Common Stock certificates issued after the Record Date upon transfer or
new issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Rights Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for Common Stock outstanding as of the Record Date, even without
such notation or a copy of this Summary of Rights being attached thereto, will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Rights Distribution Date (and to each initial
record holder of certain Common Stock issued after the Rights Distribution
Date), and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date and will
expire at the close of business on July 29, 2006, unless earlier redeemed by
the Company as described below.
In the event that any person becomes an Acquiring Person (except pursuant to
a tender or exchange offer which is for all outstanding Common Stock at a
price and on terms which a majority of certain members of the Board determines
to be adequate and in the best interests of the Company, its stockholders and
other relevant constituencies, other than such Acquiring Person, its
affiliates and associates (a "Permitted Offer")), each holder of a Right will
thereafter have the right (the "Flip-In Right") to receive upon exercise the
number of shares of Common Stock or one one-hundredths of a share of Series A
Preferred Stock (or, in certain circumstances, other securities of the
Company) having a value (immediately prior to such triggering event) equal to
two times the exercise price of the Right. Notwithstanding the foregoing,
following the occurrence of the event described above, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the holders of all of the outstanding Common Stock immediately prior
to the consummation of the transaction are not the holders of all of the
surviving corporation's voting power, or (ii) more than 50% of the Company's
assets or earning power is sold or transferred, in either case with or to an
Acquiring Person or any affiliate or associate or any other person in which
such Acquiring Person, affiliate or associate has an interest or any person
acting on behalf of or in concert with such Acquiring Person, affiliate or
associate, or, if in such transaction all holders of Common Stock are not
treated alike, then each holder of a Right (except Rights which previously
have been voided as set forth above) shall thereafter have the right (the
"Flip-Over Right") to receive, upon exercise, common shares of the acquiring
company having a value equal to two times the exercise price of the Right. The
holder of a Right will continue to have the Flip-Over Right whether or not
such holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of shares of Preferred Stock,
Common Stock or other securities issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for or purchase
Series A Preferred Stock at a price, or securities convertible into Series A
Preferred Stock with a conversion price, less than the then current market
price of the Series A Preferred Stock, or (iii) upon the distribution to
holders of the Series A Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
share of Series A Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the
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<PAGE>
Common Stock or a stock dividend on the Common Stock payable in Common Stock
or subdivisions, consolidations or combinations of the Common Stock occurring,
in any such case, prior to the Rights Distribution Date.
Series A Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share but, if
greater, will be entitled to an aggregate dividend per share of 100 times the
dividend declared per share of Common Stock. In the event of liquidation, the
holders of the Series A Preferred Stock will be entitled to a minimum
preferential liquidation payment of $100 per share; thereafter, and after the
holders of the Common Stock receive a liquidation payment of $1.00 per share,
the holders of the Series A Preferred Stock and the holders of the Common
Stock will share the remaining assets in the ratio of 100 to 1 (as adjusted)
for each share of Series A Preferred Stock and share of Common Stock so held,
respectively. Finally, in the event of any merger, consolidation or other
transaction in which Common Stock are exchanged, each share of Series A
Preferred Stock will be entitled to receive 100 times the amount received per
share of Common Stock. These rights are protected by customary antidilution
provisions. In the event that the amount of accrued and unpaid dividends on
the Series A Preferred Stock is equivalent to six full quarterly dividends or
more, the holders of the Series A Preferred Stock shall have the right, voting
as a class, to elect two directors in addition to the directors elected by the
holders of the Common Stock until all cumulative dividends on the Series A
Preferred Stock have been paid through the last quarterly dividend payment
date or until noncumulative dividends have been paid regularly for at least
one year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A Preferred Stock will be
issued (other than fractions which are one one-hundredth or integral multiples
of one one-hundredth of a share of Series A Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Series A Preferred Stock on the last trading day prior to the date of
exercise.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the Common Stock, the
Board of the Company may exchange the Rights (other than the Rights owned by
the Acquiring Person or its Associates and Affiliates, which shall have become
void) at an exchange ratio of one share of Common Stock per Right (subject to
Adjustment).
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price") which redemption shall be
effective upon the action of the Board. Additionally, following the Shares
Acquisition Date, the Company may redeem the then outstanding Rights in whole,
but not in part, at the Redemption Price, provided that such redemption is in
connection with a merger or other business combination transaction or series
of transactions involving the Company in which all holders of Common Stock are
treated alike but not involving an Acquiring Person or its affiliates or
associates.
All of the provisions of the Rights Agreement may be amended by the Board of
the Company prior to the Rights Distribution Date. After the Rights
Distribution Date, the provisions of the Rights Agreement may be amended by
the Board in order to cure any ambiguity, defect or inconsistency, to make
changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or, subject to certain
limitations, to shorten or lengthen any time period under the Rights
Agreement.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders of the Company, stockholders may, depending upon the
circumstances, recognize taxable income should the Rights become exercisable
or upon the occurrence of certain events thereafter.
56
<PAGE>
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY OF DIRECTORS
The Restated Certificate provides that a director of the Company will not be
personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Law, which concerns unlawful payments of dividends, stock purchases
or redemptions or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Restated Certificate provides directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Restated Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
Restated Certificate described above apply to an officer of the Company only
if he or she is a director of the Company and is acting in his or her capacity
as director, and do not apply to officers of the Company who are not
directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate provides that each person who is or was or had
agreed to become a director or officer of the Company, or each such person who
is or was serving or who had agreed to serve at the request of the Board or an
officer of the Company as an employee of the Company or as a director, officer
or employee of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), will be indemnified by the Company, in accordance with the Bylaws, to
the fullest extent permitted from time to time by Delaware law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment) or any other applicable laws as presently or hereafter in
effect. In addition, the Company may enter into one or more agreements with
any person providing for indemnification greater or different than that
provided in the Restated Certificate.
The Restated Bylaws provide that each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of
the Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such Proceeding is alleged action in an official
capacity as a director, officer or employee or in any other capacity while
serving as a director, officer or employee, will be indemnified and held
harmless by the Company to the fullest extent authorized by Delaware law as
the same exists or may in the future be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than said law permitted the Company to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act of 1974, as amended, excise taxes or penalties and amounts paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification will continue as to a person who has ceased
to be a director, officer or employee and will inure to the benefit of his or
her heirs, executors and administrators; however, except as described in the
following paragraph with respect to Proceedings to enforce rights to
indemnification, the Company will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Board.
Pursuant to the Restated Bylaws, if a claim described in the preceding
paragraph is not paid in full by the Company within thirty days after a
written claim has been received by the Company, the claimant may at any
57
<PAGE>
time thereafter bring suit against the Company to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant will be
entitled to be paid also the expense of prosecuting such claim. The Restated
Bylaws provide that it will be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Company) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
Law for the Company to indemnify the claimant for the amount claimed, but the
burden of proving such defense will be on the Company. Neither the failure of
the Company (including the Board, independent legal counsel or shareholders)
to have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware Law,
nor an actual determination by the Company (including the Board, independent
legal counsel or stockholder) that the claimant has not met such applicable
standard of conduct, will be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
The Restated Bylaws provide that the right of indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in the Restated Bylaws will not be exclusive of any
other right which any person may have or may in the future acquire under any
statute, provision of the Restated Certificate, the Restated Bylaws,
agreement, vote of shareholders or disinterested directors or otherwise. The
Restated Bylaws permit the Company to maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expenses, liability or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss
under the Delaware Law. The Company intends to obtain directors and officers
liability insurance providing coverage to its directors and officers. In
addition, the Restated Bylaws authorize the Company, to the extent authorized
from time to time by the Board, to grant rights to indemnification, and rights
to be paid by the Company the expense incurred in defending any Proceeding in
advance of its final disposition, to any agent of the Company to the fullest
extent of the provisions of the Restated Bylaws with respect to the
indemnification and advancement of expenses of directors, officers and
employees of the Company.
The Restated Bylaws provide that the right to indemnification conferred
therein is a contract right and includes the right to be paid by the Company
the expenses incurred in defending any such Proceeding in advance of its final
disposition, except that if Delaware Law requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
Proceeding, will be made only upon delivery to the Company of an undertaking
by or on behalf of such director or officer, to repay all amounts so advanced
if its is ultimately determined that such director or officer is not entitled
to be indemnified under the Restated Bylaws or otherwise.
Prior to the Distribution, the Company will enter into indemnification
agreements with each of its directors providing for such indemnification and
providing for certain additional rights, including the advancement of
expenses.
The Company intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Company or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the Company would have the power or the
obligation to identify him or her against such liability under the Restated
Certificate.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 under the 1934 Act and the rules promulgated thereunder, with respect to
the Common Stock described herein. This Information Statement does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Information
Statement as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information, reference is made to the Registration
Statement and exhibits thereto. The information so omitted, including
exhibits, may be obtained from the Commission at its principal office in
Washington, D.C. upon the payment of the prescribed fees, or may be examined
without charge at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-1004 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains a web site (http://www.sec.gov) that
contains reports, proxies and other information regarding registrants that
file electronically with the Commission.
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CUNO INCORPORATED
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Combined Balance Sheets as of October 31, 1994 and October 31, 1995...... F-3
Statements of Combined Income for the Year Ended October 31, 1993, 1994
and 1995 ............................................................... F-4
Statements of Combined Shareholder's Equity for the Year Ended October
31, 1993, 1994 and 1995................................................. F-5
Statements of Combined Cash Flows for the Year Ended October 31, 1993,
1994 and 1995........................................................... F-6
Notes to Combined Financial Statements................................... F-7
Combined Balance Sheets as of October 31, 1995 and April 30, 1996 (unau-
dited).................................................................. F-18
Statements of Combined Income (unaudited) for the Six Months Ended April
30, 1995 and April 30, 1996............................................. F-19
Statements of Combined Cash Flows (unaudited) for the Six Months Ended
April 30, 1995 and
April 30, 1996.......................................................... F-20
Notes to Condensed Combined Financial Statements (unaudited) as of April
30, 1996 ............................................................... F-21
Pro Forma Condensed Combined Balance Sheets (unaudited) as of April 30,
1996.................................................................... F-23
Pro Forma Statements of Condensed Combined Income (unaudited) for the Six
Months Ended
April 30, 1996.......................................................... F-25
Pro Forma Statements of Condensed Combined Income (unaudited) for the
Year Ended
October 31, 1995........................................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholder and Board of Directors
CUNO Incorporated
Youngstown, Ohio
We have audited the accompanying combined balance sheets of CUNO
Incorporated and combined affiliates (formerly known as the Fluid Purification
group of Commercial Intertech Corp.) as of October 31, 1994 and 1995, and the
related statements of combined income, shareholder's equity and cash flows for
each of the three years in the period ended October 31, 1995. Our audits also
included the financial statement schedule included in this Information
Statement. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of CUNO Incorporated
and combined affiliates at October 31, 1994 and 1995, and the combined results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 12, 1996
F-2
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1994 1995
-------- --------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Current assets
Cash (including equivalents of $871,000 in 1994 and
$1,582,000 in 1995)....................................... $ 4,408 $ 6,740
Accounts and notes receivable.............................. 30,687 34,517
Less allowances for doubtful accounts . ................. 873 1,136
-------- --------
29,814 33,381
Inventories................................................ 20,995 21,763
Deferred income tax benefits............................... 5,117 5,766
Prepaid expenses and other current assets ................. 2,272 2,511
Receivables from affiliates................................ 15,104 18,767
-------- --------
Total current assets..................................... 77,710 88,928
Noncurrent assets
Intangible assets.......................................... 24,143 21,663
Pension assets............................................. 1,800 3,264
Other noncurrent assets.................................... 1,086 1,041
-------- --------
Total noncurrent assets.................................. 27,029 25,968
Property, plant and equipment
Land and land improvements................................. 6,457 6,672
Buildings.................................................. 27,631 27,706
Machinery and equipment.................................... 53,048 56,550
Construction in progress................................... 1,671 2,451
-------- --------
88,807 93,379
Less allowances for depreciation and amortization.......... 40,475 45,448
-------- --------
48,332 47,931
-------- --------
Total assets............................................. $153,071 $162,827
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Bank loans................................................. $ 9,972 $ 10,440
Accounts payable........................................... 9,904 10,780
Accrued payrolls and related taxes......................... 6,824 8,446
Accrued expenses........................................... 6,708 6,105
Accrued income taxes....................................... 1,207 2,947
Current portion of long-term debt.......................... 868 1,036
-------- --------
Total current liabilities................................ 35,483 39,754
Noncurrent liabilities
Long-term debt............................................. 5,175 4,060
Deferred income taxes...................................... 4,653 4,067
Retirement benefits........................................ 1,294 2,757
-------- --------
Total noncurrent liabilities............................. 11,122 10,884
Shareholder's equity
Equity..................................................... 100,689 105,650
Translation adjustments.................................... 5,777 6,539
-------- --------
106,466 112,189
-------- --------
Total liabilities and shareholder's equity............... $153,071 $162,827
======== ========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF COMBINED INCOME
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales......................................... $130,771 $143,111 $162,699
Less costs and expenses:
Cost of products sold........................... 90,166 92,507 99,772
Selling, administrative and general expenses.... 42,283 45,626 52,087
-------- -------- --------
132,449 138,133 151,859
-------- -------- --------
Operating income (loss)........................... (1,678) 4,978 10,840
Nonoperating income (expense):
Interest income................................. 167 88 145
Interest expense................................ (281) (706) (691)
Exchange losses................................. (672) (933) (449)
Loss on sales of assets......................... 0 (1,053) 0
Other........................................... (85) (331) (282)
-------- -------- --------
(871) (2,935) (1,277)
-------- -------- --------
Income (loss) before income taxes................. (2,549) 2,043 9,563
Provision (benefit) for income taxes:
Current......................................... (328) 1,491 4,697
Deferred........................................ (1,520) (1,255) (1,235)
-------- -------- --------
(1,848) 236 3,462
-------- -------- --------
Net income (loss)................................. $ (701) $ 1,807 $ 6,101
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF COMBINED SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Shareholder's equity
Equity:
Balance at beginning of year.................. $102,870 $100,912 $100,689
Net income (loss)............................. (701) 1,807 6,101
Dividends paid to parent...................... (460) (1,958) 0
Divisional income and other................... (797) (72) (1,140)
-------- -------- --------
Balance at end of year........................ 100,912 100,689 105,650
Translation adjustments......................... 2,831 5,777 6,539
-------- -------- --------
Total shareholder's equity.................. $103,743 $106,466 $112,189
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF COMBINED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)................................. $ (701) $ 1,807 $ 6,101
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for depreciation and amortization..... 7,664 8,154 7,929
Loss on sale of fixed assets.................... 0 1,053 0
Pension plan credits............................ 506 676 1,019
Change in deferred income taxes................. (1,083) (1,143) (1,222)
Change in current assets and liabilities:
(Increase) in accounts receivable ............ (954) (756) (3,839)
Decrease (increase) in inventories............ 81 1,301 (636)
(Increase) decrease in prepaid expenses and
other current assets......................... (289) 166 (292)
Decrease (increase) in receivables from
affiliate.................................... 2,742 (4,814) (3,128)
Increase in accounts payable and accrued
expenses..................................... 8 1,323 1,477
(Decrease) increase in accrued income taxes... (5,073) 229 335
------- ------- -------
Net cash provided by operating activities... 2,901 7,996 7,744
Investing activities:
Proceeds from sale of fixed assets................ 16 109 113
Investment in intangibles......................... (209) (207) (343)
Capital expenditures.............................. (3,245) (2,927) (5,234)
------- ------- -------
Net cash (used) in investing activities..... (3,438) (3,025) (5,464)
Financing activities:
Proceeds from long-term debt...................... 1,400 0 4,012
Principal payments on long-term debt.............. (593) (882) (4,900)
Net borrowings under bank loan agreements......... (535) (104) 880
Conversion of other assets........................ (263) 32 1
Dividends paid to parent.......................... (460) (1,958) 0
------- ------- -------
Net cash (used) by financing activities..... (451) (2,912) (7)
Effect of exchange rate changes on cash............. (278) 396 59
------- ------- -------
Net (decrease) increase in cash and cash
equivalents........................................ (1,266) 2,455 2,332
Cash and cash equivalents at beginning of year...... 3,219 1,953 4,408
------- ------- -------
Cash and cash equivalents at end of year............ $ 1,953 $ 4,408 $ 6,740
======= ======= =======
Supplemental disclosures:
Cash paid during the year for:
Interest........................................ $ 948 $ 703 $ 716
Income taxes.................................... 514 1,149 4,338
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1995, 1994 AND 1993
NOTE A--ACCOUNTING POLICIES
Organization:
On July 11, 1996, Commercial Intertech Corp. ("Commercial Intertech")
initiated a plan to separate its Fluid Purification group (or Cuno)
subsidiaries and divisions from the rest of Commercial Intertech's businesses
in a tax-free transaction, subject to regulatory approval. The following
companies and divisions make up the Fluid Purification group companies--Cuno
Pacific Pty., Ltd., Australia; Commercial Intertech do Brasil, Ltda., Brazil;
Cuno Europe S.A., France; Cuno KK, Japan; Cuno Filtration Asia Pte. Ltd.,
Singapore; and divisions are located in England, Germany and Italy. Management
intends to transfer Commercial Intertech's interest in the companies and
transfer specific assets of the divisions to CUNO Incorporated (the "Company")
and then distribute all shares of the Company to existing Commercial Intertech
common shareholders.
The accounts of the Company represent the combination of all entities
formerly organized as the Fluid Purification group of Commercial Intertech.
The accompanying combined financial statements represent the financial
condition of the Company and the results of operations as if the Company were
a stand-alone corporation during the years shown. References to subsidiaries
include those companies and divisions which will be organized under the
consolidated Company. All significant transactions between the Company and the
combined affiliates have been eliminated.
Commercial Intertech provides certain management and administrative services
to the Company. Amounts of Commercial Intertech's general corporate,
accounting, legal, and other administrative costs related to such services
have been allocated to the Company based on actual dollars spent or the
relative percentage of time each department spent providing services to the
Company. Management believes that this allocation method provides the Company
with a reasonable amount of such expenses.
Inventories:
Inventories are stated at the lower of cost or market. Inventories in the
United States are primarily valued on the last-in, first-out (LIFO) cost
method. The method used for all other inventories is first-in, first-out
(FIFO). Approximately 49 percent (58 percent in 1994) of worldwide inventories
are accounted for using the LIFO method. Inventories as of October 31
consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................. $ 3,136 $ 3,063
Work in process........................................... 8,769 6,784
Finished goods............................................ 9,090 11,916
------- -------
$20,995 $21,763
======= =======
</TABLE>
If all inventories were priced using the FIFO method, which approximates
replacement cost, inventories would have been $1,674,000 higher in 1994 and
$2,220,000 higher in 1995.
Intangibles:
Intangible assets at October 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill, less accumulated amortization (1994--
$4,393,000;
1995--$4,944,000)...................................... $17,209 $16,739
Other intangibles, less accumulated amortization (1994--
$18,313,000; 1995--$20,440,000)........................ 6,934 4,924
------- -------
$24,143 $21,663
======= =======
</TABLE>
F-7
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Excess cost over the fair value of net assets acquired (or goodwill)
generally is amortized on a straight-line basis over 40 years. The carrying
value of goodwill is reviewed if facts and circumstances suggest that it may
be impaired. If this review indicates that goodwill will not be recoverable,
as determined on the estimated undiscounted cash flows of the entity acquired
over the remaining amortization period, the Company's carrying value of the
goodwill is reduced by the estimated shortfall of cash flows. In addition, the
Company assesses long-lived assets for impairment under Financial Accounting
Standards Board Statement No. 121. Under those rules, goodwill associated with
assets acquired in a purchase business combination is included in impairment
evaluations when events or circumstances exist that indicate the carrying
amount of those assets may not be recoverable.
Other intangibles, including patents, know-how and trademarks, are carried
at their appraised value on the acquisition date less accumulated
amortization, which is provided using the straight-line method over 10 to 25
years.
Properties and Depreciation:
Property, plant and equipment are recorded at cost. Buildings and equipment
are depreciated over their useful lives, principally by use of the straight-
line method, which range from 10 to 40 years for buildings and 2.5 to 20 years
for machinery and equipment.
Income Taxes:
The operations of the Company and subsidiaries are included in the income
tax returns filed by Commercial Intertech and its subsidiaries. The
accompanying combined financial statements reflect income tax expense on a
separate company basis.
The Company uses the liability method as required by Statement of Financial
Accounting Standards No. 109 in measuring the provision for income taxes and
recognizing deferred tax assets and liabilities on the balance sheet. Deferred
income tax assets and liabilities principally arise from differences between
the tax basis of the asset or liability and its reported amount in the
combined financial statements. These include inventory valuation differences
under uniform capitalization rules, depreciation expense, accrued expenses,
and net operating loss carryforwards. Deferred tax balances are determined by
using provisions of the enacted tax laws; the effects of future changes in tax
laws or rates are not anticipated.
Provisions are made for appropriate income taxes on undistributed earnings
of foreign subsidiaries which are expected to be remitted to the parent
company in the near term. The cumulative amount of unremitted earnings of
subsidiaries, which aggregated approximately $7,708,000 at October 31, 1995,
is deemed to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to an adjustment
for foreign tax credits) and withholding taxes payable to the various foreign
countries. Determination of the amount of unrecognized deferred U.S. tax
liability is not practicable because of the complexities associated with its
hypothetical calculation; however, unrecognized foreign tax credit
carryforwards would be available to reduce some portion of the U.S. liability.
Translation of Foreign Currencies:
Other than foreign entities operating in highly inflationary countries, the
financial statements of foreign entities are translated in accordance with
Financial Accounting Standards Board (FASB) Statement No. 52. Under this
method, revenue and expense accounts are translated at the average exchange
rate for the year while all assets and liability accounts are translated into
U.S. dollars at the current exchange rate. Resulting translation
F-8
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
adjustments are recorded as a separate component of shareholder's equity and
do not affect income determination.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased, to be cash equivalents.
Revenue Recognition:
Revenue is recognized when the earning process is complete and the risks and
rewards of ownership have transferred to the customer, which is considered to
have occurred upon shipment of the finished product.
Advertising:
Advertising costs are expensed as incurred and included in "selling,
administrative and general expenses." Advertising expenses were $2,960,000,
$2,738,000 and $2,906,000 for 1993, 1994 and 1995, respectively.
Newly Issued Accounting Standards:
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS No. 121), was issued. The Company adopted SFAS No.
121 during fiscal 1995. There was no impact on the Company's financial results
or position. SFAS No. 121 requires companies to review long-lived assets and
certain identifiable intangibles to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. As permitted by this
statement, the Company intends to account for such compensation, using the
intrinsic value method in accordance with APB No. 25. Pro forma disclosures as
required by this pronouncement will apply to stock-based awards granted on or
after November 1, 1995 and will first be disclosed in financial statements for
1997.
NOTE B--DEBT
Long-term debt obligations are summarized below:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Mortgages................................................... $5,868 $4,973
Other....................................................... 175 123
------ ------
6,043 5,096
Less current portion........................................ 868 1,036
------ ------
$5,175 $4,060
====== ======
</TABLE>
Mortgages relate to two manufacturing facilities. Two loans relating to a
Japanese manufacturing facility bear interest at 1.75 and 1.88 percent, and
mature through the year 2000. One of the two loans is secured with property
and equipment at Kita-Ibaragi, Japan (net book value at October 31, 1995--
$6,395,000). The second
F-9
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
loan is unsecured. A facility located in Enfield, Connecticut collateralizes a
loan which bears interest at 5.0 percent, also maturing in the year 2000. The
Enfield facility's net book value at October 31, 1995 was $4,062,000.
Principal payments due in the five years after October 31, 1995 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.............................. $1,036
1997.............................. 1,046
1998.............................. 994
1999.............................. 1,005
2000.............................. 1,015
</TABLE>
The Company had available unused short-term lines of credit in various
countries totaling approximately $9.4 million at October 31, 1995. Outstanding
bank loans at October 31, 1994 and 1995 had weighted average interest rates of
3.2 percent and 2.5 percent, respectively.
NOTE C--FOREIGN CURRENCY TRANSLATION
The cumulative effects of foreign currency translation gains and losses are
reflected in the Translation Adjustments section of Shareholder's Equity.
Translation adjustments increased equity by $1,613,000 in 1993 and $2,946,000
in 1994 and decreased equity by $762,000 in 1995.
Foreign currency transaction gains and losses, which include U.S. dollar
translation losses in Brazil, are reflected in income. For the three-year
period reported herein, foreign currency losses were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1993................................ $672
1994................................ 933
1995................................ 449
</TABLE>
NOTE D--OPERATING LEASES
The Company has entered into certain lease agreements for various facilities
and equipment. Rent expense under operating leases was approximately
$1,607,000 in 1993, $1,532,000 in 1994, and $1,729,000 in 1995.
Future minimum lease payments under noncancellable operating leases with an
initial term of one year or more were as follows at October 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.............................. $ 721
1997.............................. 720
1998.............................. 509
1999.............................. 390
2000.............................. 362
Thereafter........................ 599
------
Total minimum lease payments...... $3,301
======
</TABLE>
F-10
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--BENEFIT PLANS
The Company maintains noncontributory defined benefit pension plans for
substantially all of its United States employees. Pension benefits for the
hourly employees covered by these plans are expressed as a flat benefit rate
times years of continuous service. The salaried employees have previously been
included in a defined benefit pension plan sponsored by Commercial Intertech.
Benefits for salaried employees are based upon a percentage of the employee's
average compensation during the preceding ten years, reduced by 50 percent of
the Social Security Retirement Benefit. The Company's funding policy is to
contribute amounts to the plans sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as may be deemed appropriate from time to time.
The Company accounts for pension costs under the provisions of FASB
Statement No. 87 for contributory defined benefit pension plans covering its
employees in Japan. Benefits under these plans are based on years of service
and compensation in the period immediately preceding retirement. Funding is
predicated on minimum contributions as required by local laws and regulations
plus additional amounts, if any, as may be deemed appropriate. Some employees
of other foreign operations also participate in postemployment benefit
arrangements not subject to the provisions of FASB Statement No. 87.
The following table sets forth the funded status and amounts recognized in
the Combined Balance Sheets at October 31, 1994 and 1995 for the Company's
U.S. and foreign defined benefit pension plans. Other foreign pension plans do
not determine net assets or the actuarial present value of accumulated
benefits as calculated and disclosed herein:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $(14,794) $(18,426)
======== ========
Accumulated benefit obligation............................ $(16,149) $(20,492)
======== ========
Projected benefit obligation.............................. $(20,262) $(26,009)
Market value of plan assets............................... 14,671 16,921
-------- --------
Projected benefit obligation in excess of plan assets..... (5,591) (9,088)
Unrecognized net (gain) loss.............................. 2,853 2,887
Unrecognized prior service cost........................... 1,250 1,451
Unrecognized net (asset) obligation....................... 830 3,590
Additional liability...................................... (1,034) (2,498)
-------- --------
Net pension liability recognized in the Combined Balance
Sheet.................................................... $ (1,692) $ (3,658)
======== ========
</TABLE>
Plan assets at October 31, 1995 are invested in publicly traded and
restricted mutual funds, various corporate and government bonds, guaranteed
income contracts and listed stocks, including common stock of Commercial
Intertech having a market value of $390,000 at that date. Salaried plan assets
have been estimated.
F-11
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the various components of net periodic pension cost for defined
benefit plans and cost information for other plans for the three-year period is
shown below:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans:
Service cost........................................ $ 869 $1,095 $ 1,337
Interest cost....................................... 815 831 1,065
Actual return on plan assets........................ (1,130) (462) (1,785)
Net amortization and deferral....................... 533 (150) 1,145
------- ------ -------
Net pension expense............................... 1,087 1,314 1,762
Other plans:
Foreign plans....................................... 175 184 218
------- ------ -------
Total pension expense............................. $ 1,262 $1,498 $ 1,980
======= ====== =======
</TABLE>
Assumptions used in the accounting for the defined benefit plans as of
October 31 were:
<TABLE>
<CAPTION>
DOMESTIC PLANS 1993 1994 1995
- -------------- ------ ----- ------
<S> <C> <C> <C>
Weighted-average discount rate.............................. 7.25% 8.5% 7.25%
Rates of increase in compensation levels.................... 4.5 % 4.5% 4.5 %
Expected long-term rate of return on assets................. 10.0 % 10.0% 10.0 %
<CAPTION>
CUNO KK PLAN
- ------------
<S> <C> <C> <C>
Weighted-average discount rate.............................. 4.5 % 5.0% 4.0 %
Rates of increase in compensation levels.................... 4.0 % 5.0% 5.0 %
Expected long-term rate of return on assets................. 6.0 % 6.0% 5.5 %
</TABLE>
F-12
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--INCOME TAXES
The components of income (loss) before income taxes and the provision
(benefit) for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes
Domestic......................................... $(1,634) $(1,037) $ 3,652
Foreign.......................................... (915) 3,080 5,911
------- ------- -------
(2,549) 2,043 9,563
Provision (benefit) for income taxes
Current
Domestic--Federal................................ (241) (3) 1,466
--State and local............................ 152 115 368
Foreign.......................................... (239) 1,379 3,546
Benefit of operating loss carryforwards............ 0 0 (683)
------- ------- -------
(328) 1,491 4,697
Deferred
Domestic--Federal................................ (504) (376) (633)
--State and local............................ (19) (140) (95)
Foreign.......................................... (997) (739) (507)
------- ------- -------
(1,520) (1,255) (1,235)
------- ------- -------
(1,848) 236 3,462
Net income (loss)
Domestic......................................... (1,022) (633) 2,546
Foreign.......................................... 321 2,440 3,555
------- ------- -------
$ (701) $ 1,807 $ 6,101
======= ======= =======
</TABLE>
A reconciliation of the effective tax rate to the U.S. statutory rate for
1993, 1994 and 1995 follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax (benefit) rate......... (34.8)% 35.0% 35.0%
State and local taxes on income net of domestic income
tax benefit............................................. (3.4) (0.8) 1.9
Impact of foreign subsidiaries on effective rate......... (47.5) (36.6) 4.0
Benefit of operating loss carryforwards.................. 0 0 (7.1)
Goodwill with no U.S. tax benefit........................ 15.9 21.8 4.7
All other................................................ (2.7) (7.8) (2.3)
----- ----- ----
Effective income tax rate.............................. (72.5)% 11.6% 36.2%
===== ===== ====
</TABLE>
F-13
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred income tax liabilities and
assets as of October 31, are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation.............................. $5,627 $5,222 $4,925
Other................................................... 403 103 87
------ ------ ------
Total deferred income tax liabilities................. 6,030 5,325 5,012
Deferred income tax assets:
Pension liability....................................... 257 511 684
Employee benefits....................................... 2,100 2,031 2,209
Net operating loss carryforwards........................ 4,210 3,279 1,832
Inventory valuation..................................... 715 538 877
Net operating loss carryback............................ 1,446 1,081 1,309
Other................................................... 721 1,628 1,632
------ ------ ------
Total deferred income tax assets...................... 9,449 9,068 8,543
Valuation allowance for deferred income tax assets...... 4,210 3,279 1,832
------ ------ ------
Net deferred income tax assets........................ 5,239 5,789 6,711
------ ------ ------
Net deferred income tax assets (liabilities).......... $ (791) $ 464 $1,699
====== ====== ======
</TABLE>
The valuation allowance has increased by $1,640,000 in 1993 and decreased by
$931,000 in 1994 and $1,447,000 in 1995.
The tax benefits from net operating loss carryforwards relate to the
operation in Brazil and are available indefinitely.
NOTE G--RELATED PARTY TRANSACTIONS
The intercompany accounts with Commercial Intertech included in the balance
sheets as "Receivables from affiliates" represent a net balance as the result
of various transactions between the Company and Commercial Intertech. The
account is non-interest bearing. The balance is primarily the result of the
Company's participation in Commercial Intertech's domestic cash management
systems as all excess cash is remitted to Commercial Intertech and certain
disbursements are made by Commercial Intertech. Also included are transactions
relating to the Company's federal income tax liability and other corporate
charges. Transactions with other Commercial Intertech subsidiaries are
included in the "Other" classification. An analysis of transactions in the
intercompany account follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................... $13,959 $10,923 $15,104
Net cash remitted to (from) parent............. (926) 11,716 15,084
Administrative expenses........................ (7,052) (8,607) (9,869)
Other.......................................... 4,942 1,072 (1,552)
------- ------- -------
$10,923 $15,104 $18,767
======= ======= =======
</TABLE>
F-14
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--PRODUCT DEVELOPMENT COSTS
The Company maintains ongoing development programs at various facilities to
formulate, design and test new products and product alternatives, and to
further develop and significantly improve existing products. Costs associated
with these activities, which the Company expenses as incurred, are shown for
the three-year period below:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Research and Development.......................... $1,794 $1,884 $2,483
Engineering....................................... 5,418 5,888 5,825
------ ------ ------
$7,212 $7,772 $8,308
====== ====== ======
Percent of net sales.............................. 5.5% 5.4% 5.1%
====== ====== ======
</TABLE>
NOTE I--SEGMENT REPORTING
The Company has a single industry segment which is engaged in the design,
manufacture and sale of products in the fluid purification industry. In the
following table, data in the column labeled "Europe" pertains to subsidiaries
operating within the European Economic Community. Data in the "Other" column
pertains to operations located in Japan, Asia, Australia and Brazil.
Operating income represents total revenue less total operating expenses.
Identifiable assets are those assets used in the operations of each business
or geographic area or which are allocated when used jointly.
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
UNITED
STATES EUROPE OTHER ELIMINATION CONSOLIDATED
-------- ------- ------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1993
Sales to customers...... $ 68,842 $20,440 $41,489 $ 0 $130,771
Inter-area sales........ 11,598 923 105 (12,626) 0
-------- ------- ------- -------- --------
Total net sales......... 80,440 21,363 41,594 (12,626) 130,771
Operating income
(loss)................. (3,095) (1,825) 3,242 0 (1,678)
Identifiable assets..... 97,306 13,994 32,700 0 144,000
1994
Sales to customers...... $ 71,964 $21,651 $49,496 $ 0 $143,111
Inter-area sales........ 12,981 1,069 181 (14,231) 0
-------- ------- ------- -------- --------
Total net sales......... 84,945 22,720 49,677 (14,231) 143,111
Operating income (loss)
....................... (1,413) 373 6,018 0 4,978
Identifiable assets..... 96,174 13,749 38,740 0 148,663
1995
Sales to customers...... $ 74,893 $27,700 $60,106 $ 0 $162,699
Inter-area sales........ 16,516 1,423 559 (18,498) 0
-------- ------- ------- -------- --------
Total net sales......... 91,409 29,123 60,665 (18,498) 162,699
Operating income........ 1,607 2,351 6,882 0 10,840
Identifiable assets..... 101,640 11,381 43,066 0 156,087
</TABLE>
Net assets of foreign subsidiaries at October 31, 1994 and 1995 were
$30,892,000 and $36,298,000, respectively, of which net current assets were
$15,718,000 and $19,558,000, respectively.
F-15
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures of financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate fair value.
Long and short-term debt: The carrying amounts of the Company's borrowings
under its short-term credit agreements approximate their fair value. The fair
values of the long-term debt are estimated using discounted cash flow
analysis, based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
at October 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------------
1994 1995
--------------- ----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE AMOUNT VALUE
-------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $4,408 $4,408 $ 6,740 $ 6,740
Short-term debt......................... 9,972 9,972 10,440 10,440
Long-term debt.......................... $6,043 $6,251 $ 5,096 $ 5,068
</TABLE>
Foreign currency exchange contracts: The Company utilizes foreign currency
exchange contracts to minimize the impact of currency fluctuations on
transactions. At October 31, 1995 and 1994, the Company and its combined
affiliates held a contract for $500,000 with a fair value of $500,000 at each
respective date. The fair value of the foreign currency exchange contract is
estimated based on quoted exchange rates at October 31, 1995. The forward
contracts are an effective hedge against fluctuations in the value of the
foreign currency. Therefore, the contract has no income statement impact.
NOTE K--DISPOSAL
The Company recorded a loss of $1,053,000 during fiscal 1994 on the disposal
of assets it had acquired from Bioken Separation, Inc., a manufacturer of
proprietary cross-flow membrane devices and systems. The original cost of the
acquisition was $2,224,000.
NOTE L--SUBSEQUENT EVENT (UNAUDITED)
On July 29, 1996, Commercial Intertech declared a distribution of 100% of
its interest in the Company to be effected by the distribution on August 19,
1996 (or the earliest practicable date following approval by Nasdaq or a
national securities exchange for trading thereon and the effectiveness of a
Form 10 under the Securities and Exchange Act of 1934) of one share of common
stock of the Company for each share of Commercial Intertech held by existing
shareholders of Commercial Intertech, based on a record date of August 9,
1996.
As part of the distribution, the Articles of Incorporation were amended to
provide for the authorization of 2,000,000 shares of $.001 par value Preferred
Stock and 50,000,000 shares of $.001 par value common stock. No preferred
shares will be issued at the time of distribution. The actual number of common
shares to be issued will be based on the number of shares of Commercial
Intertech outstanding on the record date. On July 23, 1996, 13,747,432
Commercial Intertech shares were outstanding.
F-16
<PAGE>
Immediately prior to the distribution, the Company will declare a dividend
of approximately $35,675,000 payable to Commercial Intertech and will assume
$30,000,000 of Commercial Intertech's debt.
The Company has received a commitment for a credit facility providing for an
aggregate borrowing availability of up to $55,000,000, consisting of a
$30,000,000 term facility and a $25,000,000 revolving facility. The facilities
will be secured by all the domestic assets and 65% of the stock of the foreign
affiliates of the Company and expires on January 30, 1998. The term facility
will be completely drawn down immediately upon distribution and the proceeds
used to repay the $30,000,000 borrowing from Commercial Intertech.
The Company and Commercial Intertech will enter into a Tax Allocation
Agreement providing, among other things, for the respective rights and
obligations of Commercial Intertech and the Company concerning tax liabilities
(including the allocation of and indemnification for tax liabilities) in
connection with the distribution.
As part of the distribution, the Company will adopt a stock option and award
plan which provides for the award of qualified and nonqualified stock options,
stocks appreciation rights, and restricted and performance shares. Upon
distribution, options for 314,000 common shares and 192,000 performance shares
will be granted. An additional 694,000 shares will be reserved for future
awards under the stock option and award plan.
F-17
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, APRIL
1995 30, 1996
----------- --------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Current assets
Cash (including equivalents of $1,582,000 in 1995 and
$845,000 in 1996)...................................... $ 6,740 $ 5,521
Accounts and notes receivable........................... 34,517 37,319
Less allowances for doubtful accounts................. 1,136 980
-------- --------
33,381 36,339
Inventories............................................. 21,763 18,566
Deferred income tax benefits............................ 5,766 4,993
Prepaid expenses and other current assets............... 2,511 2,456
Receivables from affiliates............................. 18,767 27,122
-------- --------
Total current assets.................................. 88,928 94,997
Noncurrent assets
Intangible assets....................................... 21,663 20,528
Pension assets.......................................... 3,264 3,233
Other noncurrent assets................................. 1,041 1,370
-------- --------
Total noncurrent assets............................... 25,968 25,131
Property, plant and equipment
Land and land improvements.............................. 6,672 6,364
Buildings and equipment................................. 84,256 83,062
Construction in progress................................ 2,451 3,134
-------- --------
93,379 92,560
Less allowances for depreciation and amortization....... 45,448 45,488
-------- --------
47,931 47,072
-------- --------
Total assets.......................................... $162,827 $167,200
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Bank loans.............................................. $ 10,440 $ 11,948
Accounts payable........................................ 10,780 11,485
Accrued payrolls and related taxes...................... 8,446 7,786
Accrued expenses........................................ 6,105 6,060
Accrued income taxes.................................... 2,947 4,267
Current portion of long-term debt....................... 1,036 1,014
-------- --------
Total current liabilities............................. 39,754 42,560
Noncurrent liabilities
Long-term debt.......................................... 4,060 3,484
Deferred income taxes................................... 4,067 4,023
Retirement benefits..................................... 2,757 2,727
-------- --------
Total noncurrent liabilities.......................... 10,884 10,234
Shareholder's equity
Equity.................................................. 105,650 108,696
Translation adjustments................................. 6,539 5,710
-------- --------
112,189 114,406
-------- --------
Total Liabilities and Shareholder's Equity............ $162,827 $167,200
======== ========
</TABLE>
See notes to condensed combined financial statements.
F-18
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF CONDENSED COMBINED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net sales..................................................... $77,343 $86,094
Less costs and expenses:
Cost of products sold....................................... 48,422 51,886
Selling, administrative and general expenses................ 24,229 26,584
------- -------
72,651 78,470
------- -------
Operating income.............................................. 4,692 7,624
Nonoperating income (expense):
Interest income............................................. 55 56
Interest expense............................................ (421) (199)
Exchange gains (losses)..................................... (61) (22)
Other....................................................... (206) 22
------- -------
(633) (143)
------- -------
Income before income taxes.................................... 4,059 7,481
Provision for income taxes:
Current..................................................... 2,159 1,649
Deferred.................................................... (757) 730
------- -------
1,402 2,379
------- -------
Net income.................................................... $ 2,657 $ 5,102
======= =======
</TABLE>
See notes to condensed combined financial statements.
F-19
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF CONDENSED COMBINED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income................................................. $ 2,657 $ 5,102
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for depreciation and amortization.............. 3,850 3,818
Pension plan credits..................................... 492 610
Change in deferred income taxes.......................... (757) 730
Change in current assets and liabilities:
(Increase) in accounts receivable ..................... (2,324) (3,627)
(Increase) decrease in inventories..................... (990) 2,895
Decrease (increase) in prepaid expenses and other
current assets........................................ 81 (29)
Decrease (increase) in receivables from affiliates..... 2,055 (7,651)
(Decrease) in accounts payable and accrued expenses.... (481) (154)
Increase in accrued income taxes....................... 117 65
------- -------
Net cash provided by operating activities............ 4,700 1,759
Investing activities:
Proceeds from sale of fixed assets......................... 37 32
Investment in intangibles.................................. (225) 0
Capital expenditures....................................... (2,754) (2,408)
------- -------
Net cash (used) in investing activities.............. (2,942) (2,376)
Financing activities:
Proceeds from long-term debt............................... 0 0
Principal payments on long-term debt....................... (343) (473)
Net borrowings under bank loan agreements.................. 101 1,788
Conversion of other assets................................. (38) (469)
Dividends paid to parent................................... 0 (1,268)
------- -------
Net cash (used) by financing activities.............. (280) (422)
Effect of exchange rate changes on cash...................... 80 (180)
------- -------
Net increase (decrease) in cash and cash equivalents......... 1,558 (1,219)
Cash and cash equivalents at beginning of period............. 4,408 6,740
------- -------
Cash and cash equivalents at end of period................... $ 5,966 $ 5,521
======= =======
Supplemental disclosures:
Cash paid during the period for:
Interest................................................. $ 428 $ 195
Income taxes............................................. 2,042 1,585
</TABLE>
See notes to condensed combined financial statements.
F-20
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month period ended April 30, 1996 are not
necessarily indicative of the results that may be expected for the full year
ended October 31. For further information, refer to the combined financial
statements and footnotes included herein.
NOTE B--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
APRIL
OCTOBER 31, 30,
1995 1996
----------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials......................................... $ 3,063 $ 2,924
Work-in-process....................................... 6,784 5,451
Finished goods........................................ 11,916 10,191
------- -------
$21,763 $18,566
======= =======
</TABLE>
F-21
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
The pro forma condensed combined income statement of the Company for the
year ended October 31, 1995 presented below reflects the effect of adjustments
to the historical results of operations of the Company necessary to give pro
forma effect to the Distribution as if it had occurred at the beginning of the
year presented. The pro forma condensed combined income statement of the
Company for the six months ended April 30, 1996 presented below reflects the
effect of adjustments to the historical results of operations of the Company
necessary to give pro forma affect to the Distribution as if it had occurred
at November 1, 1995. The pro forma condensed combined balance sheet as of
April 30, 1996 gives effect to the Distribution as if it had occurred on that
date. The pro forma condensed combined financial statements and accompanying
notes should be read in conjunction with the historical combined financial
statements of the Company included elsewhere herein.
Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma financial data. The pro forma condensed
combined income statements are provided for informational purposes only and
should not be construed to be indicative of the Company's results of
operations had the transactions and events described above been consummated on
the date assumed and are not intended to project the Company's results of
operations for any future period.
F-22
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
APRIL 30, 1996
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
APRIL PRO FORMA APRIL 30,
ASSETS 30, 1996 ADJUSTMENTS 1996
------ -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................... $ 5,521 $ 0 $ 5,521
Accounts receivables........................ 36,339 0 36,339
Inventories................................. 18,566 0 18,566
Prepaid expenses and other current assets... 7,449 0 7,449
Receivables from affiliates................. 27,122 0 27,122
-------- -------- --------
Total current assets...................... 94,997 0 94,997
Noncurrent assets
Intangible assets........................... 20,528 0 20,528
Pension assets.............................. 3,233 0 3,233
Other assets................................ 1,370 0 1,370
-------- -------- --------
Total noncurrent assets................... 25,131 0 25,131
Property, plant and equipment................. 92,560 0 92,560
Less allowance for depreciation............. 45,448 0 45,448
-------- -------- --------
47,072 0 47,072
-------- -------- --------
Total assets.............................. $167,200 $ 0 $167,200
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities
Bank loans.................................. $ 11,948 $ 0 $ 11,948
Accounts payable and other accruals......... 25,331 0 25,331
Accrued income taxes........................ 4,267 2,500 (2) 6,767
Dividend payable to parent.................. 0 35,675 (4) 35,675
Current portion of long-term debt........... 1,014 0 1,014
-------- -------- --------
Total current liabilities................. 42,560 38,175 80,735
Noncurrent liabilities
Long-term debt.............................. 3,484 0 3,484
Affiliate loan payable...................... 0 30,000 (1) 30,000
Deferred income taxes....................... 4,023 0 4,023
Postretirement benefits..................... 2,727 0 2,727
-------- -------- --------
Total noncurrent liabilities.............. 10,234 30,000 40,234
Shareholder's equity:
Equity.................................... $108,696 $(30,000)(1) $ --
(35,675)(4)
(2,500)(2)
(40,521)(3)
Stockholders' equity
Preferred Stock, $.001 par value; 2,000,000
shares authorized as adjusted; no shares
issued and outstanding as adjusted......... -- -- --
Common Stock, $.001 par value; 50,000,000
shares authorized, 13,747,432 shares issued
and outstanding as adjusted................ -- 14 (3) 14
Additional paid-in-capital.................. -- 40,507 (3) 40,507
-------- -------- --------
108,696 (68,175) 40,521
Translation adjustments..................... 5,710 5,710
-------- -------- --------
Total shareholder's equity.................... 114,406
Total stockholders' equity.................... 46,231
-------- -------- --------
Total liabilities and shareholder's
equity................................... $167,200 $ 0 $167,200
======== ======== ========
</TABLE>
See notes to pro forma condensed combined balance sheet.
F-23
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
APRIL 30, 1996
(1) Reflects the allocation of $30 million of long-term debt from Commercial
Intertech to the Company, which will be replaced immediately with the $30
million term facility from Mellon Bank, N.A.
(2) Reflects the capital gain tax of approximately $2.5 million incurred
because the Distribution is considered a change in the ownership group of
CUNO Pacific Pty., Ltd. under Australian tax law. The Tax Allocation
Agreement provides for the payment of the capital gain tax by the Company.
(3) Reflects the issuance of 13,747,432 shares of the Company common stock,
$.001 par value.
(4) Reflects the dividend of $35.7 million declared by the Company and payable
to Commercial Intertech.
F-24
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
PRO FORMA STATEMENTS OF CONDENSED COMBINED INCOME (UNAUDITED)
SIX MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
SIX MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, PRO FORMA APRIL 30,
1996 ADJUSTMENTS 1996
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................... $86,094 $ 0 $86,094
Less costs and expenses:
Cost of products sold................. 51,886 0 51,886
Selling, administrative and general
expenses............................. 26,584 0 26,584
------- ------- -------
78,470 0 78,470
------- ------- -------
Operating income........................ 7,624 0 7,624
Nonoperating income (expense):
Interest income....................... 56 0 56
Interest expense...................... (199) (1,275)(1) (1,474)
Exchange gains (losses)............... (22) 0 (22)
Other................................. 22 0 22
------- ------- -------
(143) (1,275) (1,418)
------- ------- -------
Income before income taxes.............. 7,481 (1,275) 6,206
Provision for income taxes:
Current............................... 1,649 (501)(2)(3) 1,148
Deferred.............................. 730 0 730
------- ------- -------
2,379 (501) 1,878
------- ------- -------
Net income.............................. $ 5,102 $ (774) $ 4,328
======= ======= =======
Pro Forma net income per share of common
stock:
Net income per share.................. $ 0.31
Shares used to calculate net income
per share............................ 13,747
</TABLE>
- --------
(1) Adjusts actual interest expense to reflect the interest expense on the $30
million of long-term debt allocated to the Company from Commercial
Intertech, which will be replaced immediately with the $30 million term
facility from Mellon Bank, N.A., based on an 8.5% per annum interest rate,
as if the debt had been outstanding for the entire period. Interest rates
under the term facility will be variable with each 1/8% point movement in
the interest rate resulting in a change in annual interest expense of
$37,500 ($22,800, net of tax) based on the $30 million term facility
balance.
(2) Represents the income tax effect of the adjustment described in (1) above
based on the statutory federal and state tax rates.
(3) Does not include the capital gain tax of approximately $2.5 million,
incurred because the Distribution is considered a change in the ownership
group of CUNO Pacific Pty., Ltd. under Australian tax law, as the capital
gain tax results directly from the Distribution and is a nonrecurring
charge.
F-25
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
PRO FORMA STATEMENTS OF CONDENSED COMBINED INCOME (UNAUDITED)
YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
YEAR ENDED YEAR ENDED
OCTOBER 31, PRO FORMA OCTOBER 31,
1995 ADJUSTMENTS 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................. $162,699 $ 0 $162,699
Less costs and expenses:
Cost of products sold............... 99,772 0 99,772
Selling, administrative and general
expenses........................... 52,087 0 52,087
-------- ------- --------
151,859 0 151,859
-------- ------- --------
Operating income...................... 10,840 0 10,840
Nonoperating income (expense):
Interest income..................... 145 0 145
Interest expense.................... (691) (2,550)(1) (3,241)
Exchange gains (losses)............. (449) 0 (449)
Other............................... (282) 0 (282)
-------- ------- --------
(1,277) (2,550) (3,827)
-------- ------- --------
Income before income taxes............ 9,563 (2,550) 7,013
Provision for income taxes:
Current............................ 4,697 (1,002)(2)(3) 3,695
Deferred........................... (1,235) 0 (1,235)
-------- ------- --------
3,462 (1,002) 2,460
-------- ------- --------
Net income............................ $ 6,101 $(1,548) $ 4,553
======== ======= ========
Pro forma net income per share of
common stock:
Net income per share................ $ 0.33
Shares used to calculate net income
per share.......................... 13,747
</TABLE>
- --------
(1) Adjusts actual interest expense to reflect the interest expense on the $30
million of long-term debt allocated to the Company from Commercial
Intertech, which will be replaced immediately with the $30 million loan
facility from Mellon Bank, N.A., based on an 8.5% per annum interest rate,
as if the debt had been outstanding for the entire period. Interest rates
under the term facility will be variable with each 1/8% point movement in
the interest rate resulting in a change in annual interest expense of
$37,500 ($22,800, net of tax) based on the $30 million term facility
balance.
(2) Represents the income tax effect of the adjustment described in (1) above
based on the statutory federal and state tax rates.
(3) Does not include the capital gain tax of approximately $2.5 million,
incurred because the Distribution is considered a change in the ownership
group of CUNO Pacific Pty., Ltd. under Australian tax law, as the capital
gain tax results directly from the Distribution and is a nonrecurring
charge.
F-26
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
CUNO Incorporated
/s/ Paul J. Powers
Dated: August 2, 1996 By: _________________________________
Paul J. Powers
Chairman of the Board and Chief
Executive Officer
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CUNO INCORPORATED AND COMBINED AFFILIATES
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------------- ---------- ----------
ADDITIONS
-------------------
CHARGED CHARGED TO
BALANCE AT TO COSTS OTHER BALANCE AT
BEGINNING AND ACCOUNTS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS PERIOD
----------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended October 31,
1995
Deducted from asset
accounts:
Allowance for
doubtful accounts
receivable........ $ 873,259 $643,310 $ 0 $380,653(A) $1,135,916
========== ======== ========== ======== ==========
Valuation allowance
for deferred income
tax assets.......... $3,279,000 $ 0 $ (764,000)(C) $683,000(C) $1,832,000
========== ======== ========== ======== ==========
Year ended October 31,
1994
Deducted from asset
accounts:
Allowance for
doubtful accounts
receivable........ $ 702,025 $193,249 $ 0 $ 22,015(A) $ 873,259
========== ======== ========== ======== ==========
Valuation allowance
for deferred income
tax assets.......... $4,210,000 $ 0 $ (931,000)(C) $ 0(C) $3,279,000
========== ======== ========== ======== ==========
Year ended October 31,
1993
Deducted from asset
accounts:
Allowance for
doubtful accounts
receivable........ $ 700,192 $222,898 $ 0 $221,065(A) $ 702,025
========== ======== ========== ======== ==========
Valuation allowance
for deferred income
tax assets.......... $2,570,000 $ 0 $1,640,000 (B) $ 0 $4,210,000
========== ======== ========== ======== ==========
</TABLE>
- --------
(A) Uncollectible accounts written off, net of recoveries.
(B) Increase in net operating loss carryforward for the year.
(C) Net operating loss carryforwards utilized or expired.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of CUNO
Incorporated
3.2 Amended and Restated Bylaws of CUNO Incorporated
4.1 Form of CUNO Incorporated Rights Agreement dated July ,
1996
8.1 Opinion of Katten Muchin & Zavis as to certain federal
income tax consequences of the Distribution
8.2 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
certain federal income tax consequences of the
Distribution
10.1 CUNO Incorporated Non-Employee Directors' Stock Option
Plan
10.2 CUNO Incorporated 1996 Stock Incentive Plan
10.3 Form of CUNO Incorporated Distributorship Agreement
10.4 Form of Distribution and Interim Services Agreement by
and between CUNO Incorporated and Commercial Intertech
Corp.
10.5 Form of Tax Allocation Agreement by and between CUNO
Incorporated and Commercial Intertech Corp.
10.6 Form of Employee Benefit Agreement by and between CUNO
Incorporated and Commercial Intertech Corp.
10.7 Form of CUNO Incorporated Termination and Change of
Control Agreement
10.8 Severance Compensation Agreement dated March 25, 1995
between Commercial Intertech Corp. and Mark G. Kachur
10.9 Employment Agreement dated December 3, 1993 between
Commercial Intertech Corp. and Mark G. Kachur
21 Subsidiaries of the Company
23.1 Consent of Katten Muchin & Zavis (included in its opinion
filed as Exhibit 8.1 herewith)
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in its opinion filed as Exhibit 8.2 herewith)
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CUNO INCORPORATED
-----------------
(Original Certificate of Incorporation filed May 22, 1985)
CUNO Incorporated (the "CORPORATION"), originally incorporated as AMF
Specialty Materials Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify that the Amended and Restated Certificate of Incorporation
of the Corporation set forth below has been duly adopted in accordance with
Sections 242 and 245 of the DGCL:
ARTICLE I
---------
The name of the corporation is CUNO Incorporated (the "CORPORATION").
ARTICLE II
----------
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange St., Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
ARTICLE III
-----------
The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
----------
A. Authorized Stock
----------------
1. The Corporation shall have authority to issue the following
classes of stock, in the number of shares and at the par value as indicated
opposite the name of the class:
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
------------------------------- ----------------- ----------------
<S> <C> <C>
Common Stock 50,000,000 $0.001
Preferred Stock 2,000,000 $0.001
</TABLE>
B. The designations and the powers, preferences and relative,
participating, or other rights of the capital stock and optional the
qualifications, limitations or restrictions thereof are as follows:
1. Common Stock.
------------
a. Voting Rights: Except as otherwise required by law or expressly
provided herein, the holders of shares of Common Stock shall be entitled to
one vote per share on each matter submitted to a vote of the stockholders
of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
Preferred Stock, the holders of Common Stock shall be entitled to receive
dividends at such times and in such amounts as may be determined by the
Board of Directors of the Corporation.
c. Liquidation Rights: In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any
outstanding shares of Preferred Stock shall be entitled upon dissolution,
liquidation or winding up, the assets of the Corporation available for
distribution to stockholders shall be distributed ratably among the holders
of the shares of Common Stock.
2. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more series.
Subject to the other provisions of this Certificate of Incorporation and
any limitations prescribed by law, the Board of Directors is authorized to
provide for the issuance of and issue shares of the Preferred Stock in
series and, by filing a certificate pursuant to the laws of the State of
Delaware, to establish from time to time the number of shares to be
included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof.
ARTICLE V
---------
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors consisting of not less than five (5) nor
more than twelve (12) directors. The
2
<PAGE>
exact number shall be determined from time to time by resolution adopted by the
affirmative vote of a majority of the directors in office at the time of
adoption of such resolution. Initially, the number of directors shall be
five (5) and shall consist of the following persons: John M. Galvin,
Mark G. Kachur, Gerald C. McDonough, C. Edward Midgley and Paul J. Powers.
The directors shall be divided into three classes, Class I, Class II and
Class III; with Class I having one member and each of Class II and Class III
having two members. Class I shall initially consist of the following director:
John M. Galvin. Class II shall initially consist of the following directors:
Mark G. Kachur and Gerald C. McDonough . Class III shall initially consist of
the following directors: C. Edward Midgley and Paul J. Powers. The initial term
of office of the Class I, Class II and Class III directors shall expire at the
annual meeting of stockholders in 1997, 1998 and 1999, respectively. Beginning
in 1997, at each annual meeting of stockholders, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes by the Board of Directors so
as to maintain the number of directors in each class as nearly equal as is
reasonably possible, and any additional director of any class elected to fill
a vacancy resulting from an increase in such class shall hold office for a term
that shall coincide with the remaining term of that class. In no case will a
decrease in the number of directors shorten the term of any incumbent director
even though such decrease may result in an inequality of the classes until the
expiration of such term. A director shall hold office until the annual meeting
of the year in which his or her term expires and until his or her successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement or removal from office. Subject to the rights of the
holders of any series of Preferred Stock with respect to such series of
Preferred Stock, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of the shares entitled to
vote generally in the election of directors. Except as required by law or the
provisions of this Certificate of Incorporation, all vacancies on the Board of
Directors and newly-created directorships shall be filled by the Board of
Directors. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his or
her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorship shall be governed by the terms
of this Certificate of Incorporation and any resolutions of the Board of
Directors applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article V. Notwithstanding anything to the
contrary contained in this Certificate of Incorporation, the affirmative vote of
the holders of at least eighty percent (80%) of the voting power of the shares
entitled to vote generally in the election of directors shall be required to
amend, alter or repeal, or to adopt any provision inconsistent with, this
Article V.
3
<PAGE>
ARTICLE VI
----------
A. No Written Consent. Any action required or permitted to be taken by
the stockholders of the Corporation shall be effected at a duly called annual or
special meeting of stockholders of the Corporation and shall not be effected by
consent in writing by the holders of outstanding stock pursuant to Section 228
of the DGCL or any other provision of the DGCL.
B. Special Meetings. Special meetings of stockholders of the Corporation
may be called upon not less than 10 nor more than 60 days' written notice only
by the Board of Directors pursuant to a resolution approved by a majority of the
Board of Directors.
C. Amendment. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
eighty percent (80%) of the shares entitled to vote generally in the election of
directors shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with, this Article VI.
ARTICLE VII
-----------
In furtherance and not in limitation of the power conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
By-laws of the Corporation. The By-laws of the Corporation may be altered,
amended, or repealed, or new By-laws may be adopted, by the Board of Directors
in accordance with the preceding sentence or by the vote of the holders of at
least two-thirds of the voting power of the shares of the Corporation entitled
to be cast generally in the election of directors at an annual or special
meeting of stockholders, provided that if such alteration, amendment, repeal or
adoption of new By-laws is effected at a duly called special meeting, notice of
such alteration, amendment, repeal or adoption of new By-laws is contained in
the notice of such special meeting.
ARTICLE VIII
------------
A director of the Corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that he, or any firm of which he is a member
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in a manner provided in the DGCL for
authorization, approval or ratification of transactions or contracts between the
Corporation and one or more of its directors or officers or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest.
4
<PAGE>
ARTICLE IX
----------
Meetings of stockholders may be held within or without the State of
Delaware as the By-laws may provide. The books of the Corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors of the Corporation or in the By-laws of
the Corporation. Election of directors need not be by written ballot unless the
By-laws of the Corporation so provide.
ARTICLE X
---------
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of the DGCL or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the provisions of
Section 279 of the DGCL, order a meeting of the creditors or class of creditors
and/or the stockholders or class of stock of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing two-thirds of the value of the creditors or class of
creditors and/or the stockholders or class of stockholders of this Corporation,
as the case may be, agree to any compromise or arrangement or to any
reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement of the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE XI
----------
The Board of Directors of the Corporation may adopt a resolution proposing
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute.
ARTICLE XII
-----------
A. Indemnification of Officers and Directors: The Corporation shall:
1. indemnify, to the fullest extent permitted by the DGCL, any
director and any officer, employee or agent of the Corporation selected by
the Board of Directors for indemnification, such selection to be evidenced
by an indemnification agreement, who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
5
<PAGE>
investigative (other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was a director, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or if such person has previously been designated for
indemnification by a resolution of the Board of Directors, an officer,
employee or agent of the Corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit
or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was unlawful; and
2. indemnify any director and any officer, employee or agent of the
Corporation selected by the Board of Directors for indemnification, such
selection to be evidenced by an indemnification agreement, who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or if such person has previously
been designated for indemnification by a resolution of the Board of
Directors, an officer, employee or agent of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper; and
3. indemnify any director, officer, employee or agent against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, to the extent that such director,
officer, employee or agent of the Corporation has been successful on the
merits or otherwise in defense of any action, suit or
6
<PAGE>
proceeding referred to in Article XII.A. (a) and (b), or in defense of any
claim, issue or matter therein; and
4. make any indemnification under Article XII.A. (a) and (b) (unless
ordered by a court) only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such director, officer,
employee or agent has met the applicable standard of conduct set forth in
Article XII.A. (a) and (b). Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(3) by the stockholders of the Corporation; and
5. pay expenses incurred by a director or officer in defending a
civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such director or officer
is not entitled to be indemnified by the Corporation as authorized in this
Article XII. Notwithstanding the foregoing, the Corporation shall not be
obligated to pay expenses incurred by a director or officer with respect to
any threatened, pending, or completed claim, suit or action, whether civil,
criminal, administrative, investigative or otherwise ("Proceedings")
initiated or brought voluntarily by a director or officer and not by way of
defense (other than Proceedings brought to establish or enforce a right to
indemnification under the provisions of this Article XII unless a court of
competent jurisdiction determines that each of the material assertions made
by the director or officer in such proceeding were not made in good faith
or were frivolous). The Corporation shall not be obligated to indemnify the
director or officer for any amount paid in settlement of a Proceeding
covered hereby without the prior written consent of the Corporation to such
settlement; and
6. not deem the indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Article XII as
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such director's or officer's official capacity and as to action in
another capacity while holding such office; and
7. have the right, authority and power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the
7
<PAGE>
Corporation would have the power to indemnify such person against such
liability under the provisions of this Article XII; and
8. deem the provisions of this Article XII to be a contract between
the Corporation and each director, or appropriately designated officer,
employee or agent who serves in such capacity at any time while this
Article XII is in effect and any repeal or modification of this Article XII
shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon such state of facts. The provisions of this Article XII
shall not be deemed to be a contract between the Corporation and any
directors, officers, employees or agents of any other Corporation (the
"Second Company") which shall merge into or consolidate with this
Corporation when this Corporation shall be the surviving or resulting
Corporation, and any such directors, officers, employees or agents of the
Second Company shall be indemnified to the extent required under the DGCL
only at the discretion of the board of directors of this Corporation; and
9. continue the indemnification and advancement of expenses provided
by, or granted pursuant to, this Article XII, unless otherwise provided
when authorized or ratified, as to a person who has ceased to be a
director, officer, employee or agent of the Corporation and shall inure to
the benefit of the heirs, executors and administrators of such a person.
B. Elimination of Certain Liability of Directors: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended DGCL.
Any repeal or modification of this Article XII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
8
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed on July __, 1996.
CUNO INCORPORATED
By:______________________________________
[Name]
[Title]
9
<PAGE>
EXHIBIT 3.2
CUNO INCORPORATED
-----------------
AMENDED AND RESTATED BY-LAWS
----------------------------
(ADOPTED MAY 22, 1985 AND AMENDED AND RESTATED JULY __, 1996)
-------------------------------------------------------------
ARTICLE 1
---------
OFFICES
-------
Section 1.1 Registered Office. The registered office of CUNO Incorporated
(the "CORPORATION") shall be in the City of Wilmington, County of New Castle,
State of Delaware.
Section 1.2 Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors of the Corporation may from time to time determine or the business of
the Corporation may require.
ARTICLE 2
---------
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1 Place of Meeting. All meetings of the stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Board of Directors in the notice of
the meeting or in a duly executed waiver of notice thereof.
Section 2.2 Voting Lists. The officer who has charge of the ledger of the
Corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list, with respect to each issue to be considered at
such meeting, of the stockholders entitled to vote at the meeting on such issue,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 10 days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 2.3 Time of Annual Meeting. Annual meetings of all stockholders
shall be held on the second Tuesday in February, if not a legal holiday, and if
a legal holiday, then on the next secular day following, at 10:00 A.M., or at
such other date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting, at which stockholders
shall elect directors to hold office for the term provided in SECTION 3.2 of
these By-laws and conduct such other business as shall be considered.
<PAGE>
Section 2.4 Annual Meeting Agenda Items. At the annual meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (i) by or at the direction of the Board of Directors, or (ii)
by any stockholder of the Corporation who complies with the notice procedures
set forth below in the time herein provided. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must deliver written
notice to, or mail such written notice so that it is received by, the secretary
of the Corporation, at the principal executive offices of the Corporation, not
less than 45 nor more than 60 days prior to the first anniversary of the date of
the Corporation's consent solicitation or proxy statement released to
stockholders in connection with the previous year's election of directors or
meeting of stockholders, except that if no annual meeting of stockholders or
election by consent was held in the previous year, a proposal must be received
by the Corporation within 10 days after the Corporation has "publicly disclosed"
the date of the meeting in the manner provided below. The stockholder's notice
to the secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (A) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (B) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (C) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (D) any material interest of the stockholder in such business.
At the annual meeting, the presiding officer shall, if the facts warrant,
determine and declare to the meeting that such business was not properly brought
before the meeting in accordance with the provisions of this SECTION 2.4, and if
he or she should so determine, he or she shall so declare to the meeting, and
any such business not properly brought before the meeting shall not be
transacted. Whether or not the foregoing procedures are followed, no matter
which is not a proper matter for stockholder consideration shall be brought
before the meeting. For purposes of these By-laws, "publicly disclosed" or
"public disclosure" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press, or a comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission.
Section 2.5 Notice of Annual Meetings. Except as otherwise required by law,
written notice of the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting.
Section 2.6 Director Nominations. Only persons who are nominated in
accordance with the following procedure shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors of the Corporation
at a meeting of stockholders may be made (i) by or at the direction of the Board
of Directors, or (ii) by any stockholder of the Corporation entitled to vote in
the election of directors at the meeting who complies with the notice procedures
set forth in this SECTION 2.6. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received by, the secretary of the
Corporation at the principal executive offices of the Corporation not less than
60 nor more than 90 days prior to the meeting; provided, however, that if the
Corporation has not "publicly disclosed" (in the manner provided in the last
sentence of SECTION 2.4) the date of the meeting at least 70 days prior to the
meeting date, notice may
-3-
<PAGE>
be timely made by a stockholder under this Section if received by the secretary
of the Corporation not later than the close of business on the tenth day
following the day on which the Corporation "publicly disclosed" the meeting
date. Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving notice (A) the name and address, as they appear on the
Corporation's books, of such stockholder, and (B) the class and number of shares
of the Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the Corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible to serve
as a director of the Corporation unless nominated in accordance with the
procedure set forth herein. The presiding officer shall, if the facts so
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the By-laws, and if such officer
should so determine, such officer shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 2.7 Special Meetings of the Stockholders. Special meetings of all
of the stockholders of the Corporation may only be called by the Board of
Directors pursuant to a resolution approved by a majority of the Board of
Directors. The business transacted at any special meeting of the stockholders
shall be limited to the purposes stated in the notice for the meeting
transmitted to stockholders.
Section 2.8 Notice of Special Meetings. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given by the secretary of the Corporation
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 2.9 Quorum and Adjournments. The holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business, except as otherwise provided
by statute or the Corporation's Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any such meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented; provided that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed by the directors
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
notified.
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Section 2.10 Fixing of Record Date. For purposes of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which shall
not precede the date upon which the resolution fixing the record date is
adopted, and which shall be (i) not more than 60 nor less than 10 days before
the date of a meeting, and (ii) not more than 60 days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for any adjourned
meeting.
Section 2.11 Vote Required. When a quorum is present at any meeting of all
stockholders, the affirmative vote of holders of a majority of the voting power
of the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the Certificate of Incorporation requires a different vote, in
which case such express provision shall govern and control the decision of such
question.
Section 2.12 Voting Rights. Unless otherwise provided in the Certificate of
Incorporation, each stockholder having voting power shall at every meeting of
the stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three (3) years from its date, unless the proxy provides
for a longer period. At any meeting of the stockholders, every stockholder
entitled to vote may vote in person or by proxy authorized by an instrument in
writing or by a transmission permitted by law filed in accordance with the
procedure established for the meeting. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission created pursuant to
this paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided that, such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. All voting, including the election of
directors but except where otherwise required by law, may be by a voice vote;
provided, however, that upon demand by a stockholder entitled to vote or by his
or her proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy voting
and such other information as may be required under the procedure established
for the meeting. The Corporation may, and to the extent required by law shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath to faithfully execute the duties of inspector with strict
impartiality and according to the best of his or her ability. Every vote taken
by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
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Section 2.13 Inspectors of Elections; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the presiding
officer of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by law. The presiding officer of the meeting
shall fix and announce at the meeting the date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting.
Section 2.14 The chairman of the Board of Directors shall preside at all
meetings of the stockholders. In the absence or inability to act of the
chairman, the chief executive officer, the president, the chief financial
officer or an executive vice president (in that order) shall preside, and in
their absence or inability to act another person designated by one of them shall
preside. The secretary of the Corporation shall act as secretary of each meeting
of the stockholders. In the event of his or her absence or inability to act, the
chairman of the meeting shall appoint a person who need not be a stockholder to
act as secretary of the meeting.
Section 2.15 Meetings of the stockholders shall be conducted in a fair
manner but need not be governed by any prescribed rules of order. The presiding
officer of the meeting shall establish an agenda for the meeting. The presiding
officer's rulings on procedural matters shall be final. The presiding officer is
authorized to impose reasonable time limits on the remarks of individual
stockholders and may take such steps as such officer may deem necessary or
appropriate to assure that the business of the meeting is conducted in a fair
and orderly manner.
ARTICLE 3
---------
DIRECTORS
---------
Section 3.1 General Powers. The business of the Corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not required by statute, by the Certificate of Incorporation, or by these By-
laws to be done by the stockholders. Directors need not be residents of the
State of Delaware or stockholders of the Corporation.
Section 3.2 Election. Directors shall be elected as specified in the
Certificate of Incorporation, and each director elected shall hold office during
the term for which he or she is elected and until his or her successor is
elected and qualified.
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Section 3.3 Removal. Directors may only be removed for cause by the holders
of at least 80 percent of the voting power of the shares entitled to vote
generally in the election of directors.
Section 3.4 Vacancies. Any vacancies occurring in the Board of Directors
and newly created directorships shall be filled in the manner provided in the
Certificate of Incorporation of the Corporation.
Section 3.5 Place of Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. The first meeting of each newly elected Board of Directors shall be
held immediately following the adjournment of the annual meeting of the
stockholders at the same place as such annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order to legally
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6 Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 3.7 Special Meetings. Special meetings of the Board of Directors
may be called by the chairman, the chief executive officer, the president or the
chief financial officer on at least one days' notice to each director, either
personally, or by courier, telephone, facsimile, mail or telegram. Special
meetings shall be called by the chairman, the chief executive officer, the
president or the chief financial officer in like manner and on like notice at
the written request of one-half or more of the directors comprising the Board of
Directors stating the purpose or purposes for which such meeting is requested.
Notice of any meeting of the Board of Directors for which a notice is required
may be waived in writing signed by the person or persons entitled to such
notice, whether before or after the time of such meeting, and such waiver shall
be equivalent to the giving of such notice. Attendance of a director at any such
meeting shall constitute a waiver of notice thereof, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because such meeting is not lawfully convened. Neither the business to
be transacted at nor the purpose of any meeting of the Board of Directors for
which a notice is required need be specified in the notice, or waiver of notice,
of such meeting. The chairman shall preside at all meetings of the Board of
Directors. In the absence or inability to act of the chairman, the chief
executive officer, the president, the chief financial officer or an executive
vice president (in that order) shall preside, and in their absence or inability
to act another director designated by one of them shall preside.
Section 3.8 Quorum; No Action on Certain Matters. At all meetings of the
Board of Directors, a majority of the then duly elected directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which
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there is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.9 Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors, the chairman, the chief
executive officer, the president, the chief financial officer or the secretary
of the Corporation. Such resignation shall take effect at the time specified
therein and, unless tendered to take effect upon acceptance thereof, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.10 Informal Action. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 3.11 Participation by Conference Telephone. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws, members of the
Board of Directors, or any committee designated by such Board of Directors, may
participate in a meeting of such Board of Directors, or committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this subsection shall constitute presence in person at such
meeting.
Section 3.12 Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.13 Compensation. In the discretion of the Board of Directors, the
directors may be paid their expenses, if any, for attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
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ARTICLE 4
---------
COMMITTEES OF DIRECTORS
-----------------------
Section 4.1 Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
subsection (a) of Section 151 of the Delaware General Corporation Law, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series), and if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide, such other
items or tasks as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 4.2 Committee Minutes. Each committee shall keep regular minutes of
its meetings and shall file such minutes and all written consents executed by
its members with the Secretary of the Corporation. Each committee may determine
the procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE 5
---------
NOTICES
-------
Section 5.1 Manner of Notice. Whenever, under applicable law or the
Certificate of Incorporation or of these By-laws, notice is required to be given
to any director or stockholder,
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unless otherwise provided in the Certificate of Incorporation or these By-laws,
such notice may be given in writing, by courier or mail, addressed to such
director or stockholder, at his or her address as it appears on the records of
the Corporation, with freight or postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall have been deposited with
such courier or in the United States mail. Notice to directors may also be given
by telegram, mailgram, telex or telecopier.
Section 5.2 Waiver. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE 6
---------
OFFICERS
--------
Section 6.1 Number and Qualifications. The officers of the Corporation
shall be chosen by the Board of Directors and shall be a chairman of the board,
a chief executive officer, a president, a chief financial officer, one or more
vice-presidents and a secretary. The Board of Directors may also choose
additional co-chairman, additional vice-presidents, a treasurer, one or more
assistant secretaries and assistant treasurers and such additional officers as
the Board of Directors may deem necessary or appropriate from time to time.
Membership on the Board of Directors shall not be a prerequisite to the holding
of any other office. Any number of offices may be held by the same person,
unless the Certificate of Incorporation or these By-laws otherwise provide.
Section 6.2 Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect a chairman of the board, a chief
executive officer, a president, a chief financial officer, one or more vice-
presidents (one of whom may be chosen as executive vice-president), and a
secretary, and may choose a treasurer, one or more assistant secretaries and
assistant treasurers and such other officers as the Board of Directors shall
deem desirable.
Section 6.3 Other Officers and Agents. The Board of Directors may choose
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 6.4 Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 6.5 Term of Office. The officers of the Corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative
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vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
Section 6.6 The Chairman of the Board. The chairman of the board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall see that orders and resolutions of the Board of Directors are carried into
effect. The chairman of the board shall perform such duties as may be assigned
to him by the Board of Directors.
Section 6.7 The Chief Executive Officer. The chief executive officer shall
be the principal executive officer of the Corporation and shall, in general,
supervise and control all of the business and affairs of the Corporation, unless
otherwise provided by the Board of Directors. In the absence of the chairman of
the board, he or she shall preside at all meetings of the stockholders and of
the Board of Directors and shall see that orders and resolutions of the Board of
Directors are carried into effect. He or she may sign bonds, mortgages,
certificates for shares and all other contracts and documents whether or not
under the seal of the Corporation except in cases where the signing and
execution thereof shall be expressly delegated by law, by the Board of Directors
or by these By-laws to some other officer or agent of the Corporation. He or she
shall have general powers of supervision and shall be the final arbiter of all
differences between officers of the Corporation and his or her decision as to
any matter affecting the Corporation shall be final and binding as between the
officers of the Corporation subject only to its Board of Directors.
Section 6.8 The President. Unless another party has been designated as
chief operating officer, the president shall be the chief operating officer of
the Corporation responsible for the day-to-day active management of the business
of the Corporation, under the general supervision of the chief executive
officer. In the absence of the chief executive officer, the president shall
perform the duties of the chief executive officer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chief
executive officer. He or she shall have concurrent power with the chief
executive officer to sign bonds, mortgages, certificates for shares and other
contracts and documents, whether or not under the seal of the Corporation except
in cases where the signing and execution thereof shall be expressly delegated by
law, by the Board of Directors, or by these By-laws to some other officer or
agent of the Corporation. In general, he or she shall perform all duties
incident to the office of president and such other duties as the chief executive
officer or the Board of Directors may from time to time prescribe.
Section 6.9 The Chief Operating Officer. The Board of Directors shall
designate whether the president or some other party shall be the chief operating
officer of the Corporation. If the president has not been designated as chief
operating officer, the chief operating officer shall have such duties and
responsibilities, under the general supervision of the president, as the
president or Board of Directors may from time to time prescribe.
Section 6.10 The Chief Financial Officer. The chief financial officer shall
be the principal accounting and financial officer of the Corporation. He or she
shall: (a) have charge of and be responsible for the maintenance of adequate
books of account for the Corporation; (b) have charge and custody of all funds
and securities of the Corporation, and be responsible therefor and for the
receipt and disbursement thereof; and (c) perform all the duties incident to
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the office of the chief financial officer and such other duties as from time to
time may be assigned to him by the president or by the Board of Directors. If
required by the Board of Directors, the chief financial officer shall give a
bond for the faithful discharge of his or her duties in such sum and with such
surety or sureties as the Board of Directors may determine.
Section 6.11 The Vice-Presidents. In the absence of the president or in the
event of his or her inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the executive vice-president and
then the other vice-president or vice-presidents in the order designated, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The vice-
presidents shall perform such other duties and have such other powers as the
chief executive officer or the Board of Directors may from time to time
prescribe.
Section 6.12 The Secretary. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He or she shall give, or cause to be given,
or cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or the chief executive officer, under
whose supervision he or she shall be. He or she shall have custody of the
corporate seal of the Corporation and he or she, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his or her signature or by the signature of
such assistant secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his or her signature.
Section 6.13 The Treasurer. In the absence of the chief financial officer
or in the event of his or her inability or refusal to act, the treasurer shall
perform the duties of the chief financial officer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chief
financial officer. The treasurer shall perform such other duties and have such
other powers as the chief executive officer or the Board of Directors may from
time to time prescribe.
Section 6.14 The Assistant Secretary. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
chief executive officer or the Board of Directors may from time to time
prescribe.
Section 6.15 The Assistant Treasurer. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the treasurer or in the event of his
or her inability or refusal to act, perform the duties and exercise
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the powers of the treasurer and shall perform such other duties and have such
other powers as the chief executive officer or the Board of Directors may from
time to time prescribe.
ARTICLE 7
---------
CERTIFICATES OF STOCK, TRANSFERS, AND RECORD DATES
--------------------------------------------------
Section 7.1 Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the chairman of the Board of Directors, the chief executive
officer, the president, the chief financial officer, a vice-president, the
treasurer, an assistant treasurer, the secretary or an assistant secretary of
the Corporation, certifying the number of shares owned by him or her in the
Corporation. If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designation,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth in full or summarized
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Subject to the
foregoing, certificates for stock of the Corporation shall be in form as the
Board of Directors may from time to time prescribe.
Section 7.2 Facsimile Signatures. Where a certificate is countersigned (1)
by a transfer agent other than the Corporation or its employee, or, (2) by a
registrar other than the Corporation or its employee, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Section 7.3 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or give the Corporation a bond in such sum as it
may direct as indemnifying against any claim that may be made against the
Corporation or its transfer agent or registrar with respect to the certificate
alleged to have been lost, stolen or destroyed.
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Section 7.4 Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 7.5 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE 8
---------
GENERAL PROVISIONS
------------------
Section 8.1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock or rights to acquire the same, subject to the
provisions of the Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive to
the interest of the Corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
Section 8.2 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 8.3 Fiscal Year. The fiscal year of the Corporation shall end on
the last day of October of each year unless otherwise fixed by resolution of the
Board of Directors.
Section 8.4 Seal. The corporate seal shall have inscribed thereon the name
of the Corporation and the words "Corporate Seal, Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 8.5 Stock in Other Corporations. Shares of any other corporation
which may from time to time be held by this Corporation may be represented and
voted at any meeting of shareholders of such corporation by the chairman of the
board, the chief executive officer, the president, the chief financial officer
or a vice president, or by any proxy appointed in writing
-14-
<PAGE>
by the chairman of the board, the chief executive officer, the president, the
chief financial officer or a vice-president of the Corporation, or by any other
person or persons thereunto authorized by the Board of Directors. Shares
represented by certificates standing in the name of the Corporation may be
endorsed for sale or transfer in the name of the Corporation by the chairman of
the board, the chief executive officer, the president, the chief financial
officer or any vice-president or by any other officer or officers thereunto
authorized by the Board of Directors. Shares belonging to the Corporation need
not stand in the name of the Corporation, but may be held for the benefit of the
Corporation in the individual name of the chief financial officer or of any
other nominee designated for the purpose of the Board of Directors.
ARTICLE 9
---------
AMENDMENTS
----------
These By-laws may be altered, amended or repealed or new By-laws may be
adopted only in the manner provided in the Corporation's Certificate of
Incorporation.
ARTICLE 10
----------
CONFLICT OF INTERESTS
---------------------
Section 10.1 No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if:
(i) The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or
(ii) The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(iii) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
-15-
<PAGE>
Section 10.2 Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
-16-
<PAGE>
__________________________________________
CUNO INCORPORATED
AND
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF ________________, 1996
__________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Certain Definitions.................................................................. 1
Section 2. Appointment of Rights Agent.......................................................... 5
Section 3. Issuance of Right Certificates....................................................... 6
Section 4. Form of Right Certificate............................................................ 7
Section 5. Countersignature and Registration.................................................... 8
Section 6. Transfer, Split-Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificate.......................................... 9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights........................ 10
Section 8. Cancellation and Destruction of Right Certificates................................... 12
Section 9. Reservation and Availability of Preferred Shares..................................... 12
Section 10. Preferred Shares Record Date......................................................... 14
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights.......... 14
Section 12. Certificate of Adjusted Purchase Price or Number of Shares........................... 21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power................. 22
Section 14. Fractional Rights and Fractional Shares.............................................. 24
Section 15. Rights of Action..................................................................... 26
Section 16. Agreement of Right Holders........................................................... 26
Section 17. Right Certificate Holder Not Deemed a Stockholder.................................... 27
Section 18. Concerning the Rights Agent.......................................................... 28
Section 19. Merger or Consolidation or Change of Name of Rights Agent............................ 28
Section 20. Duties of Rights Agent............................................................... 29
Section 21. Change of Rights Agent............................................................... 31
Section 22. Issuance of New Right Certificates................................................... 32
Section 23. Redemption and Termination........................................................... 33
Section 24. Exchange............................................................................. 34
Section 25. Notice of Certain Events............................................................. 36
Section 26. Notices.............................................................................. 36
Section 27. Supplements and Amendments........................................................... 37
Section 28. Determination and Actions by the Board of Directors, etc............................. 38
Section 29. Successors........................................................................... 39
Section 30. Benefits of this Agreement........................................................... 39
Section 31. Severability......................................................................... 39
Section 32. Governing Law........................................................................ 39
Section 33. Counterparts......................................................................... 39
Section 34. Descriptive Headings................................................................. 39
DEFINED TERM CROSS REFERENCE SHEET
Acquiring Person.......................................................................... Section 1(a)
Act....................................................................................... Section 1(b)
Adjustment Shares.................................................................... Section 11(a)(ii)
Adjusted Number of Shares........................................................... Section 11(a)(ill)
Adjusted Purchase Price............................................................. Section 11(a)(iii)
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Affiliate............................................................................................................Section 1(c)
Agreement.................................................................................................................Preface
Appointment of Rights Agent.............................................................................................Section 2
Associate............................................................................................................Section 1(c)
Beneficial Owner.....................................................................................................Section 1(d)
Beneficially Own.....................................................................................................Section 1(d)
Business Day.........................................................................................................Section 1(e)
Capital Stock Equivalent.......................................................................................Section 11(a)(iii)
Close of Business....................................................................................................Section 1(f)
Common Shares........................................................................................................Section 1(g)
Corporation...............................................................................................................Preface
Current Per Market Price.............................................................................................Section 11(d)
Current Per Share Market Price....................................................................................Section 11(d)(1)
Distribution Date.....................................................................................................Section 3(a)
Equivalent Preferred Shares.........................................................................................Section 11 (b)
Exchange Act..........................................................................................................Section 1(c)
Exchange Ratio.......................................................................................................Section 24(a)
Final Expiration Date.................................................................................................Section 7(a)
Interested Stockholder.................................................................................................Section 10)
Permitted Offer.......................................................................................................Section 1(k)
Person................................................................................................................Section 1(l)
Preferred Shares......................................................................................................Section 1(m)
Principal Party......................................................................................................Section 13(b)
Proration Factor................................................................................................Section 11(a)(iii)
Purchase Price........................................................................................................Section 4(a)
Record Date................................................................................................................Preface
Redemption Date.......................................................................................................Section 7(a)
Redemption Price........................................................................................................Section 23
Right......................................................................................................................Preface
Right Certificate.....................................................................................................Section 3(a)
Rights Agent...............................................................................................................Preface
Rights Agreement.........................................................................................................Section 3
Section 11(a)(ii) Event...............................................................................................Section 1(o)
Section 13 Event......................................................................................................Section 1(p)
Security..........................................................................................................Section 11(d)(i)
Shares Acquisition Date...............................................................................................Section 1(q)
Subsidiary............................................................................................................Section 1(r)
Summary of Rights.....................................................................................................Section 3(b)
Then Outstanding.................................................................................................Section 1(d)(iii)
Trading Day.......................................................................................................Section 11(d)(1)
Transaction...........................................................................................................Section 1(s)
Transaction Person....................................................................................................Section 1(t)
Triggering Event......................................................................................................Section 1(u)
Voting Securities....................................................................................................Section 13(a)
</TABLE>
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<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of ________________, 1996 (the "Agreement"),
between CUNO Incorporated, a Delaware corporation (the "Corporation"), and
ChaseMellon Shareholder Services L.L.C. (the "Rights Agent").
The Board of Directors of the Corporation has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Corporation outstanding at the close of business
on ____________________, 1996 (the "Record Date"), each Right representing the
right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date or the Final Expiration
Date (as such terms are hereinafter defined); provided, however, that Rights may
be issued with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 22 of this
Agreement.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions.
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the then outstanding Common Shares (other than as a result of a
Permitted Offer (as hereinafter defined)) or was such a Beneficial Owner at any
time after the date hereof, whether or not such person continues to be the
Beneficial Owner of 15% or more of the then outstanding Common Shares.
Notwithstanding the foregoing, (A) the term "Acquiring Person" shall not include
(i) the Corporation, (ii) any Subsidiary of the Corporation, (iii) any employee
benefit plan of the Corporation or of any Subsidiary of the Corporation, (iv)
any Person or entity organized, appointed or established by the Corporation for
or pursuant to the terms of any such plan, or (v) any Person, who or which
together with all Affiliates and Associates of such Person becomes the
Beneficial Owner of 15% or more of the then outstanding Common Shares as a
result of the acquisition of Common Shares directly from the Corporation, and
(B) no Person shall be deemed to be an "Acquiring Person" either (X) as a result
of the acquisition of Common Shares by the Corporation which, by reducing the
number of Common Shares outstanding, increases the proportional number of shares
beneficially owned by such Person together with all Affiliates and Associates of
such Person; except that if (i) a Person would become an Acquiring Person (but
for the operation of this subclause (X) as a result of the acquisition of Common
Shares by the Corporation, and (ii) after such share acquisition by the
Corporation, such Person, or an Affiliate or Associate of such Person, becomes
the Beneficial Owner of any additional Common Shares, then such Person shall be
deemed an Acquiring
<PAGE>
Person, or (Y) if the Board of Directors of the Corporation determines in good
faith that a Person who would otherwise be an "Acquiring Person", as defined
pursuant to the foregoing provisions of this Section 1(a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an Acquiring
Person, as defined pursuant to the foregoing provisions of this Section 1(a),
then such Person shall not be deemed to be an "Acquiring Person" for any
purposes of this Agreement.
(b) "ACT" shall mean the Securities Act of 1933, as amended and as in
effect on the date of this Agreement.
(c) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed
to such terms Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended and in effect on the date of this
Agreement (the "EXCHANGE ACT") provided that the limited partners of a limited
partnership shall not be deemed to be Associates of such limited partnership
solely by virtue of their limited partnership interest.
(d) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be deemed
to "BENEFICIALLY OWN" any securities:
(i) of which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has "beneficial ownership" as determined in
accordance with Rule 13d-3 of the General Rules and Regulations under the
Exchange Act;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote or dispose of pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations promulgated under the Exchange Act and (2)
is not also then reportable on Schedule 13D or Schedule 13G under the Exchange
Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of securities)
relating to the acquisition, holding, voting (except to the extent contemplated
by the proviso to Section l(d)(ii)(B)) or disposing of any securities of the
Corporation.
2
<PAGE>
(e) "Business Day" shall mean any day other than a Saturday, Sunday or U.S.
federal holiday.
(f) "Close of Business" on any given date shall mean 5:00 P.M., Meriden,
Connecticut time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Meriden, Connecticut time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Corporation shall mean
the shares of Common Stock, par value $0.001 per share, of the Corporation or,
in the event of a subdivision, combination or consolidation with respect to such
shares of Common Stock, the shares of Common Stock resulting from such
subdivision, combination or consolidation. "Common Shares" when used with
reference to any Person other than the Corporation shall mean the capital stock
(or equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(h) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(i) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(j) "Interested Stockholder" shall mean any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.
(k) "Permitted Offer" shall mean a tender or exchange offer which is for
all outstanding Common Shares at a price and on terms determined, prior to the
purchase of shares under such tender or exchange offer, by at least a majority
of the members of the Board of Directors who are not officers of the Corporation
and who are not Acquiring Persons or Affiliates, Associates, nominees or
representatives of an Acquiring Person or a Transaction Person, to be adequate
(taking into account all factors that such Directors deem relevant including,
without limitation, prices that could reasonably be achieved if the Corporation
or its assets were sold on an orderly basis designed to realize maximum value)
and otherwise in the best interests of the Corporation and its stockholders
(other than the Person or any Affiliate or Associate thereof on whose basis the
offer is being made) taking into account all factors that such directors may
deem relevant.
(l) "Person" shall mean any individual, firm, partnership, corporation,
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of such entity.
(m) "Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Stock, with a par value of $0.001 per share of the Corporation having
the relative rights, preferences and limitations set forth in the Form of
Certificate of Designations attached to this Agreement as Exhibit A.
(n) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
3
<PAGE>
(o) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii) hereof.
(p) "Section 13 Event" shall mean any event described in clause (x), (y) or
(z) of Section 13(a) hereof.
(q) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such; provided, that, if
such Person is determined not to have become an Acquiring Person pursuant to
Section l(a)(Y) hereof, then no Shares Acquisition Date shall be deemed to have
occurred.
(r) "Subsidiary" of any Person shall mean any corporation or other Person
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(s) "Transaction" shall mean any merger, consolidation or sale of assets
described in Section 13(a) hereof or any acquisition of shares of Common Stock
of the Company which would result in a Person becoming a Transaction Person.
(t) "Transaction Person" with respect to a Transaction shall mean (x) any
Person who (i) is or will become an Acquiring Person or a Principal Party (as
such term is defined in Section 13(b) hereof) if the Transaction were to be
consummated and (ii) directly or indirectly proposed or nominated a director of
the Company which director is in office at the time of consideration of the
Transaction, or (y) an Affiliate or Associate of such a Person.
(u) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent.
The Corporation hereby appoints the Rights Agent to act as agent for the
Corporation and the holders of the Rights (who, in accordance with Section 3
hereof, shall prior to the Distribution Date also be the holders of Common
Shares) in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Corporation may from time to time appoint
such co-Rights Agents as it may deem necessary or desirable.
Section 3. Issuance of Right Certificates
(a) Until the earlier of (i) the Shares Acquisition Date, (ii) the close
of business on the tenth day (or such later date as may be determined by action
of the Corporation's Board of Directors) after the date of the commencement by
any Person (other than the Corporation, any Subsidiary of the Corporation, any
employee benefit plan of the Corporation or of any Subsidiary of the Corporation
or any Person or entity organized, appointed or established by the Corporation
for or pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of the Corporation or
of any Subsidiary of the Corporation or any Person or entity organized,
appointed or established by the Corporation for
4
<PAGE>
or pursuant to the terms of any such plan) to commence (which intention to
commence remains in effect for five Business Days after such announcement), a
tender or exchange offer the consummation of which would result in any Person
becoming an Acquiring Person or (iii) twenty days prior to the date on which a
Transaction is reasonably expected to become effective or be consummated
(including, in the case of (i), (ii) and (iii), any such date which is after the
date of this Agreement and prior to the issuance of the Rights), the earliest of
such dates being herein referred to as the "Distribution Date," (x) the Rights
will be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of the underlying
Common Shares (including a transfer to the Corporation); provided, however, that
if a tender offer is terminated prior to the occurrence of a Distribution Date,
then no Distribution Date shall occur as a result of such tender offer. As soon
as practicable after the Distribution Date, the Corporation will prepare and
execute, the Rights Agent will countersign, and the Corporation will send or
cause to be sent by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Corporation, a Right
Certificate, substantially in the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of and
after the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) As promptly as practicable following the Record Date, the Corporation
will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-
class, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Record Date, at the address of such holder shown on the
records of the Corporation. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
Distribution Date (or the earlier of the Redemption Date or the Final Expiration
Date), the surrender for transfer of any certificate for Common Shares
outstanding on the Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the Rights associated
with such Common Shares.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date, shall be
deemed also to be certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between CUNO Incorporated and
ChaseMellon Shareholder Services L.L.C., dated as of __________, 1996 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of CUNO Incorporated. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate. CUNO Incorporated
5
<PAGE>
will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request
therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was
or becomes an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and certain related
persons, whether currently held by or on behalf of such Person or
by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Corporation purchases or acquires any Common Shares after
the Record Date but prior to the Distribution Date, any Rights associated with
such Common Shares shall be deemed cancelled and retired so that the Corporation
shall not be entitled to exercise any Rights associated with the Common Shares
which are no longer outstanding.
Section 4. Form of Right Certificate.
(a) The Right Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall be substantially in
the form set forth in Exhibit B hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Corporation may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Right Certificates shall entitle the holders thereof
to purchase such number of one-hundredths of a Preferred Share as shall be set
forth therein at the price per one one-hundredth of a Preferred Share set forth
therein (the "Purchase Price"), but the amount and type of securities
purchasable upon the exercise of each Right and the Purchase Price thereof shall
be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights which are null and void pursuant to Section
7(e) of this Agreement and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Right Certificate and the Rights represented hereby are null
and void.
Provisions of Section 7(e) of this Rights Agreement shall be
operative whether or not the foregoing legend is contained on any
such Right Certificate.
6
<PAGE>
Section 5. Countersignature and Registration.
The Right Certificates shall be executed on behalf of the Corporation
by its Chairman of the Board, its Chief Executive Officer, its President, any of
its Vice Presidents, or its Treasurer, either manually or by facsimile
signature, shall have affixed thereto the Corporation's seal or a facsimile
thereof, and shall be attested by the Secretary or an Assistant Secretary of the
Corporation, either manually or by facsimile signature. The Right Certificates
shall be countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Corporation who
shall have signed any of the Right Certificates shall cease to be such officer
of the Corporation before countersignature by the Rights Agent and issuance and
delivery by the Corporation, such Right Certificates may nevertheless be
countersigned by the Rights Agent and issued and delivered by the Corporation
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Corporation; and any Right
Certificate may be signed on behalf of the Corporation by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Corporation to sign such Right Certificate, although at the date
of the execution of this Rights Agreement any such person was not such an
officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office or offices designated as the appropriate
place for surrender of such Right Certificate or transfer, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the certificate number and the date of each of the Right
Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate.
Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and at
or prior to the close of business on the earlier of the Redemption Date or the
Final Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
one one-hundredth of a Preferred Share (or, following a Triggering Event, other
securities, as the case may be) as the Right Certificate or Right Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Corporation shall be obligated
to take any action whatsoever with respect to the transfer of any such
surrendered Right Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Right Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Corporation shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and
Section 14 hereof, countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
the Corporation may require payment of a
7
<PAGE>
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise Of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price for the total
number of one one-hundredth of a Preferred Share (or other securities, as the
case may be) as to which such surrendered Rights are exercised, at or prior to
the earliest of (i) the close of business on , 2006 (the "Final
Expiration Date"), or (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof (the "Redemption Date") or (iii) the time at which the
Rights are exchanged pursuant to Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be $60, shall be subject to
adjustment from time to time as provided in the next sentence and in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
Anything in this Agreement to the contrary notwithstanding, in the event that at
any time after the date of this Agreement and prior to the Distribution Date,
the Corporation shall (i) declare or pay any dividend on the Common Shares
payable in Common Shares or (ii) effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case, each Common Share outstanding following such
subdivision, combination or consolidation shall continue to have a Right
associated therewith and the Purchase Price following any such event shall be
proportionately adjusted to equal the result obtained by multiplying the
Purchase Price immediately prior to such event by a fraction the numerator of
which shall be the total number of Common Shares outstanding immediately prior
to the occurrence of the event and the denominator of which shall be the total
number of Common Shares outstanding immediately following the occurrence of such
event. The adjustment provided for in the preceding sentence shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
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(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the Preferred Shares (or other
securities, as the case may be) to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 6 hereof by certified check, cashier's
check or money order payable to the order of the Corporation, the Rights Agent
shall thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Shares certificates for the number of Preferred Shares to be purchased
and the Corporation hereby irrevocably authorizes its transfer agent to comply
with all such requests, or (B) if the Corporation, in its sole discretion, shall
have elected to deposit the Preferred Shares issuable upon exercise of the
Rights hereunder into a depositary, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Corporation will direct the depositary
agent to comply with such requests, (ii) when appropriate, requisition from the
Corporation the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, and (iv) when appropriate,
after receipt thereof, deliver such cash to or upon the order of the registered
holder of such Right Certificate. In the event that the Corporation is
obligated to issue other securities (including Common Shares) of the Corporation
pursuant to Section 11 (a) hereof, the Corporation will make all arrangements
necessary so that such other securities are available for distribution by the
Rights Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11 (a)(ii), the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) of the
Rights Agreement and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof, or the
Rights Agent shall place an appropriate notation on the Right Certificate with
respect to those Rights exercised.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring
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Person or to any Person with whom the Acquiring Person has a continuing
agreement, arrangement or understanding regarding the transferred Rights or (B)
a transfer which the Board of Directors of the Corporation has determined is
part of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise. The Corporation shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Corporation shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial owner) or Affiliates or Associates
thereof as the Corporation shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the
Corporation or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Rights Agreement.
The Corporation shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Corporation otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Corporation, or shall, at the written request of the
Corporation, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Corporation.
Section 9. Reservation and Availability of Preferred Shares
The Corporation covenants and agrees that at all times prior to the
occurrence of a Section 11(a)(ii) Event it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares, or any authorized
and issued Preferred Shares held in its treasury, the number of Preferred Shares
that will be sufficient to permit the exercise in full of all outstanding Rights
and, after the occurrence of a Section 11(a)(ii) Event, shall, to the extent
reasonably practicable, so reserve and keep available a sufficient number of
Common Shares (and/or other securities) which may be required to permit the
exercise in full of the Rights pursuant to this Agreement.
So long as the Preferred Shares (and, after the occurrence of a
Section 11(a)(ii) Event, Common Shares or any other securities) issuable upon
the exercise of the Rights may be listed on any national securities exchange,
the Corporation shall use its best efforts to cause,
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from and after such time as the Rights become exercisable, all shares reserved
for such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
The Corporation covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares (or Common Shares and/or
other securities, as the case may be) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares or other securities
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and non-assessable shares or securities.
The Corporation further covenants and agrees that it will pay when due
and payable any and all U.S. federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares (or Common Shares and/or other securities, as the
case may be) upon the exercise of Rights. The Corporation shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares (or Common Shares and/or other securities, as the case may be) in a name
other than that of, the registered holder of the Right Certificate evidencing
Rights surrendered for exercise, or to issue or to deliver any certificates or
depositary receipts for Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of any Rights, until any such
tax shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Corporation's reasonable satisfaction that no such tax is due.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date, a registration statement
under the Act, with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act and the rules and regulations thereunder)
until the date of the expiration of the rights provided by Section 11(a)(ii).
The Corporation will also take such action as may be appropriate under the blue
sky laws of the various states.
Section 10. Preferred Shares Record Date.
Each person in whose name any certificate for Preferred Shares (or
Common Shares and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Preferred Shares (or Common Shares and/or other securities, as the
case may be) represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that, if the date of such surrender and
payment is a date upon which the Preferred Shares (or Common Shares and/or other
securities, as the case may be) transfer books of the Corporation are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Shares (or Common Shares and/or other securities, as the case may
be) transfer books of the Corporation are open.
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Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights.
The Purchase Price, the number and kind of shares covered by each Right and
the number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Corporation is the continuing or surviving corporation),
except as otherwise provided in this Section 11 (a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Corporation
were open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Corporation issuable upon exercise of one
Right. If an event occurs which would require an adjustment under both Section
11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(11).
(ii) In the event any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring Person, then proper
provision shall be made so that each holder of a Right (except as provided below
and in Section 7(e) hereof) shall, for a period of 60 days after the later of
the occurrence of any such event or the effective date of an appropriate
registration statement under the Act pursuant to Section 9 hereof, have a right
to receive, upon exercise thereof at a price equal to the then current Purchase
Price, in accordance with the terms of this Agreement, such number of Common
Shares (or, in the discretion of the Board of Directors, one one-hundredth of a
Preferred Share) as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-hundredths of a Preferred
Share for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event, and dividing that product by (y) 50% of
the then current per share market price of the Corporation's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of such first
occurrence (such number of shares being referred to as the "ADJUSTMENT SHARES");
provided, however, that if the transaction that would otherwise give rise to the
foregoing adjustment is also subject to the provisions of Section 13 hereof,
then only the provisions of Section 13 hereof shall apply and no adjustment
shall be made pursuant to this Section 11(a)(ii);
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(iii) In the event that there shall not be sufficient treasury
shares or authorized but unissued (and unreserved) Common Shares to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii) and the Rights become so exercisable (and the Board has determined to make
the Rights exercisable into fractions of a Preferred Share), notwithstanding any
other provision of this Agreement, to the extent necessary and permitted by
applicable law, each Right shall thereafter represent the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, (x) a number of (or fractions of) Common Shares (up to the
maximum number of Common Shares which may permissibly be issued) and (y) one
one-hundredth of a Preferred Share or a number of, or fractions of other equity
securities of the Corporation (or, in the discretion of the Board of Directors,
debt) which the Board of Directors of the Corporation has determined to have the
same aggregate current market value (determined pursuant to Section 11(d)(i) and
(ii) hereof, to the extent applicable,) as one Common Share (such number of, or
fractions of, Preferred Shares, debt, or other equity securities or debt of the
Corporation) being referred to as a "CAPITAL STOCK EQUIVALENT"), equal in the
aggregate to the number of Adjustment Shares; provided, however, if sufficient
Common Shares and/or capital stock equivalents are unavailable, then the
Corporation shall, to the extent permitted by applicable law, take all such
action as may be necessary to authorize additional Common Shares or capital
stock equivalents for issuance upon exercise of the Rights, including the
calling of a meeting of stockholders; and provided, further, that if the
Corporation is unable to cause sufficient Common Shares and/or capital stock
equivalents to be available for issuance upon exercise in full of the Rights,
then each Right shall thereafter represent the right to receive the Adjusted
Number of Shares upon exercise at the Adjusted Purchase Price (as such terms are
hereinafter defined). As used herein, the term "ADJUSTED NUMBER OF SHARES" shall
be equal to that number of (or fractions of) Common Shares (and/or capital stock
equivalents) equal to the product of (x) the number of Adjustment Shares and (y)
a fraction, the numerator of which is the number of Common Shares (and/or
capital stock equivalents) available for issuance upon exercise of the Rights
and the denominator of which is the aggregate number of Adjustment Shares
otherwise issuable upon exercise in full of all Rights (assuming there were a
sufficient number of Common Shares available) (such fraction being referred to
as the "PRORATION FACTOR"). The "ADJUSTED PURCHASE PRICE" shall mean the product
of the Purchase Price and the Proration Factor. The Board of Directors may, but
shall not be required to, establish procedures to allocate the right to receive
Common Shares and capital stock equivalents upon exercise of the Rights among
holders of Rights.
(b) In case the Corporation shall fix a record date for the
issuance of rights (other than the Rights), options or warrants to all holders
of Preferred Shares entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase Preferred Shares (or
shares having the same rights, privileges and preferences as the Preferred
Shares ("EQUIVALENT PREFERRED SHARES")) or securities convertible into Preferred
Shares or equivalent preferred shares at a price per Preferred Share or
equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the then current per share market price of the Preferred Shares (as
determined pursuant to Section 11(d) hereof) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred
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shares so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current per
share market price, and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Corporation issuable
upon exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent.
Preferred Shares owned by or held for the account of the Corporation shall not
be deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Corporation shall fix a record date for the making of
a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price (as
determined pursuant to Section 11(d) hereof) of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights
Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Corporation to be
issued upon exercise of one Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "CURRENT PER
SHARE MARKET PRICE" of any security (a "SECURITY" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; provided, however, that in the event that the current per share market
price of the Security is determined during a period following the announcement
by the issuer of such Security of (A) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such
shares, or (B) any subdivision, combination or reclassification of such Security
and prior to the expiration of thirty (30) Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
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combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Corporation. If on any
such date no such market maker is making a market in the Security, the fair
value of the Security on such date as determined in good faith by the Board of
Directors of the Corporation shall be used. The term "TRADING DAY" shall mean a
day on which the principal national securities exchange on which the Security is
listed or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "CURRENT
PER SHARE MARKET PRICE" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "CURRENT PER SHARE MARKET PRICE" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "CURRENT PER SHARE MARKET PRICE" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Corporation,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-hundredth of a Preferred Share or one ten-
thousandth of any other share or security as the case may be. Notwithstanding
the first sentence of this Section 11(e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three (3) years from
the date of the transaction which mandates such adjustment or (ii) the Final
Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation other
than Preferred Shares, thereafter the
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number of other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in
Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10,
13 and 14 with respect to the Preferred Shares shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) The Corporation may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of one one-hundredths of a Preferred Share purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one one-hundredths
of a Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one ten-
thousandth) obtained by dividing the Purchase Price in effect immediately prior
to adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Corporation shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(h), the Corporation shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Corporation, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Corporation, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein and
shall be registered in the names of the holders of record of Right Certificates
on the record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one one-
hundredths of a Preferred Share, Common Shares or other securities issuable upon
exercise of the Rights, the Corporation shall take any corporate action which
may, in the opinion of its counsel, be
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necessary in order that the Corporation may validly and legally issue such
number of fully paid and non-assessable one one-hundredths of a Preferred Share,
Common Shares or other securities at such adjusted Purchase Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the Preferred Shares, Common Shares or other securities of the Corporation, if
any, issuable upon such exercise over and above the Preferred Shares, Common
Shares or other securities of the Corporation, if any, issuable upon exercise on
the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of Preferred Shares at less than the current market
price, (iii) issuance wholly for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares, (iv)
stock dividends or (v) issuance of rights, options or warrants referred to in
this Section 11, hereafter made by the Corporation to holders of its Preferred
Shares shall not be taxable to such stockholders.
(m) The Corporation covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Corporation in a transaction which does not violate
Section 11 (n) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Corporation in a transaction which does not violate Section
11(n) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11(n) hereof), if (x)
at the time of or immediately after such consolidation, merger, sale or transfer
there are any charter or by-law provisions or any rights, warrants or other
instruments or securities outstanding or agreements in effect or other actions
taken, which would materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the stockholders of the
Person who constitutes, or would constitute, the "PRINCIPAL PARTY" for purposes
of Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates. The Corporation
shall not consummate any such consolidation, merger, sale or transfer unless
prior thereto the Corporation and such other Person shall have executed and
delivered to the Rights Agent a supplemental agreement evidencing compliance
with this Section 11(m).
(n) The Corporation covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 27 hereof, take
(or permit any Subsidiary to take) any action the purpose of which is to, or if
at the time such action is taken
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it is reasonably foreseeable that the effect of such action is to, materially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights.
(o) The exercise of Rights under Section 11(a)(ii) shall only result
in the loss of rights under Section 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights represented by the Rights under this
Rights Agreement, including the rights represented by Section 13.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares.
Whenever an adjustment is made as provided in Sections 11 or 13
hereof, the Corporation shall promptly (a) prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Common Shares and the Preferred Shares a copy of such certificate and (c) mail a
brief summary thereof to each holder of a Right Certificate in accordance with
Section 26 hereof. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment therein contained and shall not be deemed
to have knowledge of such adjustment unless and until it shall have received
such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, on or following the Shares Acquisition Date or,
if a Transaction is proposed, the Distribution Date, directly or indirectly, (x)
the Corporation shall consolidate with, or merge with and into, any Interested
Stockholder or, if in such merger or consolidation all holders of Common Shares
are not treated alike, any other Person, (y) the Corporation shall consolidate
with, or merge with, any Interested Stockholder or, if in such merger or
consolidation all holders of Common Shares are not treated alike, any other
Person, and the Corporation shall be the continuing or surviving corporation of
such consolidation or merger (other than, in a case of any transaction described
in (x) or (y), a merger or consolidation which would result in all of the
securities generally entitled to vote in the election of directors ("VOTING
SECURITIES") of the Corporation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
securities of the surviving entity) all of the voting securities of the
Corporation or such surviving entity outstanding immediately after such merger
or consolidation and the holders of such securities not having changed as a
result of such merger or consolidation), or (z) the Corporation shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any Interested
Stockholder or Stockholders or, if in such transaction all holders of Common
Shares are not treated alike, any other Person (other than the Corporation or
any Subsidiary of the Corporation in one or more transactions each of which does
not violate Sections 11(m) or 11(n) hereof), then, and in each such case (except
as provided in Section 13(d) hereof), proper provision shall be made so that (i)
each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of freely tradable Common
Shares of the Principal Party (as hereinafter defined), not subject to any
liens, encumbrances, rights of first refusal or other
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adverse claims, as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable (without taking into account any
adjustment previously made pursuant to Section 11(a)(ii)) and dividing that
product by (B) 50% of the then current per share market price of the Common
Shares of such Principal Party (determined pursuant to Section 11(d) hereof) on
the date of consummation of such Section 13 Event; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such Section 13
Event, all the obligations and duties of the Corporation pursuant to this
Agreement; (iii) the term "Corporation" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply only to such Principal Party following the first
occurrence of a Section 13 Event; and (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such transaction
as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to the Common Shares
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in such
merger or consolidation, and if no securities are so issued, the Person that is
the other party to such merger or consolidation (including, if applicable, the
Corporation if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any of the foregoing
cases, (1) if the Common Shares of such Person are not at such time and have not
been continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "PRINCIPAL PARTY" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"PRINCIPAL PARTY" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"SUBSIDIARY" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Corporation shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of its authorized Common Shares which have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance with
this Section 13 and unless prior thereto the Corporation and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
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Section 13 and further providing that, as soon as practicable after the date of
any consolidation, merger, sale or transfer mentioned in paragraph (a) of this
Section 13, the Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Act with
respect to the Rights and the securities purchasable upon exercise of the Rights
on an appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain effective (with a prospectus at all times meeting the requirements of
the Act) until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights and
the securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under this
Section 13 shall be in addition to the rights to exercise Rights and adjustments
under Section 11 (a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired Common Shares pursuant to a Permitted Offer (or a
wholly owned Subsidiary of any such Person or Persons); (ii) the price per
Common Share offered in such transaction is not less than the price per Common
Share paid to all holders of Common Shares whose shares were purchased pursuant
to such Permitted Offer; and (iii) the form of consideration offered in such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Corporation shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the
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Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Corporation. If on any such date no
such market maker is making a market in the Rights, the fair value of the Rights
on such date as determined in good faith by the Board of Directors of the
Corporation shall be used.
(b) The Corporation shall not be required to issue fractions of
Preferred Shares (other than fractions which are one one-hundredth or integral
multiples of one one-hundredth of a Preferred Share) upon exercise of the Rights
or to distribute certificates which evidence fractional Preferred Shares (other
than fractions which are one one-hundredth or integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral
multiples of one one-hundredth of a Preferred Share may, at the election of the
Corporation, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Corporation and a depositary selected by it; provided that
such agreement shall provide that the holders of such depositary receipts shall
have the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not one one-hundredth
or integral multiples of one one-hundredth of a Preferred Share, the Corporation
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to Section 11 (d)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 giving rise to the right to receive Common Shares,
capital stock equivalents (other than Preferred Shares) or other securities upon
the exercise of a Right, the Corporation shall not be required to issue
fractions of shares or units of such Common Shares, capital stock equivalents or
other securities upon exercise of the Rights or to distribute certificates which
evidence fractions of such Common Shares, capital stock equivalents or other
securities. In lieu of fractional shares or units of such Common Shares,
capital stock equivalents or other securities, the Corporation may pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a share or unit of such Common Shares, capital stock equivalents
or other securities. For purposes of this Section 14(c), the current market
value shall be determined in the manner set forth in Section 11(d) hereof for
the Trading Day immediately prior to the date of such exercise and, if such
capital stock equivalent is not traded, each such capital stock equivalent shall
have the value of one one-hundredth of a Preferred Share.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional share upon
exercise of a Right (except as provided above).
Section 15. Rights of Action.
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All rights of action in respect of this Agreement, excepting the
rights of action given to the Rights Agent under Section 18 hereof, are vested
in the respective registered holders of the Right Certificates (and, prior to
the Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution Date, of the
Common Shares), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Corporation to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders.
Every holder of a Right, by accepting the same, consents and agrees
with the Corporation and the Rights Agent and with every other holder of a Right
that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Corporation
and the Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificate or the associated Common Shares certificate made by anyone
other than the Corporation or the Rights Agent) for all purposes whatsoever, and
neither the Corporation nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability to any
holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, the Corporation must use its best efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
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No holder, as such, of any Right Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the Preferred
Shares or any other securities of the Corporation which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any right certificate, as such, any of the rights of a stockholder of
the Corporation or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or other distributions or to exercise any preemptive or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent.
The Corporation agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The
Corporation also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without negligence,
bad faith or willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability in the premises. The indemnity provided for
herein shall survive the expiration of the Rights and the termination of this
Agreement.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of, any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for Common Shares or for other securities of the
Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
SECTION 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or all or substantially all of the corporate trust business of
the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such
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Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; an d in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
SECTION 20. Duties of Rights Agent.
The Rights Agent undertakes only those duties and obligations imposed
by this Agreement upon the following terms and conditions, by all of which the
Corporation and the holders of Right Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Corporation and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature on such Right Certificates) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the
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Corporation of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 7(e) hereof) or any adjustment required under the provisions of Section
11 or Section 13 hereof or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after receipt of the certificate described in Section 12
hereof); nor shall it by any act hereunder be deemed to make any representation
or warranty as to the authorization or reservation of any Preferred Shares or
Common Shares to be issued pursuant to this Agreement or any Right Certificate
or as to whether any Preferred Shares or Common Shares will, when issued, be
validly authorized and issued, fully paid and non-assessable.
(f) The Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its duties,
and shall not be liable for any action taken or suffered by it in good faith or
lack of action in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Corporation may, at the option of
the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Rights Agreement and the date on or after
which such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in any such application on
or after the date specified in such application (which date shall not be less
than five Business Days after the date any officer of the Corporation actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received
written instruction in response to such application specifying the action to be
taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Corporation or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation
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resulting from any such act, default, neglect or misconduct, provided reasonable
care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(xi) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Corporation.
Section 21. Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days' notice in
writing mailed to the Corporation and to each transfer agent of the Common
Shares or Preferred Shares by registered or certified mail, and to the holders
of the Right Certificates by first-class mail. The Corporation may remove the
Rights Agent or any successor Rights Agent upon sixty (60) days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to holders of the Right Certificates by first-
class mail. If the Rights Agent shall resign or be removed or shall otherwise
become incapable of acting, the Corporation shall appoint a successor to the
Rights Agent. If the Corporation shall fail to make such appointment within a
period of sixty (60) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the
Corporation), then the registered holder of any Right Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Corporation or by such a
court, shall be a corporation organized and doing business under the laws of the
United States or of any state of the United States in good standing which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $100,000,000. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Corporation shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
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Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the Contrary, the corporation may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Right Certificates made in accordance with the provisions of this
Agreement.
In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the earlier of the Redemption Date
and the Final Expiration Date, the Corporation (a) shall with respect to Common
Shares so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, or upon the exercise, conversion or exchange of
securities, notes or debentures issued by the Corporation, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Corporation, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) the
Corporation shall not be obligated to issue any such Right Certificates if, and
to the extent that, the Corporation shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Corporation or the Person to whom such Right Certificate would be issued,
and (ii) no Right Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination.
(a) (i) The Board of Directors of the Corporation may, at
its option, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, as such amount may be appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as
the "Redemption Price"), at any time prior to the earlier of (x) the occurrence
of a Section 11 (a)(ii) Event, or (y) the Final Expiration Date.
(ii) In addition, the Board of Directors of the
Corporation may, at its option, at any time following the occurrence of a
Section 11(a)(ii) Event and the expiration of any period during which the holder
of Rights may exercise the rights under Section 11(a)(ii) but prior to any
Section 13 Event redeem all but not less than all of the then outstanding Rights
at the Redemption Price (x) in connection with any merger, consolidation or sale
or other transfer (in one transaction or in a series of related transactions) of
assets or earning power aggregating 50% or more of the earning power of the
Corporation and its subsidiaries (taken as a whole) in which all holders of
Common Shares are treated alike and not involving (other than as a holder of
Common Shares being treated like all other such holders) an Interested
Stockholder or a Transaction Person or (y)(aa) if and for so long as the
Acquiring Person is not thereafter the Beneficial Owner of 15% of the Common
Shares, and (bb) at the time of redemption no other Persons are Acquiring
Persons.
(b) In the case of a redemption permitted under Section
23(a)(i), immediately upon the date for redemption set forth (or determined in
the manner specified in)
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in a resolution of the Board of Directors of the Corporation ordering the
redemption of the Rights, evidence of which shall have been filed with the
Rights Agent, and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. In the case of a redemption permitted only under Section 23(a)(ii),
evidence of which shall have been filed with the Rights Agent, the right to
exercise the Rights will terminate and represent only the right to receive the
Redemption Price upon the later of ten Business Days following the giving of
such notice or the expiration of any period during which the rights under
Section 11(a)(ii) may be exercised. The Corporation shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within ten (10) days after such date for redemption set forth in a resolution of
the Board of Directors ordering the redemption of the Rights, the Corporation
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Corporation nor any
of its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23 and other than in connection with the purchase of Common Shares prior
to the Distribution Date.
(c) The Corporation may, at its option, discharge all of
its obligations with respect to the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights in accordance with this
Agreement and (ii) mailing payment of the Redemption Price to the registered
holders of the Rights at their last addresses as they appear on the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the Transfer Agent of the Common Shares, and upon such action, all
outstanding Rights and Right Certificates shall be null and void without any
further action by the Corporation.
Section 24. Exchange.
(a) The Board of Directors of the Corporation may, at its option, at
any time after any Person becomes an Acquiring Person, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares of the Corporation at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Corporation, any Subsidiary of the
Corporation, any employee benefit plan of the Corporation or any such
Subsidiary, any entity holding Common Shares for or pursuant to the terms of any
such plan or any trustee, administrator or fiduciary of such a plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(B) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24
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and without any further action and without any notice, the right to exercise
such rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such rights held by such holder multiplied by the Exchange Ratio. The
Corporation shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Corporation promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Corporation, at
its option, may substitute Preferred Shares (or equivalent preferred shares, as
such term is defined in Section 11(b) hereof) for some or all of the Common
Shares exchangeable for Rights, at the initial rate of one-hundredth of a
Preferred Share (or equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24, the
Corporation shall take such action as may be necessary to authorize additional
Common Shares or Preferred Shares for issuance upon exchange of the Rights.
Section 25. Notice of Certain Events.
(a) In case the Corporation shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regularly quarterly cash dividend), (ii) to offer to the holders of its
Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the Corporation in a
transaction which does not violate Section 11(n) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer) in one or more transactions, of 50% or more of the
assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Corporation and/or any of
its Subsidiaries in one or more transactions each of which does not violate
Section 11(n) hereof, or (v) to effect the liquidation, dissolution or winding
up of the Corporation, then, in each such case, the Corporation shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action to the extent feasible and file a certificate
with the Rights Agent to that effect, which shall specify the record
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date for the purposes of such stock dividend, or distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Preferred Shares, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
record date for determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Preferred Shares, whichever shall be
the earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Corporation
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph (a) to Preferred Shares shall be deemed
thereafter to refer also to Common Shares and/or, if appropriate, other
securities of the Corporation.
Section 26. Notices.
Notices or demands authorized by this Agreement to be given or made by
the Rights Agent or by the holder of any Right Certificate to or on the
Corporation shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Rights Agent) as follows:
CUNO INCORPORATED
400 Research Parkway
Meriden, Connecticut 06450
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Corporation or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Corporation) as follows:
ChaseMellon Shareholder Services L.L.C.
4 Station Square
3rd Floor
Pittsburgh, Pennsylvania 15219
Attention: Administrative Department
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Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Corporation.
Section 27. Supplements and Amendments.
Prior to the Distribution Date, the Corporation and the Rights Agent
shall, if the Corporation so directs, supplement or amend any provision of this
Agreement without the approval of any holders of certificates representing
Common Shares. From and after the Distribution Date, the Corporation and the
Rights Agent shall, if the Corporation so directs, supplement or amend this
Agreement without the approval of any holders of Right Certificates in order (i)
to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder or (iv) to change or
supplement the provisions hereunder in any manner which the Corporation may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Right Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person); provided, however, that this Agreement may
not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of
a certificate from an appropriate officer of the Corporation which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment,
provided that such supplement or amendment does not adversely affect the rights
or obligations of the Rights Agent under Section 18 or Section 20 of this
Agreement. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Shares.
Section 28. Determination and Actions by the Board of Directors, etc.
The Board of Directors of the Corporation shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board, or the Corporation, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (II) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders of
Right Certificates). For all purposes of this Agreement, any calculation of the
number of Common Shares or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(I) of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in
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good faith, shall (x) be final, conclusive and binding on the Corporation, the
Rights Agent, the holders of the Right Certificates and all other parties, and
(y) not subject the Board to any liability to the holders of the Right
Certificates.
Section 29. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Corporation or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 30. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Corporation, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Corporation, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 31. Severability.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 32. Governing Law.
This Agreement, each Right and each Right Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of Delaware
and for all purposes shall be governed by and construed in accordance with the
laws of such State applicable to contracts to be made and performed entirely
within such State.
Section 33. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
Section 34. Descriptive Headings.
Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the date and year first above written.
CUNO INCORPORATED
Attest:
By____________________________ By____________________________
Name: Name:
Title: Title:
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
Attest:
By____________________________ By______________________________
Name: Name:
Title: Title:
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Exhibit A
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
CUNO INCORPORATED
(PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW)
CUNO INCORPORATED, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation") hereby
certifies that the following resolution was duly adopted by the Board of
Directors of the Corporation as required by Section 151 of the General
Corporation Law of the State of Delaware at a meeting duly called and held on
July 2, 1996.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation in accordance with the provisions of the
Amended and Restated Certificate of Incorporation, the Board of Directors hereby
creates a series of Series A Junior Participating Preferred Stock, with a par
value of $0.001 per share, of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences and limitations
thereof (in addition to the provisions set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock of all classes and
series) as follows:
Series A Junior Participating Preferred Stock
SECTION 1. DESIGNATION, PAR VALUE AND AMOUNT. The shares of such
series shall be designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK"
(hereinafter referred to as "SERIES A PREFERRED STOCK"), the shares of such
series shall be with par value of $0.001 per share, and the number of shares
constituting such series shall be _____________; provided, however, that, if
more than a total of _______________ shares of Series A Preferred Stock shall be
issuable upon the exercise of Rights (the "RIGHTS") issued pursuant to the
Rights Agreement, dated as of _______________, 1996 between the Corporation and
ChaseMellon Shareholder Services L.L.C., as Rights Agent (as amended from time
to time) (the "RIGHTS AGREEMENT"), the Board of Directors of the Corporation,
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
shall direct by resolution or resolutions that a certificate be properly
executed, acknowledged and filed providing for the total number of shares of
Series A Preferred Stock authorized to be issued to be increased (to the extent
that the Amended and Restated Certificate of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of the Rights.
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Section 2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of assets legally available for the
purpose, quarterly dividends payable in cash on the first business day of
November, February, May and August in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $ 1.00 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock, par value $0.001 per share, of the
Corporation (the "Common Stock") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (a) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
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<PAGE>
(a) Except as provided in paragraph C of this Section 3 and
subject to the provision for adjustment hereinafter set forth, each share of
Series A Preferred Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) (i) If, on the date used to determine stockholders of record
for any meeting of stockholders for the election of directors, a default in
preference dividends (as defined in subparagraph (v) below) on the Series A
Preferred Stock shall exist, the holders of the Series A Preferred Stock shall
have the right, voting as a class as described subparagraph (ii) below, to elect
two directors (in addition to the directors elected by holders of Common Stock
of the Corporation). Such right may be exercised (a) at any meeting of
stockholders for the election of directors or (b) at a meeting of the holders of
shares of Voting Preferred Stock (as hereinafter defined), called for the
purpose in accordance with the Amended and Restated By-laws of the Corporation,
until all such cumulative dividends(referred to above) shall have been paid in
full or until non-cumulative dividends have been paid regularly for at least one
year.
(ii) The right of the holders of Series A Preferred Stock to
elect two directors, as described above, shall be exercised as a class
concurrently with the rights of holders of any other series of Preferred Stock
upon which voting rights to elect such directors have been conferred and are
then exercisable. The Series A Preferred Stock and any additional series of
Preferred Stock which the Corporation may issue and which may provide for the
right to vote with the foregoing series of Preferred Stock are collectively
referred to herein as "Voting Preferred Stock."
(iii) Each director elected by the holders of shares of
Voting Preferred Stock shall be referred to herein as a "Preferred Director." A
Preferred Director so elected shall continue to serve as such director for a
term of one year, except that upon any termination of the right of all of such
holders to vote as a class for Preferred Directors, the term of office of such
directors shall terminate. Any Preferred Director may be removed by, and shall
not be removed except by, the vote of the holders of record of a majority of the
outstanding shares of Voting Preferred Stock then entitled to vote for the
election of directors, present (in person or by proxy) and voting together as a
single class (a) at a meeting of the stockholders, or (b) at a meeting of the
holders of shares of such Voting Preferred Stock, called for the purpose in
accordance with the Amended and Restated By-laws of the Corporation, or (c) by
written consent signed by the holders of a majority of the then outstanding
shares of Voting Preferred Stock then entitled to vote for the election of
directors, taken together as a single class.
(iv) So long as a default in any preference dividends on the
Series A Preferred Stock shall exist or the holders of any other series of
Voting Preferred Stock shall be entitled to elect Preferred Directors, (a) any
vacancy in the office of a Preferred Director may be filled (except as provided
in the following clause (b)) by an instrument in writing signed by the remaining
Preferred Director and filed with the Corporation and (b) in the
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<PAGE>
case of the removal of any Preferred Director, the vacancy may be filled by the
vote or written consent of the holders of a majority of the outstanding shares
of Voting Preferred Stock then entitled to vote for the election of directors,
present (in person or by proxy) and voting together as a single class, at such
time as the removal shall be effected. Each director appointed as aforesaid by
the remaining Preferred Director shall be deemed, for all purposes hereof, to be
a Preferred Director. Whenever (x) no default in preference dividends on the
Series A Preferred Stock shall exist and (y) the holders of other series of
Voting Preferred Stock shall no longer be entitled to elect such Preferred
Directors, then the number of directors constituting the Board of Directors of
the Corporation shall be reduced by two.
(v) For purposes hereof, a "DEFAULT IN PREFERENCE DIVIDENDS" on
the Series A Preferred Stock shall be deemed to have occurred whenever the
amount of cumulative and unpaid dividends on the Series A Preferred Stock shall
be equivalent to six full quarterly dividends or more (whether or not
consecutive), and, having so occurred, such default shall be deemed to exist
thereafter until, but only until, all cumulative dividends on all shares of the
Series A Preferred Stock then outstanding shall have been paid through the last
Quarterly Dividend Payment Date or until, but only until, non-cumulative
dividends have been paid regularly for at least one year.
(d) Except as set forth herein (or as otherwise required by applicable
law), holders of Series A Preferred Stock shall have no general or special
voting rights and their consent shall not be required for taking any corporate
action.
SECTION 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
(except as provided in (iv) below) shares of any stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock;
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a parity
(either as to
A-4
<PAGE>
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Amended and Restated Certificate of Incorporation, in any other Certificate of
Designations creating a series of Preferred Stock or as otherwise required by
law.
Section 6. Liquidation, dissolution or winding Up.
(a) Subject to the prior and superior rights of holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Preferred Stock with respect to rights upon liquidation, dissolution or
winding up (voluntary or otherwise), no distribution shall be made to the
holders of shares of stock ranking junior(either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Capital Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (such number in clause (ii), the
"Adjustment Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Capital Adjustment in respect of all outstanding
shares of Series A Preferred Stock and Common Stock, respectively, holders of
Series A Preferred Stock and holders of Common Stock shall receive their ratable
and proportionate share of the remaining assets to be distributed in the ratio
of the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of Series A Preferred Stock
and the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not sufficient
assets available to permit
A-5
<PAGE>
payment in full of the Capital Adjustment then such remaining assets shall be
distributed ratably to the holders of Common Stock.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Ranking. The Series A Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. The Amended and Restated Certificate of
Incorporation of the Corporation shall not be further amended in any manner
which would materially alter or change the powers, preferences or special rights
of the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Preferred Stock, voting separately as a class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chairman of the Board and attested by its
Secretary as of the ______ day of __________, 1996.
____________________________________
Chairman of the Board, President and
Chief Executive Officer
Attest:
________________________________
Secretary
A-6
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- __________________ Rights
NOT EXERCISABLE AFTER __________,2006 OR EARLIER IF REDEEMED
BY THE CORPORATION. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01
PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
CUNO Incorporated
This certifies that ______________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ____________, 1996 (the "RIGHTS AGREEMENT"),
between CUNO INCORPORATED, a Delaware corporation (the "CORPORATION"), and
CHASEMELLON SHAREHOLDER SERVICES L.L.C. (the "RIGHTS AGENT"), to purchase from
the Corporation at any time after the Distribution Date (as such term is defined
in the Rights Agreement) and prior to 5:00 P.M., Meriden, Connecticut time, on
________________, 2006, unless the Rights evidenced hereby shall have been
previously redeemed by the Corporation, at the principal office or offices of
the Rights Agent designated for such purpose, or at the office of its successor
as Rights Agent, one one hundredth of a fully paid non-assessable share of
Series A Junior Participating Preferred Stock, without par value (the "PREFERRED
SHARES"), of the Corporation, at a purchase price of $60 per one one-hundredth
of Preferred Share (the "PURCHASE PRICE"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one one-
hundredths of a Preferred Share which may be purchased upon exercise hereof) set
forth above, and the Purchase Price set forth above, are the number and Purchase
Price as of ___________, 1996, based on the Preferred Shares as constituted at
such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Right
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate who becomes a transferee after the Acquiring Person becomes such, or
(iii) under certain circumstances specified in the Rights Agreement, a
transferee of any such Acquiring Person, Associate or Affiliate who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such,
such Rights shall become null and void and no holder hereof shall have any right
with respect to such Rights from and after the occurrence of such Section
11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
of one one-hundredths of a Preferred Share or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events (as such term is defined in the Rights Agreement).
B-1
<PAGE>
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Corporation and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Corporation and the principal office or offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares or other securities as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Corporation at a redemption
price of $.01 per Right (subject to adjustment as provided in the Rights
Agreement) payable in cash.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are one one-
hundredth or integral multiples of one one-hundredth of a Preferred Share, which
may, at the election of the Corporation, be evidenced by depositary receipts),
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Corporation which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Corporation or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or other
distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-2
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Corporation and its corporate seal. Dated as of _____________.
[SEAL]
ATTEST: CUNO INCORPORATED
By
- ----------------------------------- ---------------------------------
Countersigned:
ChaseMellon Shareholder Services L.L.C.
as Rights Agent
By:
Authorized Signatory
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _____________________ hereby sells, assigns and transfers
unto ____________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________ Attorney, to
transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated: ________________, ____
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Right Agreement) and (2) after due inquiry and
to the best knowledge of the undersigned, the undersigned did not acquire the
Rights evidenced by this Right Certificate from any Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as such terms are defined
in the Rights Agreement).
________________________________
Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder
if such holder desires to exercise Rights
represented by the Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise ________________
Rights represented by this Right Certificate to purchase the Preferred Shares,
Common Shares or other securities issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares, Common Shares or other
securities be issued in the name of:
Please insert social security or other identifying number: _____________________
______________________________________________
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number: _____________________
____________________________________________
(Please print name and address)
- -------------------------------------------------------------------------Dated:
___________________, ________
_________________________________________
Signature
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued.
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that (1) the Rights evidenced by this Right
Certificate are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as such terms are defined
in the Rights Agreement) and (2) after due inquiry and to the best knowledge of
the undersigned, the undersigned did not acquire the Rights evidenced by this
Rights Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
_______________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature on the foregoing Forms of Assignment and Election and
certificates must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Corporation and the Rights Agent will deem the Beneficial Owner
of the Rights evidenced by this Right Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement) and such Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
[Since the Right Plan will be adopted pre-spin-off, Exhibit C is unnecessary.
It is retained, however, as a useful summary of the terms of the Plan.]
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On ___________, 1996, the Board of Directors of CUNO Incorporated (the
"Corporation") declared a dividend distribution of one preferred share purchase
right (a "RIGHT") for each outstanding share of Common Stock, par value $0.001
per share (the "Common Shares"), of the Corporation. The dividend is payable to
the stockholders of record on _________________, 1996 (the "Record Date"), and
with respect to Common Shares issued thereafter until the Distribution Date (as
defined below) and, in certain circumstances, with respect to Common Shares
issued after the Distribution Date. Except as set forth below, each Right, when
it becomes exercisable, entitles the registered holder to purchase from the
Corporation one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $.001 per share (the "Preferred Shares"), of the
Corporation at a price of $__________ per one one-hundredth of a Preferred Share
(the "PURCHASE PRICE"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Corporation and __________________________________, as Rights Agent (the "Rights
Agent"), dated as of _______________, 1996.
Initially, the Rights will be attached to all certificates
representing Common Shares then outstanding, and no separate Right Certificates
will be distributed. The Rights will separate from the Common Shares upon the
earliest to occur of (i) a person or group of affiliated or associated persons
having acquired beneficial ownership of 15% or more of the outstanding Common
Shares (except pursuant to a Permitted Offer, as hereinafter defined); or (ii)
10 days (or such later date as the Board may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in a person or group
becoming an Acquiring Person (as hereinafter defined) (the earliest of such
dates being called the "Distribution Date"). A person or group whose
acquisition of Common Shares causes a Distribution Date pursuant to clause (i)
above is an "Acquiring Person." The date that a person or group becomes an
Acquiring Person is the "Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new Common
Share certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right
C-1
<PAGE>
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date (and to each initial record
holder of certain Common Shares issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on _____________, 2006, unless earlier redeemed
by the Corporation as described below.
In the event that any person becomes an Acquiring Person (except
pursuant to a tender or exchange offer which is for all outstanding Common
Shares at a price and on terms which a majority of certain members of the Board
of Directors determines to be adequate and in the best interests of the
Corporation, its stockholders and other relevant constituencies, other than such
Acquiring Person, its affiliates and associates (a "Permitted Offer")), each
holder of a Right will thereafter have the right (the "Flip-In Right") to
receive upon exercise the number of Common Shares or one one-hundredths of a
share of Preferred Shares (or, in certain circumstances, other securities of the
Corporation) having a value (immediately prior to such triggering event) equal
to two times the exercise price of the Right. Notwithstanding the foregoing,
following the occurrence of the event described above, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or associate thereof
will be null and void.
In the event that, at any time following the Shares Acquisition Date,
(i) the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Shares
immediately prior to the consummation of the transaction are not the holders of
all of the surviving corporation's voting power, or (ii) more than 50% of the
Corporation's assets or earning power is sold or transferred, in either case
with or to an Acquiring Person or any affiliate or associate or any other person
in which such Acquiring Person, affiliate or associate has an interest or any
person acting on behalf of or in concert with such Acquiring Person, affiliate
or associate, or, if in such transaction all holders of Common Shares are not
treated alike, any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the exercise price of the
Right. The holder of a Right will continue to have the Flip-Over Right whether
or not such holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
C-2
<PAGE>
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 100 times the dividend declared per Common
Share. In the event of liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $100 per share;
thereafter, and after the holders of the Common Shares receive a liquidation
payment of $1.00 per share, the holders of the Preferred Shares and the holders
of the Common Shares will share the remaining assets in the ratio of 100 to 1
(as adjusted) for each Preferred Share and Common Share so held, respectively.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by
customary antidilution provisions. In the event that the amount of accrued and
unpaid dividends on the Preferred Shares is equivalent to six full quarterly
dividends or more, the holders of the Preferred Shares shall have the right,
voting as a class, to elect two directors in addition to the directors elected
by the holders of the Common Shares until all cumulative dividends on the
Preferred Shares have been paid through the last quarterly dividend payment date
or until non-cumulative dividends have been paid regularly for at least one
year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are one one-hundredth or integral multiples of one one-hundredth
of a Preferred Share, which may, at the election of the Corporation, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading day prior to the date of exercise.
At any time after a person becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the Common Shares, the
Board of Directors of the Company may exchange the Rights (other than the Rights
owned by the Acquiring Person or its Associates and Affiliates, which shall have
become void) at an exchange ratio of one Common Shares per Right (subject to
Adjustment).
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Corporation may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (the "Redemption Price") which redemption shall be
effective upon the action of the Board of Directors. Additionally, following
the Shares Acquisition Date, the Corporation may redeem the then outstanding
Rights in whole, but not in part, at the Redemption Price, provided that such
redemption is in connection with a merger or other business combination
transaction or series of transactions involving the Corporation in which all
holders of
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<PAGE>
Common Shares are treated alike but not involving an Acquiring Person or its
affiliates or associates.
All of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Corporation prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Corporation, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights will
not be taxable to stockholders of the Corporation, stockholders may, depending
upon the circumstances, recognize taxable income should the Rights become
exercisable or upon the occurrence of certain events thereafter.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10 dated
__________, 1996. A copy of the Rights Agreement is available free of charge
from the Corporation. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is hereby incorporated herein by reference.
C-4
<PAGE>
EXHIBIT 8.1
(312) 902-5277
[KATTEN MUCHIN & ZAVIS LETTERHEAD]
July 29, 1996
Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Gentlemen:
We have acted as special counsel to Commercial Intertech Corp., an Ohio
corporation ("Commercial Intertech"), in connection with the distribution (the
"Spin-off") by Commercial Intertech to its stockholders (the "Stockholders") of
all the outstanding stock of CUNO Incorporated, a Delaware corporation ("CUNO"),
pursuant to, and in accordance with, the Distribution and Interim Services
Agreement by and between Commercial Intertech and CUNO, substantially in the
form of the draft thereof dated July 26, 1996 (the "Agreement").
You have requested our opinion as to whether the Spin-off should qualify as
a tax-free distribution under Section 355 of the Internal Revenue Code of 1986,
as presently in force (the "Code"), and as to certain attendant consequences
(specified below) as a result of such qualification. We have not been requested
to render, and are not rendering, any opinion regarding (i) the tax consequences
of the Spin-off under any other federal tax laws, under the tax laws of the
several states of the United States or the political subdivisions thereof, or
under the tax laws of any foreign country or (ii) any tax consequences of any
transaction other than the Spin-off. In particular, this opinion does not
address the tax consequences of any of the
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 2
transactions undertaken or to be undertaken in contemplation of the Spin-off,
including any intercompany sales, contributions, dividends or transfers of
assets.
All capitalized terms used, but not defined herein, have the same meaning
assigned to them in the Agreement.
In reaching our opinion, we have reviewed and are relying upon (without
independent investigation) the completeness and accuracy at all times, of the
facts, representations and warranties contained in the following documents
(including all amendments, schedules and exhibits thereto): (i) the Agreement,
(ii) the Information Statement on Form 10 of CUNO, dated July 29, 1996, (iii)
the Commercial Intertech and CUNO Officers' Certificate, dated July 29, 1996
(the "Officers' Certificate"), (iv) the Schedule 14D-9, dated July 12, 1996, of
Commercial Intertech, (v) the Rule 13d-1 Transaction Statement, dated July 12,
1996, of Commercial Intertech, (vi) the letter to Commercial Intertech from
Goldman Sachs & Co., dated July 29, 1996, (vii) the letter to Commercial
Intertech from William M. Mercer Incorporated, dated July 29, 1996 and (viii)
the pro forma separate company Form 1120s of Commercial Intertech and CUNO with
respect to the taxable years ended October 31, 1991, 1992, 1993, 1994 and 1995
prepared in connection with the filing of the consolidated federal income tax
return for Commercial Intertech for such years. In addition, we have relied upon
information contained in both oral or written communications obtained in our
consultations with officers, employees and representatives of Commercial
Intertech and CUNO.
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 3
Opinion
- -------
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without independent investigation)
that:
(i) Original documents (including signatures) are authentic;
documents submitted to us as copies conform to the original
documents, and there has been (or will be by the Effective Time
of the Spin-off) due execution and delivery of all documents
where due execution and delivery are prerequisites to the
effectiveness thereof;
(ii) Any representation or statement referred to above made "to the
best knowledge of" or otherwise similarly qualified is correct
without such qualification;
(iii) The Spin-off is being consummated, in whole or in substantial
part, for the corporate business purposes set forth in the
Officers' Certificate, including:
(a) to provide an equity interest in CUNO to its current and
future key employees by establishing an employee stock
compensation program that will directly relate to the
performance of such employees;
(b) to allow CUNO to facilitate subsequent acquisitions of
other corporations in the filtration industry using CUNO
stock as consideration;
(c) to enhance the abilities of the management of Commercial
Intertech and CUNO to focus more closely on the objectives
of their respective businesses;
(d) to increase CUNO's access to the capital markets;
(e) to allow investors to better evaluate the merits of both
Commercial Intertech and CUNO so that each will achieve
separate market recognition commensurate with each
company's performance; and
(f) to ensure that the benefits of appropriate market
recognition of the value of CUNO accrue to the
Stockholders, employees and other constituents of
Commercial Intertech rather than to United Dominion
Industries Limited.
(iv) Neither Commercial Intertech nor CUNO (nor any member of the
Commercial Intertech affiliated group) will recognize gain under
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 4
regulations promulgated under Code (S) 1502 as a result of the
Spin-off; and
(v) The Spin-off will be consummated pursuant to the Agreement.
(vi) There will be no significant or material changes to any of the
documents upon which we have relied in rendering this opinion.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications (especially as discussed
below in the section "Potential Change of Control") set forth herein, we are of
the opinion, for federal income tax purposes, that the Spin-off should qualify
as a tax-free distribution under Section 355 of the Code and, assuming such
qualification, for federal income tax purposes:
1. Commercial Intertech will not recognize gain or loss upon the
distribution of the CUNO stock to the Stockholders.
2. CUNO will not recognize gain or loss as a result of the Spin-off.
3. The Stockholders will not recognize gain or loss (nor will they
include any amount in income) upon receipt of CUNO stock.
4. The basis of the stock of Commercial Intertech and CUNO in the hands
of the Stockholders after the Spin-off will be the same as the
aggregate basis of the Commercial Intertech stock held immediately
before the Spin-off. Such basis will be allocated between the
Commercial Intertech and CUNO stock in proportion to the fair market
value of each.
5. The holding period of the CUNO stock received in the Spin-off will
include the holding period of the Commercial Intertech stock with
respect to which the Distribution will be made, provided that such
stock is held as a capital asset on the date of the Spin-off.
Potential Change of Control
- ---------------------------
On June 27, 1996, United Dominion Industries Limited ("UDI") offered to
purchase all of the outstanding Commercial Intertech stock. The Board of
Directors of Commercial Intertech
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 5
rejected this offer. On July 12, 1996, UDI announced a tender offer to acquire
for cash all of the outstanding Commercial Intertech common stock. Commercial
Intertech is vigorously resisting the tender offer and has urged the
Stockholders not to tender their shares to UDI.
The requirements of Section 355 contemplate that the spin-off transaction
not be used principally as a "device" for the distribution of the earnings or
profits of either Commercial Intertech or CUNO. Whether a transaction is used
principally as a device will be determined from all the facts and
circumstances, including the presence of device factors specified in Treasury
Regulations promulgated under Code Section 355. Pursuant to these regulations,
sales of stock after a spin-off transaction are evidence of device, particularly
where a large percentage of the stock is sold and such sales occur shortly after
the spin-off transaction. Moreover, the regulations indicate that a sale or
exchange of the stock of either the distributing company or the spun-off company
pursuant to an arrangement negotiated before the distribution is substantial
evidence of device, and a subsequent sale or exchange not pursuant to an
arrangement negotiated before the distribution is evidence of device. The
regulations also indicate that substantial evidence of device exists where an
enforceable right to sell exists prior to the distribution, which (subject to
the satisfaction of certain conditions) will be the case if UDI's tender offer
is not withdrawn prior to the Spin-off.
The requirements of Section 355 also contemplate that the Stockholders will
retain a significant continuing equity interest in both Commercial Intertech and
CUNO following the Spin-off. There is, however, no specific legislative,
regulatory, judicial authority or Internal Revenue Service formal pronouncement
addressing how this continuity requirement would apply to a post
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 6
Spin-off acquisition of Commercial Intertech or CUNO in a hostile takeover
announced prior to the Spin-off. Analogous authority, however, suggests that the
continuity requirement may not be satisfied in this circumstance.
Our opinion is based specifically on the assumption that neither UDI nor
any other party acquires (in a transaction other than a tax-free reorganization
in which either no gain or loss is recognized or only an insubstantial amount
of gain is recognized) all or a significant portion of the outstanding stock of
either Commercial Intertech or CUNO in a transaction that could reasonably be
anticipated to occur as of the date of the Spin-off. We express no view as to
the reasonableness of that assumption. If that assumption proves to be incorrect
(i) we may no longer hold the opinion expressed in this letter and (ii) our
opinion may no longer be relied upon.
If the Spin-off does not qualify under Section 355 of the Code, then
Commercial Intertech will be treated as if it sold the stock of CUNO in a
taxable transaction for its fair market value and Commercial Intertech will
incur a tax liability based on the difference between its tax basis in CUNO
and CUNO's fair market value. In addition, all of the Stockholders
will be treated as if they received a taxable dividend in the amount of the fair
market value of the CUNO stock received (to the extent Commercial Intertech has
accumulated or current earnings and profits).
QUALIFICATIONS
Our opinion is based solely upon the documents we have examined, the
representations in the Officers' Certificate, and the additional information we
have obtained. Our opinion
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 7
assumes that each of the statements contained in such documents, each of the
representations contained in the Officer's Certificate and any of such
additional information will be true and complete at all times from the date
hereof through and including the Distribution Date. Accordingly, our opinion
cannot be relied upon if this assumption proves to be incorrect, or if such
statements, representations, or additional information is, or later becomes,
inaccurate or incomplete. Similarly, our opinion cannot be relied upon if,
subsequent to the date of this letter, any of the terms of relevant agreements
are modified, or the parties to the agreements take action inconsistent with the
terms of such agreements.
Our opinion represents our best legal judgment on the matters set forth
above based upon our review of existing authorities and the facts and
assumptions set forth above. The opinion is based upon existing statutory,
regulatory, administrative, and judicial authority, any of which may be changed
at any time with retroactive effect. In particular, legislation proposed by the
Administration would render the Spin-off taxable to Commercial Intertech if
within two years following the Spin-off there is a more than 50 percent change
in control transaction involving either Commercial Intertech or CUNO which is
related to the Spin-off. The explanation to the proposed legislation indicates
that hostile acquisitions commenced before the Spin-off occurs may be treated as
related. The Administration proposed that this legislation apply to all
transactions occurring after March 19, 1996, although Congressional leaders have
indicated that it would not be effective until after appropriate Congressional
action. We assume no obligation to modify or supplement this opinion if any
applicable laws change after the date hereof or if we become aware of any facts
that might change the opinions expressed herein after the date hereof. Our
opinion does not bind the Internal Revenue Service, any other entity, or any
court. Accordingly, the Internal Revenue Service or a court considering the
issue addressed in our opinion could reach a conclusion contrary to our opinion.
Our opinion is limited to the federal income tax issues specifically
addressed in the opinion. We have not been asked to address, and have not
addressed, any other tax consequences of the transactions described above.
This opinion is being delivered in connection with the decision of
Commercial Intertech's Board of Directors to affect the Spin-off. This opinion
may not be relied upon or utilized for any other
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 8
purpose, or by any other person or entity, and may not be made available to any
other person or entity, without our prior written consent. We do, however,
consent to the filing of this opinion as an exhibit to the Registration
Statement on Form 10. We further consent to the use of our name in the
Registration Statement wherever it appears.
Very truly yours,
Katten Muchin & Zavis
<PAGE>
EXHIBIT 8.2
(312) 902-5277
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
July 29, 1996
Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Gentlemen:
We have acted as special counsel to Commercial Intertech Corp., an Ohio
corporation ("Commercial Intertech"), in connection with the distribution (the
"Spin-off") by Commercial Intertech to its stockholders (the "Stockholders") of
all the outstanding stock of CUNO Incorporated, a Delaware corporation ("CUNO"),
pursuant to, and in accordance with, a Distribution and Interim Services
Agreement by and between Commercial Intertech and CUNO, substantially in the
form of the draft thereof dated July 26, 1996 (the "Agreement").
You have requested our opinion as to whether the Spin-off should qualify as
a tax-free distribution under Section 355 of the Internal Revenue Code of 1986,
as presently in force (the "Code"), and as to certain attendant consequences
(specified below) as a result of such qualification. We have not been requested
to render, and are not rendering, any opinion regarding (i) the tax consequences
of the Spin-off under any other federal tax laws, under the tax laws of the
several states of the United States or the political subdivisions thereof, or
under the tax laws of any foreign country or (ii) any tax consequences of any
transaction other than the Spin-off. In particular, this opinion does not
address the tax consequences of any of the
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 2
transactions undertaken or to be undertaken in contemplation of the Spin-off,
including any intercompany sales, contributions, dividends or transfers of
assets.
All capitalized terms used, but not defined herein, have the same meaning
assigned to them in the Agreement.
In reaching our opinion, we have reviewed and are relying upon (without
independent investigation) the completeness and accuracy at all times, of the
facts, representations and warranties contained in the following documents
(including all amendments, schedules and exhibits thereto): (i) the Agreement,
(ii) the Information Statement on Form 10 of CUNO, dated July 29, 1996, (iii)
the Commercial Intertech and CUNO Officers' Certificate, dated July 29, 1996
(the "Officers' Certificate"), (iv) the Schedule 14D-9, dated July 12, 1996, of
Commercial Intertech, (v) the Rule 13d-1 Transaction Statement, dated July 12,
1996, of Commercial Intertech, (vi) the letter to Commercial Intertech from
Goldman Sachs & Co., dated July 29, 1996, (vii) the letter to Commercial
Intertech from William M. Mercer Incorporated, dated July 29, 1996 and (viii)
the pro forma separate company Form 1120s of Commercial Intertech and CUNO with
respect to the taxable years ended October 31, 1991, 1992, 1993, 1994 and 1995
prepared in connection with the filing of the consolidated federal income tax
return for Commercial Intertech for such years. In addition, we have relied upon
information contained in both oral or written communications obtained in our
consultations with officers, employees and representatives of Commercial
Intertech and CUNO. However, we have represented Commercial Intertech only in
connection with this transaction and there may exist facts or other information
that could have a bearing on the opinion contained herein and of which we are
not aware and, accordingly, the opinion contained herein is based solely on such
knowledge of Commercial Intertech as we have acquired in the course of our
representation.
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 3
Opinion
- -------
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without independent investigation)
that:
(i) Original documents (including signatures) are authentic;
documents submitted to us as copies conform to the original
documents, and there has been (or will be by the Effective Time
of the Spin-off) due execution and delivery of all documents
where due execution and delivery are prerequisites to the
effectiveness thereof;
(ii) Any representation or statement referred to above made "to the
best knowledge of" or otherwise similarly qualified is correct
without such qualification;
(iii) The Spin-off is being consummated, in whole or in substantial
part, for the corporate business purposes set forth in the
Officers' Certificate, including:
(a) to provide an equity interest in CUNO to its current and
future key employees by establishing an employee stock
compensation program that will directly relate to the
performance of such employees;
(b) to allow CUNO to facilitate subsequent acquisitions of
other corporations in the filtration industry using CUNO
stock as consideration;
(c) to enhance the abilities of the management of Commercial
Intertech and CUNO to focus more closely on the objectives
of their respective businesses;
(d) to increase CUNO's access to the capital markets;
(e) to allow investors to better evaluate the merits of both
Commercial Intertech and CUNO so that each will achieve
separate market recognition commensurate with each
company's performance; and
(f) to ensure that the benefits of appropriate market
recognition of the value of CUNO accrue to the
shareholders, employees and other constituents of
Commercial Intertech rather than to United Dominion
Industries Limited.
(iv) Neither Commercial Intertech nor CUNO (nor any member of the
Commercial Intertech affiliated group) will recognize gain under
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 4
regulations promulgated under Code (S) 1502 as a result of the
Spin-off; and
(v) The Spin-off will be consummated pursuant to the Agreement.
(vi) There will be no significant or material changes to any of the
documents upon which we have relied in rendering this opinion.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications (especially as discussed
below in the section "Potential Change of Control") set forth herein, we are of
the opinion, for federal income tax purposes, that the Spin-off should qualify
as a tax-free distribution under Section 355 of the Code and, assuming such
qualification, for federal income tax purposes:
1. Commercial Intertech will not recognize gain or loss upon the
distribution of the CUNO stock to the Stockholders.
2. CUNO will not recognize gain or loss as a result of the Spin-off.
3. The Stockholders will not recognize gain or loss (nor will they
include any amount in income) upon receipt of CUNO stock.
4. The basis of the stock of Commercial Intertech and CUNO in the hands
of the Stockholders after the Spin-off will be the same as the
aggregate basis of the Commercial Intertech stock held immediately
before the Spin-off. Such basis will be allocated between the
Commercial Intertech and CUNO stock in proportion to the fair market
value of each.
5. The holding period of the CUNO stock received in the Spin-off will
include the holding period of the Commercial Intertech stock with
respect to which the Distribution will be made, provided that such
stock is held as a capital asset on the date of the Spin-off.
Potential Change of Control
- ---------------------------
On June 27, 1996, United Dominion Industries Limited ("UDI") offered to
purchase all of the outstanding Commercial Intertech stock. The Board of
Directors of Commercial Intertech
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 5
rejected this offer. On July 12, 1996, UDI announced a tender offer to acquire
for cash all of the outstanding Commercial Intertech common stock. Commercial
Intertech is vigorously resisting the tender offer and has urged the
Stockholders not to tender their shares to UDI.
The requirements of Section 355 contemplate that the spin-off transaction
not be used principally as a "device" for the distribution of the earnings or
profits of either Commercial Intertech or CUNO. Whether a transaction is used
principally as a device will be determined from all the facts and circumstances,
including the presence of device factors specified in Treasury Regulations
promulgated under Code Section 355. Pursuant to these regulations, sales of
stock after a spin-off transaction are evidence of device, particularly where a
large percentage of the stock is sold and such sales occur shortly after the
spin-off transaction. Moreover, the regulations indicate that a sale or exchange
of the stock of either the distributing company or the spun-off company pursuant
to an arrangement negotiated before the distribution is substantial evidence of
device, and a subsequent sale or exchange not pursuant to an arrangement
negotiated before the distribution is evidence of device. The regulations also
indicate that substantial evidence of device exists where an enforceable right
to sell exists prior to the distribution, which (subject to the satisfaction of
certain conditions) will be the case if UDI's tender offer is not withdrawn
prior to the Spin-off.
The requirements of Section 355 also contemplate that the Stockholders will
retain a significant continuing equity interest in both Commercial Intertech and
CUNO following the Spin-off. There is, however, no specific legislative,
regulatory, judicial authority or Internal Revenue Service formal pronouncement
addressing how this continuity requirement would apply to a post
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 6
Spin-off acquisition of Commercial Intertech or CUNO in a hostile takeover
announced prior to the Spin-off. Analogous authority, however, suggests that the
continuity requirement may not be satisfied in this circumstance.
Our opinion is based specifically on the assumption that neither UDI nor
any other party acquires (in a transaction other than a tax-free reorganization
in which either no gain or loss is recognized or only an insubstantial amount of
gain is recognized) all or a significant portion of the outstanding stock of
either Commercial Intertech or CUNO in a transaction that could reasonably be
anticipated to occur as of the date of the Spin-off. We express no view as to
the reasonableness of that assumption. If that assumption proves to be incorrect
(i) we may no longer hold the opinion expressed in this letter and (ii) our
opinion may no longer be relied upon.
If the Spin-off does not qualify under Section 355 of the Code, then
Commercial Intertech will be treated as if it sold the stock of CUNO in a
taxable transaction for its fair market value and Commercial Intertech will
incur a tax liability based on the difference between its tax basis in CUNO and
CUNO's fair market value. In addition, all of the Stockholders will be treated
as if they received a taxable dividend in the amount of the fair market value of
the CUNO stock received (to the extent Commercial Intertech has accumulated or
current earnings and profits).
QUALIFICATIONS
Our opinion is based solely upon the documents we have examined, the
representations in the Officers' Certificate, and the additional information we
have obtained. Our opinion
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 7
assumes that each of the statements contained in such documents, each of the
representations contained in the Officer's Certificate and any of such
additional information will be true and complete at all times from the date
hereof through and including the Distribution Date. Accordingly, our opinion
cannot be relied upon if this assumption proves to be incorrect, or if such
statements, representations, or additional information is, or later becomes,
inaccurate or incomplete. Similarly, our opinion cannot be relied upon if,
subsequent to the date of this letter, any of the terms of relevant agreements
are modified, or the parties to the agreements take action inconsistent with the
terms of such agreements.
Our opinion represents our best legal judgment on the matters set forth
above based upon our review of existing authorities and the facts and
assumptions set forth above. The opinion is based upon existing statutory,
regulatory, administrative, and judicial authority, any of which may be changed
at any time with retroactive effect. In particular, legislation proposed by the
Administration would render the Spin-off taxable to Commercial Intertech if
within two years following the Spin-off there is a more than 50 percent change
in control transaction involving either Commercial Intertech or CUNO which is
related to the Spin-off. The explanation to the proposed legislation indicates
that hostile acquisitions commenced before the Spin-off occurs may be treated as
related. The Administration proposed that this legislation apply to all
transactions occurring after March 19, 1996, although Congressional leaders have
indicated that it would not be effective until after appropriate Congressional
action.
We assume no obligation to modify or supplement this opinion if any
applicable laws change after the date hereof or if we become aware of any facts
that might change the opinions expressed herein after the date hereof. Our
opinion does not bind the Internal Revenue Service, any other entity, or any
court. Accordingly, the Internal Revenue Service or a court considering the
issue addressed in our opinion could reach a conclusion contrary to our opinion.
Our opinion is limited to the federal income tax issues specifically
addressed in the opinion. We have not been asked to address, and have not
addressed, any other tax consequences of the transactions described above.
This opinion is being delivered in connection with the decision of
Commercial Intertech's Board of Directors to effect the Spin-off. This opinion
may not be relied upon or utilized for any other
<PAGE>
Commercial Intertech Corp.
July 29, 1996
Page 8
purpose, or by any other person or entity, and may not be made available to any
other person or entity, without our prior written consent. We do, however,
consent to the filing of this opinion as an exhibit to the Registration
Statement on Form 10. We further consent to the use of our name in the
Registration Statement wherever it appears.
Very truly yours,
Fried, Frank, Harris, Shriver & Jacobson
<PAGE>
CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Effective July ___, 1996
<PAGE>
CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE I
<S> <C> <C>
ESTABLISHMENT......................................................... 1
1.1 Purpose.................................................... 1
ARTICLE II
DEFINITIONS ......................................................... 1
2.1 "Affiliate"................................................ 1
2.2 "Agreement" or "Award Agreement"........................... 1
2.3 "Award".................................................... 1
2.4 "Beneficiary".............................................. 1
2.5 "Board of Directors" or "Board"............................ 1
2.6 "Change in Control"........................................ 2
2.7 "Code" or "Internal Revenue Code".......................... 3
2.8 "Commission"............................................... 3
2.9 "Committee"................................................ 3
2.10 "Common Stock"............................................. 3
2.11 "Company".................................................. 3
2.12 "Conversion Election" or "Election"........................ 3
2.13 "Deferred Stock"........................................... 4
2.14 "Director"................................................. 4
2.15 "Disability"............................................... 4
2.16 "Effective Date"........................................... 4
2.17 "Exchange Act"............................................. 4
2.18 "Fair Market Value"........................................ 4
2.19 "Grant Date"............................................... 4
2.20 "NASDAQ"................................................... 5
2.21 "Notice Date".............................................. 5
2.22 "Option" or "Stock Option"................................. 5
2.23 "Option Period"............................................ 5
2.24 "Option Price"............................................. 5
2.25 "Participant".............................................. 5
2.26 "Performance Shares"....................................... 5
2.27 "Plan"..................................................... 5
2.28 "Representative"........................................... 5
2.29 "Retainer"................................................. 6
2.30 "Rule 16b-3" or "Rule 16a-1(c)(3)"......................... 6
2.31 "Securities Act"........................................... 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2.32 "Valuation Date".......................................... 6
ARTICLE III
ADMINISTRATION ..................................................... 6
3.1 Committee Structure and Authority......................... 6
ARTICLE IV
STOCK SUBJECT TO PLAN............................................... 7
4.1 Number of Shares......................................... 7
4.2 Release of Shares........................................ 7
4.3 Restrictions on Shares................................... 7
4.4 Reasonable Efforts To Register........................... 8
4.5 Adjustments.............................................. 8
4.6 Limited Transfer During Offering......................... 8
ARTICLE V
OPTIONS............................................................. 9
5.1 Eligibility............................................... 9
5.2 Grant and Exercise........................................ 9
5.3 Terms and Conditions...................................... 9
5.4 Termination............................................... 11
ARTICLE VI
RETAINER ELECTION................................................... 11
6.1 Right to Elect............................................ 11
6.2 Election Procedures....................................... 11
ARTICLE VII
PERFORMANCE SHARES.................................................. 12
7.1 General................................................... 12
7.2 Price..................................................... 12
7.3 Performance Share Agreement............................... 12
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.4 Performance Periods....................................... 12
7.5 Performance Goals......................................... 12
7.6 Earning of Performance Shares............................. 13
7.7 Termination or Service as.................................
7.8 Nontransferability........................................ 13
ARTICLE VIII
DEFERRED STOCK...................................................... 14
8.1 General................................................... 14
8.2 Terms and Conditions...................................... 14
ARTICLE IX
MISCELLANEOUS........................................................ 15
9.1 Amendments and Termination................................. 15
9.2 General Provisions......................................... 16
9.3 Special Provisions Regarding a Change in Control........... 17
9.7 Headings................................................... 18
9.8 Severability............................................... 18
9.9 Successors and Assigns..................................... 18
9.10 Entire Agreement........................................... 18
</TABLE>
iii
<PAGE>
CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose. The CUNO Incorporated Non-Employee Directors' Stock Option
Plan ("Plan") is hereby established by CUNO Incorporated ("Company"), effective
July 24, 1996 ("Effective Date"). The purpose of the Plan is to promote the
overall financial objectives of the Company and its stockholders by motivating
directors of the Company who are not employees, to further align the interests
of such directors with those of the stockholders of the Company and to achieve
long-term growth and performance of the Company. The Plan is adopted effective
as of July 24, 1996.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, including, without limitation, any
member of an affiliated group of which the Company is a common parent
corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means, individually or collectively,
any agreement entered into pursuant to this Plan pursuant to which an Award is
granted to a Participant.
2.3 "Award" means any Stock Option, Performance Shares or Deferred Stock
granted pursuant to the Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated beneficiary, then the
term means the person or persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
<PAGE>
2.6 "Change in Control" means
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of twenty percent (20%) or more of either (i) the then-
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company,
(iv) any acquisition by a lender to the Company pursuant to a debt
restructuring of the Company, or (v) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (c) of this Section 2.6;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board.
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than twenty percent (20%) of, respectively, the then-
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may
2
<PAGE>
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.7 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.8 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.9 "Committee" means the person or persons appointed by the Board of
Directors to administer the Plan, as further described in the Plan.
2.10 "Common Stock" means the shares of the common stock, par value $.001
per share, of the Company, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of the Plan.
2.11 "Company" means CUNO Incorporated, a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.12 "Conversion Election" or "Election" means an election by a Director to
(a) either receive all of his or her Retainer on a current basis or (b) to
reduce his or her Retainer by an amount or percentage specified in the Election
and to receive a right to Deferred Stock. The Committee may require that an
Election shall be effective only with respect to a Notice Date that is at least
six months prior to the transaction to which the Election relates and is
irrevocable for such period as the Committee may determine.
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2.13 "Deferred Stock" means an award to receive Commmon Stock at the end of
a specified period in exchange for a Participant's reduction of the Retainer
otherwise payable to the Participant.
2.14 "Director" means each and any director who serves on the Board and who
is not an officer or employee of the Company or any of its Affiliates.
2.15 "Disability" means a mental or physical illness that renders a
Participant totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred, while participating in a
criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of the Plan shall not be
construed to be an admission of disability for any other purpose.
2.16 "Effective Date" means July 24, 1996.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.18 "Fair Market Value" means the value determined on the basis of the
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
(a) if the Common Stock is listed on a national securities exchange or
quoted on NASDAQ, the closing price of the Common Stock on the relevant
date (or, if such date is not a business day or a day on which quotations
are reported, then on the immediately preceding date on which quotations
were reported), as reported by the principal national exchange on which
such shares are traded (in the case of an exchange) or by NASDAQ, as the
case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on NASDAQ, but is actively traded in the over-the-
counter market, the average of the closing bid and asked prices for the
Common Stock on the relevant date (or, if such date is not a business day
or a day on which quotations are reported, then on the immediately
preceding date on which quotations were reported), or the most recent
preceding date for which such quotations are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith
by the Committee.
2.19 "Grant Date" means the date as of which an Award is granted pursuant
to the Plan.
2.20 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq National
Market.
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2.21 "Notice Date" means the date established by the Committee as the
deadline for it to receive an Election or any other notification with respect to
an administrative matter in order to be effective under this Plan.
2.22 "Option" or "Stock Option" means the right to purchase the number of
shares of Common Stock specified by the Plan at a price and for a term fixed by
the Plan, and subject to such other limitations and restrictions as the Plan and
the Committee imposes.
2.23 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article V.
2.24 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 5.3.
2.25 "Participant" means a Director to whom an Award has been granted under
the Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such appointed Representative. The term shall also include a trust for the
benefit of the Participant, the Participant's parents, spouse or descendants; a
partnership the interests in which are for the benefit of the Participant, the
Participant's parents, spouse or descendants; or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee and not inconsistent with
an application of Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Directorship" shall mean the Termination of Directorship of the
Director.
2.26 "Performance Shares" means an Award granted under Article VII.
2.27 "Plan" means CUNO Incorporated Non-Employee Directors' Stock Incentive
Plan, as herein set forth and as may be amended from time to time.
2.28 "Representative" means (a) the person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred by the Committee
or by operation of law; provided that only one of the foregoing shall be the
Representative at any point in time as determined under applicable law and
recognized by the Committee.
2.29 "Retainer" means the retainer provided to the Participant for services
rendered as a Director, including service on a committee or attendance at
meetings, but not the reimbursement of expenses, in his or her capacity as a
Director.
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2.30 "Rule 16b-3" or "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule 16a-
1(c)(3), as promulgated under the Exchange Act, as amended from time to time, or
any successor thereto, in effect and applicable to the Plan and Participants.
2.31 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
2.32 "Valuation Date" means the date or dates designated by the Committee
for converting the Retainer to Deferred Stock pursuant to an Election.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee which, except as provided herein, shall be comprised of one or
more persons. The Committee shall be the Compensation Committee of the Board of
Directors, unless such committee does not exist or the Board establishes another
committee whose purpose is the administration of the Plan. In the absence of an
appointment, the Board shall be the Committee; provided that only those members
of the Compensation Committee of the Board who participate in the decision
relative to Options under the Plan shall be deemed to be part of the "Committee"
for purposes of the Plan. A majority of the Committee shall constitute a quorum
at any meeting thereof (including telephone conference) and the acts of a
majority of the members present, or acts approved in writing by a majority of
the entire Committee without a meeting, shall be the acts of the Committee for
purposes of the Plan. The Committee may authorize any one or more of its members
or an officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the authority
to remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee may
resign upon notice to the Board. The Committee may allocate among one or more of
its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
The Committee shall have the authority, subject to (i) the terms of the
Plan and (ii) the limitations of Rule 16b-3(c)(2)(ii), to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Option issued under the Plan and to otherwise
supervise the administration of the Plan. The
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Committee's policies and procedures may differ with respect to Awards granted at
different times or to different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants. Any determination shall not be
subject to de novo review if challenged in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for issuance
pursuant to Awards under the Plan shall be 200,000 shares of Common Stock
authorized for issuance on the Effective Date, plus any unused Shares under, or
shares allocated by the Committee from, the Company's 1996 Stock Incentive Plan.
Such shares may consist, in whole or in part, of authorized and unissued shares
or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
determine the number of shares of Common Stock available for Awards, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to Awards, any shares of
Common Stock subject to any Awards that are forfeited, any Awards that otherwise
terminate without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award, including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Awards to a
particular Participant under applicable law, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise of
an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Agreement. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock, cash or other
property prior to (i) the listing of such shares on any stock exchange, NASDAQ
or other public market on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to an Award. The
Company may cause any certificate for any share of Common Stock to be delivered
to be properly marked with a legend or other notation reflecting the limitations
on transfer of such Common Stock as provided in the Plan or as the Committee may
otherwise require. The Committee may require any person
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receiving Common Stock to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
4.4 Reasonable Efforts To Register. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as such forms are available for
registration to the Company for this purpose. The Company will use its
reasonable efforts to cause the registration statement to become effective as
soon as possible and will file such supplements and amendments to the
registration statement as may be necessary to keep the registration statement in
effect until the earliest of (a) one year following the expiration of the
relevant period of the last Award outstanding, (b) the date the Company is no
longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Award. The
Company may delay the foregoing obligation if the Committee reasonably
determines that any such registration would materially and adversely affect the
Company's interests or if there is no material benefit to Participants.
4.5 Adjustments. In the event of a stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee may adjust or substitute, as the case may be,
the number of shares of Common Stock available for Awards under the Plan, the
number of shares of Common Stock covered by outstanding Awards, the exercise
price per share of outstanding Options, and any other characteristics or terms
of the Awards as the Committee shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated by
rounding to the next lower whole number of shares with appropriate payment for
such fractional share as shall reasonably be determined by the Committee.
4.6 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an Award.
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ARTICLE V
---------
OPTIONS
-------
5.1 Eligibility. Each Director shall be granted Options to purchase
shares of Common Stock as provided herein.
5.2 Grant and Exercise. Each person who is elected as a Director shall
become a Participant and shall, on his or her date of initial election and on
each subsequent annual stockholders' meeting (or such other annual date as
selected by the Committee) for as long as such person remains a Director,
without further action by the Board or the Committee, be granted an Option to
purchase 1,000 shares of Common Stock. If any Director is required to retire
pursuant to the policies of the Board during the 12-month period beginning on
any Grant Date, or if the Director has notified the Board that he or she intends
to resign for any reason during the 12-month period beginning on any Grant Date,
said Director shall instead be granted on the relevant Grant Date an Option to
purchase the number of shares of Common Stock equal to (i) 1,000 multiplied by
(ii) a fraction, the numerator of which is the number of full calendar months
the Director will serve during the period beginning on the Grant Date and ending
on the Director's last date of service and the denominator of which is 12. If
after 1996, a Director is appointed to the Board effective on any date other
than the date of the annual stockholders' meeting, said Director shall
automatically be granted on the Grant Date he or she joined the Board an Option
to purchase the number of shares of Common Stock equal to (i) 1,000, multiplied
by (ii) a fraction, the numerator of which is the number of full months such
Director will serve on the Board during the period beginning on the date he or
she joins the Board and ending on the date of the next following annual
stockholders' meeting and the denominator of which is 12. If the number of
shares of Common Stock available to grant under the Plan on a scheduled date of
grant is insufficient to make all automatic grants required to be made pursuant
to the Plan on such date, then each eligible Director shall receive an Option to
purchase a pro rata number of the remaining shares of Common Stock available
under the Plan; provided further, however, that if such proration results in
fractional shares of Common Stock, then such Option shall be rounded down to the
nearest number of whole shares of Common Stock. If there is no whole number of
shares remaining to be granted, then no grants shall be made under the Plan.
Each Option granted under the Plan shall be evidenced by an Agreement, in a form
approved by the Committee, which shall embody the terms and conditions of such
Option and which shall be subject to the express terms and conditions set forth
in the Plan. Such Agreement shall become effective upon execution by the
Participant.
5.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including in each case the
following:
(a) Option Period. The Option Period of each Option shall be ten (10)
years unless otherwise provided by the Committee.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be the Fair Market Value as of the Grant
Date.
(c) Exercisability. Unless otherwise specified in an Agreement, and
subject to the provisions of Section 9.3, Options granted thereafter shall
become exercisable on the first anniversary of the Grant Date. An Option
only shall be exercisable during the Option Period.
(d) Method of Exercise. Subject to the provisions of this Article V,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Except when waived by the Committee, such notice shall be
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accompanied by payment in full of the purchase price by cash or check or
such other form of payment as the Company may accept. If approved by the
Committee (including approval at the time of exercise), payment in full or
in part may also be made (i) by delivering Common Stock already owned by
the Participant having a total Fair Market Value on the date of such
delivery equal to the Option Price; (ii) by the execution and delivery of a
note or other evidence of indebtedness (and any security agreement
thereunder) satisfactory to the Committee; (iii) by authorizing the Company
to retain shares of Common Stock which would otherwise be issuable upon
exercise of the Option having a total Fair Market Value on the date of
delivery equal to the Option Price; (iv) by the delivery of cash or the
extension of credit by a broker-dealer to whom the Participant has
submitted a notice of exercise or otherwise indicated an intent to exercise
an Option (in accordance with Part 220, Chapter II, Title 12 of the Code of
Federal Regulations, so-called "cashless" exercise); (v) by certifying
ownership of shares of Common Stock owned by the Participant to the
satisfaction of the Committee for later delivery to the Company as
specified by the Committee; or (vi) by any combination of the foregoing or
by any other method permitted by the Committee.
(e) Nontransferability of Options. Except as provided herein or in an
Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution,
and all Options shall be exercisable during the Participant's lifetime only
by the Participant. If and to the extent transferability is permitted by
Rule 16b-3 and except as otherwise provided herein or by an Agreement,
every Option granted hereunder shall be freely transferable, but only if
such transfer does not result in liability under Section 16 of the Exchange
Act to the Participant or other Participants and is consistent with
registration of the Option and sale of Common Stock on Form S-8 (or a
successor form) or the Committee's waiver of such condition.
5.4 Termination. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant ceases to be a Director due to death, any
unexpired and unexercised Stock Option held by such Participant shall thereafter
be fully exercisable for a period of one (1) year following the date of the
appointment of a Representative (or such other period or no period as the
Committee may specify) or until the expiration of the Option Period, whichever
period is the shorter. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant ceases to be a Director for any reason other
than death, any unexpired and unexercised Stock Option held by such Participant
shall thereafter be fully exercisable by the Participant for the period of one
(1) year (or such other period or no period as the Committee may specify)
immediately following the date the Participant ceases to be a Director or until
the expiration of the Option Period, whichever period is shorter, and the
Participant's death at any time following the date the Participant ceases to be
a Director shall not affect the foregoing.
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ARTICLE VI
----------
RETAINER ELECTION
-----------------
6.1 Right to Elect
(a) A Director may have all or a portion of his or her Retainer
credited as Deferred Stock on his or her behalf. A director who desires to
receive all or a portion of his or her Retainer in the form of Deferred
Stock shall file an Election by the relevant Notice Date pursuant to the
procedures of the Committee authorizing his or her Retainer otherwise
payable to be reduced and to be distributed in the form of Deferred Stock.
(b) As of the relevant Valuation Date determined by the Committee, the
number of shares of Deferred Stock shall equal (1) the value of Retainer
subject to the Conversion Election multiplied by 1.20, divided by (2) the
Fair Market Value per share of the Common Stock on the effective date of
the Conversion Election.
6.2 Election Procedures. If properly executed and received by the
Committee, an Election shall be effective only with respect to a Retainer paid
in the period to which the Election applies and only with respect to a Retainer
paid after the Notice Date for the Election. The Election shall be effective
only if received on or prior to the Notice Date to which the Election relates
and, shall only be revocable to the extent determined by the Committee. An
Election may be deemed to be continuing and applicable to calendar years after
the year in which the Election is filed, and may be continuing for such period
of time as determined by the Committee. The Committee may establish rules and
procedures governing when an Election will be effective and what Retainer will
be subject to the Election.
ARTICLE VII
-----------
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12
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PERFORMANCE SHARES
------------------
7.1 General. Subject to the terms and conditions described below,
Performance Shares may be granted to Participants at any time and from time to
time as determined by the Committee. Each Director on the date of the Company's
Initial public offering shall receive an Award for 5,000 Performance Shares; and
each Director shall thereafter receive an Award for 1,000 Performance Shares on
the date of every other (i.e., biannual) annual stockholders' meeting (or such
other annual date selected by the Committee) beginning with calendar year 1997
(or such later year as determined by the Committee).
7.2 Price. The purchase price for Performance Shares shall be zero unless
otherwise specified by the Committee.
7.3 Performance Share Agreement. Prior to the beginning of the applicable
Performance Period (as defined below), subject to the provisions of this Plan,
all the terms and conditions of an award of Performance Shares shall be
determined by the Committee in its discretion and shall be confirmed by a
Performance Share Award Agreement which shall be executed by the Company and the
Participant.
7.4 Performance Periods. Unless otherwise determined by the Committee,
any time period (the "Performance Period") relating to a Performance Share award
shall be at least two years in length.
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7.5 Performance Goals. Performance Shares shall be earned based upon the
financial performance of the Company or an operating group of the Company during
a Performance Period. Prior to the beginning of the applicable Performance
Period, the Committee will establish in writing targets for the Company (and/or
an operating group of the Company, if applicable) over the Performance Period
("Performance Goals"), which shall be based on any of the following performance
criteria, either alone or in any combination, and on either a consolidated or
business unit level, as the Committee may determine; sales, net asset turnover,
earnings per share, cash flow, cash flow from operations, operating profit or
income, net income, operating margin, net income margin, return on net assets,
return on total assets, return on common equity, return on total capital, and
total shareholder return. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items as the Committee may specify; extraordinary, unusual
or nonrecurring items; effects of accounting changes; effects of financing
activities (e.g., effect on earnings per share of issuance of convertible debt
securities); expenses for restructuring or productivity initiatives; other
nonoperating items; spending for acquisitions; effects of divestitures; and
effects of litigation activities and settlements. Any such performance
criterion or combination of such criteria may apply to the Participant's Award
opportunity in its entirety or to any designated portion or portions of the
Award opportunity, as the Committee may specify. Unless the Committee
determines otherwise for any Performance Period, extraordinary items, such as
capital gains and losses, which affect any performance criterion applicable to
the Award (including but not limited to the criterion of net income) shall be
excluded or included in determining the extent to which the corresponding
performance goal has been achieved, whichever will produce the greater Award.
The Performance Goals may vary for different Performance Periods and need not be
the same for each Participant receiving an Award for a Performance Period. The
Committee may, in its discretion, vary the terms and conditions of any
Performance Share Award, including, without limitation, the Performance Period
and Performance Goals.
7.6 Earning of Performance Shares. After the applicable Performance
Period shall have ended, the Committee shall determine the extent to which the
established Performance Goals have been achieved. Subsequently, each recipient
of Performance Shares shall be entitled to receive the number of Performance
Shares under the Award, if any, earned by the Participant over the Performance
Period.
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A Participant may earn more or less than the number of Performance Shares
originally awarded, or no Performance Shares at all. Performance Shares shall
be paid in the form of Company Stock. Unrestricted certificates representing
such number of shares of Stock as equals the number of Performance Shares earned
under the Award shall be delivered to the Participant as soon as practicable
after the end of the applicable Performance Period. Participants shall also be
entitled to any dividends or other distributions that would have been paid or
earned in respect of such shares of Common Stock had such shares been
outstanding during the period from the initial Award date to the final payout on
the Performance Shares. Unless otherwise provided, in its discretion, by the
Committee, any such dividends or other distributions shall not bear interest.
7.7 Termination or Service as a Director, unless otherwise determined by
the Committee, in the event the status of a Participant as a Director is
terminated by reason of death or Disability during a Performance Period, the
Participant shall receive a prorated payout with respect to the Performance
Shares relating to such Performance Period. The prorated payout shall be
determined by the Committee, in its sole discretion, and shall be based upon the
length of time that the Participant held the Performance Shares during the
Performance Period and based upon the achievement of the established Performance
Goals. Distribution of earned Performance Shares shall be made at the same time
payments are made to Participants whose service as a Director does not terminate
during the applicable Performance Period. In the event that a Participant ceases
to be a Director for any reason other than death or Disability, all Performance
Shares shall be forfeited by the Participant to the Company, unless otherwise
determined by the Committee.
7.8 Nontransferability. Except as provided in an Agreement Performance
Shares may not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, a Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
Representative.
ARTICLE VIII
------------
DEFERRED STOCK
--------------
8.1 General. The Committee shall have authority to grant Deferred Stock
under this Plan at any time or from time to time, including in connection with a
Conversion Election. Shares of Deferred Stock may be awarded either alone or in
addition to other Awards granted under this Plan. The Committee shall determine
the persons to whom and the time or times at which Deferred Stock will be
awarded, the number of shares of Deferred Stock to be awarded to any
Participant, the duration of the period (the "Deferral Period") prior to which
the Common Stock will be delivered, and the conditions under which receipt of
the Common Stock will be deferred and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Deferred Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate, including a division or department of the Company or an
Affiliate for or within which the Participant is primarily employed or upon such
other factors or criteria as the Committee shall determine. The provisions of
Deferred Stock Awards need not be the same with respect to any Participant.
8.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
margined, transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or Elective Deferral
Period as defined in Section 8.2(e), where applicable), the Committee shall
deliver Common Stock to the Participant for the shares covered by the
Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
to this Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant ceases to be a Director
during the Deferral Period due to death or Disability, the restrictions
shall lapse and the Participant shall be fully vested in the Deferred Stock
and shares of Common Stock shall be delivered to the Participant. Unless
otherwise provided in an Agreement or determined by the Committee, upon a
Participant's ceasing to be a Director for any reason during the Deferral
Period other than death or Disability, the rights to the shares still
covered by the Award shall be forfeited by the Participant, except the
Committee shall have the discretion to waive in whole or in part any or all
remaining deferral limitations with respect to any or all of such
Participant's Deferred Stock.
(e) Election. A Participant may elect to further defer receipt of the
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at one (1) year prior to completion of the Deferral Period for the
Award.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Award, theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3, or (c) made to permit
15
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the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement. To the extent
required by law and notwithstanding the foregoing, the Plan may not be amended
more than once every six (6) months to change the Plan provisions listed in
section (c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in the
Code or Rule 16b-3.
The Committee may amend, alter or discontinue the Plan or an Award at any
time on the same conditions and limitations (and exceptions to limitations) as
applies to the Board's authority to amend the Plan and further subject to any
approval or limitations the Board may impose.
The Board shall have authority to amend the Plan to take into account
changes in law and tax and accounting rules, as well as other developments, and
to grant Awards which qualify for beneficial treatment under such rules without
stockholder approval. Notwithstanding anything in the Plan to the contrary, if
any right under this Plan would cause a transaction to be ineligible for pooling
of interest accounting that would, but for the right hereunder, be eligible for
such accounting treatment, the Board or the Committee may modify or adjust the
right so that pooling of interest accounting is available.
9.2 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof in violation of the Securities Act. The
certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
(b) Withholding. If determined to be required to protect the Company,
no later than the date as of which an amount first becomes includable in
the gross income of the Participant for Federal income tax purposes with
respect to any Option, the Participant shall pay to the Company (or other
entity identified by the Committee), or make arrangements satisfactory to
the Company or other entity identified by the Committee regarding the
payment of, any Federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount. Unless otherwise
determined by the Committee, withholding obligations may be settled with
Common Stock, including Common Stock that is part of the Option that gives
rise to the
16
<PAGE>
withholding requirement, provided that any applicable requirements under
Section 16 of the Exchange Act are satisfied. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participant.
(c) Controlling Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law).
The Plan shall be construed to comply with all applicable law, and to avoid
liability to the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(d) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under the Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under the Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(e) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3). To the extent any
provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not
include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated
therein, such provision shall be deemed to be incorporated by reference
into the Plan with respect to Participants subject to Section 16.
9.3 Special Provisions Regarding a Change in Control. Notwithstanding any
other provision of the Plan to the contrary, unless otherwise provided in an
Agreement, in the event of a Change in Control or a Potential Change of Control:
(a) Any Stock Options outstanding as of the date of such Change in
Control and not then exercisable shall become fully exercisable to the full
extent of the original grant;
(b) Any restrictions or deferrals applicable to Deferred Stock shall
lapse, and such Award shall become free of all restrictions and become
fully vested and transferable to the full extent of the original grant;
17
<PAGE>
(c) Any Performance Goal or other condition with respect to any
Performance Shares shall be deemed to have been satisfied in full, and the
Award shall be fully distributable;
(d) The Committee shall have full discretion, notwithstanding anything
herein or in an Agreement to the contrary, to do any or all of the
following with respect to an outstanding Award:
(1) To cause any Award to be cancelled, provided notice
of at least 15 days thereof is provided before the date of
cancellation;
(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to make
equitable adjustment with respect thereto;
(3) To grant the Participant by giving notice during a pre-set
period to surrender all or part of an Award to the Company
and to receive cash in an amount equal to the amount by
which the "Change Control Price" (as defined in Section
9.4(c)) per share of Common Stock on the date of such
election shall exceed the amount which the Participant must
pay to exercise the Award per share of Common Stock under
the Award (the "Spread") multiplied by the number of shares
of Common Stock granted under the Award;
(4) To require the assumption of the obligation of the Company
under the Plan subject to appropriate adjustment; and
(5) To take any other action the Committee determines to take.
9.4 For purposes of this Section, "Change in Control Price" means
(i) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on NASDAQ during the sixty (60)-day period prior to and including the date of
a Change in Control, or (ii) if the Change in Control is the result of a
corporate transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a corporate transaction. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
9.5 Awards in Substitution for Awards Granted by Other Corporations.
Awards may be granted under this Plan from time to time in substitution for
awards held by Directors in respect of other plans of other entities. The terms
and conditions of the Awards so granted may vary from the terms and conditions
set forth in this
18
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Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
9.6 Delay. If at the time, the Participant is subject to "short-swing"
liability under Section 16 of the Exchange Act, any time period provided for
under the Plan, to the extent necessary to avoid the imposition of liability,
shall be suspended and delayed during the period the Participant would be
subject to such liability.
9.7 Headings. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.
9.8 Severability. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and the Plan shall be construed as if
such invalid or unenforceable provision were omitted.
9.9 Successors and Assigns. The Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
9.10 Entire Agreement. The Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of the Plan shall control.
Executed on this ____ day of July, 1996.
CUNO INCORPORATED
By: ___________________________________
NAME
Title: ____________________________
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CUNO INCORPORATED
1996 STOCK INCENTIVE PLAN
DRAFT
JULY 17, 1996
<PAGE>
<TABLE>
CUNO INCORPORATION
1996 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
-----------------
ARTICLE I
<S> <C>
ESTABLISHMENT.............................................................................................................. 1
1.1 Purpose........................................................................................................ 1
ARTICLE II
DEFINITIONS................................................................................................................ 1
2.1 "Affiliate"..................................................................................................... 1
2.2 "Agreement" or "Award Agreement"................................................................................ 1
2.3 "Annual Incentive Award"........................................................................................ 1
2.4 "Award," "Performance Shares," or "Annual Incentive Awards"..................................................... 1
2.5 "Board of Directors" or "Board"................................................................................. 1
2.6 "Cause"......................................................................................................... 2
2.7 "Change in Control," "Change in Control Price," and "Potential Change in Control"............................... 2
2.8 "Code" or "Internal Revenue Code"............................................................................... 2
2.9 "Commission".................................................................................................... 2
2.10 "Committee"..................................................................................................... 2
2.11 "Common Stock".................................................................................................. 2
2.12 "Company"....................................................................................................... 2
2.13 "Deferred Stock"................................................................................................ 2
2.14 "Disability".................................................................................................... 2
2.15 "Disinterested Person".......................................................................................... 3
2.16 "Effective Date"................................................................................................ 3
2.17 "Exchange Act".................................................................................................. 3
2.18 "Extraordinary Termination of Employment"....................................................................... 3
2.19 "Fair Market Value"............................................................................................. 3
2.20 "Grant Date".................................................................................................... 3
2.21 "Incentive Stock Option"........................................................................................ 3
2.22 "Nonqualified Stock Option"..................................................................................... 3
2.23 "Option Period"................................................................................................. 3
2.24 "Option Price".................................................................................................. 3
2.25 "Participant"................................................................................................... 3
2.26 "Performance Shares"............................................................................................ 3
2.27 "Plan".......................................................................................................... 3
2.28 "Representative"................................................................................................ 3
2.29 "Restricted Stock".............................................................................................. 4
2.30 "Retirement".................................................................................................... 4
2.31 "Rule 16b-3" and "Rule 16a-1(c)(3)"............................................................................. 4
2.32 "Stock Appreciation Right"...................................................................................... 4
2.33 "Stock Option" or "Option"...................................................................................... 4
2.34 "Termination of Employment"..................................................................................... 4
i
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE III
<S> <C> <C>
ADMINISTRATION ........................................................... 5
3.1 Committee Structure and Authority ............................. 5
ARTICLE IV
STOCK SUBJECT TO PLAN ..................................................... 7
4.1 Number of Shares ............................................... 7
4.2 Release of Shares .............................................. 7
4.3 Restrictions on Shares ......................................... 7
4.4 Stockholder Rights ............................................. 8
4.5 Best Efforts To Register ....................................... 8
4.6 Anti-Dilution .................................................. 8
ARTICLE V
ELIGIBILITY ............................................................... 9
5.1 Eligibility .................................................... 9
ARTICLE VI
STOCK OPTIONS ............................................................ 9
6.1 General ....................................................... 9
6.2 Grant and Exercise ............................................ 9
6.3 Terms and Conditions .......................................... 10
6.4 Termination by Reason of Death ................................ 12
6.5 Termination by Reason of Disability ........................... 12
6.6 Other Termination ............................................. 12
6.7 Cashing Out of Option ......................................... 12
ARTICLE VII
STOCK APPRECIATION RIGHTS ................................................ 13
7.1 General ....................................................... 13
7.2 Grant ......................................................... 13
7.3 Terms and Conditions .......................................... 13
ARTICLE VIII
RESTRICTED STOCK ......................................................... 15
8.1 General ....................................................... 15
8.2 Awards and Certificates ....................................... 15
8.3 Terms and Conditions .......................................... 15
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE IX
<S> <C> <C>
DEFERRED STOCK ........................................................... 16
9.1 General ....................................................... 16
9.2 Terms and Conditions .......................................... 17
ARTICLE X
PERFORMANCE SHARES ....................................................... 18
10.1 General ....................................................... 18
10.2 Price ......................................................... 18
10.3 Performance Share Agreement ................................... 18
10.4 Performance Periods ........................................... 18
10.5 Performance Goals ............................................. 18
10.6 Earning of Performance Shares ................................. 19
ARTICLE XI
ANNUAL INCENTIVE AWARDS .................................................. 20
11.1 Eligibility ................................................... 20
11.2 Earning of Annual Incentive Awards ............................ 20
11.3 Payments and Election ......................................... 20
ARTICLE XII
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN .................. 21
12.1 Transfer of Shares ............................................ 21
12.2 Limited Transfer During Offering .............................. 21
12.3 Committee Discretion .......................................... 22
ARTICLE XIII
CHANGE IN CONTROL PROVISIONS ............................................. 22
13.1 Impact of Event ............................................... 22
13.2 Definition of Change in Control ............................... 23
13.3 Change in Control Price ....................................... 24
13.4 Potential Change in Control ................................... 24
ARTICLE XIV
MISCELLANEOUS ............................................................ 25
14.1 Amendments and Termination .................................... 25
14.2 Unfunded Status of Plan ....................................... 25
14.3 Status of Awards Under Code Section 162(m) .................... 25
14.4 General Provisions ............................................ 26
14.5 Mitigation of Excise Tax ...................................... 27
14.6 Rights with Respect to Continuance of Employment .............. 28
</TABLE>
iii
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<TABLE>
<S> <C> <C>
14.7 Awards in Substitution for Awards Granted by Other Corporations.. 28
14.8 Procedure for Adoption .......................................... 28
14.9 Procedure for Withdrawal ........................................ 28
14.10 Delay ........................................................... 29
14.11 Headings ........................................................ 29
14.12 Severability .................................................... 29
14.13 Successors and Assigns .......................................... 29
14.14 Entire Agreement ................................................ 29
</TABLE>
iv
<PAGE>
CUNO INCORPORATED
1996 STOCK INCENTIVE PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
The CUNO Incorporated 1996 Stock Incentive Plan ("Plan") is hereby
established by CUNO Incorporated ("Company"). The purpose of this Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating those persons selected to participate in this Plan to achieve long-
term growth in stockholder equity in the Company and by retaining the
association of those individuals who are instrumental in achieving this growth.
This Plan and the grant of awards hereunder is expressly conditioned upon the
Plan's approval by the security holders of the Company to the extent the
Committee deems necessary or advisable. If such approval is not obtained, then
this Plan and all Awards hereunder shall be null and void ab initio. This Plan
is adopted effective as of July ____, 1996.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of this Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means any agreement entered into
pursuant to this Plan pursuant to which an Award is granted to a Participant.
2.3 "Annual Incentive Award" means an award granted pursuant to Article
XI.
2.4 "Award" means any Stock Option, Stock Appreciation Right, Restricted
Stock, Deferred Stock, Performance Share or Annual Incentive Award granted to a
Participant under the Plan.
2.5 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated
<PAGE>
beneficiary, then the term means the person or persons, trust or trusts entitled
by will or the laws of descent and distribution to receive such benefits.
2.6 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.7 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean (a) any act or failure to act deemed to constitute cause
under the Company's established practices, policies or guidelines applicable to
the Participant or (b) the Participant's act or omission constituting gross
misconduct with respect to the Company or an Affiliate in any material respect.
2.8 "Change in Control," "Change in Control Price," and "Potential Change
in Control" have the meanings set forth in Sections 13.2, 13.3 and 13.4,
respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.11 "Committee" means the person or persons appointed by the Board of
Directors to administer this Plan, as further described herein; provided,
however, the Committee shall consist of directors who are "disinterested"
persons within the meaning of Rule 16b-3 and each of whom is an "outside"
director under Section 162(m) of the Code.
2.12 "Common Stock" means the shares of the regular voting Common Stock,
$[ ] par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of this Plan.
2.13 "Company" means CUNO Incorporated, a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.15 "Deferred Stock" means an award made pursuant to Article IX to
receive Common Stock at the end of a specified period.
2
<PAGE>
2.16 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability shall be made by the Committee. The determination of Disability for
purposes of this Plan shall not be construed to be an admission of disability
for any other purpose.
2.17 "Effective Date" means July ____, 1996,.
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.19 "Extraordinary Termination of Employment" means the Termination of
Employment of the Participant due to death, Disability or Retirement.
2.20 "Fair Market Value" means the fair market value of Common Stock,
Awards, or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value per share by Common Stock as of any date shall be the closing
sale price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which the Common Stock is traded on the
date as of which such value is being determined or, if there is no sale ont that
date, then on the last previous day on which a sale was reported.
2.21 "Grant Date" means the date that as of which an Award is granted
pursuant to this Plan.
2.22 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.23 "Nonqualified Stock Option" means an Option to purchase Common Stock
in the Company granted under this Plan the taxation of which is pursuant to
Section 83 of the Code.
2.24 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article VI.
2.25 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.
2.26 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Award has been granted by the Committee under this
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is by or for the benefit of the
3
<PAGE>
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee and not
inconsistent with the Rule 16b-3 or the status of the Option as an Incentive
Stock Option to the extent intended. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
employee.
2.27 "Performance Shares" means a right, granted under Article X, to
receive Awards based upon criteria specified by the Committee.
2.28 "Plan" means this CUNO Incorporated 1996 Stock Incentive Plan, as the
same may be amended from time to time.
2.29 "Representative" means (a) the person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.30 "Restricted Stock" means an award of Common Stock under Article VIII
that is subject to certain restrictions and a risk of forfeiture.
2.31 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.32 "Rule 16b-3 and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.33 "Stock Appreciation Right" means a right granted under Article VII.
2.34 "Stock Option" or "Option" means a right to purchase stock on
specified conditions granted under Article VI.
2.35 "Termination of Employment" means the occurrence of any act or event
whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer
4
<PAGE>
by the Company or its Affiliates of all businesses owned or operated by the
Company or its Affiliates. With respect to any person who is not an employee
with respect to the Company or an Affiliate, the Agreement shall establish what
act or event shall constitute a Termination of Employment for purposes of this
Plan. A transfer of employment from the Company to an Affiliate, or from an
Affiliate to the Company, shall not be a Termination of Employment, unless
expressly determined by the Committee. A Termination of Employment shall occur
to an employee who is employed by an Affiliate if the Affiliate shall cease to
be an Affiliate and the Participant shall not immediately thereafter become an
employee of the Company or an Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. This Plan shall be administered by
the Committee which shall be comprised of one or more persons. The Committee
shall be the Compensation Committee of the Board of Directors, unless such
committee does not exist or the Board establishes a committee whose purpose is
the administration of this Plan. In the absence of an appointment, the Board or
the portion that qualifies as the Committee shall be the Committee. A majority
of the Committee shall constitute a quorum at any meeting thereof (including
telephone conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee without a meeting,
shall be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Committee. A member of the Committee
shall not exercise any discretion respecting himself or herself under this Plan.
The Board shall have the authority to remove, replace or fill any vacancy of any
member of the Committee upon notice to the Committee and the affected member.
Any member of the Committee may resign upon notice to the Board. The Committee
may allocate among one or more of its members, or may delegate to one or more of
its agents, such duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of this Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction
5
<PAGE>
or limitation; any exercise acceleration or forfeiture waiver or any
performance criteria regarding any Award and the shares of Common Stock
relating thereto);
(e) to adjust the terms and conditions, at any time or from time to time,
of any Award, subject to the limitations of Section 14.1;
(f) to determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in cash
or Common Stock.
(h) to provide for the forms of Agreement to be utilized in connection with
this Plan;
(i) to determine whether a Participant has a Disability or a Retirement;
(j) to determine what securities law requirements are applicable to this
Plan, Awards, and the issuance of shares of Common Stock and to require of a
Participant that appropriate action be taken with respect to such requirements;
(k) to cancel, with the consent of the Participant or as otherwise provided
in this Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require as a condition of the exercise of an Award or the issuance
or transfer of a certificate of Common Stock, the withholding from a Participant
of the amount of any federal, state or local taxes as may be necessary in order
for the Company or any other employer to obtain a deduction or as may be
otherwise required by law;
(n) to determine whether and with what effect an individual has incurred a
Termination of Employment;
(o) to determine whether the Company or any other person has a right or
obligation to purchase Common Stock from a Participant and, if so, the terms and
conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of Common
Stock;
(q) to determine whether an Award is to be adjusted, modified or purchased,
or is to become fully exercisable, under this Plan or the terms of an Agreement;
(r) to determine the permissible methods of Award exercise and payment,
including cashless exercise arrangements;
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(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of this
Plan and any Award issued under this Plan (and any Agreement) and to otherwise
supervise the administration of this Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of this
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of this Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of this Plan shall be final and binding on all persons, including the Company
and Participants. Any determination shall not be subject to de novo review if
challenged in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under this Plan shall be 1,000,000 shares of Common Stock
authorized for issuance on the Effective Date plus any unused shares under, or
shares allocated by the Committee from, the Company's Non-Employee Directors'
Stock Option Plan. Such shares may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
determine the number of shares of Common Stock available for Award, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to an Award, any shares of
Common Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Awards to a
particular Participant under any applicable law, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Award Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly
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traded), (ii) the completion of any registration or qualification of such shares
under federal or state law, or any ruling or regulation of any government body
which the Committee determines to be necessary or advisable, and (iii) the
satisfaction of any applicable withholding obligation in order for the Company
or an Affiliate to obtain a deduction with respect to the exercise of an Award.
The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person
exercising an Award to make such representations and furnish such information as
it may consider appropriate in connection with the issuance or delivery of the
shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued and transferred.
Upon exercise of the Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued and transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. If there has been a Public Offering, the
Company will register under the Securities Act the Common Stock delivered or
deliverable pursuant to Awards on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The Company will use its best efforts to cause the registration
statement to become effective as soon as possible and will file such supplements
and amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the last relevant period of the last Award outstanding, (b)
the date the Company is no longer a reporting company under the Exchange Act and
(c) the date all Participants have disposed of all shares of Common Stock
delivered pursuant to any Award. The Company may delay the foregoing obligation
if the Committee reasonably determines that any such registration would
materially and adversely affect the Company's interests or if there is no
material benefit to Participants.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee may adjust or substitute, as the case may be,
the number of shares of Common Stock available for Awards under this Plan, the
number of shares of Common Stock covered by outstanding Awards, the exercise
price per share of
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outstanding Awards, and any other characteristics or terms of the Awards as the
Committee shall deem necessary or appropriate to reflect equitably the effects
of such changes to the Participants; provided, however, that the Committee may
limit any such adjustment so as to maintain the deductibility of the Awards
under Section 162(m) of the Code, and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional share as shall reasonably
be determined by the Committee.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in this Plan and be granted Awards shall be those
persons who are officers, employees and consultants of the Company or any
subsidiary, who shall be in a position, in the opinion of the Committee, to make
contributions to the growth, management, protection and success of the Company
and its subsidiaries. Of those persons described in the preceding sentence, the
Committee may, from time to time, select persons to be granted Awards and shall
determine the terms and conditions with respect thereto. In making any such
selection and in determining the form of the Award, the Committee may give
consideration to the functions and responsibilities of the person's
contributions to the Company and its subsidiaries, the value of the individual's
service to the Company and its subsidiaries and such other factors deemed
relevant by the Committee. The Committee may designate any person who is not
eligible to participate in this Plan if such person would otherwise be eligible
to participate in this Plan (and members of the Committee are expressly excluded
from participation to the extent necessary for purposes of Rule 16h-3, Section
162(m) of the Code or any other legal reason).
ARTICLE VI
----------
STOCK OPTIONS
-------------
6.1 General. The Committee shall have authority to grant Options under this
Plan at any time or from time to time. Stock Options may be granted alone or in
addition to other Awards and may be either Incentive Stock Options or
Non-Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price. During any three-calendar-year period,
Options for no more than one-half of all shares of Common Stock available for
grant under the Plan shall be granted to any Participant.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of
the date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in this Plan. Such Agreement shall
become effective upon execution by the Participant. Only a person who is a
common-law employee of the Company, any parent corporation of the Company or a
subsidiary
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(as such terms are defined in Section 424 of the Code) on the Grant date shall
be eligible to be granted an Option which is intended to be and is an Incentive
Stock Option. To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option, it shall constitute a Non-Qualified Stock Option.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall be
fixed by the Committee; provided that no Non-Qualified Stock Option shall
be exercisable more than fifteen (15) years after the date the Stock Option
is granted. In the case of an Incentive Stock Option, the Option Period
shall not exceed ten (10) years from the date of grant or five (5) years in
the case of an individual who owns more than ten percent (10%) of the
combined voting power of all classes of stock of the Company, a corporation
which is a parent corporation of the Company or any subsidiary of the
Company (each as defined in Section 424 of the Code). No Option which is
intended to be an Incentive Stock Option shall be granted more than ten
(10) years from the date this Plan is adopted by the Company or the date
this Plan is approved by the stockholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee. If such
Option is intended to qualify as an Incentive Stock Option, the Option
Price per share shall be not less than the Fair Market Value per share on
the date the Option is granted, or where granted to an individual who owns
or who is deemed to own stock possessing more than ten percent (10%) of the
combined voting power of all classes of stock of the Company, a corporation
which is a parent corporation of the Company or any subsidiary of the
Company (each as defined in Section 424 of the Code), not less than one
hundred ten percent (110%) of such Fair Market Value per share.
(c) Exercisability. Subject to Section 13.1, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that
any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part.
In addition, the Committee may at any time accelerate the exercisability of
any Stock Option. If the Committee intends that an Option be an Incentive
Stock Option, the Committee shall, in its discretion, provide that the
aggregate Fair Market Value (determined at the Grant Date) of Incentive
Stock Option which is exercisable for the first time during the calendar
year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Such notice shall be accompanied by payment in full of
the purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee (including approval at
the time
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of exercise), payment in full or in part may also be made (i) by delivering
Common Stock already owned by the Participant having a total Fair Market Value
on the date of such delivery equal to the Option Price; (ii) by the execution
and delivery of a note or other evidence of indebtedness (and any security
agreement thereunder) satisfactory to the Committee and permitted in accordance
with Section 6.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option having a
total Fair Market Value on the date of delivery equal to the Option Price; (iv)
by the delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise an Option (in accordance with Part 220, Chapter II, Title 12
of the Code of Federal Regulations, so-called "cashless" exercise); (v) by
certifying ownership of shares of Common Stock owned by the Participant to the
satisfaction of the Committee for later delivery to the Company as specified by
the Company; or (vi) by any combination of the foregoing. If payment of the
Option Price of a Non-Qualified Stock Option is made in whole or in part in the
form of Restricted Stock or Deferred Stock, the number of shares of Common Stock
to be received upon such exercise equal to the number of shares of Restricted
Stock or Deferred Stock used for payment of the Option Price shall be subject to
the same forfeiture restrictions or deferral limitations to which such
Restricted Stock or Deferred Stock was subject, unless otherwise determined by
the Committee. In the case of an Incentive Stock Option, the right to make a
payment in the form of already owned shares of Common Stock of the same class as
the Common Stock subject to the Stock Option may be authorized only at the time
the Stock Option is granted. No shares of Common Stock shall be issued until
full payment therefor, as determined by the Committee, has been made. Subject to
any forfeiture restrictions or deferral limitations that may apply if a Stock
Option is exercised using Restricted Stock or Deferred Stock, a Participant
shall have all of the rights of a stockholder of the Company holding the class
of Common Stock that is subject to such Stock Option (including, if applicable,
the right to vote the shares and the right to receive dividends), when the
Participant has given written notice of exercise, has paid in full for such
shares and such shares have been recorded on the Company's official stockholder
records as having been issued and transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and subject
to the pertinent Agreement and the discretion of the Committee, the Company may
at the request of the Participant:
(i) lend to the Participant, with recourse, an amount equal to such portion
of the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-party for
the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term, interest
rate, and any security interest thereunder, shall be determined by the
Committee, except that no extension of credit or guarantee shall obligate the
Company for an amount to exceed the lesser of the aggregate Fair Market Value
per share of the Common Stock on the date of exercise, less the par value of the
shares of Common Stock to be purchased upon the
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exercise of the Award, or the amount permitted under applicable laws or the
regulations and rules of the Federal Reserve Board and any other governmental
agency having jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in an
Agreement and then only consistent with the intent that the Option be an
Incentive Stock Option, no Stock Option or interest therein shall be
transferable by the Participant other than by will or by the laws of
descent and distribution or by a designation of beneficiary effective upon
the death of the Participant, and all Stock Options shall be exercisable
during the Participant's lifetime only by the Participant. If and to the
extent transferability is permitted by Rule 16b-3 and except as otherwise
provided herein or by an Agreement, every Option granted hereunder shall be
freely transferable, but only if such transfer does not result in liability
under Section 16 of the Exchange Act to the Participant or other
Participants and is consistent with registration of the Option and sale of
Common Stock on Form S-8 (or a successor form) or the Committee's waiver of
such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of one (1)
year (or such other period or no period as the Committee may specify)
immediately following the date of such death or until the expiration of the
Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of one (1) year (or such other period or no period as
the Committee may specify) immediately following the date of such Termination of
Employment or until the expiration of the Option Period, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability shall not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death, Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the three-month period commencing with the date of such Termination of
Employment or until the expiration of the Option Period. Unless otherwise
provided in an Agreement or determined by the Committee, if the Participant
incurs a Termination of Employment which is either (a) voluntary on the part of
the Participant (and is not due to Retirement) or (b) with Cause, the Option
shall terminate immediately. Unless otherwise provided in an Agreement or
determined by the Committee, the death or Disability of a Participant after a
Termination of Employment
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otherwise provided herein shall not extend the exercisability of the time
permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Stock Option
by paying the Participant an amount, in cash or Common Stock, equal to the
excess of the Fair Market Value of the Common Stock that is subject to the
Option over the Option Price times the number of shares of Common Stock subject
to the Option on the effective date of such cash out.
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
-------------------------
7.1 General. The Committee shall have authority to grant Stock
Appreciation Rights under this Plan at any time or from time to time. Subject
to the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under this Plan in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of the Stock Option
will result in cancellation of a corresponding portion of the Stock Appreciation
Right. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right may also be granted on a stand
alone basis. The grant of a Stock Appreciation Right shall occur as of the date
the Committee determines. Each Stock Appreciation Right granted under this Plan
shall be evidenced by an Agreement, which shall embody the terms and conditions
of such Stock Appreciation Right and which shall be subject to the terms and
conditions set forth in this Plan. During any three-calendar-year period, no
more than Stock Appreciation Rights shall be granted to any
Participant.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
be established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. A Stock Appreciation Right which is
granted on a stand alone basis shall be for such period and shall be
exercisable at such times and to the extent provided in an Agreement.
Stock Appreciation Rights shall be exercised by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the portion of the Stock Appreciation
Right to be exercised.
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(b) Amount. Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Committee or as otherwise
permitted in an Agreement equal in value to the excess of the Fair Market
Value per share of Common Stock over the Option Price per share of Common
Stock specified in the related Agreement multiplied by the number of shares
in respect of which the Stock Appreciation Right is exercised. In the case
of a Stock Appreciation Right granted on a stand alone basis, the Agreement
shall specify the value to be used in lieu of the Option Price per share of
Common Stock. The aggregate Fair Market Value per share of the Common
Stock shall be determined as of the date of exercise of such Stock
Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights relating
to Stock Options held by Participants who are actually or potentially
subject to Section 16(b) of the Exchange Act to the extent required by Rule
16b-3:
(i) The Committee may require that such Stock Appreciation
Rights be exercised only in accordance with the applicable
"window period" provisions of Rule 16b-3;
(ii) The Committee may provide that the amount to be paid upon
exercise of such Stock Appreciation Rights (other than those
relating to Incentive Stock Options) during a Rule 16b-3
"window period" shall be based on the highest mean sales
price of the Common Stock on the principal exchange on which
the Common Stock is traded, NASDAQ or other relevant market
for determining value on any day during such "window
period"; and
(iii) no Stock Appreciation Right shall be exercisable during
the first six months of its term, except that this
limitation shall not apply in the event of death or
Disability of the Participant prior to the expiration of the
six-month period.
(d) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under this Plan unless otherwise
provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at such
time as a Stock Option would terminate under this Plan, unless otherwise
provided in an Agreement.
(f) Effect on Shares Under this Plan. To the extent required by Rule
16b-3, upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 4.2 on the number of shares of Common Stock to be issued under
this Plan, but only to the extent of the number of shares of Common Stock
covered by the Stock Appreciation Right at the time of exercise based on
the value of the Stock Appreciation Right at such time.
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(g) Incentive Stock Option. A Stock Appreciation Right granted in
tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds the
Option Price. In no event shall any amount paid pursuant to the Stock
Appreciation Right exceed the difference between the Fair Market Value on
the date of exercise and the Option Price.
ARTICLE VIII
------------
RESTRICTED STOCK
----------------
8.1 General. The Committee shall have authority to grant Restricted Stock
under this Plan at any time or from time to time. Shares of Restricted Stock
may be awarded either alone or in addition to other Awards granted under this
Plan. The Committee shall determine the persons to whom and the time or times
at which grants of Restricted Stock will be awarded, the number of shares of
Restricted Shares to be awarded to any Participant, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate (including a division or department of the
Company or an Affiliate) for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Restricted Stock Awards need not be the same with
respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance
of shares of Common Stock otherwise provided in this Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award as determined by
the Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(a) Limitations on Transferability. The purchase price for shares of
Restricted Stock shall be set by the Committee and may be zero. Subject to
the provisions of this Plan and the Agreement, during a period set by the
Committee, commencing with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber any interest in shares of Restricted Stock.
Unless otherwise determined by the Committee, awards of Restricted Stock
must be accepted by a Participant within a period of 60 days (or such
shorter periods as the Committee may specify at grant) after the Grant
Date, by executing a Restricted Stock Agreement and paying whatever price,
if any, is required. The Participant shall not have any rights with respect
to such Award, unless and until such Participant has executed an agreement
evidencing the Award and has delivered a fully
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executed copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
(b) Rights. Except as provided in Section 8.3(a), the Participant
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common Stock
that is the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends.
Unless otherwise determined by the Committee and subject to this Plan, cash
dividends on the class of Common Stock that is the subject of the
Restricted Stock shall be automatically deferred and reinvested in
additional Restricted Stock, and dividends on the class of Common Stock
that is the subject of the Restricted Stock payable in Common Stock shall
be paid in the form of Restricted Stock of the same class as the Common
Stock on which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and this Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death or
Disability, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares of Restricted
Stock.
(e) Delivery. If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction
Period, unlegended certificates for such shares shall be delivered to the
Participant.
(f) Election. A Participant may elect to further defer receipt of the
Restricted Stock for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one (1) year prior to completion of
the Restriction Period.
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ARTICLE IX
----------
DEFERRED STOCK
--------------
9.1 General. The Committee shall have authority to grant Deferred Stock
under this Plan at any time or from time to time. Shares of Deferred Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period. At
the expiration of the Deferral Period (or Elective Deferral Period as
defined in Section 9.2(e), where applicable), the Committee may elect to
deliver Common Stock, cash equal to the Fair Market Value of such Common
Stock or a combination of cash and Common Stock, to the Participant for the
shares covered by the Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
to this Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
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(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect to
any or all of such Participant's Deferred Stock.
(e) Election. A Participant may elect to further defer receipt of the
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at one (1) year prior to completion of the Deferral Period for the
Award.
ARTICLE X
---------
PERFORMANCE SHARES
------------------
10.1 General. Subject to the terms and conditions described below,
Performance Shares may be granted to any Participant at any time and from time
to time as determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Shares granted to each
Participant; provided, however, that no Participant who is a Covered Employee
may earn more than ________ Performance Shares with respect to any Performance
Period (as defined below).
10.2 Price. The purchase price for Performance Shares shall be zero unless
otherwise specified by the Committee.
10.3 Performance Share Agreement. Subject to the provisions of this Plan,
all the terms and conditions of an Award of Performance Shares shall be
determined by the Committee in its discretion and shall be confirmed by a
Performance Share Award Agreement which shall be executed by the Company and the
Participant. Not later than the date required or permitted for "qualified
performance-based compensation" under Code Section 162(m), the Committee shall
determine the Participants who will potentially receive individual Performance
Share Awards for the Performance Period and the amount or method for determining
the amount of such Participant's number of Performance Shares.
10.4 Performance Periods. Any time period (the "Performance Period")
relating to a Performance Share Award (commencing with the Grant Date) shall be
at least two calendar or Company fiscal years in length unless otherwise
provided by the Committee.
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10.5 Performance Goals. Not later than the date required or permitted for
"qualified performance-based compensation" under Section 162(m), the Committee
shall establish in writing the performance goals ("Performance Goals") for such
Performance Period, which shall be based on any of the following performance
criteria, either alone or in any combination, and on either a consolidated or
business unit level, as the Committee may determine: sales, net asset turnover,
earnings per share, cash flow, cash flow from operations, operating profit, net
income, operating margin, net income margin, return on net assets, return on
total assets, return on common equity, return on total capital, and total
shareholder return. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items as the Committee may specify; extraordinary, unusual
or nonrecurring items; effects of accounting changes; effects of financing
activities (e.g., effect on earnings per share of issuance of convertible debt
securities); expenses for restructuring or productivity initiates; other
nonoperating items; spending for acquisitions; effects of divestitures; and
effects of litigation activities and settlements. Any such performance
criterion or combination of such criteria may apply to the Participant's Award
opportunity in its entirety or to any designated portion or portions of the
Award opportunity, as the Committee may specify. Unless the Committee
determines otherwise for any Performance Period, extraordinary items, such as
capital gains and losses, which affect any performance criterion applicable to
the Award (including but not limited to the criterion of net income) shall be
excluded or included in determining the extent to which the correspondence
performance goal has been achieved, whichever will produce the higher Award.
The Committee may, in its discretion, vary the terms and conditions of any
Performance Share Award, including, without limitation, the Performance Period
and Performance Goals, without shareholder approval, as applied to any recipient
who is not a Covered Employee with respect to the Company. In the event
applicable tax or securities laws change to permit the Committee discretion to
alter the governing performance measures without obtaining shareholder approval
of such changes, the Committee shall have sole discretion to make such changes
without obtaining shareholder approval.
10.6 Earning of Performance Shares. After the applicable Performance
Period shall have ended, the Committee shall certify the extent to which the
established Performance Goals have been achieved. The retention of Performance
Shares shall be a direct function of the extent to which the Company's
Performance Goals have been achieved. A Participant may earn more or less than
the number of Performance Shares originally awarded, or no Performance Shares at
all. Performance Shares shall be paid in the form of Company Stock.
Unrestricted certificates representing such number of shares of Common Stock as
equals the number of Performance Shares earned under the Award shall be
delivered to the Participant as soon as practicable after the end of the
applicable Performance Period. Participants shall also be entitled to any
dividends or other distributions that would have been paid or earned in respect
of such shares of Common Stock had such shares been outstanding during the
period from the initial award date to the final payout on the Performance
Shares, and may be paid in the form of Common Stock. Unless otherwise provided,
in its discretion, by the Committee, any such dividends or other distributions
shall not bear interest. All determinations by the Committee as to the
establishment of Performance Goals and the potential Awards related to such
Performance Goals
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and as to the achievement of Performance Goals relating to such Awards, and the
number of any Performance Shares shall be made in writing in the case of any
Award intended to qualify under Code Section 162(m). The Committee may not
delegate any responsibility relating to such Awards.
10.7 Termination of Employment Due to Death, Disability or Retirement or at
the Request of the Company Without Cause. In the event of an Extraordinary
Termination of Employment or a termination of Employment by the Company without
Cause during a Performance Period, the Participant shall receive a prorated
payout with respect to the Performance Shares relating to such Performance
Period. The prorated payout shall be determined by the Committee, in its sole
discretion, and shall be based upon the length of time that the Participant held
the Performance Shares during the Performance Period and based upon the
achievement of the established Performance Goals. Distribution of earned
Performance Shares shall be made at the same time payments are made to
Participants who did not incur a Termination of Employment during the applicable
Performance Period.
10.8 Termination of Employment for Other Reasons. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 10.7, all Performance Shares shall be forfeited by the
Participant to the Company.
10.9 Nontransferability. Unless otherwise provided in an Agreement
Performance Shares may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or a
Representative.
ARTICLE XI
----------
ANNUAL INCENTIVE AWARDS
-----------------------
11.1 Eligibility. Participants designated by the Committee shall be
eligible for an Annual Incentive Award, the amount of which will be based on the
satisfaction of specified bonus targets ("Award Targets"). Not later than the
date required as permitted for "qualified performance-based compensation" under
Code, Section 162(m), the Committee shall establish in writing (i) the Award
Targets and (ii) the Annual Incentive Awards which may be earned by
Participants, based upon the extent to which the Award Targets are achieved
("Award Opportunities"). The Award Targets and Award Opportunities shall be
confirmed in Agreements between the Company and the Participants. The Award
Targets shall be based on any of the following performance criteria, either
alone or in any combination, and on either a consolidated or business unit
level, as the Committee may determine: sales, net asset turnover, earnings per
share, cash flow, cash flow from operations, operating profit, net income,
operating margin, net income margin, return on net assets, return on total
assets, return on common equity, return on total capital, and total shareholder
return. The foregoing criteria shall have any reasonable definitions that the
Committee may specify, which may include or exclude any or all of the
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following items; effects of accounting changes; effects of financing activities
(e.g., effect on earnings per share of issuance of convertible debt securities);
expenses for restructuring or productivity initiates; other nonoperating items;
spending for acquisitions; effects of divestitures; and effects of litigation
activities and settlements. Any such performance criterion or combination of
such criteria may apply to the Participant's Award opportunity in its entirety
or to any designated portion or portions of the Award opportunity, as the
Committee may specify. Unless the Committee determines otherwise for any
Performance Period, extraordinary items, such as capital gains and losses, which
affect any performance criterion applicable to the Award (including but not
limited to the criterion of net income) shall be excluded or included in
determining the extent to which the corresponding performance goal has been
achieved, whichever will produce the higher Award. The Committee may specify the
amount of the individual Award as a percentage of such business criteria, a
percentage thereof in excess of a threshold amount, or another amount which need
not bear a strictly mathematical relationship to such relationship criteria.
With respect to any Performance Period, the Committee may establish an aggregate
limit or individual with respect to the value of the Awards.
11.2 Earning of Annual Incentive Awards. After the applicable fiscal year
shall have ended, the Committee shall certify in writing, the extent to which
the established Award Targets have been achieved. The Committee may, in its
discretion, determine that the amount payable to any Participant as a final
Annual Incentive Award shall be increased or reduced from the amount of his or
her potential Bonus Award, including a determination to make no final Award
whatsoever, but the Committee may not exercise discretion to increase any such
amount in the case of an individual Award with respect to a Covered Employee
intended to qualify under Code Section 162(m). Unless otherwise determined by
the Company or its Affiliates during the Performance Period. Unless otherwise
determined by the Committee, during a Performance Period, an Award shall be
payable under this Plan to the Participant who incurs an Extraordinary
Termination of Employment or a termination of Employment by the Company without
cause, which shall be adjusted, pro rata, for the period of time during the
year the Participant actually worked. Unless otherwise provided by the
Committee, a Participant who incurs a Termination of Employment other than an
Extraordinary Termination of Employment or a termination of Employment by the
Company without cause prior to the end of the Performance Period shall not be
entitled to any Award under the Performance Period. Subsequently, the Committee
shall calculate the Annual Incentive Award (if any) for each Participant, based
upon the Award Opportunities established by the Committee prior to the beginning
of the applicable year. Each Annual Incentive Award shall be solely a function
of the degree to which the established Award Targets have been achieved.
11.3 Payments and Election. Participants may elect to receive Annual
Incentive payouts in cash, Common Stock, Deferred Stock, Restricted Stock or a
combination of the foregoing, provided that any election for payment in Common
Stock is subject to the approval of the Committee. Payouts with respect to a
fiscal year will be made within seventy-five (75) days of the end of such year.
To elect the payout of a portion of an Annual Incentive Award in Common Stock, a
Participant must inform the Committee in writing prior to the start of the
fiscal year with respect to which payout would be
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made. Unless modified by the Committee before the beginning of a fiscal year of
the Company, terms and conditions of Deferred or Restricted Stock payouts shall
include the following:
(a) Any portion of an Annual Incentive Award can be elected for
payout in Restricted Stock, either in a dollar amount or as a percentage of
the total Annual Incentive Award.
(b) Deferred or Restricted Stock will be issued on the same date that
cash payouts would be made, based on the closing price of the Common Stock
as of the date of the award ("Closing Price") on the principal exchange on
which the Common Stock shall then be listed or quoted.
(c) Deferred or Restricted Stock will be issued pursuant to, and
shall be subject to the terms and conditions contained in this Plan. Unless
otherwise agreed, the Deferral Period or Restriction Period, respectively,
will be for a period determined by the Committee of at least three (3)
years in duration, after which time the Common Stock will be distributed or
released to the Participant.
(d) The number of shares of Deferred Stock or Restricted Stock
granted to a Participant will equal the product of (A) such number of
shares of Common Stock as have an aggregate closing price equal to the
dollar amount of the Annual Incentive Award elected to be received in the
form of Deferred Stock or Restricted Stock, multiplied by (B) a factor
greater than 1.00 but less than or equal to 1.30, as determined by the
Committee prior to the beginning of the Company's applicable fiscal year.
(e) If the Participant incurs a termination of employment by reason
of death, Disability or Retirement or by the Company without Cause, the
Committee, at its discretion, may provide for waiver of all, or a portion
of the deferrals or restrictions applicable to, unvested restricted Awards.
If the Participant's incurs a termination of employment for any other
reason, the shares of Common Stock may be forfeited.
11.4 Amendment of Awards. The Committee has discretion, subject to the
Plans ___________ a plan of performance-based compensation under Code Section
162 (iv), to vary the terms and conditions of any Annual Incentive Award,
including, without limitation, the Award Targets, without shareholder approval,
as applied to any participant who is not a "covered employee" with respect to
the Company as defined in Section 162(m) of the Code.
11.5 Performance Threshold. The Committee may establish minimum levels of
Company performance which must be achieved during a fiscal year before any
Annual Incentive Awards shall be paid to Participants.
11.6 Maximum Awards. The Committee may establish guidelines governing the
maximum Annual Incentive Awards that may be earned by Participants (either in
the aggregate, by employee class or among individual Participants), provided
that no participant may receive an Annual Incentive Awards in an amount
(including the value of any Common Stock constituting
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any portion of such Annual Incentive Awards) of greater than $1,500,000 with
respect to any fiscal year of the Company.
11.7 Termination of Employment. In the event a participant's employment
is terminated for any reason, such participant shall not be entitled to receive
any Annual Incentive Award with respect to the fiscal year in which the
termination occurs.
ARTICLE XII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN
-------------------------------------------------------
12.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.
12.2 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of any material information regarding the Company or
any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XIII
------------
CHANGE IN CONTROL PROVISIONS
----------------------------
13.1 Impact of Event. Notwithstanding any other provision of this Plan to
the contrary, in the event of a Change in Control (as defined in Section 13.2),
the Committee shall have full discretion, notwithstanding anything herein or in
an Agreement to the contrary, to do any or all of the following with respect to
an outstanding Award:
(a) to provide that the Stock Options and Stock Appreciation Rights
outstanding as of the date of the Change in Control which are not then
exercisable shall become fully exercisable to the full extent of the
original grant;
(b) to provide that the restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock or other Award shall
lapse, and such Restricted Stock, Deferred Stock or other Award shall
become free of all restrictions and become fully vested and transferrable
to the full extent of the original grant;
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(c) to deem any performance goal or other condition with respect to
any Performance Shares or Annual Incentive Award to have been satisfied in
full, and such Award shall be fully distributable;
(d) to cause any Award to be cancelled, provided notice of at least
15 days thereof is provided before the date of cancellation;
(e) to provide that the securities of another entity be substituted
hereunder for the Common Stock and to make equitable adjustment with
respect thereto;
(f) to grant the Participant the right to elect by giving notice
during a set period of time from and after a Change in Control to surrender
all or part of a stock-based Award to the Company and to receive cash in an
amount equal to the amount by the "Change in Control Price" (as defined in
Section 13.3) per share of the Common Stock on the date of the election
exceeds the amount the Participant must pay to exercise the Award per share
of Common Stock under the Award (the "Spread") multiplied by the number of
shares of Common Stock granted under the Award; and
(g) to take any other action the Committee determines to take.
13.2 Definition of Change in Control. For purposes of this Plan, a "Change
in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of twenty percent (20%) or more of either (i) the then-
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company,
(iv) any acquisition by a lender to the Company pursuant to a debt
restructuring of the Company, or (v) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (c) of this Section 13.2;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
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excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board.
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than ______ percent (__%) of, respectively, the then-
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, twenty percent
(20%) or more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
13.3 Change in Control Price. For purposes of this Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on Nasdaq during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the highest
price per share of Common Stock paid in such tender or exchange offer or a
Corporate Transaction, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such price shall
be based only on the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above
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consists all or in part of securities or other non-cash consideration, the value
of such securities or other non-cash consideration shall be determined in the
sole discretion of the Committee.
13.4 Definition of Potential Change in Control. For purposes of Section
____, a "Potential Change in Control" means the happening of any one of the
following:
(i) The entering into an agreement by the Company, the consummation
of which would result in a Change in Control of the Company as defined in
Section 13.2; or
(ii) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or any Company
employee benefit plan, including any trustee of such plan acting as such
trustee) of securities of the Company representing 5% or more of the
combined voting power of the Company's outstanding securities, and the
adoption by the Board of a resolution to the effect that a "Potential
Change in Control" of the Company has occurred for the purposes of this
Plan.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3, or (d) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement. The Committee may
amend, alter or discontinue the terms of any Award theretofore granted,
prospectively or retroactively, on the same conditions and limitations (and
exceptions to limitations) as the Board and further subject to any approval or
limitations the Board may impose.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Common Stock having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.
14.2 Unfunded Status of Plan. It is intended that this Plan be an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under this Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of this
Plan.
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14.3 Status of Awards Under Code Section 162(m). It is the intent of the
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
14.4 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in this Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company or an Affiliate to obtain a
current deduction. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common
Stock that is part of the Award that gives rise to the withholding
requirement provided that any applicable requirements under Section 16 of
the Exchange Act are satisfied. The obligations of the Company under this
Plan shall be conditional on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.
If the Participant disposes of shares of Common Stock acquired pursuant to
an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under the Code, the Participant must give written
notice of such transfer and the Company shall have the right to deduct any
taxes required by law to be withheld from any amounts otherwise payable to
the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall only
be permissible if sufficient shares of Common Stock are available for such
reinvestment (taking into account then outstanding Options and other
Awards).
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(e) Representation. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. This Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law).
This Plan shall be construed to comply with all applicable law, and to
avoid liability to the Company, an Affiliate or a Participant, including,
without limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this
Plan or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(h) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
(i) Right to Capitalize. The grant of an Award shall in no way affect
the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidation,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
14.5 Mitigation of Excise Tax. Subject to any other agreement between the
Participant and the Company or an Affiliate, if any payment or right accruing to
a Participant under this Plan (without the application of this Section 14.5),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 280G of the Code and regulations
thereunder), such payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount payable or right
accruing under this Plan being subject to an excise tax under Section 4999 of
the Code or being disallowed as a deduction under Section 280G of the Code. The
determination of whether any reduction in the rights or payments under this Plan
is to apply shall be made by the Committee in good faith after consultation with
the
28
<PAGE>
Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee in
making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 14.5 shall apply with respect
to any person only if after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of this
Plan and after reduction for only federal income taxes.
14.6 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual becoming a Participant in this Plan.
14.7 Awards in Substitution for Awards Granted by Other Corporations.
Awards may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Awards so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
14.8 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt this Plan for the benefit of its employees as of the date
specified in the board resolution.
14.9 Procedure for Withdrawal. Any Affiliate which has adopted this Plan
may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of this Plan.
29
<PAGE>
14.10 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under this Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in this Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee shall have the discretion to suspend
the application of the provisions of this Plan required solely to comply with
Rule 16b-3 if the Committee shall determine that Rule 16b-3 does not apply to
this Plan.
14.11 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
14.12 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
14.13 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
14.14 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between this Plan and the Agreement, the terms
and conditions of the Agreement shall control.
Executed on this ____ day of ________, 199__.
CUNO INCORPORATED
By_________________________
30
<PAGE>
EXHIBIT 10.3
------------
CUNO INCORPORATED
DISTRIBUTORSHIP AGREEMENT
AGREEMENT made as of the ____ day of __________________ ___________, ______
between CUNO, INCORPORATED, with an office and place of business at 400 Research
Parkway, Meriden, Connecticut 06450 (hereinafter referred to as "CUNO") and
________________________________________________________________________________
________________________________________________________________________________
a [corporation, partnership, individual proprietorship] with an office and place
of business at
________________________________________________________________________________
________________________________________________________________________________
(hereinafter referred to as the "DISTRIBUTOR");
WITNESSETH:
I. APPOINTMENT
CUNO hereby appoints DISTRIBUTOR, for the term of this Agreement, an exclusive
distributor for the sale and services solely within the Territory described in
Article II hereof (the "Territory") of the products shown on Exhibit A hereto
(the "Products") to the specific market described in Article II hereof (the
"Market") in accordance with and subject to the terms, conditions,
reservations and limitations set forth herein.
II. TERRITORY, MARKET
DISTRIBUTOR agrees that the sole area in which DISTRIBUTOR will sell, distribute
and service the Products (the Territory) and the specific Market to which such
efforts shall be directed shall be as shown on Exhibit B hereto. CUNO reserves
to itself the right to sell, distribute and service, directly or indirectly,
Products into markets within the Territory not specifically assigned to
DISTRIBUTOR by this Agreement.
III. PRODUCTS; ORDERS
CUNO reserves to itself the right at any time and from time to time to make
changes to or discontinue the manufacture and supply of any of the Products
without liability to the DISTRIBUTOR. Additional products may be added under
this Agreement and shall be deemed added to Schedule A, and thereby covered
hereunder, by written notice from CUNO to the DISTRIBUTOR describing such items.
IV. DISTRIBUTOR'S RESPONSIBILITIES
The DISTRIBUTOR agrees that so long as this Agreement is in effect, it will:
A. Use its best efforts to vigorously develop business in the Territory, to
promote the sale of the Products, to sell the Products and otherwise act in
accordance with the terms of this Agreement and the announced policies of
CUNO, which, best efforts will include causing technically and personally
suitable employees of the DISTRIBUTOR to call regularly, frequently and in
a systematic manner upon customers and potential customers located in the
Territory.
B. Maintain its principal office and place of business in the Territory.
<PAGE>
C. Achieve such reasonable annual sales objectives within the Territory as CUNO
shall, from time to time, establish following consultation with the
DISTRIBUTOR. CUNO's evaluations of the DISTRIBUTOR's performance,
conducted at appropriate intervals, will be based on the DISTRIBUTOR's
overall performance in the Territory. CUNO will also consider the additional
factors outlined in Exhibit E hereto, as amended by mutual agreement.
D. Maintain a representative and adequate stock of the Products, giving
consideration to the customers served and the competitive requirements with
regard to availability as it may vary from normal factory lead times.
E. Maintain a stock of service parts and have qualified personnel capable of
efficiently servicing the Products. The DISTRIBUTOR will service any
Products within the Territory, regardless of sale origin, unless requested
not to do so by CUNO.
F. Include a representative listing of the Products in any catalogs issued by
it.
G. Supply CUNO an annual sales forecast for the DISTRIBUTOR's Territory.
H. Unless otherwise agreed to by CUNO, DISTRIBUTOR shall bear all expenses
incurred by DISTRIBUTOR for advertising and sales of the Products in the
Territory.
I. Supply CUNO with such information about the DISTRIBUTOR's sales efforts and
the Market as CUNO may reasonabley request including, but not limited to,
unpriced invoices showing part number, quantity, customer name and address.
J. Provide to CUNO, at such time as may be reasonably requested by CUNO, the
DISTRIBUTOR's audited financial statements, including balance sheets and
profit-and-loss statements. All such statements and reports shall be treated
as confidential information for the benefit of CUNO only, and it shall not
be disclosed to others.
K. Not sell or solicit orders for the purchase of goods which, in the opinion
of CUNO, are directly competitive with any or all of the Products of CUNO
unless such action is authorized in writing by an officer of CUNO.
This Agreement does authorize the DISTRIBUTOR to appoint or utilize any
sub-agent or other assisting sales organization except as specifically approved
by CUNO.
V. TERMS OF SALE
A. CUNO shall, during the term of this Agreement, sell Products to the
DISTRIBUTOR at the then-current price of the respective Products in Exhibit
A and upon such other terms and conditions as CUNO shall establish as its
standard terms and conditions, as set forth in Exhibit E and as they may be
amended from time to time by CUNO.
<PAGE>
B. The DISTRIBUTOR agrees that the terms and conditions of this Agreement,
including those set forth in Exhibit E, will govern each purchase order
submitted by the DISTRIBUTOR hereunder and, accordingly, that none of the
provisions of the DISTRIBUTOR's purchase orders, except those specifying
the quantity and character of the Products ordered, dates of shipment,
invoice information and shipping instructions, shall be considered
applicable to its purchases of Products. Company hereby rejects any term or
condition in DISTRIBUTOR's forms or other purchase documents that are
inconsistent with this Subparagraph B.
C. CUNO will endeavor to give the DISTRIBUTOR advance notice of any price
changes to the extent reasonably practicable. However, CUNO shall at all
times have the right, either with or without advance notice, to change, with
immediate affect, prices and terms and conditions applicable to the purchase
of its Products under this Agreement. CUNO shall give the DISTRIBUTOR
written notice of any such changes in prices or terms and conditions.
Payments shall become due in accordance with invoicing as shipments are
made.
D. No purchase order from the DISTRIBUTOR shall be binding on CUNO until
accepted in writing by a duly authorized officer or employee of CUNO. CUNO
may refuse to accept any purchase order for any reason. The DISTRIBUTOR's
orders shall be subject to such reasonable allocation as, in the sole
judgment of CUNO, may be necessary or equitable in the event of any
shortages of Products or parts at any time.
E. The DISTRIBUTOR may cancel orders, reduce quantities, revise specifications
or extend schedules only by mutual agreement with CUNO, and in such event,
the DISTRIBUTOR agrees to pay CUNO reasonable and proper cancellation
charges which shall take into account expenses already incurred and
commitments made by CUNO as well as any other loss incurred by CUNO by
reason thereof.
F. Ownership of each Product purchased by DISTRIBUTOR under this Agreement will
pass to DISTRIBUTOR upon delivery to the carrier or to DISTRIBUTOR,
whichever occurs first, but CUNO will retain a security interest, in, and
right to repossess, and such Product until paid thereof.
G. All orders are subject to minimum values, as specified in Exhibit D, which
may be revised from time to time by CUNO, in its sole discretion.
VI. DIRECT SALES
A. Orders and inquiries concerning the Products listed on Schedule A received
by CUNO directly from customers from the Market in the DISTRIBUTOR's
Territory will customarily be referred to the DISTRIBUTOR.
<PAGE>
B. CUNO may make sales of specialty products directly to customers from the
Market in the Territory but in such case, will pay to the DISTRIBUTOR a
commission for work reasonably requested by CUNO in connection with such
sale. Such commission shall be according to the then prevailing CUNO
commission policy.
VII. WARRANTY AND RETURNS
The following provisions shall apply to the return of Products by customers:
A. Repair or Replacement. Products or parts may be returned to CUNO by the
DISTRIBUTOR or his customer for repair or replacement if the defect is
covered under CUNO's standard limited express warranty, which may be revised
from time to time, provided, however, that the DISTRIBUTOR must give CUNO
written notice thereof in advance of the return on CUNO's returned goods
form. Thereafter, CUNO will provide the DISTRIBUTOR with shipping
instructions, and the DISTRIBUTOR may then return the item in accordance
with such instructions.
B. Credit. CUNO will accept no returns for credit unless CUNO's written
permission, in each case, has been given in advance. Only Products which are
then (i) in good, merchantable condition, comparable to CUNO's prevailing
standards, (ii) in CUNO's standard Product line, and (iii) in active
demand, will be considered by CUNO for return or credit. In cases where CUNO
gives its written permission for a specific return for credit, the credit
given will be based upon prices prevailing at the time that the permission
is granted or upon the originally invoiced price of the returned Product,
whichever is lower, and subject in each case to deductions, determined by
CUNO, for handling and for time and expense incurred in restoring goods to
saleable condition.
C. The DISTRIBUTOR is not authorized to extend to its customers any other
warranty, whether express or implied, relating to the Products, other than
the CUNO standard limited express warranty. The DISTRIBUTOR agrees to
include in its provisions of sale to its customers CUNO's standard limited
express warranty (and all exclusions of implied warranties and the
limitations of liability). The DISTRIBUTOR agrees to indemnify and hold CUNO
harmless from any claims or costs (including, but not limited to, actual
attorneys' fees), damages and liabilities resulting from any warranty or
representation not specifically authorized by CUNO in writing or by reason
of the DISTRIBUTOR's failure to effectively disclaim any other express
warranty or implied warranty or any claim for consequential damages.
D. CUNO agrees to defend, indemnify and hold DISTRIBUTOR harmless for any
claim, loss, suit, action or judgment brought against DISTRIBUTOR solely by
virtue of an allegation that a Product is defective in design or
manufacture
<PAGE>
and has thereby caused personal injury or property damage.
E. DISTRIBUTOR agrees to indemnify and hold CUNO harmless for any claim, loss,
suit, action or judgment, including attorneys' fees, brought against CUNO by
virtue of or arising out of an alleged improper sale, application or
servicing of Products by DISTRIBUTOR, or any other alleged improper or
negligent action of DISTRIBUTOR, its employees, agents or assigns.
VIII. DISTRIBUTOR MODIFICATIONS
The DISTRIBUTOR may not make modifications to Products sold to it by CUNO,
except to the extent necessary to include CUNO authorized accessories parts. The
CUNO limited express warranty shall be null and void with respect to any
Products by otherwise modified. All liability for unauthorized modifications to
Products by the DISTRIBUTOR shall be borne by the DISTRIBUTOR, and the
DISTRIBUTOR shall indemnify and hold CUNO harmless from any claims relating to
said modification.
IX. STOCK ADJUSTMENT POLICY
An initial stock adjustment without penalty and with written notice to CUNO
is allowed according to the prevailing CUNO policy on stock adjustment.
X. CONFIDENTIAL INFORMATION
During the term of this Agreement, it may become appropriate for CUNO to submit
information to the DISTRIBUTOR which is proprietary and/or confidential
commercial or technical information that is not publicly available and that
should not be made available to others. With respect to any such information
submitted in writing and identified as "Proprietary" or "Confidential," it is
agreed that the DISTRIBUTOR will not disclose such information to others or use
such information except as contemplated herein, without prior written
authorization of CUNO. No such obligation shall apply to information which:(a)
is or becomes publicly available other than through breach of this provision; or
(b) was known to the DISTRIBUTOR at the time of disclosure, as demonstrated by
written records; or (c) later becomes known to the DISTRIBUTOR from another
source without restriction. Upon termination of this Agreement or any amendment
or renewal thereof for any reason, all information that is "Proprietary" or
"Confidential" shall be returned by the DISTRIBUTOR to CUNO immediate.
XI. TRADEMARKS
During the term of this Agreement, DISTRIBUTOR is authorized to use CUNO's trade
name or any of CUNO's trademarks relating to the Products in a manner approved
by CUNO, but only for display purposes in connection with DISTRIBUTOR's
solicitation of orders for Products from customers in the Territory. DISTRIBUTOR
shall not use CUNO's trade name of any of its trademarks as part of
DISTRIBUTOR's trade or business name or in any other way which CUNO considers
misleading or objectionable. Upon termination, the DISTRIBUTOR agrees to
discontinue any previously approved use of CUNO trademarks, and to discontinue
indicating that it is associated in any manner with CUNO.
<PAGE>
XII. DURATION AND TERMINATION
This Agreement shall be for an initial period from _______ to _______ and, where
permitted by applicable law, shall thereafter be renewed automatically for
successive two-year terms unless no later than 60 days prior to the end of the
initial or any renewal term, either party gives written notice of nonrenewal.
This Agreement may be terminated earlier as noted below. To the extent that the
form of notice or the time period of notice permitted herein shall conflict with
applicable law, then such alternate form of notice or notice period of such
applicable law shall be deemed to be incorporated into this Agreement.
A. CUNO shall have good cause to terminate this Agreement upon 30 days' written
notice in the event any of the following events shall occur and shall remain
uncured for a period of 60 days from the DISTRIBUTOR's receipt of notice
thereof:
1. Failure by the DISTRIBUTOR to achieve established performance objectives
and/or a reasonable market share in the assigned Territory;
2. Failure by the DISTRIBUTOR to maintain and properly train a staff of
sales and service personnel of adequate size for the Products;
3. Failure by the DISTRIBUTOR to furnish the information required by
Paragraphs IV(I) and (J) hereof; or
4. Failure by the DISTRIBUTOR to perform any of the other obligations,
duties or responsibilities under this Agreement.
B. CUNO shall also have good cause to terminate this Agreement immediately upon
any of the following:
1. The transfer by any means of more than 25 percent of the assets of the
DISTRIBUTOR (other than in the ordinary course of business) or the transfer
of more than 25 percent of the stock of the DISTRIBUTOR if the DISTRIBUTOR
is a corporation; or the transfer, removal, resignation, withdrawal,
elimination or any other change of principal owners or principal managers of
the DISTRIBUTOR for any reason without prior written approval of CUNO, which
shall not be unreasonably withheld;
2. Failure by the DISTRIBUTOR to make timely payment of any obligation
owing to CUNO, following written notice of default and 30 days' right to
cure;
3. A misrepresentation to CUNO by the DISTRIBUTOR or by any principal owner
or principal manager in applying for the appointment as the DISTRIBUTOR
under this Agreement or, after appointment, as to the records of the
DISTRIBUTOR, the status of current accounts or orders for Products or
concerning the beneficial ownership or management of the DISTRIBUTOR;
4. Any attempted sale, transfer or assignment, voluntarily or
<PAGE>
involuntarily, by operation of law or otherwise, including merger,
consolidation or reorganization to which the DISTRIBUTOR is a party, by the
DISTRIBUTOR of this Agreement or any of the rights granted to the
DISTRIBUTOR under the provisions of this Agreement; or any attempted
transfer, assignment or delegation, voluntarily or involuntarily, by
operation of law or otherwise, by the DISTRIBUTOR of any of the
responsibilities assumed by the DISTRIBUTOR under the provisions of this
Agreement, without the prior written consent of CUNO;
5. Closure of the DISTRIBUTOR's business for five or more consecutive
business days, without the prior written consent of CUNO;
6. Conviction of any principal owner or principal manager of the DISTRIBUTOR
of any crime which in the opinion of CUNO, may adversely affect the
reputation of CUNO or the reputation of CUNO's Products;
7. Any submission by the DISTRIBUTOR to CUNO of any false or fraudulent
claim, or statement in support thereof, for payment, for parts, for
compensation or for any discount, allowance, refund or credit, warranty
claim, or any claim made by the DISTRIBUTOR to CUNO; or
8. Willful failure of the DISTRIBUTOR to comply with the provisions of any
law or regulation relating to the operation of its business as a distributor
or to the sales or servicing of the Products.
C. This Agreement may also be terminated upon decision by CUNO to: (a)
discontinue the Product line or lines that are the subject matter of this
Agreement, or; (b) withdraw from all or a substantial portion of the
geographic market in which the Territory is located, or; (c) sell, convey,
merge or otherwise transfer all or a substantial portion of the part or
parts of the business of CUNO responsible for the Product line or lines that
are the subject matter of this Agreement.
D. In the event either party shall be declared a bankrupt or insolvent, or
shall have a receiver appointed over its property or shall petition for
reorganization or other remedy under the bankruptcy laws as now or hereafter
existing, or make any assignment for the benefit of creditors or pursue any
other remedy under any other insolvency laws, to the extent permitted by
law, this Agreement may be terminated by either party, effective immediately
upon the mailing of a notice of such termination by certified mail. In the
event of termination of this Agreement under this Subparagraph D, all
amounts owed by each party to the other shall be immediately due and
payable.
XII. TRANSACTIONS AFTER TERMINATION
A. In the even of termination of this Agreement by either party as provided
herein, CUNO is relieved
<PAGE>
from any obligation to make any further shipments hereunder, and may cancel
all of the DISTRIBUTOR's unshipped orders for any Products, irrespective of
previous acceptance by CUNO, except those Products which are proved to
CUNO's satisfaction to be the subject of a binding order for shipment within
30 days of termination received from a customer prior to the receipt by the
DISTRIBUTOR of notice of termination. CUNO shall have no obligation or
liability to the DISTRIBUTOR or its prospective customers in connection with
any such cancellation. If CUNO accepts such an order and the Product is
shipped, CUNO will arrange for the delivery and warranty service of the
Product. The acceptance of orders from the DISTRIBUTOR or the continuous
sale of Products to the DISTRIBUTOR or any other act after termination of
this Agreement shall not be construed as a renewal of this Agreement for any
further term nor as a waiver of the termination. At CUNO's option, any such
order shall be on payment terms established by CUNO, including cash in
advance.
B. Upon termination of this Agreement or of any schedule hereto, the
DISTRIBUTOR shall return to CUNO, upon CUNO's request and at CUNO's expense,
promptly and without charge (except as hereinafter provided) all books
regarding Products, price books, maintenance manuals, parts and service
policy manuals, service bulletins, parts cross-reference manuals, sales
aids, such as filmstrips and recordings, and other publications of CUNO and
its affiliates which the DISTRIBUTOR has on hand relating to Products.
C. The DISTRIBUTOR shall be solely responsible for all commitments incurred or
assumed by it during the term of this Agreement or hereafter, and CUNO shall
not be held responsible in any manner therefor, irrespective of any
suggestion or recommendation with respect thereto by CUNO or any of its
employees or representatives unless CUNO has expressly agreed in writing to
assume the responsibility.
D. In the event of any termination of this Agreement, all obligations owed by
the DISTRIBUTOR to CUNO shall become immediately due and payable on the
effective date of termination whether otherwise then due or not (without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the DISTRIBUTOR); and CUNO may offset and deduct from any or all
sums owed to the DISTRIBUTOR any or all sums owed by the DISTRIBUTOR,
rendering to the DISTRIBUTOR the excess, if any.
E. Neither CUNO nor the DISTRIBUTOR shall, by reason of the termination of the
Agreement, be liable to the other for compensation, reimbursement, or
damages either on account of present or prospective profits on sales or
anticipated sales, or on account of expenditures, investments or commitments
made in connection therewith or in connection with the establishment,
development or maintenance of the business or goodwill of CUNO or the
<PAGE>
DISTRIBUTOR, or on account of any cause or thing whatsoever; provided,
however, that such termination shall not affect the rights or liabilities of
the parties with respect to Products previously sold hereunder or with
respect to any indebtedness then owing by either party to the other.
F. Upon termination of this Agreement by CUNO, the DISTRIBUTOR shall have the
right to return Products, at the price at which DISTRIBUTOR purchased them,
with no restocking charge. The Products must be in full case quantities, in
the current CUNO price list, in the original packaging and in salable
condition.
XIV. ARBITRATION
Any and all disputes of whatever nature arising between the parties to this
Agreement, including disputes arising out of or relating to this Agreement or
the underlying business relationship, including termination thereof and
including statutory claims, and which are not resolved between the parties
themselves, shall be submitted to binding arbitration in Hartford, Connecticut
before a single arbitrator in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. Judgment upon the award of the
arbitrator may be entered in any court having jurisdiction thereof. Any and all
disputes shall be submitted to arbitration hereunder within one year from the
date the dispute first arose or shall be forever barred. Arbitration hereunder
shall be in lieu of all other remedies and procedures available to the parties,
provided that either party hereto may seek preliminary injunctive or other
interlocutory relief prior to the commencement or during such proceedings.
XV. MISCELLANEOUS
A. All questions arising out of or related to the negotiation, preparation,
revision, execution, delivery, performance or breach of this Agreement or
any of its terms shall be governed by the laws of the State of Connecticut
as applied to contracts wholly made and wholly to be performed within that
State and without regard to that State's conflict-of-laws provisions.
B. The relationship of CUNO and the DISTRIBUTOR shall be that of independent
parties and not that of agent and principal or franchisor and franchisee.
C. CUNO may assign its rights under this Agreement in the event of the sale or
other transfer of all or substantially all of CUNO's business regardless of
the form of such transaction.
D. This Agreement, including all Exhibits and Appendices attached hereto and
any documents incorporated by reference, constitutes the entire
understanding between the parties respecting the sale to the DISTRIBUTOR and
the purchase and distribution by the DISTRIBUTOR of the Products of CUNO.
Any representation, promise or condition not incorporated herein shall not
be binding upon either party. This Agreement may not be discharged,
extended, amended or modified in any way except by a
<PAGE>
written instrument signed by a duly authorized representative of each party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CUNO, INCORPORATED
By ___________________________
Name:________________________
Title:_______________________
_________________(Distributor)
By ___________________________
Name:________________________
Title:_______________________
<PAGE>
CUNO INCORPORATED
DISTRIBUTORSHIP AGREEMENT
DATED JUNE 1, 1996
MWM COMPANY
-----------
EXHIBIT A
THE PRODUCTS
All products included in the Cuno Incorporated 1995 suggested Manufacturer Price
List effective December 1, 1995 for the Process Group.
<PAGE>
CUNO INCORPORATED
DISTRIBUTORSHIP AGREEMENT
DATED JUNE 1, 1996
MWM COMPANY
-----------
EXHIBIT B
THE TERRITORY
Entire State of Maine, State of Massachusetts, westerly to and including the
county of Worcester. Entire state of New Hampshire. Entire state of Rhode
Island. State of Vermont, except the county of Bennington.
<PAGE>
CUNO INCORPORATED
DISTRIBUTORSHIP AGREEMENT
DATED JUNE 1, 1996
MWM COMPANY
-----------
EXHIBIT B
MARKETS
SIC CODES
Markets are defined by the Standard Industrial Classification System developed
by the U.S. Government, and are commonly referred to as SIC code. The SIC codes
constituting this agreement are as follows:
SIC Code
--------
Agriculture, Forestry and Fishing 0111-0971
Mining 1011-1499
Construction 1500-1799
Manufacturing 2000-3999
excluding 2835, 3821, 3941
Transportation, Communications, Utilities 4000-4999
Wholesale Trade 5000-5199
These are all the current SIC codes considered to constitute the Cuno Process
market. Specifically excluded from this agreement is the diagnostic membrane
market comprised of SIC codes:
2835 Invitro/Vivo Diagnostics
3821 Lab apparatus and Furniture
3941 Surgical/Medical Instruments
and those markets and applications handled by the Cuno Consumer Division.
<PAGE>
CUNO INCORPORATED
DISTRIBUTORSHIP AGREEMENT
Dated June 1, 1996
MWM Company
Exhibit C
Additional Factors
None
<PAGE>
Schedule D
GENERAL SALES POLICY CUNO
(EFFECTIVE DECEMBER 1, 1994 FILTER SYSTEMS
-----------------
===============================================================================
ORDER QUALIFICATIONS
Orders processed by Cuno Filter Systems will be subject to the following
minimum values and guidelines:
* All line items must be in multiples of standard packaged quantities in effect
at the time of the order. Cuno Filter Systems reserves the right to increase
media and parts order quantities to conform to standard packaging.
* All SPA numbers must be referenced at the time the purchase order is
placed.
* Minimum Distributor Net Order Value:
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------
DROP STOCK
SHIPMENT($) SHIPMENT($)
- --------------------------------------------------------
STANDARD $500 $5,000
ITEMS
- --------------------------------------------------------
PARTS $200 $ 500
- --------------------------------------------------------
A $75 HANDLING FEE WILL BE ASSESSED FOR THOSE ORDERS
NOT IN COMPLIANCE WITH THE ABOVE VALUES.
- --------------------------------------------------------
</TABLE>
* Standard items cannot be combined with Special Products to meet minimum order
value requirements.
* Cuno Filter Systems reserves the right to partial ship Distributor stock
orders for standard products.
* Drop shipments should be utilized only when required for competitive or
customer service reasons. Drop shipments, if abused, will ultimately result
in shipping delays due to an excessive number of small orders being handled
by the plant. Shipment will be governed by the longest lead time item on any
order, unless partial shipments are accepted and so stated on the
Distributor Purchase Order.
* All orders for special products, both media and housings, are subject to
minimum values as determinedby Cuno Filter Systems. All orders for special
products are also subject to minimum lead times. The plant should be
consulted in each instance.
BLANKET ORDERS
POLICY
It is recognized that for various reasons, customers may wish to issue a
single purchase order covering multiple purchases and shipments of Cuno
standard products. It is the policy of Cuno to accept such orders.
TERMS & ACCEPTANCE
Blanket Orders will be accepted subject to negotiated minimum release
quantities. Blanket orders shall not extend beyond 12 months from the issue
date of the Distributor Purchase Order.
BLANKET ORDER: SPECIAL PRODUCTS
Provisions to be negotiated by Sales Manager.
PRICING
Quantity discounts on Standard Products reflect economies affected by
manufacturing and shipping in one lot. Therefore, quantity discounts are
granted on the basis of the quantity released for any given shipment.
RUSH ORDER CHARGES
The following Rush Order adders will be charged:
Order required to ship with 48 hours of receipt
.....15% surcharge of order value
Order required to ship within 72 hours of receipt
......5% surcharge of order value
Special note: All time frame parameters are by business day (Monday through
Friday) exclusive of weekends. By way of example, a 72-hour Rush Order being
received on Friday, would provide for shipment up through the following
Tuesday. Likewise, the service norm for a 24-hour Rush Order being received
at 2:00 P.M. on a Friday afternoon would allow for shipment by Monday P.M.
RETURN GOODS POLICY
Cuno Incorporated will authorize the return of goods shipped in error,
ordered in error, defective goods, or goods for repair, subject to
written approval and the following conditions:
GOODS SHIPPED IN ERROR
Goods shipped by Cuno in error may be returned, freight collect and full
credit allowed as soon as written approval is received by the Distributor.
Contact your Customer Service Representative for a Return Goods
Authorization Number.
===============================================================================
LITSSP2.1294 SUBJECT TO CHANGE PAGE 1 0F 2
<PAGE>
Schedule E
GENERAL SALES POLICY CUNO
BASIC SALES AGREEMENT
(TERMS & CONDITIONS) FILTER SYSTEMS
===============================================================================
QUOTATIONS
Quotations submitted by Seller are good for acceptance only within 30 days
from date of quotation unless otherwise specified. Prices quoted do not
include any sales, use, excise, occupational or other similar tax. Delivery
lead times contained within quotations hall date from receipt by Seller of
all necessary engineering and manufacturing information including approved
drawings if required by Buyer.
ACCEPTANCE
All orders are subject to approval and acceptance by Seller. A written
acknowledgment sent to Buyer of orders so approval shall constitute such
acceptance by Seller. Seller may at any time alter or suspend credit,
refuse shipment, or cancel unfilled orders when, in Seller's opinions, the
financial condition of Buyer or the status of his account warrants it, or
when delivery is delayed by fault of Buyer or Buyer is delinquent in any
payment. No order accepted by Seller will be subject to cancellations,
termination, suspension, change, reduction, cutback or any other
modifications except with Seller's prior written consent. Any such
modifications may be subject to a charge as determined by Seller.
CANCELLATION
Orders may be canceled or deliveries deferred only upon the condition the Buyer
assumes immediate liability for and makes prompt payment to Seller of all
expenses incurred, charges for commitments made by Seller, profit on work in
process and contract value of items completed and ready for shipment.
DELIVERY
Shipment schedules are approximate only and are as accurate as present
conditions permit. Seller assumes no responsibility or liability for failure
or delay in making delivery or otherwise performing hereunder when such failure
or delay is due to any cause beyond its control and without its fault or
negligence. If for any reason Seller's supply of items ordered hereunder is
caused to be limited, Seller shall have the right to prorate the supply in such
manner as it, in its discretion shall determine. Delivery to a common carrier
shall constitute delivery to Buyer and all risk of loss or damage in transit
shall be borne by Buyer. If, because of Buyer's inability to take delivery,
the materials or equipment are not shipped, Seller may have them stored for
Buyer at Buyer's expense, risk and account, and for all other purposes they
shall be considered "shipped".
PARTIAL DELIVERIES
Seller may make partial deliveries which Buyer shall accept and pay for at the
prices specified on the reverse side hereof upon maturity of bills therefore.
If any part of the order is not delivered by Seller or is not in accordance with
the order, the remaining part of the order and Buyer's obligation hereunder
shall not be affected.
PACKAGING
All items sold hereunder shall be packed or crated and shipped in accordance
with Seller's best judgment. Any special packing, crating, or shipping
instructions or Buyer must be noted on Buyer's original order and acknowledged
by Seller.
INSPECTION
Buyer shall inspect all items upon arrival and shall give written notice to
Seller with ten (10) days of arrival of any claim for shortage or
non-conformance with the terms hereof. If Buyer shall fail to give such notice,
all items shall be deemed to confirm with, and Buyer shall be bound to accept
and pay for all items in accordance with the Terms hereof.
RETURNS
No product may be returned without Seller's prior written approval.
Transportation charges are to be prepaid by Buyer. Returned goods are subject
to the Seller's inspection and acceptance. Seller may, in its discretion,
replace an or all returned items within a reasonable time after Seller
determines that the returned goods are not in accordance herewith, and in such
event Seller shall not be liable for any damages arising from the defective
delivery or delay caused thereby. When expressly authorized by Seller in
writing, unused products may be returned to Seller, subject to service handling,
restocking charges and rebuilding charges to "as new" condition.
REPAIRS, ALTERATIONS AND MODIFICATION
Any repairs made to products shipped by Seller shall be at the expense of the
Buyer unless specifically authorized in writing by the Seller.
Alterations or modifications to the product involving welding, brazing,
soldering, drilling or machining by the Buyer are not permitted or approved
by the Seller without specific authorization in writing by the Seller. Any
unauthorized alteration or modification by the Buyer will void the warranty.
WARRANTY
Seller warrants its equipment against defects in workmanship and material for a
period of 12 months from date of shipment from the factory under normal use and
service and otherwise when such equipment is used in accordance with
instructions furnished by Seller and for purposes disclosed in writing at the
time of purchase, if any. Any unauthorized alteration or modification of the
equipment by Buyer will void this warranty. Seller's liability under this
warranty shall be limited to replacement or repair, F.O.B. Point of manufacture,
of any defective equipment or part which, having been returned to the factory,
transportation charges prepaid, has been inspected and determined by the Seller
to be defective.
SUBJECT TO CHANGE
<PAGE>
DISTRIBUTION
AND INTERIM SERVICES
AGREEMENT
BY AND BETWEEN
COMMERCIAL INTERTECH CORP.
AND
CUNO INCORPORATED
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS..................................................................... 1
SECTION 1.01 General.................................................... 1
SECTION 1.02 Annexes, etc............................................... 6
SECTION 1.03 References to Time......................................... 6
ARTICLE II
THE DISTRIBUTION................................................................ 7
SECTION 2.01 The Distribution........................................... 7
SECTION 2.02 Cooperation Prior to the Distribution...................... 7
SECTION 2.03 Conditions to the Distribution............................. 8
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION....................................... 8
SECTION 3.01 Intercorporate Reorganization.............................. 8
SECTION 3.02 Repayment of Intercompany Indebtedness..................... 9
SECTION 3.03 The CUNO Board............................................. 9
SECTION 3.04 Business, Administrative and Support Services.............. 9
SECTION 3.05 Insurance ................................................. 10
SECTION 3.06 Use of Names .............................................. 12
SECTION 3.07 Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Cutoff Date........... 12
SECTION 3.08 Commercial Intertech Guarantees............................ 13
ARTICLE IV
INDEMNIFICATION................................................................. 14
SECTION 4.01 Indemnification by Commercial Intertech................... 14
SECTION 4.02 Indemnification by CUNO................................... 14
SECTION 4.03 Limitations on Indemnification Obligations................ 15
SECTION 4.04 Procedures for Indemnification............................ 16
SECTION 4.05 Remedies Cumulative....................................... 18
SECTION 4.06 Survival of Indemnities................................... 18
ARTICLE V
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACCESS TO INFORMATION......................................................... 18
SECTION 5.01 Access to Information.................................... 18
SECTION 5.02 Production of Witnesses.................................. 19
SECTION 5.03 Retention of Records..................................... 19
SECTION 5.04 Confidentiality.......................................... 19
ARTICLE VI
MISCELLANEOUS................................................................ 20
SECTION 6.01 Complete Agreement; Construction........................ 20
SECTION 6.02 Survival of Agreements.................................. 20
SECTION 6.03 Expenses................................................ 20
SECTION 6.04 Governing Law........................................... 20
SECTION 6.05 Notices................................................. 20
SECTION 6.06 Dispute Resolution...................................... 21
SECTION 6.07 Binding Arbitration..................................... 21
SECTION 6.08 Amendments.............................................. 22
SECTION 6.09 Successors and Assigns.................................. 22
SECTION 6.10 Omitted
SECTION 6.11 No Third Party Beneficiaries............................ 22
SECTION 6.12 Titles and Headings..................................... 23
SECTION 6.13 Legal Enforceability.................................... 23
SECTION 6.14 No Waivers.............................................. 23
SECTION 6.15 Counterparts............................................ 23
SECTION 6.16 Performance............................................. 23
Annex A: Form of Employee Benefits and Compensation Allocation Agreement
Annex B: Form of Tax Allocation Agreement
Annex C: Form of By-laws of CUNO
Annex D: Form of Amended and Restated Certificate of Incorporation of CUNO
SCHEDULES
Schedule 1.02.........................................Commercial Intertech Guarantees
Schedule 3.03...............................................Members of the CUNO Board
</TABLE>
(ii)
<PAGE>
DISTRIBUTION AND INTERIM SERVICES AGREEMENT
-------------------------------------------
DISTRIBUTION AND INTERIM SERVICES AGREEMENT (this "Agreement"), dated as of
______________, 1996, by and between COMMERCIAL INTERTECH CORP., an Ohio
corporation ("Commercial Intertech") and CUNO INCORPORATED, a Delaware
corporation and, as of the date hereof, a wholly-owned subsidiary of Commercial
Intertech ("CUNO").
WHEREAS, the Commercial Intertech Board (as defined herein) has determined
that it is appropriate and desirable to distribute all outstanding shares of
CUNO Common Stock (as defined herein) on a pro rata basis to the holders of
Commercial Intertech Common Stock (as defined herein); and
WHEREAS, Commercial Intertech and CUNO have determined that it is
appropriate and desirable to set forth the principal corporate transactions
required to effect such distribution and certain other agreements that will
govern certain matters relating to such distribution;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01 General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Action: any action, suit, arbitration, inquiry, proceeding or investigation
by or before any court, any governmental or other regulatory or administrative
agency or commission or any arbitration tribunal.
Affiliate: with respect to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person; provided, however, that for purposes of
this Agreement, no member of either Group shall be deemed to be an Affiliate of
any member of the other Group.
Agent: the distribution agent for the stockholders of Commercial Intertech,
as selected by Commercial Intertech, to distribute the CUNO Common Stock in
connection with the Distribution.
Ancillary Agreements: collectively, all of the agreements, instruments,
understandings, assignments or other arrangements entered into in connection
with the transactions contemplated hereby, including, without limitation, the
Conveyance and Assumption Instruments, the Employee Benefits and Compensation
Allocation Agreement and the Tax Allocation Agreement.
<PAGE>
By-Laws: CUNO's By-laws substantially in the form attached hereto as ANNEX
C.
Certificate of Incorporation: CUNO's amended and restated certificate of
incorporation substantially in the form attached hereto as ANNEX D.
Chairman: the chair of the arbitration panel.
Claims Administration: (i) the processing of claims made under the
Policies, including the reporting of claims to the insurance carrier, management
and defense of claims, and providing for appropriate releases upon settlement of
claims, (ii) in the case of the CUNO Business, the reporting to Commercial
Intertech of any losses or claims which may cause the per-occurrence deductible
or self-insured retention or limits of any Policy to be exceeded, (iii) the
collection of the proceeds of Policies, and (iv) the reporting to excess
insurance carriers of any losses or claims which may cause the per-occurrence
deductible or self-insured retention or limits of any Policy to be exceeded.
Code: the Internal Revenue Code of 1986, as amended.
Commercial Intertech Assets: collectively, all the assets of Commercial
Intertech and the Commercial Intertech Subsidiaries, including, without
limitation, the Commercial Intertech Patents and Trademarks, other than the CUNO
Assets.
Commercial Intertech Assumed Liabilities: collectively, all Liabilities
relating to or arising in connection with the Commercial Intertech Assets or the
Commercial Intertech Businesses, whether arising before, on or after the
Distribution Date, which are to be assumed by Commercial Intertech or a
Commercial Intertech Subsidiary, as appropriate, pursuant to the transactions
contemplated by SECTION 3.01.
Commercial Intertech Board: the Board of Directors of Commercial
Intertech.
Commercial Intertech Businesses: the businesses currently conducted by
Commercial Intertech and its Subsidiaries other than the CUNO Business.
Commercial Intertech Common Stock: the Common Stock, par value $1.00 per
share, of Commercial Intertech.
Commercial Intertech Group: Commercial Intertech and its Affiliates,
whether now or hereafter existing, other than members of the CUNO Group.
Commercial Intertech Guarantees: collectively, the guarantees by
Commercial Intertech set forth on SCHEDULE 1.02 which were entered into by
Commercial Intertech with respect to the duties and obligations of the CUNO
Group.
2
<PAGE>
Commercial Intertech Indemnitees: Commercial Intertech, each Affiliate of
Commercial Intertech and each of their respective directors, officers and
employees and each of the heirs, executors, successors and assigns of any of the
foregoing.
Commercial Intertech Liabilities: collectively, all of (i) the Liabilities
of any member of the Commercial Intertech Group under this Agreement or any
Ancillary Agreement to which it is or becomes a party, (ii) the Liabilities
arising out of or in connection with the businesses, assets or operations of the
Commercial Intertech Group (other than such businesses, assets or operations
which, pursuant to this Agreement, shall, after the Distribution Date, be part
of the CUNO Group), as heretofore, currently, or hereafter conducted, (iii) the
Commercial Intertech Assumed Liabilities, and (iv) the Liabilities retained or
assumed by Commercial Intertech or any Commercial Intertech Subsidiary pursuant
to the Employee Benefits and Compensation Allocation Agreement.
Commercial Intertech Patents and Trademarks: collectively, the patents and
trademarks of Commercial Intertech or any Commercial Intertech Subsidiary.
Commercial Intertech Subsidiary: any subsidiary of Commercial Intertech
other than CUNO or any CUNO Subsidiary.
Commission: the Securities and Exchange Commission.
Conveyance and Assumption Instruments: collectively, the various
agreements, instruments and other documents to be entered into to effect the
transfer of assets and the assumption of Liabilities contemplated by the
transactions set forth in SECTION 3.01 of this Agreement.
CUNO Assets: collectively, all assets which are currently owned by
Commercial Intertech or a Commercial Intertech Subsidiary (including, without
limitation, the Commercial Intertech Patents and Trademarks) which are used in
connection with the CUNO Business, and which pursuant to, or as a consequence
of, this Agreement are to be transferred to CUNO or a CUNO Subsidiary and which,
as of and after the Distribution Date are to be owned by the CUNO Group.
CUNO Assumed Liabilities: collectively, all Liabilities relating to or
arising in connection with the CUNO Assets or the CUNO Business, whether arising
before, on or after the Distribution Date, which are to be assumed by CUNO or a
CUNO Subsidiary, as appropriate, pursuant to the transactions contemplated by
SECTION 3.01.
CUNO Board: the Board of Directors of CUNO.
CUNO Business: the fluid purification business conducted, as of the date
hereof, by Commercial Intertech, CUNO and their respective Subsidiaries through
the use of the CUNO Assets, and after the Distribution Date to be conducted by
CUNO and the CUNO Subsidiaries.
3
<PAGE>
CUNO Common Stock: collectively, the Common Stock, par value $.001 per
share, of CUNO and the rights issued pursuant to the Rights Plan.
CUNO Group: CUNO and that portion of any corporation or other entity,
whether now or hereafter existing, which conduct the CUNO Business.
CUNO Indemnitees: CUNO, each Affiliate of CUNO and each of their
respective directors, officers and employees and each of the heirs, executors,
successors and assigns of any of the foregoing.
CUNO Liabilities: collectively, all of (i) the Liabilities of any member
of the CUNO Group under this Agreement or any Ancillary Agreement to which it is
or becomes a party, (ii) the Liabilities arising out of or in connection with
the businesses, assets or operations of the CUNO Group (other than such
businesses, assets or operations which, pursuant to this Agreement shall, after
the Distribution Date, be part of the Commercial Intertech Group), as
heretofore, currently, or hereafter conducted, (iii) the CUNO Assumed
Liabilities, and (iv) the Liabilities retained or assumed by CUNO or any CUNO
Subsidiary pursuant to the Employee Benefits and Compensation Allocation
Agreement.
CUNO Subsidiary: any subsidiary of CUNO that, as of the Distribution Date,
will be a subsidiary of CUNO, and any other subsidiary of CUNO which thereafter
may be organized or acquired.
Cut-off Date: shall mean the Distribution Date or such other date as
determined by the parties hereto.
Dispute Resolution Committee: a joint committee composed of two
representatives from the managerial staff of each of Commercial Intertech and
CUNO.
Distribution: the distribution on a pro rata basis to holders of
Commercial Intertech Common Stock of the shares of CUNO Common Stock owned by
Commercial Intertech on the Distribution Date.
Distribution Date: the date determined by the Commercial Intertech Board on
which the Distribution shall be effected.
Employee Benefits and Compensation Allocation Agreement: an employee
benefits and compensation allocation agreement between Commercial Intertech and
CUNO substantially in the form attached hereto as ANNEX A.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Group: the Commercial Intertech Group or the CUNO Group.
4
<PAGE>
Indemnifying Party: any party who is required to make payment pursuant to
SECTION 4.01 or SECTION 4.02.
Indemnitee: any party who is entitled to receive payment pursuant to
SECTION 4.01 or SECTION 4.02.
Indemnity Payment: the amount of any payment made by an Indemnifying Party
pursuant to this Agreement.
Information: all records, books, contracts, instruments, computer data and
other data and information.
Information Statement: the information statement to be sent to the holders
of Commercial Intertech Common Stock in connection with the Distribution.
Insurance Amount: one hundred twenty percent (120%) of the current annual
premium expended by Commercial Intertech.
IRS: the Internal Revenue Service.
Liabilities: with respect to any Person, any and all debts, liabilities
and obligations, absolute or contingent, matured or unmatured, choate or
inchoate, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever arising (unless otherwise specified in this Agreement), including,
without limitation, all costs and expenses relating thereto, and including,
without limitation, those debts, liabilities and obligations arising under any
law, rule, regulation, Action, threatened Action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
Losses: any and all losses, Liabilities, claims, damages, obligations,
payments, costs and expenses, matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, known or unknown, whenever
arising (including, without limitation, the costs and expenses of any and all
Actions, threatened Actions, demands, assessments, judgments, settlements and
compromises relating thereto, and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions).
Nasdaq: the Nasdaq National Market.
Person: an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization or a
government or any department or agency thereof.
Policies: various forms of insurance coverage historically provided by
Commercial Intertech.
5
<PAGE>
Premium Administration: with respect to each Policy, the accounting for
premiums, retrospectively rated premiums, defense costs, indemnity payments,
deductibles and retentions as appropriate under the terms and conditions of each
of the Policies.
Record Date: the close of business on the date to be determined by the
Commercial Intertech Board, or a committee thereof, as the record date for the
Distribution.
Representative: with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.
Rights Plan: the rights agreement, to be entered into on or prior to the
Distribution Date, between CUNO and ChaseMellon Shareholder Services, L.L.C
N.A., as rights agent, substantially in the form filed as an exhibit to the Form
10.
Services: the business services currently provided by Commercial Intertech
to the CUNO Group, including but not limited to services relating to accounting,
payroll, legal, information technology, benefits, human resources, risk
management, consulting, tax, human resources and administration.
Subsidiary: with respect to any Person, any corporation or other legal
entity of which such Person or any Subsidiaries controls or owns, directly or
indirectly, more than 50% of the stock or other equity interest, or more than
50% of the voting power entitled to vote on the election of members to the board
of directors or similar governing body; provided, however, that for purposes of
this Agreement neither CUNO nor any CUNO Subsidiary shall be deemed to be a
Commercial Intertech Subsidiary.
Tax Opinion: an opinion of tax counsel to the effect that, among other
things, for United States federal income tax purposes, the Distribution will
qualify as a tax-free distribution under Section 355 of the Code.
Tax Allocation Agreement: the Tax Sharing Agreement between Commercial
Intertech and CUNO, substantially in the form attached hereto as ANNEX B.
Third Party Claim: the assertion by a Person (including, without
limitation, any governmental entity) who is not a party to the Agreement (or an
Affiliate thereof) or to any Ancillary Agreement of any claim or the
commencement by any such Person of any Action.
SECTION 1.02 Annexes, etc. References to an "Annex" or "Schedule" are,
unless otherwise specified, to one of the Annexes or Schedules attached to this
Agreement, and references to "Section" or "Article" are, unless otherwise
specified, to one of the Sections or Articles of this Agreement.
SECTION 1.03 References to Time. All references in this Agreement to
times of day shall be to Youngstown, Ohio time.
6
<PAGE>
ARTICLE II
THE DISTRIBUTION
----------------
SECTION 2.01 The Distribution. Subject to SECTION 2.03 hereof and prior
to the Distribution Date, Commercial Intertech will deliver to the Agent for the
benefit of holders of record of Commercial Intertech Common Stock on the Record
Date, a single stock certificate, endorsed by Commercial Intertech in blank,
representing all of the then outstanding shares of CUNO Common Stock owned by
Commercial Intertech, and shall instruct the Agent to distribute on, or as soon
as practicable following, the Distribution Date the appropriate number of such
shares of CUNO Common Stock to each such holder or designated transferee or
transferees of such holder. The Distribution shall be effective as of 5:00 p.m.
Youngstown, Ohio time, on the Distribution Date. CUNO will provide to the Agent
all share certificates and any information required in order to complete the
Distribution on the basis of one share of CUNO Common Stock for each share of
Commercial Intertech Common Stock outstanding on the Record Date.
SECTION 2.02 Cooperation Prior to the Distribution.
(a) Commercial Intertech and CUNO shall prepare, and Commercial Intertech
shall mail to the holders of Commercial Intertech Common Stock on the Record
Date, the Information Statement, which shall set forth appropriate disclosure
concerning CUNO, the Distribution and other matters. Commercial Intertech and
CUNO shall prepare, and CUNO shall file with the Commission, the Form 10, which
includes or incorporates by reference the Information Statement. Commercial
Intertech and CUNO shall use reasonable efforts to cause the Form 10 to become
effective under the Exchange Act as promptly as reasonably practicable.
(b) Commercial Intertech and CUNO shall cooperate in preparing, filing
with the Commission and causing to become effective any registration statements
or amendments thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by the
Distribution and the Employee Benefits and Compensation Allocation Agreement.
(c) Commercial Intertech and CUNO shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of the states or
other political subdivisions of the United States and the securities laws of any
applicable foreign countries or other political subdivision thereof, in
connection with the transactions contemplated by this Agreement.
(d) Commercial Intertech and CUNO shall have prepared, and CUNO shall file
and pursue, an application to permit listing of the CUNO Common Stock on Nasdaq
and any other national securities exchanges selected by CUNO.
7
<PAGE>
(e) Commercial Intertech and CUNO shall each take all such action as may
be necessary or appropriate to cause the conditions set forth in SECTION 2.03 to
be satisfied and to effect the Distribution on the Distribution Date.
SECTION 2.03 Conditions to the Distribution. The Commercial Intertech Board
shall in its discretion establish the Record Date and the Distribution Date and
all appropriate procedures in connection with the Distribution, but in no event
shall the Distribution Date occur prior to such time as each of the following
have occurred or have been waived by the Commercial Intertech Board in its sole
discretion: (i) the occurrence of the later of August 19, 1996 or the CUNO
Common Stock having been approved for trading on Nasdaq and commencment of such
trading and (ii) no order, injunction or decree having been issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
consummation of the Distribution shall be in effect.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
-----------------------------------------
SECTION 3.01 Intercorporate Reorganization.
(a) Subject to SECTION 3.07, prior to or on the Distribution Date,
Commercial Intertech and CUNO shall undertake to complete all actions necessary
to (i) transfer, or cause to be transferred, to CUNO or a CUNO Subsidiary, as
appropriate, effective as of the Cut-off Date, all of the right, title and
interest of Commercial Intertech or any Commercial Intertech Subsidiary, as
appropriate, in any CUNO Assets and have CUNO or a CUNO Subsidiary, as
appropriate, assume and agree to pay, perform and discharge in due course each
of the CUNO Assumed Liabilities, and (ii) transfer, or cause to be transferred,
to Commercial Intertech or a Commercial Intertech Subsidiary, as appropriate,
effective as of the Cut-off Date, all the right, title and interest of CUNO or
any CUNO Subsidiary, as appropriate, in any Commercial Intertech Assets and have
Commercial Intertech or a Commercial Intertech Subsidiary, as appropriate,
assume and agree to pay, perform and discharge in due course each of the
Commercial Intertech Assumed Liabilities. Following the Distribution Date,
Commercial Intertech and CUNO shall take any additional actions which are
necessary to effectuate the foregoing. In connection with the foregoing, to the
extent a CUNO Asset has not been duly transferred to CUNO or a CUNO Subsidiary,
as appropriate, pursuant to this SECTION 3.01, following the Distribution Date,
all CUNO Assets and CUNO Liabilities shall be deemed to be the property of CUNO,
and all Commercial Intertech Assets and Commercial Intertech Liabilities shall
be deemed to be the property of Commercial Intertech.
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(b) In connection with the transfers of assets other than capital stock and
the assumptions of Liabilities contemplated by subsection (a) and subsection (b)
of this Section, Commercial Intertech and CUNO shall execute or cause to be
executed by the appropriate entities the Conveyance and Assumption Instruments
in such forms as Commercial Intertech and CUNO shall reasonably agree, including
the transfer of real property by deed. The transfer of capital stock shall be
effected by means of delivery of stock certificates duly endorsed or accompanied
by duly executed stock powers and notation on the stock records books of the
corporation or other legal entities involved and, to the extent required by
applicable law, by notation on appropriate registries.
(c) Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement or in any other agreement or document contemplated by this
Agreement or otherwise, representing and warranting in any way as to the value
or freedom from encumbrance of, or any other matter concerning, any assets of
such party, it being agreed and understood that all assets are being transferred
"as is, where is."
SECTION 3.02 Repayment of Intercompany Indebtedness.
(a) Elimination of Intercompany Accounts as of the Cut-off Date. All
intercompany receivables, payables and loans between CUNO and the CUNO
Subsidiaries, on the one hand, and Commercial Intertech and the Commercial
Intertech Subsidiaries, on the other hand, shall be settled within twelve (12)
months from the Distribution Date, with the exact date of payment (or net
payment, including offsets) to be determined by the mutual agreement of the
parties hereto. Proceeds from the $30 million term facility will be used to
immediately repay the loan payable to Commercial Intertech.
(b) Cash Management After the Cut-off Date. Commercial Intertech and CUNO
shall establish and maintain a separate cash management system with respect to
the CUNO Business in accordance with past practice.
SECTION 3.03 The CUNO Board. At the Distribution Date, the CUNO Board
shall consist of, and CUNO and Commercial Intertech shall take all actions which
may be required to elect or otherwise appoint as directors of CUNO on or prior
to the Distribution Date, the persons named on SCHEDULE 3.03.
SECTION 3.04 Business, Administrative and Support Services.
(a) Coverage. Commercial Intertech and its predecessors have historically
provided various business, administrative and support Services to its
Subsidiaries, including CUNO and the CUNO Subsidiaries. From and after the
Distribution Date, CUNO and the CUNO Subsidiaries will be responsible for
procuring or providing such Services in their own right. To the extent CUNO and
the CUNO Subsidiaries desire to continue certain of the Services following
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the Distribution Date, Commercial Intertech agrees to provide the Services to
CUNO and the CUNO Subsidiaries as set forth in this SECTION 3.04.
(b) Agreement to Provide Service. Commercial Intertech, to facilitate
transition by CUNO to standalone capability, agrees to provide the Services to
CUNO or any CUNO Subsidiary following the Distribution Date for a period up to
twelve (12) months from the Distribution Date; provided, however, that certain
Services, upon mutual agreement of CUNO and Commercial Intertech, may be
extended beyond such 12-month period as necessary to assist in the year-end
closing process for the first full fiscal year following the Distribution Date.
Any and all of the Services to be provided by Commercial Intertech may be
terminated prior to completion of the 12-month transition period upon the mutual
consent of both parties.
(c) Scope of Services. If CUNO or any CUNO Subsidiary exercises the
election to receive Services set forth in part (b) above, Commercial Intertech
shall perform such specified Services in a manner consistent with the manner in
which such Services have been performed prior to the Distribution Date.
Commercial Intertech will also assist CUNO or the CUNO Subsidiary, as
appropriate, in transferring data to CUNO from Commercial Intertech's systems
and establishing interconnection between systems, and otherwise transferring the
operation of the Services to CUNO or the CUNO Subsidiary.
(d) Compensation. Commercial Intertech shall be paid by CUNO or the CUNO
Subsidiary, as appropriate, for the Services provided, in accordance with past
practice and corporate assessment methods at rates comparable to those charged
to CUNO by Commercial Intertech for similar services provided prior to the
Distribution. Such rates are considered by CUNO and Commercial Intertech to be
reasonable approximations of market-based rates for purposes of this Agreement.
Such services will be invoiced to CUNO by Commercial Intertech on a monthly
basis and are payable by CUNO within 30 days of the invoice date.
(e) Consents of Third Parties. Commercial Intertech shall use commercially
reasonable efforts, at CUNO's direction and expense, to obtain any consents or
licenses from third parties necessary for the continuation of the requested
Services; provided that Commercial Intertech shall have no obligation to provide
Services for which such consent is required and shall not have been obtained.
SECTION 3.05 Insurance.
(a) Coverage. Commercial Intertech has historically provided Policies which
include CUNO and the CUNO Subsidiaries within the definition of the named
insured. Except for those Policies issued in the name of CUNO or any CUNO
Subsidiary, coverage of CUNO and the CUNO Subsidiaries shall cease under the
Policies as of the Distribution Date. From and after the Distribution Date, CUNO
and CUNO Subsidiaries will be responsible for obtaining and maintaining
insurance coverages in their own right. Commercial Intertech shall retain the
Policies, together with the rights, benefits and privileges thereunder. It is
agreed that CUNO and the CUNO Subsidiaries shall have the right to present
claims under such Policies for insured
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incidents occurring from the date said coverage first commenced until the
Distribution Date to the extent that the terms and conditions of any such
Policies so allow. It is understood that any such Policies written on a "claims
made" basis rather than "occurrence" basis may not provide coverage to CUNO and
the CUNO Subsidiaries for incidents occurring prior to the Distribution Date but
which are first reported after the Distribution Date.
(b) Administration and Reserves. From and after the Cut-off Date:
(i) Commercial Intertech shall be responsible for the (A) Premium
Administration of all Policies, and (B) Claims Administration with
respect to the Commercial Intertech Liabilities; provided, that the
retention of the Policies by Commercial Intertech is in no way intended to
limit, inhibit or preclude any right to insurance coverage for any insured
claim of a named insured under the Policies, including but not limited to
CUNO and the CUNO Subsidiaries;
(ii) CUNO or a CUNO Subsidiary, as appropriate, shall be
responsible for the Claims Administration with respect to the CUNO
Liabilities;
(iii) Commercial Intertech or a Commercial Intertech Subsidiary,
as appropriate, shall be entitled to reserves or the benefit of reserves
held by any insurance carrier, with respect to Commercial Intertech
Liabilities; and
(iv) CUNO or a CUNO Subsidiary, as appropriate, shall be entitled
to reserves, or the benefit of reserves held by any insurance carrier, with
respect to CUNO Liabilities.
(c) Insurance Premiums. Commercial Intertech shall pay the premiums, to the
extent that CUNO or a CUNO Subsidiary does not pay premiums with respect to CUNO
Liabilities (retrospectively-rated or otherwise), as required under the terms
and conditions of the respective Policies, whereupon CUNO or a CUNO Subsidiary,
as appropriate, shall upon receipt of a copy of the retrospective-rating
adjustment forthwith reimburse Commercial Intertech or a Commercial Intertech
Subsidiary, as appropriate, for that portion of such premiums paid by Commercial
Intertech as are attributable to the CUNO Liabilities.
(d) Insurance Proceeds. Proceeds received with respect to claims made under
the Policies shall be paid to Commercial Intertech with respect to the
Commercial Intertech Liabilities and to CUNO with respect to the CUNO
Liabilities.
(e) Agreement for Waiver of Conflict and Shared Defense. In the event that
a Policy or Policies provide coverage for both Commercial Intertech and CUNO
relating to the same occurrence, Commercial Intertech and CUNO agree to jointly
defend and to waive any conflict of interest necessary to the conduct of that
joint defense. Nothing in this subsection (e) shall be construed to limit or
otherwise alter in any way the indemnity obligations of the parties to this
Agreement, including those created by this Agreement, by operation of law or
otherwise.
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(f) Directors' and Officers' Insurance. Commercial Intertech shall use
reasonable efforts to cause the persons currently serving as officers and/or
directors of Commercial Intertech who will become effective as of the
Distribution Date officers and/or directors of CUNO to be covered for a period
of three years from the Distribution Date by the directors' and officers'
liability insurance policy maintained by Commercial Intertech (provided that
Commercial Intertech may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not less
advantageous than such policy) with respect to matters covered under the
existing policy occurring prior to the Distribution Date which were committed by
such officers and/or directors in their capacity as such; provided however, that
in no event shall Commercial Intertech be required to expend with respect to any
year more than the Insurance Amount to maintain or procure insurance coverage
pursuant hereto; provided further, that if Commercial Intertech is unable to
maintain or obtain the insurance called for by this SECTION 3.07(F) 3.05(F),
Commercial Intertech shall use reasonable efforts to obtain as much comparable
insurance as available for the Insurance Amount. In the event Commercial
Intertech or any of its successors or assigns (i) consolidates with or merges
into any other Person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each
such case, to the extent necessary, proper provision shall be made so that the
successors and assigns of Commercial Intertech assume the obligations set forth
in this SECTION 3.07(F) 3.05(F). The provisions of this SECTION 3.07(F) 3.05(F)
are intended to be for the benefit of, and shall be enforceable by, each such
officer and director and his or her heirs and representatives.
SECTION 3.06 Use of Names.
(a) Use of CUNO Name. Any existing printed material showing any affiliation
or connection of Commercial Intertech or any of its Subsidiaries with CUNO or
any CUNO Subsidiary may be used by Commercial Intertech and its Subsidiaries
only for a period ending eight (8) months after the Distribution Date. On and
after the Distribution Date, Commercial Intertech and its Subsidiaries shall not
otherwise represent to third parties that any of them is affiliated with CUNO or
any CUNO Subsidiary.
(b) Use of Commercial Intertech Name. Any existing printed material
showing any affiliation or connection of CUNO or any of its Subsidiaries with
Commercial Intertech or any Commercial Intertech Subsidiary may be used by CUNO
and its Subsidiaries only for a period ending eight (8) months after the
Distribution Date. On and after the Distribution Date, CUNO and its
Subsidiaries shall not otherwise represent to third parties that any of them is
affiliated with Commercial Intertech or any Commercial Intertech Subsidiary.
SECTION 3.07 Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Cutoff Date. To the extent that any
transfers and assumptions contemplated by this ARTICLE III shall not have been
consummated prior to the Distribution Date, the parties shall cooperate to
effect such transfers as promptly following the Distribution Date as shall be
practicable, it nonetheless being agreed and understood by all the parties that
no party shall be liable in any manner to any other party for any failure of any
of the transfers contemplated by
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this Article III to be consummated prior to the Distribution Date. Subject to
the provisions of SECTION 2.03, nothing herein shall be deemed to require the
transfer of any assets or the assumption of any Liabilities which by their terms
or operation of law cannot be transferred or assumed; provided, however, that
Commercial Intertech and CUNO shall, and shall cause their respective
Subsidiaries to, cooperate to seek to obtain any necessary consents or approvals
for the transfer of all assets and Liabilities contemplated to be transferred
pursuant to this ARTICLE III, In the event that any such transfer of assets
(other than capital stock of corporations to be transferred hereunder) or
Liabilities has not been consummated, effective as of and after the Cut-off
Date, the party retaining such asset or Liability shall thereafter hold such
asset for the party entitled thereto (at the expense of the party entitled
thereto) and retain such Liability for the account of the party by whom such
Liability is to be assumed, and take such other action as may be reasonably
requested by the party to whom such asset is to be transferred, or by whom such
Liability is to be assumed, as the case may be, in order to place such party,
insofar as reasonably possible, in the same position as would have existed had
such asset or Liability been transferred as of the Cut-off Date. As and when any
such asset or Liability becomes transferable, such transfer shall be effected
forthwith. The parties agree that, as of the Cut-off Date, each party hereto
shall be deemed to have assumed in accordance with the terms of this Agreement
and the Ancillary Agreements all of the Liabilities, and all duties, obligations
and responsibilities incident thereto, which such party is required to assume
pursuant to the terms hereof and thereof.
SECTION 3.08 Commercial Intertech Guarantees. CUNO shall use its
reasonable efforts to cause itself or one of its Affiliates to be substituted in
all respects for Commercial Intertech in respect of all obligations of
Commercial Intertech under any guarantee each of the guarantees and comfort
letters set forth on SCHEDULE 1.02, effective as of the next maturity date
after the date hereof of each of the related agreements with respect to which
such guaranty or comfort letter was issued.
SECTION 3.09. Corporate Opportunities. The parties hereto
acknowledge that certain of the directors and officers of CUNO or a CUNO
Subsidiary may also be a director or officer of Commercial Intertech or a
Commercial Intertech Subsidiary following the Distribution Date. In connection
with the foregoing, the parties hereto agree that following the Distribution
Date, no opportunity, transaction, agreement or other arrangement of which an
officer or director of Commercial Intertech, a Commercial Intertech Subsidiary,
or any other Person in which Commercial Intertech acquires a financial interest
or is a party, has knowledge, shall be the property or corporate opportunity of
CUNO or any CUNO Subsidiary, even if such opportunity, transaction, agreement or
other arrangement relates to the ownership of interests in or the management and
operation of the CUNO Business.
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ARTICLE IV
INDEMNIFICATION
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SECTION 4.01 Indemnification by Commercial Intertech. Except with
respect to claims for proceeds of Policies or other amounts received, which
shall be governed by SECTION 3.05 and SECTION 4.03, Commercial Intertech
shall indemnify, defend and hold harmless the CUNO Indemnitees from and against
each of the following:
(a) The Commercial Intertech Liabilities and any and all Losses of the CUNO
Indemnitees arising out of, or due to the failure or alleged failure of
Commercial Intertech or any of its Affiliates to pay, perform or otherwise
discharge in due course any of the Commercial Intertech Liabilities.
(b) All Losses of any CUNO Indemnitee arising (whether before, on or after
the Distribution Date) in connection with the Commercial Intertech Assets or the
Commercial Intertech Businesses, whether any such Losses relate to events,
occurrences or circumstances occurring or existing, or whether any such Losses
are asserted, before, on or after the Distribution Date.
(c) All Losses of any CUNO Indemnitee arising out of or based upon any
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, with respect to the
information set forth in the following parts of any preliminary or final Form 10
or any amendment thereto: Commercial Intertech's letter to its stockholders or
under the headings "Risk Factors -- Effects on Commercial Intertech Common
Stock," "Introduction," "The Distribution," "Management -- Executive
Compensation," and "Selected Pro Forma Financial and Other Data" (other than
with respect to information provided by the CUNO Group), and any information
under "Information Statement Summary" derived from information contained under
such headings.
Notwithstanding anything in this SECTION 4.01 to the contrary, neither
Commercial Intertech nor any Commercial Intertech Subsidiary shall have any
liability whatsoever to either CUNO or any CUNO Subsidiary in respect of any
Tax, except as otherwise provided in the Tax Allocation Agreement.
SECTION 4.02 Indemnification by CUNO. Except with respect to claims
for proceeds of Policies or other amounts received, which shall be governed by
SECTION 3.07 3.05 and SECTION 4.03, CUNO shall indemnify, defend and hold
harmless the Commercial Intertech Indemnitees from and against each of the
following:
(a) The CUNO Liabilities and any and all Losses of the Commercial Intertech
Indemnitees arising out of, or due to the failure or alleged failure of CUNO or
any of its Affiliates to pay, perform or otherwise discharge in due course any
of the CUNO Liabilities.
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(b) All Losses of any Commercial Intertech Indemnitee arising (whether
before, on or after the Distribution Date) in connection with the CUNO Assets or
the CUNO Business, whether any such Losses relate to events, occurrences or
circumstances occurring or existing, or whether any such Losses are asserted,
before, on or after the Distribution Date.
(c) All Losses of any Commercial Intertech Indemnitee arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, with respect
to all information set forth in any preliminary or final Form 10 or any
amendment thereto, except for information set forth under the headings specified
in SECTION 4.01(c), with respect to which Commercial Intertech will indemnify
CUNO, and except for information set forth under the headings "Arrangements
Between the Company and Commercial Intertech," and "Certain Transactions in
connection with the Distribution."
Notwithstanding anything in this SECTION 4.02 to the contrary, neither CUNO
nor any CUNO Subsidiary shall have any liability whatsoever to either Commercial
Intertech or any Commercial Intertech Subsidiary in respect of any Tax, except
as otherwise provided in the Tax Allocation Agreement.
SECTION 4.03 Limitations on Indemnification Obligations.
(a) The amount which any Indemnifying Party is or may be required to pay to
any Indemnitee pursuant to SECTION 4.01 or SECTION 4.02 shall be reduced
(including, without limitation, retroactively) by any proceeds of Policies or
other amounts actually recovered by or on behalf of such Indemnitee, in
reduction of the related Loss. If an Indemnitee shall have received the
Indemnity Payment required by this Agreement from an Indemnifying Party in
respect of any Loss and shall subsequently actually receive proceeds of Policies
or other amounts in respect of such Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount actually received (up to but not in
excess of the amount of any Indemnity Payment made hereunder). An insurer who
would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto, or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurer or any other third party shall
be entitled to a "windfall" (i.e., a benefit they would not be entitled to
receive in the absence of the indemnification provisions) by virtue of the
indemnification provisions hereof.
(b) If any Indemnitee realizes a Tax benefit or detriment in one or more
Tax periods by reason of having incurred an Indemnifiable Loss for which such
Indemnitee receives an Indemnity Payment from an Indemnifying Party, then such
Indemnitee shall pay to such Indemnifying Party an amount equal to the Tax
benefit or such Indemnifying Party shall pay to such Indemnitee an additional
amount equal to the Tax detriment (taking into account any Tax detriment
resulting from the receipt of such additional amounts), as the case may be. The
amount of any Tax benefit or any Tax detriment for a Tax period realized by an
Indemnitee by reason of having incurred an Indemnifiable Loss shall be deemed to
equal the product obtained
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by multiplying (i) the amount of any deduction or inclusion in income for such
period resulting from such Indemnifiable Loss or the payment thereof, as the
case may be, by (ii) the highest applicable marginal Tax rate for such period
(provided, however, that the amount of any Tax benefit attributable to an amount
that is creditable shall be deemed to equal the amount of such creditable item).
Any payment due under this SECTION 4.03(b) with respect to a Tax benefit or Tax
detriment realized by an Indemnitee in a Tax period shall be due and payable
within 30 days from the time the return for such Tax period is due, without
taking into account any extension of time granted to the party filing such
return.
SECTION 4.04 Procedures for Indemnification.
(a) Procedures for Indemnification of Third Party Claims shall be as
follows:
(i) If an Indemnitee shall receive notice or otherwise learn of a
Third Party Claim with respect to which an Indemnifying Party may be
obligated to provide indemnification pursuant to SECTION 4.01, SECTION
4.02, or any other Section of this Agreement, such Indemnitee shall give
such Indemnifying Party written notice thereof promptly after becoming
aware of such Third Party Claim; provided that the failure of any
Indemnitee to give notice as provided in this SECTION 4.04(a)(i) shall not
relieve the related Indemnifying Party of its obligations under this
ARTICLE IV, except to the extent that such Indemnifying Party is prejudiced
by such failure to give notice. Such notice shall describe the Third Party
Claim in reasonable detail and, if ascertainable, shall indicate the amount
(estimated if necessary) of the Loss that has been or may be sustained by
such Indemnitee.
(ii) An Indemnifying Party may elect to defend or to seek to settle
or compromise, at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days of
the receipt of notice from an Indemnitee in accordance with SECTION
4.04(a)(i) (or sooner, if the nature of such Third Party Claim so
requires), the Indemnifying Party shall notify the Indemnitee of its
election whether the Indemnifying Party will assume responsibility for
defending such Third Party Claim, which election shall specify any
reservations or exceptions. After notice from an Indemnifying Party to an
Indemnitee of its election to assume the defense of a Third Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
ARTICLE IV for any legal or other expenses (except expenses approved in
advance by the Indemnifying Party) subsequently incurred by such Indemnitee
in connection with the defense thereof; provided that, if the defendants in
any such claim include both the Indemnifying Party and one or more
Indemnitees and in any Indemnitee's reasonable judgment a conflict of
interest between one or more of such Indemnitees and such Indemnifying
Party exists in respect of such claim or if the Indemnifying Party shall
have assumed responsibility for such claim with any reservations or
exceptions, such Indemnitees shall have the right to employ separate
counsel to represent such Indemnitees and in that event the reasonable fees
and expenses of such separate counsel (but not more than one separate
counsel reasonably satisfactory
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to the Indemnifying Party) shall be paid by such Indemnifying Party. If an
Indemnifying Party elects not to assume responsibility for defending a
Third Party Claim, or fails to notify an Indemnitee of its election as
provided in this SECTION 4.04(a)(ii), such Indemnitee may defend or
(subject to the remainder of this SECTION 4.04(a)(ii)) seek to compromise
or settle such Third Party Claim. Notwithstanding the foregoing, neither an
Indemnifying Party nor an Indemnitee may settle or compromise any claim
over the objection of the other; provided, however, that consent to
settlement or compromise shall not be unreasonably withheld. Neither an
Indemnifying Party nor an Indemnitee shall consent to entry of any judgment
or enter into any settlement of any Third Party Claim which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnitee, in the case of a consent or settlement by an
Indemnifying Party, or the Indemnifying Party, in the case of a consent or
settlement by the Indemnitee, of a written release from all liability in
respect to such Third Party Claim.
(iii) If an Indemnifying Party chooses to defend or to seek to
compromise or settle any Third Party Claim, the related Indemnitee shall
make available to such Indemnifying Party any personnel or any books,
records or other documents within its control or which it otherwise has the
ability to make available that are necessary or appropriate for such
defense, settlement or compromise, and shall otherwise cooperate in the
defense, settlement or compromise of such Third Party Claims, subject to
the establishment of appropriate confidentiality arrangements which are
reasonably satisfactory to Commercial Intertech and CUNO.
(iv) Notwithstanding anything else in this SECTION 4.04 to the
contrary, if an Indemnifying Party notifies the related Indemnitee in
writing of such Indemnifying Party's desire to settle or compromise a Third
Party Claim on the basis set forth in such notice (provided that such
settlement or compromise includes as an unconditional term thereof the
giving by the claimant or plaintiff of a written release of the Indemnitee
from all liability in respect thereof) and the Indemnitee shall notify the
Indemnifying Party in writing that such Indemnitee declines to accept any
such settlement or compromise, such Indemnitee may continue to contest such
Third Party Claim, free of any participation by such Indemnifying Party, at
such Indemnitee's sole expense. In such event, the obligation of such
Indemnifying Party to such Indemnitee with respect to such Third Party
Claim shall be equal to (i) the costs and expenses of such Indemnitee prior
to the date such Indemnifying Party notifies such Indemnitee of the offer
to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) plus (ii) the lesser of (A) the amount
of any offer of settlement or compromise which such Indemnitee declined to
accept and (B) the actual out-of-pocket amount such Indemnitee is obligated
to pay subsequent to such date as a result of such Indemnitee's continuing
to pursue such Third Party Claim.
(b) Any claim on account of a Loss which does not result from a Third Party
Claim shall be asserted by written notice given by the Indemnitee to the related
Indemnifying Party. Such Indemnifying Party shall have a period of 30 days
after the receipt of such notice within
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which to respond thereto. If such Indemnifying Party does not respond within
such 30-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such 30-day period or rejects such claim in whole or in part,
such Indemnitee shall be free to pursue such remedies as may be available to
such party under this Agreement or under applicable law.
(c) In addition to any adjustments required pursuant to SECTION 4.03, if
the amount of any Loss shall, at any time subsequent to the payment required by
this Agreement, be reduced by recovery, settlement or otherwise, the amount of
such reduction, less any expenses incurred in connection therewith, shall
promptly be repaid by the Indemnitee to the Indemnifying Party.
(d) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third Party Claim against any claimant or plaintiff asserting
such Third Party Claim or against any other Person. Such Indemnitee shall
cooperate with such Indemnifying Party in a reasonable manner, and at the cost
and expense of such Indemnifying Party, in prosecuting any subrogated right or
claim.
SECTION 4.05 Remedies Cumulative. The remedies provided in this
ARTICLE IV shall be cumulative and shall not preclude assertion by any
Indemnitee of any other rights or the seeking of any and all other remedies
against any Indemnifying Party.
SECTION 4.06 Survival of Indemnities. The obligations of each of
Commercial Intertech and CUNO under this ARTICLE IV shall survive the sale or
other transfer by it of any assets or businesses or the assignment by it of any
Liabilities, with respect to any Loss of the other related to such assets,
businesses or Liabilities.
ARTICLE V
ACCESS TO INFORMATION
---------------------
SECTION 5.01 Access to Information. From and after the Distribution
Date, Commercial Intertech shall afford to CUNO and its Representatives
reasonable access (including using reasonable efforts to give access to Persons
or firms possessing information) and duplicating rights during normal business
hours to all Information within Commercial Intertech's possession or in the
possession of a Commercial Intertech Subsidiary relating to CUNO, any CUNO
Subsidiary, any CUNO Assets or the CUNO Business, insofar as such access is
reasonably required by CUNO or any CUNO Subsidiary. Similarly, CUNO shall
afford to Commercial Intertech and its Representatives reasonable access
(including using reasonable efforts to give access to Persons or firms
possessing Information) and duplicating rights during normal business hours to
Information within CUNO's possession relating to Commercial Intertech or any
Commercial Intertech Subsidiary and insofar as such access is reasonably
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required by Commercial Intertech or any Commercial Intertech Subsidiary.
Information may be requested under this ARTICLE V for, without limitation,
audit, accounting, claims, litigation and tax purposes, as well as for purposes
of fulfilling disclosure and reporting obligations and for performing this
Agreement and the transactions contemplated hereby.
SECTION 5.02 Production of Witnesses. After the Distribution Date,
each of Commercial Intertech and CUNO shall, and shall cause their respective
Subsidiaries to, use reasonable efforts to make available to the other party and
its Subsidiaries, upon written request, its directors, officers, employees and
agents as witnesses to the extent that any such Person may reasonably be
required (giving consideration to business demands of such Representatives) in
connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
SECTION 5.03 Retention of Records. Except as otherwise required by
law or agreed to in writing, each of Commercial Intertech and CUNO shall, and
shall cause each of their respective Subsidiaries to, retain for a period of at
least seven years following the Distribution Date, all significant Information
relating to the business of the other and the other's Subsidiaries. In
addition, after the expiration of such seven-year period, such Information shall
not be destroyed or otherwise disposed of at any time, unless, prior to such
destruction or disposal, (a) the party proposing to destroy or otherwise dispose
of such Information shall provide no less than 30 days' prior written notice to
the other, specifying in reasonable detail the Information proposed to be
destroyed or disposed of and (b) if a recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the Information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the Information as was requested at the
expense of the party requesting, such Information.
SECTION 5.04 Confidentiality. Each of Commercial Intertech and CUNO
shall, and shall cause each of their respective Subsidiaries and Representatives
to, hold, in strict confidence, all material Information concerning the other in
its possession or furnished by the other or the other's Representatives pursuant
to either this Agreement or any Ancillary Agreement (except to the extent that
such Information has been (a) in the public domain through no fault of such
party or (b) later lawfully acquired from other sources by such party), and each
party shall use its best efforts to ensure that such Information shall not be
used to the disadvantage of the other, and shall not release or disclose such
Information to any other Person, except its Representatives, unless compelled to
disclose by judicial or administrative process or, as advised by its counsel, by
other requirements of law.
19
<PAGE>
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.01 Complete Agreement; Construction. This Agreement and the
Ancillary Agreements, including any schedules and exhibits hereto or thereto,
and other agreements and documents referred to herein, shall constitute the
entire agreement between the parties with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter. Notwithstanding any other provisions in this
Agreement to the contrary, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of the
Employee Benefits and Compensation Allocation Agreement or the Tax Allocation
Agreement, the provisions of the Employee Benefits and Compensation Allocation
Agreement or the Tax Allocation Agreement, as appropriate, shall control.
SECTION 6.02 Survival of Agreements. Except as otherwise contemplated
by this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
SECTION 6.03 Expenses. All costs and expenses related to the
Distribution shall be borne solely by Commercial Intertech.
SECTION 6.04 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of laws thereof.
SECTION 6.05 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be delivered by
hand, mailed by registered or certified mail (return receipt requested), or sent
by cable, telegram, telex or telecopy (confirmed by regular, first-class mail),
to the parties at the following addresses (or at such other addresses for a
party as shall be specified by like notice) and shall be deemed given on the
date on which such notice is received:
if to Commercial Intertech:
Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44505
Attention: President
20
<PAGE>
if to CUNO:
CUNO Incorporated
400 Research Parkway
Meridien, Connecticut 06450
Attention: President
SECTION 6.06 Dispute Resolution. Commercial Intertech and CUNO shall each
appoint two members from their managerial staffs to serve on the Dispute
Resolution Committee. The Dispute Resolution Committee shall meet at either
Commercial Intertech's or CUNO's offices, whichever is more appropriate in light
of the issue to be discussed, at such time as either party may demand in
writing, for the purpose of resolving any dispute arising, under this Agreement
or the Ancillary Agreements. If the Dispute Resolution Committee is unable to
resolve any dispute submitted to it by any party hereto within 30 days after
such submission, the Dispute Resolution Committee shall refer the issue to the
Chief Executive Officer of each of Commercial Intertech and CUNO for resolution.
If such officers are unable to resolve such dispute within fifteen days after
referral, such dispute shall be referred to binding arbitration as provided for
in SECTION 6.07. No such dispute shall be the subject of arbitration or other
formal proceeding between the parties hereto before being considered by the
Dispute Resolution Committee and the Chief Executive Officers of Commercial
Intertech and CUNO.
SECTION 6.07 Binding Arbitration.
(a) Any controversy, dispute or claim (whether lying in contract or tort)
between or among the parties arising out of or related to this Agreement or the
Ancillary Agreements shall, after the dispute resolution process set forth in
SECTION 6.06 has been completed, be submitted to arbitration in accordance with
this SECTION 6.07.
(b) Each such controversy, dispute or claim submitted by a party to
arbitration shall be heard by an arbitration panel composed of three
arbitrators, in accordance with the following provisions. Commercial Intertech
and CUNO shall each appoint one arbitrator within fifteen days after the matter
has been submitted to arbitration. The two arbitrators appointed by, or on
behalf of, the parties shall jointly appoint a third arbitrator, who shall act
as Chairman of the arbitration panel. If for any reason an arbitrator is unable
to perform his or her function, he or she shall be replaced and a substitute
shall be appointed in the same manner as the arbitrator replaced.
(c) Except as otherwise stated herein, arbitration proceedings shall be
conducted in accordance with such rules as the parties mutually determine. In
any arbitration proceeding hereunder: (i) proceedings shall, unless otherwise
agreed by the parties, be held in Cleveland, Ohio; (ii) the arbitration panel
shall have no power to award punitive damages and shall be bound by all statutes
of limitation which would otherwise be applicable in a judicial action brought
by a party; and (iii) the decision of a majority of the arbitrators (or the
Chairman if there is no such majority) shall be final and binding on the parties
to this Agreement and shall
21
<PAGE>
be enforceable in any court of competent jurisdiction. The parties hereby waive
any rights to appeal or to review of such decision by any court or tribunal and
also waive any objections to such enforcement. THE PARTIES HEREBY AGREE TO
WAIVE ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY CONTROVERSY, DISPUTE OR
CLAIM SUBMITTED TO ARBITRATION UNDER THIS AGREEMENT.
(d) Notice preliminary to, in conjunction with, or incident to any
arbitration proceeding may be sent to the parties by registered or certified
mail (return receipt requested) at the address set forth in SECTION 6.05 and
personal service is hereby waived. The arbitrators shall award recovery of all
costs and fees incurred in connection with the arbitration and the proceeding,
and obtaining any judgment related thereto, of each disputed matter (including,
reasonable attorney's fees and expenses and arbitrator's fees and expenses and
court costs, in each case, with respect to such disputed matter) to the party
that substantially prevails in the arbitration proceeding with respect to such
disputed matter.
(e) No provision of this SECTION 6.07 shall limit the right of any party to
this Agreement to exercise self-help remedies such as set-off, or to obtain
provisional, equitable or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party
to resort to arbitration.
SECTION 6.08 Amendments. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
SECTION 6.09 Successors and Assigns. The rights under this Agreement
may not be assigned and duties may not be delegated by any party without the
written consent of the other parties, which consent shall not be unreasonably
withheld. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.
SECTION 6.10 Omitted.
SECTION 6.11 No Third Party Beneficiaries. Except for the provisions of
ARTICLE IV relating to Indemnitees and SECTION 3.05(f) relating to directors and
officers, this Agreement is solely for the benefit of the parties hereto and
their respective Affiliates and should not be deemed to confer upon third
parties (including any employee of Commercial Intertech or CUNO or of any
Commercial Intertech Subsidiary or CUNO Subsidiary) any remedy, claim,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
22
<PAGE>
SECTION 6.12 Titles and Headings. Titles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
SECTION 6.13 Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
SECTION 6.14 No Waivers. No failure by any party hereto to take any
action or assert any right hereunder shall be deemed to be a waiver of such
right in the event of the continuation or repetition of the circumstances giving
rise to such right, unless expressly waived in writing by the party against whom
the existence of such waiver is asserted.
SECTION 6.15 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.16 Performance. Each party hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary or Affiliate of
such party.
23
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
COMMERCIAL INTERTECH CORP.
By:
--------------------------------------
Paul J. Powers
Chairman of the Board, Chief Executive
Officer and President
CUNO INCORPORATED
By:
--------------------------------------
Mark G. Kachur
Chief Operating Officer
24
<PAGE>
SCHEDULE 1.02
-------------
Commercial Intertech Guarantees
-------------------------------
<TABLE>
<CAPTION>
COMPANY HOLDER INSTRUMENT
- -------------------------------- ----------------- ---------------------
<S> <C> <C>
CUNO Filtration Asia Pte. Ltd. ABN Amro Guarantee for USD
1,500,000 short-term
credit facility
CUNO K.K. First NBD Guarantee for JPY
800,000,000 short-
term credit facility
and JPY 150,000,000
term loan due to
mature October 31,
2000
CUNO K.K. Sanwa Bank Comfort letter for
JPY 400,000,000
short-term credit
facility
CUNO K.K. The Bank of Tokyo Comfort letter for
JPY 350,000,000
short-term credit
facility and JPY
250,000,000 term
loan due to mature
October 31, 2000
</TABLE>
<PAGE>
SCHEDULE 3.03
-------------
CUNO Board of Directors
-----------------------
<TABLE>
<CAPTION>
NAME POSITION
- --------------------- ----------------------------------
<S> <C>
Paul J. Powers Chairman of the Board of Directors
Mark G. Kachur Director
John M. Galvin Director
Gerald C. McDonough Director
C. Edward Midgley Director
Charles L. Cooney Director
</TABLE>
<PAGE>
EXHIBIT 10.5
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (the "Agreement") dated as of , 1996, between
Commercial Intertech Corp, an Ohio corporation (CIC), and Cuno Incorporated, a
Delaware Corporation (Cuno).
WHEREAS, CIC is currently the common parent of an affiliated group of
corporations (the "Old Company Group") within the meaning of Section 1502 of the
Internal Revenue Code of 1986, as amended (the "Code") filing consolidated,
combined or unitary income tax returns ("Consolidated Returns"), pursuant to
which CIC and one or more other members of the Affiliated Group pay Taxes (as
defined herein) on a consolidated basis ("Consolidated Taxes");
WHEREAS CIC will distribute the stock of Cuno to its shareholders ("Spin-Off"),
in a transaction intended to qualify as a tax-free spin-off under Section 355 of
the Code.
WHEREAS, on the beginning of the first day after the date on which the Spin-Off
occurs (the "Distribution Date"), Cuno and its subsidiaries (collectively, the
"Cuno Group"), will cease to be members of the Old Company Group;
WHEREAS, CIC and Cuno desire to allocate the liability for the Taxes of members
of the Old Company Group for any Tax Period (including short Tax Periods and any
portion of any Tax Period) which period (or portion) ends on or before the
Distribution Date (a "Pre-Distribution Tax Period") among the members of the Old
Company Group in a manner consistent with the tax allocation agreement and
practices of the Old Company Group as in effect on the Distribution Date, and to
provide for certain other tax-related matters;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
The following terms used herein shall have the meanings set forth below (such
terms to be equally applicable to the singular and plural forms of the terms
defined or referred to below):
1.1 "Agreement" shall have the meaning set forth in the recitals to this
Agreement.
1.2 "Code" shall have the meaning set forth in the recitals to this Agreement.
<PAGE>
1.3 "CIC Group" means CIC and any subsidiaries which CIC continues to own
following the Distribution that are eligible to join in a consolidated tax
return with CIC, together with CIC.
1.4 "Consolidated Return" shall have the meaning set forth in the recitals to
this Agreement.
1.5 "Consolidated Group" or "consolidated group" means an affiliated group of
corporations filing a consolidated federal income tax return, as defined in
Treasury Regulation Section 1.1502-1 (h).
1.6 "Distribution Date" shall have the meaning set forth in the recitals to
this Agreement.
1.7 "Income Taxes" means any and all Taxes based upon or measured by net income
(including, without limitation, any alternative minimum tax under Section 55 of
the Code) imposed by or payable to the U.S., or any state, county, local or
foreign government or any subdivision or agency thereof, and such term shall
include any interest (whether paid or received), penalties or additions to tax
attributable thereto.
1.8 "Income Tax Liabilities" means all liabilities for Income Taxes net of
refunds, net of refunds including liabilities for Income Taxes assumed by a
party pursuant to a contract.
1.9 "Indemnified Party" means the party that is entitled to indemnification by
another party pursuant to this Agreement.
1.10 "Indemnifying Party" means the party that is required to indemnify another
party pursuant to this Agreement.
1.11 "Independent Accounting Firm" means a "big six" independent accounting
firm, jointly selected by the parties; or, if the parties cannot agree on such
accounting firm, Cuno and CIC shall each submit the name of a "big six"
independent accounting firm that does not at the time and has not in the prior
two years provided services to any member of the Cuno Group or the CIC Group,
and the "Independent Accounting Firm" shall mean the firm selected by lot from
these two firms.
1.12 "Information Return" means any report, return, declaration or other
information or filing (other than a Tax Return) required to be supplied to any
taxing authority or jurisdiction.
<PAGE>
1.13 "Cuno Group" shall have the meaning set forth in the recitals to this
Agreement.
1.14 "Material Tax Election" means any election, change in annual accounting
period, change or adoption of any accounting method, filing of any amended Tax
Return, entering into any closing agreement, settlement of any Tax claim or
Proceeding relating to any member of the Old Company Group or the Cuno Group,
surrender of any right to claim a Refund, or consent to any extension or waiver
of the limitation period applicable to any Tax claim or assessment.
1.15 "Old Company Group" shall have the meaning set forth in the recitals to
this Agreement.
1.16 "Other Taxes" means all Taxes other than Income Taxes.
1.17 "Overpayment Rate" means the rate specified under Section 6621 (a) (1) of
the Code for overpayments of tax.
1.18 "Post-Distribution Tax Period" means any Tax Period ending after the
Distribution Date (other than "Pre-Distribution Tax Period" below).
1.19 "Pre-Distribution Tax Period" shall have the meaning set forth in the
recitals to this Agreement.
1.20 "Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for or refunds or adjustments
with respect to Taxes.
1.21 "Property Taxes" shall have the meaning set forth in Section 3.2 (a) (I) of
this Agreement.
1.22 "Refund" means any refund of Income Taxes or Other Taxes, including any
reduction in liabilities for such taxes.
1.23 "Short Period" shall have the meaning set forth in Section 3.1 (a) of this
Agreement.
1.24 "Spin-Off" shall have the meaning set forth in the recitals to this
Agreement.
1.25 "Tax Period" means any twelve month period which constitutes the taxable
year of a party hereto.
<PAGE>
1.26 "Tax Return" means any report, return, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Income Taxes or Other Taxes, including, without limitation, any
documents with respect to or accompanying payments of estimated Income Taxes or
Other Taxes, or with respect to or accompanying requests for the extension of
time in which to tile any such report, return, declaration or other document.
1.27 "Taxes" means any Income Taxes and all taxes, levies or other like
assessments, charges or fees, including, without limitation, any excise, real or
personal property, gains, sales, use, license, real estate or personal property
transfer, net worth, stock transfer, payroll, ad valorem and other governmental
taxes and any withholding obligation imposed by or payable to the U.S., or any
state, county, local or foreign government or subdivision or agency thereof, and
any interest (whether paid or received), penalties or additions to tax
attributable thereto.
1.28 "Taxing Authorities" means any governmental authority which imposes, or is
responsible for the imposition of a Tax.
1.29 "Transfer" means any transfer of assets by a member of the Old Company
Group which occurs in contemplation of or to effectuate the Spinoff and which
may give rise to deferred intercompany gain or gain pursuant to Code section
311(b).
1.30 "Distribution" shall mean the distribution of Cuno stock to the
shareholders pursuant to the spin-off described in the Recitals to this
Agreement.
1.31 "Transfer and Distribution Taxes" means any Taxes imposed or assessed
against any member of the Old Company Group, the CIC Group or the Cuno Group,
attributable to or occasioned by, the Transfer described in 1.29 and/or a
Distribution described in 1.30 above.
<PAGE>
ARTICLE II
TERMINATION OF PRIOR TAX SHARING AGREEMENTS
Termination of Prior Tax Sharing Agreement. This AGREEMENT shall take
effect on the Distribution Date and shall supersede all other agreements,
whether or not written in respect of any Taxes between the Cuno Group and the
CIC Group their respective predecessors or successors, except to the extent
necessary to effectuate section 4.1 and section 5.1 of this Agreement with
respect to the Cuno Group and the CIC Group. All such replaced agreements shall
terminate as of the Distribution Date, and any rights or obligations created
thereunder thereby shall be settled in the normal course.
ARTICLE III
RETURN PREPARATION, FILING AND PAYMENT OF TAXES
3.1 Control of Tax Matters.
(a) Return Preparation and Filing.
(i) Pre-Distribution Tax period. Cuno hereby irrevocably designates, and
agrees to cause each of its subsidiaries to so designate, CIC as its agent to
take any and all actions, necessary or incidental to the preparation of
Consolidated Returns and the filing of such Consolidated Returns and claims for
Refunds or forms relating to any Pre-Distribution Tax period.
(ii) Short Period. For any Tax Period that begins prior to the Distribution
Date and ends on the Distribution Date (a "Short Period") of CIC or any of its
subsidiaries that was a member of the Old Company Group for any Pre-Distribution
Tax Period, CIC will timely prepare and file (in a manner consistent with past
practice of CIC, unless CIC reasonably determines that such practice is
inconsistent with the then existing state of the law) with the appropriate
Taxing Authorities all Consolidated Returns required to be filed for such Short
Period.
(iii) Separate Company Returns. Each Company that was a member of the Old
Company Group shall be responsible for filing all of its Tax Returns for the Tax
Period which includes the Distribution Date, other than any Consolidated Federal
Income Tax Returns for Short Periods.
<PAGE>
3.2 Cooperation and Record Retention.
(a) CIC and Cuno agrees to cooperate fully, and will cause each of their
subsidiaries to so cooperate, in a timely manner consistent with existing
practice in filing any return or consent contemplated by this Agreement. CIC
and Cuno also agree to take, and will cause the appropriate subsidiary to
take, such action or actions as CIC or Cuno may reasonably request, including
but not limited to the filing of requests for the extension of time within which
to file Consolidated Returns, and to cooperate in connection with any refund
claim with respect to any Pre-Distribution Tax Period. CIC and Cuno further
agree to furnish timely, and to cause each of their subsidiaries to so furnish
CIC or Cuno with any and all information reasonably requested in order to carry
out the provision of this Agreement. Without limiting the generality of the
foregoing sentence, CIC and Cuno specifically agree to provide each other
promptly, but in any event within 10 days of receipt thereof, copies of any
correspondence or notices received from the Internal Revenue Service of any
other Taxing authority with respect to any Consolidated Return of the Old
Company Group for a Pre-Distribution Tax Period.
(b) CIC and Cuno shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with any Proceeding. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
Proceeding, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. CIC and Cuno agree (i) to retain all books and records with respect
to tax matters pertinent to the Old Company Group and the Cuno Group relating to
any Pre-Distribution Tax Period, and to abide by all record retention agreements
entered into with any Taxing Authority, and (ii) to give the other party
reasonable written notice prior to destroying or discarding any such books and
records and, if the other party so requests, CIC or Cuno as the case may be,
shall allow the requesting party to take possession of such books and records.
CIC and Cuno further acknowledge and agree that any such books and records
necessary to establish the amount of any loss or tax credit carry forward shall
be retained until the expiration of the statute of limitations in respect of the
year in which such loss or tax credit carry foward are utilized to reduce
taxable income, or tax.
<PAGE>
ARTICLE IV
REFUNDS AND CONTESTS
4.1 Refunds of Income Taxes or Other Taxes. The Cuno Group shall be entitled to
all Refunds attributable to the Cuno Group, and the CIC Group shall be entitled
to all Refunds attributable to the CIC Group or the Old Company Group (other
than those attributable to the Cuno Group). For this purpose, Refunds
attributable to the Cuno Group shall mean Refunds determined pursuant to the
prior tax sharing agreement and practices between CIC and Cuno. Refunds
attributable to the Old Company Group shall mean Refunds determined pursuant to
such tax sharing agreement and practices (other than those attributable to the
Cuno Group). A party receiving a Refund to which another party is entitled
pursuant to this Agreement shall pay the amount to which such other party is
entitled within ten days after the receipt of the Refund.
4.2 Contests.
(a) Except as provided below, in the event that any deficiencies or Refund
claims arise with respect to an Income Tax Liability with respect to any
Consolidated Return of the Old Company Group for a Pre-Distribution Tax Period
except as provided below, CIC shall control all Proceedings with respect
thereto. In the event that any issue or issues are raised during such
Proceedings that may result, directly or indirectly, in deficiencies or refund
claims related to Taxes that would be required to be paid by Cuno pursuant to
this Agreement, both Cuno and CIC agree and acknowledge that the contest of any
such issue or issues shall be conducted jointly. With respect to such joint
contests, neither party shall have the right to accept or enter into the
settlement of any Tax liability, or compromise any Tax claim to the extent such
liability or claim relates to an item for which the other party has indemnity
liability hereunder, without the prior written consent of the other party (which
consent shall not be unreasonably withheld).
CIC's right to indemnity hereunder shall be conditioned on compliance with this
Agreement. CIC shall be required to give notice to Cuno upon the receipt of oral
or written notice from any governmental authority or agent thereof of an issue
that may result in Taxes for which a claim for indemnity from Cuno may be made,
under this Agreement. Cuno agrees to pay its own expenses incurred in connection
with its participation in any such Proceedings.
(b) Cuno and CIC agree to cooperate in all reasonable respects with respect to
Tax deficiencies or Refund claims described in Section 4.2 of this Agreement,
which cooperation shall include executing and filing such waivers, consents,
forms court petitions, refund claims, complaints, powers of attorney and other
documents needed from time to time in order to defend, prosecute or resolve such
deficiencies or claims.
<PAGE>
ARTICLE V
INDEMNIFICATION FOR TAXES
5.1 Cuno Group and Cuno Group Income Taxes. The Cuno Group shall pay, and shall
indemnify and hold the CIC Group harmless against (i) all Income Tax Liabilities
of any member of the Cuno Group for all Tax Periods (Including Tax Periods or
portions thereof during which any member of the Cuno Group was a member of the
Old Company Group but excluding all Income Tax Liabilities arising from the
Transfer and Distribution as provided for in Section 5.3 hereof) and (ii) all
Income Tax Liabilities incurred pursuant to Treasury Regulation Section 1.1502-6
or any comparable state, local or other provision providing for several
liabilities as a result of any member of the Cuno Group having been a member of
any consolidated, combined, unitary or other group (other than the Old Company
Group). For purposes of clause (i) of this section 5.1, the Income Tax
Liabilities of any member or members of the Cuno Group for any Pre-Distribution
Tax Period shall be determined pursuant to the prior tax sharing agreement and
practices between CIC and Cuno.
5.2 CIC Group and CIC Group Income Taxes. The CIC Group shall pay, and shall
indemnify and hold the Cuno Group harmless against, (i) all Income Tax
Liabilities of any member of the Old Company Group (other than Income Tax
Liabilities of any member of the Cuno Group for any Tax Period) but excluding
all Income Tax Liabilities arising from the Transfer and Distribution as
provided for in Section 5.3 hereof and (ii) all Income Tax Liabilities incurred
pursuant to Treasury Regulation Section 1.1502-6 or any comparable state, local
or other provision providing for several liabilities as a result of any member
of the Old Company Group or the CIC Group (other than any member of the Cuno
Group) having been a member of any other consolidated, combined, unitary or
other group. For purposes of clause (i) of this section 5.2, the Income Tax
Liabilities of any member or members of the Old Company Group for any Pre-
Distribution Tax Period shall be determined pursuant to the prior tax sharing
agreement and practices between CIC and Cuno.
5.3 Transfer and Distribution Taxes.
(a) Cuno shall pay, indemnify and hold the CIC Group harmless from any Transfer
and Distribution Taxes other than Income Taxes attributable to (i) the
restoration of deferred intercompany gain under the United States consolidated
income tax return regulations or (ii) recognition of gain pursuant to Code
section 311(b).
<PAGE>
(b) Any Income Tax solely attributable to failure of Distribution to qualify
under Section 355 (hereafter "Spin-Off Taxes") shall be allocated and
apportioned as described in Sections 5(b)(i), (ii), and (iii) below. CIC and
Cuno acknowledge and agree that in determining the proper amount of working
capital required by each group after the Spin-Off, it is intended by the parties
to have the Spin-Off qualify for tax-free treatment under Code sections
368(a)(1)(D) and 355 (i.e., a "Tax-Free Spin-Off"). Therefore, it is
contemplated and agreed that neither CIC nor Cuno nor their respective
shareholders will take any action that will cause the Spin-Off to fail to
qualify for favorable tax treatment under Code sections 368(a)(1)(D) and 355
(i.e., a "Taxable Spin-Off). In the event that the Spin-Off is ultimately
determined to be a Taxable Spin-Off, it is possible that CIC will incur Spin-Off
Taxes, which taxes shall be allocated and apportioned as follows:
(i) If the Spin-Off Taxes are incurred due to a change of control, the
Group undergoing such change of control shall pay, indemnify and hold
the other Group harmless from all Spin-Off Taxes.
(ii) If the Spin-Off Taxes are incurred due to either CIC or Cuno breaching
any of the representation or covenants with respect to the Spin-Off,
any Spin-Off Taxes shall be paid by and the responsibility of the
breaching party.
(iii) If the Spin-Off Taxes are incurred for any reason other than (i) or
(ii) above, Cuno and CIC will each pay, indemnify, and hold harmless
the other party, for 50% of such taxes.
Since it is contemplated by the parties that the working capital requirements of
The Cuno Group and The CIC Group will be affected by the payment of any Spin-Off
Taxes, and that such working capital would be apportioned differently if the
Spin-Off Taxes were anticipated before the Spin-Off, it is agreed that any
payment or indemnification made pursuant to this section relating to Spin-Off
Taxes as well as other Transfer and Distribution Taxes, shall, for Income Tax
purposes, relate back and be deemed to have been paid immediately prior to the
Spin-Off. In the event that the Indemnified Party is required to pay Income
Taxes on the receipt of indemnification for the Spin-Off Taxes, the Indemnifying
Party shall further compensate the Indemnified Party by making an additional
payment (i.e., a "Gross-up Payment") equal to the Income Tax on the sum of (A)
the indemnification for the Spin-Off Taxes and (B) the Gross-up Payment, such
that the Indemnified Party will be made whole on an after tax basis for the
amounts received pursuant to this Section 5. For purposes of calculating the
required Gross-up payment, the highest United States federal marginal income tax
rate in the year of payment plus 4% shall be used.
<PAGE>
5.4 Other Taxes. (a) The CIC Group shall pay, and shall indemnify and hold
the Cuno Group harmless against, all liabilities for all Other Taxes
attributable to the income, property or activities of any member of the Old
Company Group or the CIC Group (other than, in both cases, a member of the Cuno
Group). Except as provided in the preceding sentence, the Cuno Group shall pay,
and shall indemnify and hold the CIC Group harmless against, all liabilities for
all Other Taxes attributable to the income, property or activities of any member
of the Cuno Group.
(b) To the extent that the Indemnifying Party is required to indemnify another
party pursuant to this Article V, the Indemnifying Party shall pay to the
Indemnifying Party, no later than 10 days prior to the due date of the relevant
Tax Return or estimated Tax Return or 10 days after the Indemnifying Party
received the Indemnified Party's calculations, whichever occurs later, the
amount that the Indemnifying Party is required to pay the Indemnified Party.
The Indemnified Party shall submit its calculations of the amount required to be
paid pursuant to this Article V, showing such calculations in sufficient detail
so as to permit the Indemnifying Party to understand the calculations. If the
Indemnifying Party disagrees with such calculations, it must notify the
Indemnified Party of its disagreement in writing within 15 days of receiving
such calculations. Any dispute regarding such calculations shall be resolved in
accordance with this Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1 Computations.
Other than determinations of whether there are any indemnity obligations under
this Agreement, all computations or recomputations of Income Tax Liability and
all determinations, computations or recomputations of any amount or any payment
(including, but not limited to, computations of the amount of the Income Tax
Liability, the amount or effect of any loss, credit or deduction, the effect of
a Federal statutory Tax rate change for a taxable year, and the amount of any
interest, penalties or additions imposed with respect to any Income Tax) with
respect to any Consolidated Return shall be prepared by the CIC and submitted to
Cuno for its written approval. Any disagreement as to such computations after
submission to Cuno by CIC shall be resolved by an Independent Accounting Firm.
6.2 Offsets.
No payment shall be required to be made by either party to the other pursuant to
this Agreement to the extent that there is an amount then due and payable under
this Agreement to the party that is to make such payment.
<PAGE>
6.3 Assignment.
Neither this Agreement nor any of the rights, interest or obligations under this
Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable to, the parties hereto and
their respective successors and assigns.
6.4 Survival.
The provisions of this Agreement shall remain in full force until all periods of
limitations, including any extensions or waiver periods, for all Tax Periods of
CIC and Cuno prior to or including the date of the distribution have expired.
6.5 Notices.
Any notices, payments or other communications required by this Agreement shall
be made to the Chief Executive Officer of the Cuno Group and the CIC Group.
Copies of such notices, payments or other communications shall also be sent to
the attention of the director of taxes of the Cuno Group and the CIC Group.
6.6 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Ohio.
6.7 Entire Agreement.
This Agreement (a) constitutes the entire agreement and supersedes all prior
agreement and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) is not intended to
confer upon any person other than the parties hereto any rights or remedies.
The parties agree that to the extent the provision of any other agreements
executed in connection with the Spin-Off are inconsistent with the provisions
hereof, the provisions of the Agreement shall prevail.
6.8 Severability.
If any provision of this Agreement or the application of any such provision to
any person circumstances shall be held invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof.
<PAGE>
6.9 Headings.
The headings of the sections of this Agreement are inserted for convenience only
and shall not constitute a part thereof or affect in any way the meaning or
interpretation of this Agreement.
6.10 Counterparts.
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
EXHIBIT 10.6
EMPLOYEE BENEFITS COMPENSATION
ALLOCATION AGREEMENT
between
Commercial Intertech Corp.
and
CUNO Incorporated
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - DEFINITIONS ...................................... 1
SECTION 1.01 General .................................. 1
ARTICLE II - EMPLOYEE BENEFITS ............................ 4
SECTION 2.01 Base Retirement Plan ..................... 4
SECTION 2.02 The Retirement Savings Plans ............. 5
SECTION 2.03 Welfare Plans ............................ 6
SECTION 2.04 Stock Plans .............................. 6
SECTION 2.05 Nonqualified Plans and Programs .......... 8
SECTION 2.06 Severance Pay ............................ 9
SECTION 2.07 Employment Agreements .................... 9
SECTION 2.08 Other Liabilities and Obligations ........ 9
SECTION 2.09 Recognition of Commercial Intertech
Employment Service, etc. ................. 9
SECTION 2.10 Plan Audits .............................. 9
SECTION 2.11 Indemnification .......................... 10
ARTICLE III - MISCELLANEOUS .................................. 10
SECTION 3.01 Guarantee of Subsidiaries' Obligations ... 10
SECTION 3.02 Failure of Commercial Intertech and CUNO
To Agree on Certain Determinations ....... 10
SECTION 3.03 Sharing of Information ................... 11
SECTION 3.04 Governing Law ............................ 11
SECTION 3.05 Notices .................................. 11
SECTION 3.06 Amendments ............................... 11
SECTION 3.07 Successors and Assigns ................... 12
SECTION 3.08 Termination .............................. 12
SECTION 3.09 Rights to Amend or Terminate Plans; No
Third Party Beneficiaries ................ 12
SECTION 3.10 Titles and Headings ...................... 12
SECTION 3.11 Legal Enforceability ..................... 12
</TABLE>
<PAGE>
EMPLOYEE BENEFITS AND COMPENSATION
ALLOCATION AGREEMENT
EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION AGREEMENT, dated as of
__________________, 1996, by and between COMMERCIAL INTERTECH CORP., an Ohio
corporation ("Commercial Intertech"), and CUNO INCORPORATED, a Delaware
corporation and, as of the date hereof, a wholly-owned subsidiary of Commercial
Intertech ("CUNO").
WHEREAS, the Commercial Intertech Board has determined that it is
appropriate and desirable to distribute all outstanding shares of CUNO Common
Stock (as defined herein) on a pro rata basis to the holders of Commercial
Intertech Common Stock (the "Distribution"); and
WHEREAS, Commercial Intertech and CUNO are entering into a Distribution and
Interim Services Agreement of even date herewith (the "Distribution Agreement"),
which, among other things, sets forth the principal corporate transactions
required to effect the Distribution and sets forth other agreements that will
govern certain other matters following the Distribution; and
WHEREAS, in connection with the Distribution, Commercial Intertech and CUNO
desire to provide for the allocation of assets and liabilities and other matters
relating to employee benefit plans and compensation arrangements.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I - DEFINITIONS
-----------
SECTION 1.01 General. Any capitalized terms that are used in this
Agreement but not defined herein (other than the names of Commercial Intertech
employee benefit plans) shall have the meanings set forth in the Distribution
Agreement, and as used herein, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Audit Liability: defined in Section 2.10(a).
---------------
Base Retirement Plan Assumption Date: defined in Section 2.01(a).
------------------------------------
Cash Incentive Plans: defined in Section 2.05(a).
--------------------
Common Non-Employee Director: defined in Section 2.04(c)(i).
----------------------------
Commercial Intertech Base Retirement Plan: the Pension Plan for Salaried
-----------------------------------------
Employees of Commercial Intertech Corp.
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Commercial Intertech Director Option: an option to purchase from
Commercial Intertech shares of Commercial Intertech Common Stock granted to a
non-employee director of Commercial Intertech pursuant to the Commercial
Intertech Corp. Director Stock Plan.
Commercial Intertech Employee: any individual who is employed by
Commercial Intertech or any of its subsidiaries immediately before the Cut-off
Date and who is not a CUNO Employee.
Commercial Intertech Option: an option to purchase shares of Commercial
Intertech Common Stock granted pursuant to the Commercial Intertech Stock Plan.
Commercial Intertech Performance Shares: a right granted under a
Commercial Intertech Stock Plan to receive from Commercial Intertech a payment
in Commercial Intertech Common Stock based upon satisfaction of certain
performance criteria.
Commercial Intertech Ratio: the amount obtained by dividing the average of
the daily high and low trading prices on the New York Stock Exchange for the
Commercial Intertech Common Stock on each of the five trading days prior to the
ex-dividend date for the Distribution by the average of the daily high and low
trading prices on the New York Stock Exchange for the Commercial Intertech
Common Stock on each of the five trading days beginning with the ex-dividend
date for the Distribution.
Commercial Intertech Restricted Stock: restricted shares of Commercial
Intertech Common Stock granted pursuant to a Commercial Intertech Stock Plan.
Commercial Intertech Retirement Savings Plans: the Commercial Intertech
Retirement Stock Ownership and Savings Plan and the Commercial Intertech
Employee Stock Ownership Plan.
Commercial Intertech Stock Plan: the Commercial Intertech Corp. Stock
Option and Award Plan of 1989, the Commercial Intertech Corp. Stock Option and
Award Plan of 1993, and the Commercial Intertech Corp. Stock Option and Award
Plan of 1995.
Commercial Intertech Supplemental Plan: the Commercial Intertech
Supplemental Executive Retirement Plan and the Supplemental Executive Retirement
Plan for Michael Croft.
Commercial Intertech Welfare Plan: a Welfare Plan sponsored by Commercial
Intertech or a Commercial Intertech Subsidiary.
CUNO Base Retirement Plan: a Qualified Plan of CUNO established pursuant
to Section 2.01.
CUNO Director Option: an option to purchase from CUNO shares of CUNO
Common Stock provided to a Common Non-Employee Director or a CUNO Non-Employee
Director pursuant to Section 2.04(c).
2
<PAGE>
CUNO Employee: any individual who, immediately before the Cut-off Date,
was employed by Commercial Intertech or any of its subsidiaries (including CUNO
and the CUNO Subsidiaries) and who, on or immediately after the Cut-off Date, or
otherwise in connection with the Distribution, is employed by CUNO or a CUNO
Subsidiary.
CUNO Former Employee: any individual who was, at any time before the Cut-
off Date, employed by any member of the Pre-Distribution Group, who is not a
Commercial Intertech Employee or a CUNO Employee, and whose most recent active
employment with any such member was with a CUNO Business or a Former CUNO
Business.
CUNO Non-Employee Director: defined in Section 2.04(c)(i).
CUNO Option: an option to purchase from CUNO shares of CUNO Common Stock
provided to a CUNO Participant pursuant to Section 2.04(a).
CUNO Participants: CUNO Employees, CUNO Former Employees, and their
respective beneficiaries and dependents.
CUNO Performance Shares: a right to receive from CUNO payment in CUNO
Common Stock based upon the satisfaction of certain performance criteria.
CUNO Qualified Plan: a Qualified Plan sponsored by CUNO or a CUNO
Subsidiary.
CUNO Restricted Stock: restricted shares of CUNO Common Stock provided to
CUNO Participants pursuant to Section 2.04(b).
CUNO Retirement Savings Plan: a Qualified Plan of CUNO established
pursuant to Section 2.02.
CUNO Stock Plan: CUNO Incorporated 1996 Stock Incentive Plan.
CUNO Supplemental Plan: defined in Section 2.05(b).
CUNO Welfare Plan: a Welfare Plan sponsored by CUNO or a CUNO Subsidiary.
Distribution Date: the date determined by the Commercial Intertech Board
on which the Distribution shall be effected.
Enrolled Actuary: an enrolled actuary or other party making actuarial or
similar determinations pursuant to this Agreement with respect to assets or
liabilities relating to a particular employee benefit plan selected by
Commercial Intertech with the approval of CUNO, which approval shall not be
unreasonably withheld.
Pre-Distribution Group: Commercial Intertech and its present and former
subsidiaries, and their respective present and former affiliates (including
without limitation CUNO and its subsidiaries).
3
<PAGE>
Qualified Plan: an "employee pension benefit plan" as defined in Section
3(2) of ERISA which constitutes or is intended in good faith to constitute a
qualified plan under Section 401(a) of the Code.
Ratio: the amount obtained by dividing the average of the daily high and
low trading prices on the New York Stock Exchange for the Commercial Intertech
Common Stock on each of the five trading days prior to the ex-dividend date for
the Distribution by the average of the daily high and low trading prices on the
NASDAQ National Market for the CUNO Common Stock on each of the five trading
days beginning with the ex-dividend date for the Distribution.
Retirement Savings Plans Effective Date: defined in Section 2.02(a).
Transition Period: defined in Section 2.02(a).
Welfare Plan: an "employee welfare benefit plan" as defined in Section
3(l) of ERISA (whether or not such plan is subject to ERISA).
SECTION 1.02 Schedules, Etc. Reference to a "Schedule" are, unless
otherwise specified, to one of the Schedules attached to this Agreement, and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
ARTICLE II - EMPLOYEE BENEFITS
-----------------
SECTION 2.01 Base Retirement Plan. (a) As soon as practicable after the
date hereof and effective as of a date (the "Base Retirement Plan Assumption
Date") on or before the Distribution Date, CUNO shall establish the CUNO Base
Retirement Plan and a related trust to assume liabilities of and receive the
offer of assets from the Commercial Intertech Base Retirement Plan provided for
in this Section 2.01. As of the Base Retirement Plan Assumption Date, the CUNO
Participants shall cease to be participants in the Commercial Intertech Base
Retirement Plan and shall become participants (to the extent they are eligible)
in the CUNO Base Retirement Plan.
(b) Commercial Intertech shall direct the trustee of the trust funding the
Commercial Intertech Base Retirement Plan to transfer to the trustee of the
trust funding the CUNO Base Retirement Plan, in cash, securities, other property
or a combination thereof, as agreed by Commercial Intertech and CUNO, an amount
equal to (X) less (Y), as adjusted by (Z); where (X) equals that portion of such
assets of the Commercial Intertech Base Retirement Plan which represents the
minimum amount of assets necessary to satisfy the requirements of Section 414(1)
of the Code and Section 4044 of ERISA; where (Y) equals the aggregate payments
made from the trust relating to the Commercial Intertech Base Retirement Plan in
respect of such participants who are CUNO Participants from the Base Retirement
Plan Assumption Date through the date the transfer occurs; and where (Z) equals
the amount of the net earnings or losses, as the case may be, from the Base
Retirement Plan Assumption Date through the date the transfer occurs, on the
average of the daily balances of the foregoing and based upon the actual rate of
return earned by the Commercial Intertech Base Retirement Plan during such
period. All of the foregoing calculations shall be determined by the Enrolled
Actuary.
4
<PAGE>
(c) CUNO and Commercial Intertech shall, in connection with the transfer
described in this Section 2.01, cooperate in making any and all appropriate
filings required under the Code or ERISA, and the regulations thereunder and any
applicable securities laws, implementing all appropriate communications with
participants, transferring appropriate records, and taking all such other
actions as may be necessary and appropriate to implement the provisions of this
Section 2.01 and to cause such transfer to take place as soon as practicable
after the Base Retirement Plan Assumption Date; provided, however, that such
transfer shall not take place until as soon as practicable after the receipt of
an opinion of CUNO's counsel satisfactory to Commercial Intertech's counsel to
the effect that the CUNO Base Retirement Plan is in form qualified under Section
401(a) of the Code and the related trust is in form exempt under Section 501(a)
of the Code. Commercial Intertech agrees to provide to CUNO's counsel such
information in the possession of Commercial Intertech or any Commercial
Intertech Subsidiary as may be reasonably requested by CUNO's counsel in
connection with the issuance of such opinion. Commercial Intertech agrees,
during the period ending with the date of the transfer of assets to the CUNO
Base Retirement Plan, to cause distributions in respect of participants who are
CUNO Participants to be made in the ordinary course from the trust funding the
Commercial Intertech Base Retirement Plan in accordance with applicable law and
pursuant to plan provisions.
(d) Except as specifically set forth in this Section 2.01 and Section 2.10,
upon the completion of the transfer of assets provided for herein, effective as
of the Base Retirement Plan Assumption Date, CUNO, the CUNO Subsidiaries and the
CUNO Base Retirement Plan shall assume, and shall be solely responsible for, all
Liabilities of the Pre-Distribution Group to or with respect to CUNO
Participants under the Commercial Intertech Base Retirement Plan. CUNO, the
CUNO Subsidiaries and the CUNO Base Retirement Plan shall be solely responsible
for all Liabilities arising out of or relating to the CUNO Base Retirement Plan.
SECTION 2.02 The Retirement Savings Plans. (a) As soon as practicable
after the date hereof and effective as of a date (the "Retirement Savings Plans
Effective Date") on or before the Distribution Date, CUNO shall establish the
CUNO Retirement Savings Plan and a related trust to receive any eligible
rollover distributions as defined in Section 402(c)(4) of the Internal Revenue
Code of 1986, as amended ("Eligible Transfer") from the Commercial Intertech
Retirement Savings Plans. On and after the Retirement Savings Plans Effective
Date, CUNO shall cause contributions by or in respect of CUNO Participants to
the CUNO Retirement Savings Plan to be held by the trustee of the CUNO
Retirement Savings Plan. On and after the Retirement Savings Plans Effective
Date, distributions in respect of CUNO Participants shall be made from the
Commercial Intertech Retirement Savings Plans in accordance with applicable law
and pursuant to plan provisions. As of the Retirement Savings Plans Effective
Date, CUNO Participants shall be treated as terminated participants under such
plan and cease to be participants in the Commercial Intertech Retirement Savings
Plans (except to the extent of an account balance) and shall, to the extent they
are eligible, become participants in the CUNO Retirement Savings Plan.
(b) CUNO shall deliver to Commercial Intertech, prior to the implementation
of an Eligible Transfer, an opinion of CUNO's counsel satisfactory to Commercial
Intertech's counsel to the effect that the CUNO Retirement Savings Plan is in
form qualified under Section 401(a) of the Code and the related trust is in
form exempt under Section 501(a) of the Code.
5
<PAGE>
(c) Except as specifically set forth in this Section 2.02 and Section 2.10,
upon the completion of each Eligible Transfers provided for herein, CUNO, the
CUNO Subsidiaries and the CUNO Retirement Savings Plan shall assume or retain,
as the case may be, and shall be solely responsible for, all Liabilities of the
Pre-Distribution Group to or with respect to CUNO Participants who have elected
an Eligible Transfer under the Commercial Intertech Retirement Savings Plans.
CUNO, the CUNO Subsidiaries and the CUNO Retirement Savings Plan shall be solely
responsible for all Liabilities arising out of or relating to the CUNO
Retirement Savings Plan.
SECTION 2.03 Welfare Plans. CUNO shall take, and shall cause the CUNO
Subsidiaries to take, all actions necessary or appropriate to establish, on or
before the Distribution Date, CUNO Welfare Plans to provide each CUNO
Participant with benefits without gain or loss which are substantially similar
to the benefits provided to him or her under the Commercial Intertech Welfare
Plans. From and after the Distribution Date, except as specifically set forth
in Section 2.10, the CUNO Welfare Plans, CUNO and the CUNO Subsidiaries shall
assume or retain, as the case may be, and shall be solely responsible for, all
Liabilities of the Pre-Distribution Group in connection with claims by or in
respect of CUNO Participants for benefits under the Commercial Intertech Welfare
Plans and the CUNO Welfare Plans, whether incurred before, on or after the
Distribution Date. Commercial Intertech agrees to provide CUNO or its
designated representative with such information (in the possession of Commercial
Intertech or a Commercial Intertech Subsidiary and not already in the possession
of CUNO or a CUNO Subsidiary) as may be reasonably requested by CUNO in order to
carry out the requirements of this Section 2.03. On and after the Distribution
Date, CUNO participants shall be treated as terminated participants under the
Commercial Intertech Welfare Plans and shall cease to be a participant under the
Commercial Intertech Welfare Plans.
SECTION 2.04 Stock Plans. (a) Commercial Intertech and CUNO shall take all
action necessary or appropriate (including obtaining the consent of the holders
of Commercial Intertech Options and Commercial Intertech Performance Shares, if
required) so that each Commercial Intertech Option and Commercial Intertech
Performance Share held by a CUNO Participant that is outstanding as of the
Distribution Date shall be replaced with a CUNO Option or a CUNO Performance
Share, as the case may be, with respect to a number of shares of CUNO Common
Stock equal to the number of shares subject to such Commercial Intertech Option
or Commercial Intertech Performance Share, as the case may be, immediately
before such replacement, times the Ratio, and then, if any resultant fractional
share of CUNO Common Stock exists, rounded [up] [down] to the nearest whole
share, and with a per-share exercise price equal to the per-share exercise price
of such Commercial Intertech Option immediately before such replacement, divided
by the Ratio. Such CUNO Option shall otherwise have the same terms and
conditions as the corresponding Commercial Intertech Option, except that
references to Commercial Intertech shall be changed to refer to CUNO. Such CUNO
Performance Share shall be subject to the performance standards as may be
established by the Committee pursuant to the terms of the CUNO Stock Plan.
(b) Commercial Intertech and CUNO shall take all action necessary
(including obtaining the consent of the holders of Commercial Intertech
Restricted Stock, if necessary) so that each award of Commercial Intertech
Restricted Stock held by a CUNO Participant (including any CUNO Common Stock
issued in the Distribution with respect thereto) that is
6
<PAGE>
outstanding as of the Distribution Date is converted into an award of a number
of shares of CUNO Restricted Stock such that the sum of such number and the
number of shares of CUNO Common Stock issued in the Distribution with respect to
such Commercial Intertech Restricted Stock equals the number of shares of
Commercial Intertech Restricted Stock comprising such award immediately before
the Distribution Date, times the Ratio, and then, if any resultant fractional
share of CUNO Common Stock exists, rounded [up] [down] to the nearest whole
share. Such converted award shall be subject to the same schedule with respect
to the lapse of restrictions and the same risks of forfeiture as the
corresponding Commercial Intertech Restricted Stock immediately before such
conversion, and shall otherwise have the same terms and conditions as the
corresponding Commercial Intertech Restricted Stock, except that references to
Commercial Intertech shall be changed to references to CUNO.
(c) (i) Commercial Intertech and CUNO shall take all action necessary or
appropriate (including obtaining the consent of the holders of Commercial
Intertech Director Options, if required) so that each Commercial Intertech
Director Option held by an individual who is a non-employee member of the Board
of Directors of both CUNO and Commercial Intertech (a "Common Non-Employee
Director") and each Commercial Intertech Director Option held by an individual
who is a nonemployee member of the Board of Directors of CUNO but is not a
member of the Board of Directors of Commercial Intertech (a "CUNO Non-Employee
Director") that is outstanding as of the Distribution Date shall be replaced as
set forth below.
(ii) Each such Commercial Intertech Director Option held by a Common Non-
Employee Director shall be replaced with (i) a CUNO Director Option and (ii) a
new Commercial Intertech Director Option, in each case as more fully described
below. Such CUNO Director Option shall constitute an option to purchase a
number of shares of CUNO Common Stock equal to one-half the number of shares
subject to such Commercial Intertech Director Option immediately before such
replacement, times the Ratio, and then, if any resultant fractional share of
CUNO Common Stock exists, rounded [up] [down] to the nearest whole share, and
with a per-share exercise price equal to the per-share exercise price of such
Commercial Intertech Director Option immediately before such replacement,
divided by the Ratio. Such CUNO Director Option shall otherwise have the same
terms and conditions as the Commercial Intertech Director Option it replaces in
part, except that references to Commercial Intertech shall be changed to refer
to CUNO. Such new Commercial Intertech Director Option shall constitute an
option to purchase a number of shares of Commercial Intertech Common Stock equal
to one-half the number of shares subject to such Commercial Intertech Director
Option immediately before such replacement, times the Commercial Intertech
Ratio, and then, if any resultant fractional share of Commercial Intertech
Common Stock exists, rounded [up] [down] to the nearest whole share, and with a
per-share exercise price equal to the per-share exercise price of such
Commercial Intertech Director Option immediately before such replacement,
divided by the Commercial Intertech Ratio.
(iii) Each such Commercial Intertech Director Option held by a CUNO Non-
Employee Director shall be replaced with a CUNO Director Option to purchase a
number of shares of CUNO Common Stock equal to the number of shares subject to
such Commercial Intertech Director Option immediately before such replacement,
times the Ratio, and then, if any resultant fractional share of CUNO Common
Stock exists, rounded [up] [down] to the nearest whole share, and with a per-
share exercise price of such Commercial Intertech Director Option
7
<PAGE>
immediately before such replacement, divided by the Ratio. Such CUNO Director
Option shall otherwise have the same terms and conditions as the Commercial
Intertech Director Option it replaces, except that references to Commercial
Intertech shall be changed to refer to CUNO.
(d) Effective as of the Distribution Date, except as specifically set
forth in Section 2.10, CUNO and the CUNO Subsidiaries shall assume and be solely
responsible for (i) all Liabilities of the Pre-Distribution Group to or with
respect to CUNO Participants arising out of or relating to Commercial Intertech
Options, Commercial Intertech Performance Shares and Commercial Intertech
Restricted Stock that are outstanding as of the Distribution Date, and (ii) all
Liabilities of the Pre-Distribution Group to or with respect to Common Non-
Employee Directors and CUNO Non-Employee Directors arising out of or relating to
Commercial Intertech Director Options to the extent they are to be replaced by
CUNO Director Options pursuant to Section 2.04(c). CUNO and the CUNO
Subsidiaries shall be solely responsible for all Liabilities arising out of or
relating to CUNO Options, CUNO Performance Shares, CUNO Restricted Stock and
CUNO Director Options.
SECTION 2.05 Nonqualified Plans and Programs. (a) Effective as of the
Distribution Date, CUNO and the CUNO Subsidiaries shall assume and be solely
responsible for all Liabilities of the Pre-Distribution Group to or relating to
CUNO Participants under all annual and long-term cash incentive compensation
plans of Commercial Intertech, the Commercial Intertech Subsidiaries, CUNO and
the CUNO Subsidiaries (the "Cash Incentive Plans"). CUNO and Commercial
Intertech shall cooperate in taking all actions necessary or appropriate to
adjust the performance goals and other terms and conditions of awards under the
Cash Incentive Plans for performance periods that begin before and end after the
Distribution Date as appropriate to reflect the Distribution, including, but not
limited to, amending any Cash Incentive Plan or grant thereunder and obtaining
any necessary consents of affected participants.
(b) Effective as of the Distribution Date: (i) CUNO and the CUNO
Subsidiaries shall establish a plan (the "CUNO Supplemental Plan") substantially
similar to the Commercial Intertech Supplemental Plan to provide supplemental
retirement benefits to certain management and highly compensated employees; (ii)
Commercial Intertech shall amend the Commercial Intertech Supplemental Plan, if
necessary, so that no CUNO Employee who is a participant therein shall be deemed
to have terminated employment as a result of the Distribution or as a result of
becoming a CUNO Employee in connection with the Distribution; and (iii) CUNO and
the CUNO Subsidiaries shall assume and be solely responsible for all Liabilities
of the Pre-Distribution Group to or relating to CUNO Participants under the
Commercial Intertech Supplemental Plan. All deferral elections and beneficiary
designations made by CUNO Participants under the Commercial Intertech
Supplemental Plan shall remain in effect with respect to the CUNO Supplemental
Plan from and after the Distribution Date, until changed in accordance with the
CUNO Supplemental Plan. CUNO and Commercial Intertech shall cooperate in taking
all actions necessary or appropriate to accomplish the foregoing and to ensure
that as of the Distribution Date, Commercial Intertech and the Commercial
Intertech Subsidiaries cease to have any Liabilities to or relating to the CUNO
Participants under the Commercial Intertech Supplemental Plan, including, but
not limited to, amending the Commercial Intertech Supplemental Plan or any grant
thereunder and obtaining any necessary consents of affected participants.
8
<PAGE>
SECTION 2.06 Severance Pay. (a) CUNO and Commercial Intertech agree that
individuals who, in connection with the Distribution, cease to be Commercial
Intertech Employees and become CUNO Employees shall not be deemed to have
experienced a termination or severance of employment from Commercial Intertech
and its subsidiaries for purposes of any policy, plan, program or agreement of
Commercial Intertech or any of its subsidiaries that provides for the payment of
severance, salary continuation or similar benefits.
(b) CUNO and the CUNO Subsidiaries shall assume and be solely responsible
for all Liabilities of the Pre-Distribution Group in connection with claims made
by or on behalf of CUNO Employees in respect of severance pay, salary
continuation and similar obligations relating to the termination or alleged
termination of any such person's employment on or after the Distribution Date.
SECTION 2.07 Employment Agreements. As of the Distribution Date, CUNO and
the CUNO Subsidiaries shall assume and be solely responsible for all Liabilities
of Commercial Intertech and its Subsidiaries pursuant to the employment
agreement(s) and termination and change of control agreement(s) listed on
Schedule A hereto.
SECTION 2.08 Other Liabilities and Obligations. As of the Distribution
Date, except as otherwise agreed by the parties hereto, CUNO and the CUNO
Subsidiaries shall assume and be solely responsible for all Liabilities of the
Pre-Distribution Group not otherwise provided for in this Agreement to or
relating to CUNO Participants arising out of or relating to employment by any of
Commercial Intertech, the Commercial Intertech Subsidiaries, CUNO or the CUNO
Subsidiaries, or any predecessors thereof.
SECTION 2.09 Recognition of Commercial Intertech Employment Service, etc.
The CUNO Qualified Plans, the CUNO Welfare Plans, and all other employee benefit
plans, programs and policies of CUNO shall recognize service before the
Distribution with the Pre-Distribution Group as service with CUNO and the CUNO
Subsidiaries. Each CUNO Welfare Plan shall provide benefits to CUNO
Participants without interruption or change solely as a result of the transition
from the corresponding Commercial Intertech Welfare Plans, and without limiting
the generality of the foregoing: (i) shall, to the extent applicable, recognize
all amounts applied to deductibles, out-of-pocket maximums and lifetime maximum
benefits with respect to CUNO Participants under the corresponding Commercial
Intertech Welfare Plan for the plan year that includes the Distribution Date and
for prior periods (if applicable); (ii) shall, to the extent applicable, not
impose any limitations on coverage of pre-existing conditions of CUNO
Participants except to the extent such limitations applied to such CUNO
Participants under the corresponding Commercial Intertech Welfare Plan
immediately before such CUNO Welfare Plan became effective; and (iii) shall not
impose any other conditions (such as proof of good health, evidence of
insurability or a requirement of a physical examination) upon the participation
by CUNO Participants who were participating in the corresponding Commercial
Intertech Welfare Plan immediately before such CUNO Welfare Plan became
effective.
SECTION 2.10 Plan Audits. (a) If any audit, examination or similar
proceeding with respect to any Commercial Intertech Qualified Plan or Commercial
Intertech Welfare Plan by the Internal Revenue Service, the U.S. Department of
Labor, or any other governmental authority, or any litigation arising out of
such an audit, examination or similar proceeding, that
9
<PAGE>
pertains (in whole or in part) to a period before the Distribution Date results
in the imposition of any Liability, then the portion of such Liability that
pertains to a period before the Distribution Date (an "Audit Liability") shall
be allocated between CUNO and Commercial Intertech as set forth in this Section
2.10; provided, that the term "Audit Liability" shall not include any portion of
such a Liability that results from the loss of any compensation deduction or any
related interest or penalties (which shall be governed by the Tax Sharing
Agreement).
(b) To the extent that an Audit Liability takes the form of a payment to
any CUNO Participant or of a benefit under a plan or a contribution to a trust
or other funding vehicle relating to a plan, or interest on such a payment or
contribution, there shall be allocated to CUNO the portion of such Audit
Liability that is attributable to CUNO Participants.
(c) Any Audit Liability that takes the form of a penalty, fine or other
liability imposed as a result of the manner in which a plan was administered
(including without limitation as a result of the failure to make a required
filing or participant communication) and that is not described in Section
2.10(b) above shall be allocated to CUNO if CUNO or a CUNO Subsidiary was
responsible for such administration; to Commercial Intertech if Commercial
Intertech or a Commercial Intertech Subsidiary, other than CUNO or a CUNO
Subsidiary, was responsible for such administration; and equally between CUNO
and Commercial Intertech if the responsibility for such administration was
shared or cannot be clearly determined.
(d) If an Audit Liability arises, the allocation of which is not addressed
in Section 2.10(b) or (c), or if there arises any other dispute concerning the
allocation of Audit Liabilities, such allocation or dispute shall be subject to
the dispute resolution and arbitration provisions of the Distribution Agreement.
SECTION 2.11 Indemnification. All Liabilities retained or assumed by or
allocated to CUNO or any CUNO Subsidiary pursuant to this Agreement shall be
deemed to be CUNO Liabilities, as defined in the Distribution Agreement, and all
Liabilities retained or assumed by or allocated to Commercial Intertech or any
Commercial Intertech Subsidiary pursuant to this Agreement shall be deemed to be
Commercial Intertech Liabilities, as defined in the Distribution Agreement and,
in each case, shall be subject to the indemnification provisions set forth in
Article IV thereof.
ARTICLE III - MISCELLANEOUS
-------------
SECTION 3.01 Guarantee of Subsidiaries' Obligations. Each of the parties
hereto shall cause to be performed, and hereby guarantees the performance and
payment of, all actions, agreements, obligations and liabilities set forth
herein to be performed or paid by any subsidiary of such party which is
contemplated by the Distribution Agreement to be a subsidiary of such party on
or after the Distribution Date.
SECTION 3.02 Failure of Commercial Intertech and CUNO To Agree on Certain
Determinations. (a) In any case in which CUNO or Commercial Intertech shall
disagree with the determination of an amount which this Agreement requires to be
made by the Enrolled Actuary, each such disagreeing party shall have the right
within 30 days after receipt of notice
10
<PAGE>
of such determination to engage at its own expense, an enrolled actuary to make
the determination of such amount. If the amount determined by such actuaries
should differ, such amount shall be determined by another enrolled actuary
selected by agreement between or among the Enrolled Actuary and the enrolled
actuary or enrolled actuaries.
(b) Any other dispute concerning the matters addressed by this Agreement
shall, except as specifically provided in Section 2.10, be subject to the
dispute resolution and arbitration provisions of the Distribution Agreement.
SECTION 3.03 Sharing of Information. Each of Commercial Intertech and CUNO
shall, and shall cause each of their respective Subsidiaries to, provide to the
other all such information in its possession as the other may reasonably request
to enable it to administer its employee benefit plans and programs, and to
determine the scope of, and fulfill, its obligations under this Agreement. Such
information shall, to the extent reasonably practicable, be provided in the
format and at the times and places requested, but in no event shall the party
providing such information be obligated to incur any direct expense not
reimbursed by the party making such request, nor to make such information
available outside its normal business hours and premises. The right of the
parties to receive information hereunder shall, without limiting the generality
of the foregoing, extend to any and all reports, and the data underlying such
reports, prepared by the Enrolled Actuary in making any determination under this
Agreement or by any third party engaged pursuant to Section 2.10.
SECTION 3.04 Governing Law. Subject to applicable federal law, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio, without regard to the principles of conflicts of laws thereof.
SECTION 3.05 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
mailed by registered or certified mail (return receipt requested), or sent by
cable, telegram, telex or telecopy (confirmed by regular, first-class mail), to
the parties at the following addresses (or at such other addresses for a party
as shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
if to Commercial Intertech: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, OH 44505
Attention: President
if to CUNO: CUNO Incorporated
400 Research Parkway
Meridien, CT 06450
Attention: President
SECTION 3.06 Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
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SECTION 3.07 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
SECTION 3.08 Termination. This Agreement shall be terminated in the event
that the Distribution Agreement is terminated and the Distribution abandoned
prior to the Distribution Date. In the event of such termination, neither party
shall have any liability of any kind to the other party.
SECTION 3.09 Rights to Amend or Terminate Plans; No Third Party
Beneficiaries. No provision of this Agreement shall be construed (a) to limit
the right of Commercial Intertech, any Commercial Intertech Subsidiary, CUNO or
any CUNO Subsidiary to amend any plan or terminate any plan, or (b) to create
any right or entitlement whatsoever in any employee or beneficiary including,
without limitation, a right to continued employment or to any benefit under a
plan or any other benefit or compensation. This Agreement is solely for the
benefit of the parties hereto and their respective subsidiaries and should not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 3.10 Titles and Headings. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
SECTION 3.11 Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
COMMERCIAL INTERTECH CORP.
By:
-----------------------
Paul J. Powers
President
CUNO INCORPORATED
By:
-----------------------
Mark G. Kachur
President
12
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SCHEDULE A
EMPLOYMENT AGREEMENTS
TO BE ASSUMED BY
CUNO
Mark Kachur
13
<PAGE>
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE>
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR
----------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application......................................... 1
2. Office and Duties............................................ 2
3. Salary and Annual Incentive Compensation..................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement............. 3
5. Termination of Employment.................................... 4
6. Termination Due to Normal Retirement, Death, or Disability... 5
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability.............................. 6
8. Termination by the Company Without Cause and Termination
by Executive for Good Reason During the Extended
Employment Period............................................ 8
9. Definitions Relating to Termination Events................... 10
10. Excise Tax Gross-Up.......................................... 14
11. Non-Competition and Non-Disclosure; Executive Cooperation.... 17
12. Governing Law; Disputes; Arbitration......................... 18
13. Miscellaneous................................................ 19
14. Indemnification.............................................. 21
</TABLE>
<PAGE>
TERMINATION AND CHANGE OF CONTROL AGREEMENT
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement")
is dated as of the _____ day of _________________, 1996, by and between CUNO
Incorporated, a Delaware corporation (the "Company") and
________________________ ("Executive"), and shall become effective as of
____________________________, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Term and Application. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); provided, however, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long
as the Extension Date has not occurred, commencing on the date five (5) years
after the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall Executive receive any
<PAGE>
payment, right or benefit under both this Termination Agreement and the
Employment Agreement with respect to the same Date of Termination (as defined
below).
2. Office and Duties.
-----------------
(a) Generally. During the Extended Employment Period, the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Extension Date.
During the Extended Employment Period it shall not be a violation of
the Executive Employment Agreement for the Executive to (i) serve on corporate,
civic or charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions, and (iii) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Termination Agreement. It is expressly
understood and agreed that, to the extent that any activities have been
conducted by the Executive prior to the Extension Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Extension Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Place of Employment. During the Extended Employment Period, the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Extension Date or any office or location less
than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
----------------------------------------
(a) Base Salary. During the Extended Employment Period, the Executive
shall receive an Annual Base Salary, which shall be paid at a monthly rate, at
least equal to twelve (12) times the highest monthly base salary paid or
payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs.
During the Extended Employment Period, the Annual Base Salary shall be reviewed
no more than twelve (12) months after the last salary increase awarded to the
Executive prior to the Extension Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Termination Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Termination Agreement shall refer to Annual Base
Salary as so increased. As used in this Termination Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
2
<PAGE>
(b) Annual Incentive Compensation. During the Extended Employment
Period, any annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives, including, without limitation, the
Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the Executive's highest annual incentive compensation target for
the last three full fiscal years prior to the Extension Date (annualized in the
event that the Executive was not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
no later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
(a) Executive Compensation Plans. During the Extended Employment
Period, the compensation plans, practices, policies and programs, in the
aggregate, including without limitation the long-term incentive features of the
Company's Stock Option and Award Plans, shall provide Executive with benefits,
options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's Stock Option
and Award Plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) Employee and Executive Benefit Plans. During the Extended
Employment Period, benefit plans and programs, in the aggregate, shall provide
Executive with benefits substantially no less favorable than those provided by
the Company to senior executives in similar capacities. During the Extended
Employment Period, in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive
3
<PAGE>
at any time during the 120-day period immediately preceding the Extension Date
or, if more favorable to the Executive, those provided generally at any time
after the Extension Date to other peer executives of the Company and its
affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Term of this Termination
Agreement. If the Company determines in good faith that the Disability of the
Executive has occurred during the Term of this Termination Agreement, it may
give to the Executive written notice in accordance with Section 13(d) of this
Termination Agreement of its intention to terminate the Executive's employment.
In such event, the Executive's Date of Termination is effective on the 30th day
after receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the thirty (30) days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
(b) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(c) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with
4
<PAGE>
an affiliated companies shall not constitute a termination of employment with
the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary decision
to retire on or after his Normal Retirement Date (other than for Good Reason
during the Extended Employment Period), death or Disability, the Term of this
Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
provided, however, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate payable, in
accordance with Section 3(a) hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at the Date
of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, programs, and arrangements (and agreements
and documents thereunder) pursuant to which such compensation and benefits were
granted;
(c) In lieu of any annual incentive compensation under Section 3(b)
for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans and programs
and the agreements and other documents thereunder pursuant to which such stock
options were granted; and
(e) If Executive's Date of Termination is due to Disability, for the
period extending from such Date of Termination until Executive reaches age 65,
Executive shall continue to participate in all employee benefit plans, programs,
and arrangements providing health, medical, and life insurance in which
Executive was participating immediately prior to the Date of Termination, the
terms of which allow Executive's continued participation, as if Executive had
continued in employment with
5
<PAGE>
the Company during such period or, if such plans, programs, or arrangements do
not allow Executive's continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service and age with the Company during such period following Executive's Date
of Termination, with such benefits payable by the Company at the same times and
in the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; provided, however, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with interest at a rate
required to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal Retirement,
Death or Disability
(a) Termination by the Company for Cause and Termination by Executive.
Upon an Executive's Date of Termination by the Company for Cause, or voluntarily
by Executive for reasons other than Good Reason, the Term will immediately
terminate, and all obligations of the Company under Sections 1 through 4 of this
Termination Agreement will immediately cease; provided, however, that subject to
the provisions of Section 13(c), the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(i) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 4(a) hereof, at the Date
of Termination, pro rated through such Date of Termination,
will be paid; and
(ii) All vested, nonforfeitable amounts owing and accrued at the
Date of Termination under any compensation and benefit
plans, programs, and arrangements in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted.
6
<PAGE>
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; provided, however, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause. Upon an Executive's
Date of Termination prior to the Extension Date without Cause, the Term will
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; provided,
however, that subject to the provisions of Section 13(c) the Company shall pay
to the Executive (or his or her beneficiaries) and Executive (or his or her
beneficiaries) shall be entitled to receive within, or commencing within, thirty
(30) days after the Date of Termination, the following amounts:
(i) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid;
(ii) twenty-four (24) bi-monthly payments during a twelve (12)
consecutive month period equal to the Executive's Annual
Base Salary divided by twenty-four (24); provided,
however, notwithstanding anything to the contrary in the
Termination Agreement or in the Employment Agreement, none
of such amounts shall qualify Executive for any
incremental benefit under any plan or program in which he
has participated or continues to participate;
(iii) stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise
governed, by the plans and programs and the agreements and
other documents thereunder pursuant to which such stock
options were granted; and
(iv) all vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit
plans, programs, and arrangements in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which
such compensation and benefits were granted.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; provided, however, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the
7
<PAGE>
payments would be deductible by the Company without limitation under Section
162(m) (unless this provision is waived by the Company).
8. Termination by the Company Without Cause and Termination by Executive
for Good Reason During the Extended Employment Period
Upon an Executive's Date of Termination during the Extended Employment
Period by the Company without Cause or voluntarily by the Executive for Good
Reason, the Term of this Termination Agreement will immediately terminate and
all obligations of the Company and Executive under Sections 1 through 4 of this
Termination Agreement will immediately cease; provided, however, that subject to
the provisions of Section 13(c) the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(a) the Company shall pay to the Executive in a lump sum in cash on
the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
and (2) the product of (x) the higher of (I) the Recent
Annual Bonus and (II) the Annual Bonus paid or payable
assuming the Executive satisfied all conditions to receive
the Annual Bonus and assuming full satisfaction of any
performance standards or targets applicable to determining
the maximum amount payable, including any bonus or portion
thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve (12) full
months or during which the Executive was employed for less
than twelve (12) full months), for the most recently
completed fiscal year during the Extended Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365;
(ii) the amount equal to three (3) times the sum of (1) the
Executive's Annual Base Salary and (2) the Highest Annual
Bonus (Payment of any amount under Section 8(a)(i) shall not
constitute a payment or discharge of the Company's
obligation under Section 8(a)(ii) and vice versa);
(iii) in lieu of any payment in respect of performance shares,
or other long term incentive awards granted prior to the
Extension Date or in accordance with Section 4(a) hereof,
for any performance period not completed at the
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Executive's Date of Termination, an amount equal to the cash
amount payable plus the value of any shares, dividends or
other property (valued at the Date of Termination) payable
upon the achievement of maximum performance in respect of
each tranche of such performance shares or awards without
proration as if the Date of Termination were the end of the
performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or (iv), all
vested, nonforfeitable amounts owing or accrued at the Date
of Termination under any other compensation and benefit
plans, programs, and arrangements in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable and
restricted stock held by the Executive will be vested to the extent and for such
periods, and otherwise governed, by the plans and programs (and the agreements
and other documents thereunder) pursuant to which such stock options or
restricted stock were granted;
(c) For three (3) years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue welfare plan benefits to
the Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b) of this Termination Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. If such plans, programs, or arrangements do
not allow Executive's continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service and age with the Company during such period following Executive's Date
of Termination, with such benefits payable by the Company at the same times and
in the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost
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to Executive, which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating);
(d) outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion, provided by the Company at its
sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date, including, without limitation, fuel, insurance, maintenance and
car phone;
(f) for three (3) years after Executive's Date of Termination, the
provision of reasonable personal tax accounting and financial planning by a firm
chosen by Executive and reasonably acceptable to the Company; and
(g) for three (3) years after the Executive's Date of Termination, the
payment of all regular lunch and country club membership dues or fees in respect
of any lunch or country club of which Executive is a member on Executive Date or
Termination.
9. Definitions Relating to Termination Events.
------------------------------------------
(a) "Cause." For purposes of this Termination Agreement, "Cause"
shall mean Executive's gross misconduct (as defined herein). For purposes of
this definition, "gross misconduct" shall mean (A) a felony conviction in a
court of law under applicable federal or state laws which results in material
damage to the Company or any of its subsidiaries or materially impairs the value
of Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which is
demonstrably and materially damaging to the Company or any of its subsidiaries,
including acts and omissions that constitute gross negligence in the performance
of Executive's duties under this Termination Agreement. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by a
majority affirmative vote of the membership of the Board of Directors of the
Company (the "Board") (excluding Executive, if he is then a member) at a meeting
of the Board called and held for such purpose (after giving Executive reasonable
notice specifying the nature of the grounds for such termination and not less
than 30 days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive was guilty of conduct which constitutes Cause as set forth in this
Section 9(a).
(b) "Change of Control." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the
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Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A) the then-
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined
voting power of the then-outstanding voting securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company, (B)
any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company, (D) any acquisition by a lender to the Company
pursuant to a debt restructuring of the Company, or (E) any
acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 9;
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board;
(iii) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of
the assets of the Company (a "Business Combination"), in
each case, unless, following such Business Combination, (A)
all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then-outstanding shares
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of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly
or indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination, or
the combined voting power of the then outstanding voting
securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and
(C) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) "Disability" means the failure of Executive to render and perform
the services required of him under this Termination Agreement, for a total of
180 days or more during any consecutive 12 month period, because of any physical
or mental incapacity or disability as determined by a physician or physicians
selected by the Company and reasonably acceptable to Executive, unless, within
30 days after Executive has received written notice from the Company of a
proposed Date of Termination due to such absence, Executive shall have returned
to the full performance of his duties hereunder and shall have presented to the
Company a written certificate of Executive's good health prepared by a physician
selected by Company and reasonably acceptable to Executive.
(d) "Extended Employment Period" shall mean the period commencing on
the Extension Date and ending on the third anniversary of such date.
(e) "Extension Date" shall mean the first date during the Term of this
Termination Agreement on which a Change of Control occurs. Anything in the
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Employment Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executive's employment with the Company is terminated prior to
the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of the Employment Agreement the
"Extension Date" shall mean the date immediately prior to the date of such
termination of employment.
(f) "Good Reason." For purposes of this Termination Agreement, "Good
Reason" shall mean the occurrence of a Change of Control and following which but
not later than the third anniversary of the date of the Change of Control there
occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including
status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by
Section 2(a) of this Termination Agreement, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4 of this Termination Agreement or the
Employment Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 2(b)
hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Termination Agreement;
(v) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Termination Agreement; or
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(vi) any failure by the Company to comply with and satisfy
Section 12(b) of this Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive. Anything in this Termination Agreement to
the contrary notwithstanding, a voluntary Date of Termination by the Executive
for any reason during the 30-day period immediately following the first
anniversary of the Extension Date shall be deemed to be a termination for Good
Reason for all purposes of this Termination Agreement.
(g) "Normal Retirement Date." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Gross-Up.
-------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other non-
cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the
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meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the
Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of (i) the total amount of the
Total Payments or (ii) the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (a) above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and (C)
to have otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to Executive or
otherwise realized as a benefit by Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment and
shall indemnify and hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th day
(or such earlier date as the Excise Tax becomes due and payable to the taxing
authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section
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1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount of each Gross-up
Payment shall be computed so as not to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 10, the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest
the claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial
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jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to this Section 10, the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of this Section 10) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to this Section 10, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
11. Non-Competition and Non-Disclosure; Executive Cooperation.
---------------------------------------------------------
(a) Non-Competition. Without the consent in writing of the Board,
upon the Executive's Date of Termination for any reason, Executive will not, for
a period of two years thereafter, acting alone or in conjunction with others,
directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States in which he has been
directly engaged, or has supervised as an executive, during the last two years
prior to such Date of Termination and which is directly in competition with a
material business then conducted by the Company or any of its subsidiaries; (ii)
induce any customers of the Company or any of its subsidiaries with whom
Executive has had contacts or relationships, directly or indirectly, during and
within the scope of his employment with the Company or any of its subsidiaries,
to curtail or cancel their business with such companies or any of them; or (iii)
induce, or attempt to influence, any employee of the Company or any of its
subsidiaries to terminate employment. The provisions of subparagraphs (i),
(ii), and (iii) above are separate and distinct commitments independent of each
of the other subparagraphs. It is agreed that the ownership of not more than
one percent of the equity securities of any company having securities listed on
an exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with
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clause (i) of this paragraph (a), nor shall service as a member of a board of
directors on which Executive is serving on the Date of Termination (including
any successor board thereto) be deemed, of itself, to be inconsistent with
clause(i) of this paragraph (a). The Executive and the Company agree that the
value to be assigned to the obligations of the Executive under this paragraph
(a) is at least $__________.
(b) Non-Disclosure. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; provided, however, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an after-
tax basis, for all expenses actually incurred in connection with his provision
of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a condition to
receipt of the termination payments and benefits provided hereunder, that he
will execute a release agreement, in a form satisfactory to the Company,
releasing any and all claims arising out of Executive's employment (other than
enforcement of this Termination Agreement).
(e) Survival. Notwithstanding any provision of this Termination
Agreement to the contrary, the provisions of this Section 11 shall survive the
termination or expiration of this Termination Agreement, shall be valid and
enforceable, and shall be a condition precedent to the Executive (or his or her
beneficiaries) receiving any amounts payable hereunder. The obligations of
Executive under this Section II and any comparable type of obligation under the
Employment Agreement are expressly conditioned upon Company's satisfaction of
its obligations to Executive under this Termination Agreement and the Employment
Agreement.
12. Governing Law; Disputes; Arbitration.
------------------------------------
(a) Governing Law. This Termination Agreement is governed by and is
to be construed, administered, and enforced in accordance with the laws of the
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State of Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of Section 11 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. On and after the
Extension Date, all reasonable costs and expenses (including fees and
disbursements of counsel) incurred by Executive in seeking to enforce rights
pursuant to this Termination Agreement shall be paid on behalf of or reimbursed
to Executive promptly by the Company, whether or not Executive is successful in
asserting such rights; provided, however, that no reimbursement shall be made of
such expenses relating to any unsuccessful assertion of rights if and to the
extent that Executive's assertion of such rights was in bad faith or frivolous,
as determined by independent counsel mutually acceptable to Executive and the
Company and made without reference to or not related to a Change of Control.
Immediately prior to the Extension Date but not less than five (5) days prior
thereto, the Company agrees to maintain a minimum amount in a rabbi trust (or to
provide to the trustee of such rabbi trust) an irrevocable letter of credit in
an amount equal to such minimum amount (and callable at will by such trustee)
sufficient to fund any such litigation and the aggregate present value of all
liabilities potentially owed to the Executive under this Agreement as if he or
she had incurred a termination of employment by the Company other than for
Cause.
13. Miscellaneous.
-------------
(a) Integration. This Termination Agreement modifies and supersedes
any and all prior agreements and understandings between the parties hereto with
respect to the employment of Executive by the Company and its subsidiaries,
except for the Employment Agreement and contracts relating to compensation under
executive compensation and employee benefit plans of the Company and only to the
extent enforceable. This Termination Agreement and the Employment Agreement
together constitute the entire agreement among the parties with respect to the
matters herein provided, and no modification or waiver of any provision hereof
shall be effective unless in writing and signed by the parties hereto.
Executive shall not be entitled to any payment or benefit under this Termination
Agreement which duplicates a payment, right or benefit received or receivable by
Executive under such prior agreements and understandings with the Company or
under any benefit or compensation plan of the Company.
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(b) Non-Transferability. Neither this Termination Agreement nor the
rights or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 13(c). The Company may assign this
Termination Agreement and the Company's rights and obligations hereunder, and
shall assign this Termination Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Termination Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
If to the Company: CUNO Incorporated
------------------------
------------------------
Attention: Secretary
With copies to: CUNO Incorporated
------------------------
------------------------
Attention: General Counsel
If to Executive:
--------------------------------------
--------------------------------------
--------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or
other similar overnight service, such notice or advice shall be effective when
sent, and, in the
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<PAGE>
cases of certified or registered mail, shall be effective 2 days after deposit
into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this Termination
Agreement shall not be deemed to render the remainder of this Termination
Agreement invalid.
(f) Headings. The headings of this Termination Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination; provided, however, that, to the extent
Executive receives from a subsequent employer health or other insurance benefits
that are substantially similar to the benefits referred to in this Termination
Agreement, any such benefits to be provided by the Company to Executive
following the Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by the
Company to Executive pursuant to this Termination Agreement shall not be subject
to offset. The foregoing and other provisions of this Termination Agreement
notwithstanding, all payments to be made to Executive under this Termination
Agreement will be subject to required withholding taxes and other required
deductions.
(j) Successors and Assigns. This Termination Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
14. Indemnification.
---------------
All rights to indemnification by the Company now existing in favor of
Executive as provided in the Company's Articles of Incorporation or Code of
Regulations or pursuant to other agreements in effect on or immediately prior to
the Extension Date shall continue in full force and effect from the Extension
Date (including all periods after the expiration of the Term), and the Company
shall also advance expenses for which indemnification may be ultimately claimed
as such
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expenses are incurred to the fullest extent permitted under applicable law,
subject to any requirement that Executive provide an undertaking to repay such
advances if it is ultimately determined that Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether Executive's conduct complies with the standards required
to be met as a condition of indemnification or advancement of expenses under
applicable law and the Company's Articles of Incorporation, Code of Regulations,
or other agreement shall be made by independent counsel mutually acceptable to
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Articles of Incorporation
or Code of Regulations or any agreement in any manner which adversely affects
the rights of Executive to indemnification thereunder. Any provision contained
herein notwithstanding, this Termination Agreement shall not limit or reduce any
rights of Executive to indemnification pursuant to applicable law. In addition,
the Company will maintain directors' and officers' liability insurance in effect
and covering acts and omissions of Executive, during the Term and for a period
of six years thereafter, on terms substantially no less favorable as those in
effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
CUNO Incorporated
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[NAME OF EXECUTIVE]
-------------------------------------
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<PAGE>
EXHIBIT 10.8
SEVERANCE COMPENSATION AGREEMENT
This Severance Compensation Agreement ("Agreement") made and entered
into as of the 25 day of March, l995, by and between Commercial Intertech Corp.
("Company") and Mark G. Kachur ("Executive").
WHEREAS the Company's Compensation Committee of the Board of Directors
("Committee") has determined that, in light of the importance of the Executive's
continued services to the stability and continuity of management of the Company
and its subsidiaries, it is appropriate and in the best interests of the Company
and of its shareholders to reinforce and encourage the Executive's continued
disinterested attention and undistracted dedication to his duties in the
potentially disturbing circumstances of a possible change in control of the
Company by providing some degree of personal financial security; and
WHEREAS in order to induce the Executive to remain in the employ of
the Company or a subsidiary of the Company ("Subsidiary"), the Committee has
determined that it is desirable to pay the Executive the severance compensation
set forth below if the Executive's employment with the Company or a Subsidiary
terminates in one of the circumstances described below following a Change in
Control of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the Company and the Executive agree as
follows:
l. Definitions.
-----------
The following terms shall have the meaning set forth below unless the
context clearly indicates otherwise:
(a) Annual Cash Compensation. Annual Cash Compensation shall mean the
sum of (i) the Executive's annual base salary in effect at the time the Notice
of Termination is given; and (ii) an amount equal to the highest annual
compensation paid in the last three (3) calendar years as compensation under the
Company's Management Incentive Compensation Plan (or any successor plan),
including any other bonus payment.
(b) Benefit Plan. Benefit Plan means any benefit plan or arrangement
including, without limitation, the Company's pension or profit sharing plan,
life insurance plan, medical, dental, accident and disability plans and
educational assistance reimbursement plan adopted or maintained by the Company
on the effective date of this Agreement or hereinafter adopted or maintained
during the term of this Agreement.
<PAGE>
(c) Cause. The Company or a Subsidiary may terminate the Executive's
employment for Cause only on the basis of:
(i) the Executive's wilful and continued failure substantially to
perform his duties with the Company or a Subsidiary (other than any such failure
resulting from his Disability or any such failure resulting from the Executive's
termination for Good Reason), after a written demand for substantial performance
is delivered to the Executive by the Company's Board of Directors which
specifically identifies the manner in which such Board of Directors believes
that the Executive has not substantially performed his duties; or
(ii) the Executive's wilful engagement in conduct materially and
demonstrably injurious to the Company or a Subsidiary.
For purposes of this Section 1(c), no act or failure to act on the
Executive's part shall be considered "wilful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company or a Subsidiary. The
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the entire
membership of the Company's Board of Directors, at a meeting of the Board of
Directors called and held for the purpose, finding that in the good faith
opinion of the Board of Directors the Executive was guilty of conduct set forth
in clause (i) or (ii) of the first sentence of this Section 1(c) and specifying
the particulars thereof in detail.
(d) Change in Control. A Change in Control shall be deemed to have
occurred if:
(i) there shall be consummated any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's common stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company's common stock immediately prior to the merger have
substantially the same proportionate ownership of the common stock of the
surviving corporation immediately after the merger;
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<PAGE>
(ii) there shall be consummated any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all the assets of the Company;
(iii) the shareholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company;
(iv) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company or a Subsidiary or any employee
benefit plan sponsored by the Company or a Subsidiary, shall
become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of securities of the Company representing
thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote
in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or
otherwise; or
(v) at any time during a period of two (2) consecutive years,
individuals who at the beginning of such period constituted the
Board of Directors of the Company shall cease for any reason to
constitute at least a majority thereof, unless the election or the
nomination for election by the Company's shareholders of each new
director during such two (2) year period was approved by a vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of such two (2) year period.
(e) Company. Company shall mean Commercial Intertech Corp. and any
successor or assign to all or substantially all of the business and/or assets
which executes and delivers the agreement provided for in Section 7.l(a) or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
(f) Date of Termination. Date of Termination shall mean (i) if this
Agreement is terminated by the Company or a Subsidiary for Disability, thirty
(30) days after Notice of Termination is given to the Executive (provided that
the Executive shall not have returned to the performance of the Executive's
duties on a full-time basis during such thirty (30) day period); or (ii) if the
Executive's employment is terminated for any reason other than Disability, the
date on which a Notice of Termination is given.
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<PAGE>
(g) Disability. The Executive shall be deemed to have a Disability if,
as a result of the Executive's incapacity due to physical or mental illness, the
Executive: (1) shall qualify for benefits under the Company's short-term
disability plan or long-term disability plan adopted or maintained by the
Company on the effective date of this Agreement or hereinafter adopted or
maintained during the term of this Agreement; and (2) shall have been absent
from his duties with the Company or a Subsidiary on a full-time basis for a
continuous period of six (6) months commencing with the date of Change in
Control of the Company or the first day of such absence (whichever is later).
(h) Employment Benefits. Employment Benefits shall mean life, health,
disability and accident insurance and a package of "executive benefits" adopted
or maintained by the Company on the effective date of this Agreement or
hereinafter adopted or maintained during the term of this Agreement.
(i) Good Reason. The Executive may terminate the Executive's
employment for Good Reason, which shall mean in any of the following events
unless it occurs with the Executive's express prior written consent:
(i) the assignment to the Executive by the Company or a Subsidiary of
any duties inconsistent with, or a diminution of, the Executive's
position, duties, titles, offices, responsibilities and status
with the Company or a Subsidiary immediately prior to a Change in
Control of the Company or any removal of the Executive from or any
failure to reelect the Executive to any of such positions, unless
the Executive's employment with the Company or a Subsidiary is
terminated (i) by the Company or a Subsidiary for Cause,
Disability or Retirement or by reason of death or (ii) by the
Executive other than for Good Reason;
(ii) a reduction by the Company or a Subsidiary in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or
the Company's or a Subsidiary's failure to increase (within
fifteen (15) months of the Executive's last increase in base
salary) the Executive's base salary after a Change in Control of
the Company in an amount which is substantially similar, on a
percentage basis, to the average percentage increase in base
salary for all officers of the Company or a Subsidiary effected
during the preceding twelve (12) months, other than a reduction of
the Executive's base salary pursuant to the terms of the Company's
short-term or long-term disability plan during a period in which
the Executive has a Disability and qualifies for benefits under
such plan.
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<PAGE>
(iii) except with respect to changes required to maintain its tax-
qualified status or changes generally applicable to all employees
of the Company, any failure by the Company or a Subsidiary to
continue in effect any Benefit Plan in which the Executive is
participating at the time of a Change in Control of the Company
(or to substitute and continue other plans providing the Executive
with substantially similar benefits), the taking of any action by
the Company or a Subsidiary which would adversely affect the
Executive's participation in or materially reduce the Executive's
benefits under any such Benefit Plan or deprive the Executive of
any material fringe benefit enjoyed by the Executive at the time
of a Change in Control of the Company or the failure by the
Company or a Subsidiary to provide the Executive with the number
of paid vacation days to which the Executive was entitled in
accordance with the vacation policies in effect at the time of a
Change in Control of the Company;
(iv) any failure by the Company or a Subsidiary to continue in effect
any Incentive Plan in which the Executive is participating at the
time of a Change in Control of the Company (or to substitute and
continue other plans or arrangements providing the Executive with
substantially similar benefits) or the taking of any action by the
Company or a Subsidiary which would adversely affect the
Executive's participation in any such Incentive Plan or reduce the
Executive's benefits under any such Incentive Plan in an amount
which is not substantially similar, on a percentage basis, to the
average percentage reduction of benefits under any such Incentive
Plan effected during the preceding twelve (12) months for all
officers of the Company or a Subsidiary participating in any such
Incentive Plan;
(v) any failure by the Company or a Subsidiary to continue in effect
any Securities Plan in which the Executive is participating at the
time of a Change in Control of the Company (or to substitute and
continue plans or arrangements providing the Executive with
substantially similar benefits) or the taking of any action by the
Company or a Subsidiary which would adversely affect the
Executive's participation in or materially reduce the Executive's
benefits under any such Securities Plan;
(vi) a relocation of the Company's principal executive offices or the
Executive's relocation to any place other than the location at
which the Executive performed the Executive's duties prior to a
Change in Control of the Company;
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<PAGE>
(vii) a substantial increase in business travel obligations over such
obligations as they existed at the time of a Change in Control
of the Company;
(viii) any material breach by the Company or a Subsidiary of any
provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company in
accordance with Section 7(a); or
(x) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 1(k).
(j) Incentive Plan. Incentive Plan means any incentive plan or
arrangement including, without limitation, the Company's Management Incentive
Compensation Plan, annual bonus and contingent bonus arrangements and credits
and the right to receive performance awards and similar incentive compensation
benefits adopted or maintained by the Company on the effective date of this
Agreement or hereinafter adopted or maintained during the term of this
Agreement.
(k) Notice of Termination. Notice of Termination shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(l) Pension Benefits. Pension Benefits shall mean all benefits under
the Company's pension plan and any other plan or agreement relating to
retirement benefits adopted or maintained by the Company on the effective date
of this Agreement or hereinafter adopted or maintained during the term of this
Agreement.
(m) Retirement. Retirement shall mean termination by the Company or
a Subsidiary or by the Executive of the Executive's employment based on the
Executive's having reached age sixty-five (65). Termination based on Retirement
shall not include, for purposes of this Agreement, the Executive's taking of
early retirement by reason of a termination by the Executive of his employment
for Good Reason.
(n) Securities Plan. Securities Plan shall mean any plan or
arrangement to receive securities of the Company including, any Company plan or
arrangement to receive and exercise stock options, stock appreciation rights,
restricted stock or grants thereof or to acquire stock or other securities of
the Company.
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<PAGE>
adopted or maintained by the Company on the effective date of this Agreement or
hereinafter adopted or maintained during the term of this Agreement.
2. Term of Agreement.
-----------------
This Agreement shall commence on the date hereof and shall terminate,
except to the extent that any obligation of the Company under this Agreement
remains unpaid as of such time, on the earlier of (i) the date on which the
Executive reaches age sixty-five (65) and (ii) the date five (5) years from the
date of this Agreement; provided that this Agreement shall continue in effect
until the earlier of (i) the date on which the Executive reaches age sixty-five
(65) and (ii) the date two (2) years beyond the date of termination of this
Agreement as provided above if a Change in Control of the Company shall have
occurred prior to such date of termination of this Agreement (and shall continue
for such additional period as any obligation of the Company under this Agreement
shall remain unpaid).
It is further provided, however, that commencing on the date five (5)
years after the date of this Agreement and each anniversary date of the
Agreement thereafter (unless the Executive has attained age sixty-five (65)),
the term of this Agreement shall automatically be extended for one (1)
additional year unless not later than one (1) year prior to the date five (5)
years after the date of this Agreement or subsequent anniversary date the
Company or the Executive shall have given written notice to the other of its or
his intention not to extend this Agreement.
3. Termination Following Change in Control.
----------------------------------------
(a) No compensation shall be payable to the Executive pursuant to
Section 4 of this Agreement unless and until (i) there shall have been a Change
in Control of the Company while the Executive is still employed as an Executive
of the Company or a Subsidiary; and (ii) the Executive's employment with the
Company or a Subsidiary is terminated within two (2) years of the date of the
Change in Control unless the Executive's employment is terminated (i) by the
Company or a Subsidiary for Cause, Disability or Retirement or by reason of the
Executive's death or (ii) by the Executive other than for Good Reason.
(b) Any termination of the Executive's employment (i) by the Company
or a Subsidiary for Cause, Disability or Retirement or by reason of the
Executive's death or (ii) by the Executive for Good Reason shall be communicated
to the other party by a Notice of Termination. No such purported termination by
the Company or Subsidiary shall be effective without such Notice of Termination.
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<PAGE>
(c) The Company shall pay to the Executive all legal fees and expenses
incurred by the Executive as a result of the termination of the Executive's
employment (i) by the Company or a Subsidiary other than for Cause, Disability
or Retirement, or by reason of the Executive's death or (ii) by the Executive
for Good Reason, including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement.
4. Compensation upon Termination.
-----------------------------
(a) If the Executive's employment with the Company or a Subsidiary is
terminated (i) by the Company or a Subsidiary for Cause, Disability or
Retirement or by reason of death or (ii) by the Executive other than for Good
Reason, the Executive shall not be entitled to any severance compensation under
this Agreement. In the event the Company or a Subsidiary provides a Notice of
Termination to an Executive with a Disability and the Executive shall not have
returned to the full-time performance of his duties within thirty (30) days of
such Notice, the Company or Subsidiary may terminate the Executive's employment
for Disability without the Executive's being entitled to any severance
compensation under this Agreement. The absence of the Executive's entitlement to
any benefits under this Agreement shall not prejudice the Executive's right to
the full realization of any and all other benefits to which the Executive shall
be entitled pursuant to the terms of any employee benefit plans or other
agreements of the Company or a Subsidiary in which the Executive is a
participant or to which the Executive is a party.
(b) If the Executive's employment by the Company or a Subsidiary is
terminated (i) by the Company or a Subsidiary other than for Cause, Disability
or Retirement or by reason of death or (ii) by the Executive for Good Reason,
then the Executive shall be entitled to the severance compensation provided
below:
(i) The Company shall pay as severance compensation to the Executive, at
the time specified in subsection (ii) below, a lump-sum severance
payment equal to two times the Executive's Annual Cash Compensation
reduced by any actual damages paid to the Executive by the Company
as a result of the Company's termination of the Executive's
employment with the Company. If the Executive is age sixty-three
(63) or older on the Date of Termination, such lump-sum severance
payment shall be equal to the Executive's Annual Cash Compensation
multiplied by a fraction of which the numerator shall be the number
of months from such date until the Executive reaches age sixty-five
(65) and the denominator shall be twelve (12).
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<PAGE>
(ii) The severance compensation provided for in subsection (i) above
shall be made not later than the tenth (l0th) day following the
Date of Termination; provided, however, that, if the amount of
such compensation cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Company but subject
to the provisions of Section 4(c), of the minimum amount of such
compensation and shall pay the remainder of such compensation
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended
(the "Code")) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payment
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive
payable on the fifth (5th) day after demand by the Company
(together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(iii) The Company shall arrange to provide the Executive for a period of
twenty-four (24) months following the Date of Termination (or, if
such date occurs after the Executive reaches age sixty-three (63),
for a period equal to the number of months after such date until
the Executive reaches age sixty-five (65)) or until the
Executive's death, if earlier, with Employment Benefits
substantially similar to those which the Executive was receiving
immediately prior to the Notice of Termination.
(iv) During the term of this Agreement and through the period of
twenty-four (24) months following the Date of Termination (or, if
such date occurs after the Executive reaches age sixty-three (63),
for a period equal to the number of months after such date until
the Executive reaches age sixty-five (65)), under the Company's
pension plan in which the Executive is participating immediately
prior to the Notice of Termination, all Pension Benefits shall
continue to accrue to the Executive, crediting of service of the
Executive with respect to Pension Benefits shall continue and the
Executive shall be entitled to receive all Pension Benefits. To
the extent that the amount of any Pension Benefits cannot take
into account such accrual or crediting by reason of the
Executive's no longer being an employee of the Company during such
period, the Company shall itself pay to the Executive an amount
equal to the additional benefits that would have been provided had
such accrual or crediting been
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<PAGE>
taken into account in calculating such pension benefits. The
obligation of the Company to provide any pension benefit payment
under the preceding sentence constitutes merely the unsecured
promise of the Company to make such payments from its general
assets, and the Executive shall have no interest in, or lien or
prior claim upon, any property of the Company or a Subsidiary with
respect thereto.
(c) If after reduction for any applicable federal excise tax imposed by
Section 4999 of the Code and federal income tax imposed by the Code, the
Executive's net proceeds of the severance compensation payable under this
Section 4 would be less than the amount of the Executive's net proceeds
resulting from payment of severance compensation described below, after
reduction for federal income taxes, then the amount under this Section 4
(without application of the paragraph (c)) shall be reduced as hereinafter
provided. If the severance compensation under this Section 4 (without
application of this Section 4(c)), either alone or together with other payments
to the Executive from the Company or a Subsidiary, would constitute a "parachute
payment" (as defined in Section 280G of the Code and regulations), such
severance compensation shall be reduced to the largest amount that will result
in no portion of the severance compensation payments under this Section 4 being
subject to the excise tax imposed by Section 4999 of the Code or being
disallowed as deductions to the Company under Section 280G of the Code. The
determination of whether any reduction in the severance compensation payments
under this Section 4(c) is to apply shall be made by the Executive in good faith
after consultation with the Company, and such determination shall be conclusive
and binding on the Company. The Company shall cooperate in good faith with the
Executive in making such determination and in providing the necessary
information for this purpose.
5. Employment.
----------
The Executive agrees to be bound by the terms and conditions of this
Agreement and to remain in the employ of the Company or Subsidiary during any
period following any public announcement by any person of any proposed
transaction or transactions which, if effected, would result in a Change in
Control of the Company until a Change in Control of the Company has taken place
or, in the opinion of the Board of Directors, such person has abandoned or
terminated its efforts to effect a Change in Control of the Company. Subject to
the foregoing, nothing contained in this Agreement shall impair or interfere in
any way with the right of the Executive to terminate the Executive's employment
or the right of the Company or any Subsidiary to terminate the employment of the
Executive with or without cause prior to a Change in Control of the Company.
Nothing contained in this
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Agreement shall be construed as a contract of employment between the Company or
a Subsidiary and the Executive or as a right of the Executive to continue in the
employ of the Company or a Subsidiary, or as a limitation of the right of the
Company or a Subsidiary to discharge the Executive with or without cause prior
to a Change in Control of the Company.
6. No Obligation to Mitigate Damages; No Effect On Other Contractual
-----------------------------------------------------------------
Rights.
- ------
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the termination of the
Executive's employment, or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, or other plan, arrangement, agreement or contract of the
Company or a Subsidiary, including the terms of the Letter Agreement dated
December 3, 1993, attached.
7. Successor to the Company; Successor of the Executive.
----------------------------------------------------
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) of all or
substantially all the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to the Executive hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
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8. Miscellaneous.
-------------
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
9. Validity.
-------
The invalidity of unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
lO. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. Legal Fees and Expenses.
-----------------------
The Company or Subsidiary shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's or a Subsidiary's
contesting the validity, enforceability or the executive's interpretation of, or
determinations under, this Agreement.
12. Laws Governing.
--------------
This Agreement has been entered into in the State of Ohio, and shall be
construed, interpreted and governed in accordance with the laws of the State of
Ohio.
13. Notice.
------
For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
12
<PAGE>
If to the Company or a Subsidiary:
Commercial Intertech Corp.
1775 Logan Avenue
P.O. Box 239
Youngstown, Ohio 44501-0239
Attn: General Counsel
If to the Executive:
Mark G. Kachur
29B School Lane
Lloyd Harbor, NY 11743
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EXECUTIVE COMMERCIAL INTERTECH CORP.
/s/ MARK G. KACHUR By: /s/ BRUCE C. WHEATLEY
- ----------------------------- -------------------------------
Name: Mark G. Kachur Name: Bruce C. Wheatley
----------------------- ------------------------------
Senior Vice President -
Title: Fluid Purification Group Title: Vice President - Adminstration
------------------------- ------------------------------
13
<PAGE>
EXHIBIT 10.9
[LETTERHEAD OF COMMERCIAL INTERTECH]
December 3, 1993
Personal and Confidential
- -------------------------
Mr. Mark G Kachur
29 School Lane
Lloyd Harbor
Long Island, NY 11743
Dear Mark:
On behalf of Commercial Intertech S.A. of Diekirch, Grand Duchy of Luxembourg,
I am pleased to extend an offer of employment, the terms of which are detailed
as follows:
Title:
Senior Vice President-Asian Marketing, reporting to Chairman of Commercial
Intertech S.A. June 1, 1994 - Senior Vice President-Fluid Purification
June 1, 1994 - Senior Vice President-Fluid Purification Group, reporting to
Chairman of Commercial Intertech Corp.
Responsibilities:
Until June 1, 1994, your duties will include developing new markets in
hydraulics and metals directed to Asian, Far East and Pacific Rim
countries. Specifically excluded from duties are any active
--------
responsibilities in the Fluid Purification Group.
June 1, 1994 and thereafter, duties will include direction of worldwide
activities of Fluid Purification Group.
Base of Operations:
Until June 1, 1994, Diekirch, Grand Duchy of Luxembourg. June 1, 1994 and
thereafter, Meriden, Connecticut.
Length of Employment Agreement:
While it is our desire that you will finish your business career with us,
this initial employment agreement, per your request, is for a three-year
period.
<PAGE>
-2-
Compensation (base salary and bonus paid on an October 31 fiscal year-end
basis):
Fiscal Year 1 - base salary of $240,000 plus $120,000 signing bonus paid
in December 1994, salary will be prorated based upon date of employment.
Fiscal Year 2 - base salary to be adjusted in accordance with external
compensation consultants' recommendations plus second year guaranteed
signing bonus, the combined total of which will be no less than
$325,000, exclusive of participation in the salaried incentive plan
(bonus plan).
Fiscal Year 3 - base salary to be adjusted in accordance with external
compensation consultants' recommendations (no less than $265,000).
Salaried Incentive Plan:
40% of base salary target level with maximum 60% upon achievement of
performance goals; eligibility in second year of employment.
Stock Awards:
7,500 Restricted Shares granted conditioned only by continued employment
by the Company for five years. During the five-year restricted period,
you will receive dividends and vote the shares although the share
certificates will be legended and held in escrow by the Corporate
Secretary. If you should leave the employment of the Company at the end
of your three-year agreement, Commercial would waive the continued
employment requirement on 60 percent of the 7,500 shares.
Options to Purchase Shares:
Year 1 10,000
Year 2 10,000
Year 3 15,000
Non-qualified stock option grants for 10 years, exercisable one-half in
two years and one-half in three years. The price will be the fair market
value on the date of the grant.
Performance Shares - 8,000 shares to be granted in January 1995
conditioned upon the achievement of certain performance goals over a
three-year time horizon.
Relocation:
Customary key executive reimbursement for moving expenses and normal
costs associated with the purchase of residence
<PAGE>
-3-
in Connecticut and the sale of two residences (Charlottesville, Virginia
in 1994 and Long Island, New York in 1995.)
Additionally, the Company agrees to provide reasonable temporary
residence cost reimbursement, subject to final approval by the Chairman
and Chief Executive Officer, in Connecticut until June of 1995.
Automobile Allowance:
$805 per month plus use of gasoline credit card - certain guidelines on
choice of automobile apply.
Benefit Programs:
Participation in various benefit programs as soon as eligibility
requirements are fulfilled.
Such programs include salaried pension plan, 401(k), non-qualified
savings and stock purchase plan, medical, hospitalization, life,
disability, and accidental death and dismemberment insurance. Some
modest contributions on your part may be required depending upon
selected coverage levels.
Supplemental Executive Retirement Plan:
The Company agrees to provide a SERP utilizing base salary based upon
actual years of employment accrued at age 65.
Vacation:
Four weeks per year until retirement.
Indemnification:
If you join Commercial Intertech S.A. prior to May 23, 1994, Company
agrees to indemnify and defend you against costs and damages associated
with alleged breach of covenant not to compete against your former
employer, Pall Corporation.
If said former employer litigates and is successful in preventing your
employment with Commercial Intertech S.A., Company will compensate you
with your monthly base compensation until June 1, 1994, or whenever
restriction is lifted, whichever occurs first. During this restricted
period, Commercial will provide reimbursement for your medical coverage
(COBRA) as well as the monthly automobile allowance.
Covenant Not To Compete Against Commercial Intertech Corp.:
During the three-year contract and thereafter, you agree not to provide
services to any entity considered by the Company
<PAGE>
-4-
to be a competitor for no more than two years following voluntary or
involuntary termination from Company. For each year of such covenant not
to compete, you will receive a year's base compensation, appropriate
bonus and benefits. (Upon commencement of duties, you will be required
to execute the Company's standard Key Executive Agreement setting forth
confidentiality and non-competition obligations.)
Change of Control:
In the event of termination after a change of control of the Company,
you will be provided the Company's standard severance compensation
agreement guaranteeing two year's base compensation.
Mark, I hope you find this proposal acceptable. If you agree with the
terms of this letter, please sign the acceptance on a copy of the letter
and return it to me.
We look forward to your coming aboard!
Sincerely,
/s/ PAUL J. POWERS
Paul J. Powers
PJP/sms
Acceptance
----------
The above terms and conditions are accepted this 4 day of December, 1993.
/s/ MARK G. KACHUR
<PAGE>
Cuno Incorporated
List of Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction(s)
- ---- ---------------
<S> <C>
CUNO Europe S.A. France
CUNO Filtration Asia Pte. Ltd. Republic of Singapore
Cuno K.K. Japan
Cuno Pacific Pty Limited New South Wales
Water Factory Systems, Inc. United States
Cuno do Brazil, Ltd. Brazil
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> OCT-31-1995 OCT-31-1996
<PERIOD-START> NOV-01-1994 NOV-01-1995
<PERIOD-END> OCT-31-1995 APR-30-1996
<CASH> 6,740 5,521
<SECURITIES> 0 0
<RECEIVABLES> 34,517 37,319
<ALLOWANCES> 1,136 980
<INVENTORY> 21,763 18,566
<CURRENT-ASSETS> 88,928 94,997
<PP&E> 93,379 92,560
<DEPRECIATION> 45,448 45,488
<TOTAL-ASSETS> 162,827 167,200
<CURRENT-LIABILITIES> 39,754 42,560
<BONDS> 4,060 3,484
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 112,189 114,406
<TOTAL-LIABILITY-AND-EQUITY> 162,827 167,200
<SALES> 162,699 86,094
<TOTAL-REVENUES> 162,699 86,094
<CGS> 99,772 51,886
<TOTAL-COSTS> 99,772 51,886
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 643 70
<INTEREST-EXPENSE> 691 199
<INCOME-PRETAX> 9,563 7,481
<INCOME-TAX> 3,462 2,379
<INCOME-CONTINUING> 6,101 5,102
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,101 5,102
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
