<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10/A
AMENDMENT NO. 2
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)
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<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>
[LOGO OF INTERTECH]
August 23, 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,
/s/ Paul J. Powers
Paul J. Powers
Chairman, President and Chief
Executive Officer
<PAGE>
[LOGO OF INTERTECH]
August 23, 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,
/S/ Paul J. Powers
Paul J. Powers
Chairman and Chief Executive Officer
<PAGE>
FOR INFORMATION ONLY
INFORMATION STATEMENT
LOGO
LOGO
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 23,
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 certificates representing fractional shares will be
issued.
There is no current public market for the common stock of CUNO. Such shares
have been approved for listing on the Nasdaq National Market under the symbol
"CUNO." Trading of such shares will commence upon (i) the Company's Form 10, of
which this Information Statement is a part, being declared effective by the
Securities and Exchange Commission and (ii) official notice of issuance of the
shares from the Company.
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 7.
----------------
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 AUGUST 22, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TABLE OF CONTENTS........................................................ i
INFORMATION STATEMENT SUMMARY............................................ 1
RISK FACTORS............................................................. 7
Absence of History as a Stand-Alone Company............................ 7
Limited Relevance of Historical Financial Information.................. 7
Agreements with Commercial Intertech; Lack of Arm's-Length
Negotiations.......................................................... 7
Potential Change of Control of Commercial Intertech.................... 7
No Prior Market for the Shares; Possible Volatility of Share Price..... 8
Risks Associated With International Operations......................... 8
Patents and Proprietary Techniques..................................... 8
Technological and Regulatory Change.................................... 8
Certain Federal Income Tax Considerations.............................. 9
Competition............................................................ 9
Composition of Board of Directors and Management; Potential Conflicts
of Interest........................................................... 9
Anti-Takeover Considerations........................................... 10
Risks Associated with Acquisitions..................................... 10
Forward-Looking Information May Prove Inaccurate....................... 10
Effects on Commercial Intertech Common Shares.......................... 10
INTRODUCTION............................................................. 11
THE DISTRIBUTION......................................................... 12
Background and Reasons for the Distribution............................ 12
The Stock Split........................................................ 15
Manner of Effecting the Distribution................................... 15
Results of the Distribution............................................ 16
Listing and Trading of the Common Stock................................ 16
Future Management of The Company....................................... 17
Certain Federal Income Tax Consequences of the Distribution............ 17
Conditions; Termination................................................ 18
Reasons for Furnishing the Information Statement....................... 18
ARRANGEMENTS BETWEEN THE COMPANY AND COMMERCIAL INTERTECH................ 19
Distribution and Interim Services Agreement............................ 19
Tax Allocation Agreement............................................... 20
Employee Benefit Agreement............................................. 20
FINANCING................................................................ 21
PRO FORMA CAPITALIZATION................................................. 22
PROJECTIONS.............................................................. 23
Uncertainty of Projections............................................. 23
General................................................................ 23
Methodology............................................................ 24
Projection Periods Presented........................................... 24
Assumptions............................................................ 24
SELECTED FINANCIAL AND OTHER DATA........................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 27
Overview............................................................... 27
Results of Operations.................................................. 28
Impact of Inflation.................................................... 30
Quarterly Results and Seasonality...................................... 30
Liquidity and Capital Resources........................................ 31
Accounting Standards................................................... 31
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS................................................................. 32
General................................................................ 32
Market Overview........................................................ 32
Growth Strategy........................................................ 33
Products............................................................... 34
New Products........................................................... 38
Competition............................................................ 39
Research and Development and Product Development....................... 39
Manufacturing.......................................................... 39
Raw Material Suppliers................................................. 39
Distribution and Sales................................................. 39
Properties............................................................. 40
Trademarks and Patents................................................. 40
Seasonality............................................................ 40
Government Regulations................................................. 40
Employees.............................................................. 41
Legal Proceedings...................................................... 41
MANAGEMENT............................................................... 42
Executive Officers, Directors and Significant Employees................ 42
Board of Directors..................................................... 43
Committees of the Board of Directors................................... 43
Compensation of the Board of Directors................................. 44
Executive Compensation................................................. 44
EXPECTED COMPENSATION AND EMPLOYEE BENEFIT PLANS FOLLOWING THE
DISTRIBUTION............................................................ 49
Annual Incentive Compensation.......................................... 49
The Executive Management Incentive Plan................................ 50
The Management Incentive Plan.......................................... 50
Employment Agreement................................................... 50
Termination Benefits................................................... 50
Change of Control Agreements........................................... 51
Stock Option Plans..................................................... 51
OWNERSHIP OF COMMON STOCK................................................ 54
Security Ownership of Directors and Executive Officers................. 54
Security Ownership of Certain Beneficial Owners........................ 54
CERTAIN TRANSACTIONS IN CONNECTION WITH THE DISTRIBUTION................. 55
DESCRIPTION OF CAPITAL STOCK............................................. 56
Common Stock........................................................... 56
Preferred Stock........................................................ 56
Certain Corporate Provisions........................................... 56
Delaware Anti-Takeover Law............................................. 57
Stockholder Rights Agreement........................................... 57
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.................. 60
Limitation of Liability of Directors................................... 60
Indemnification of Directors and Officers.............................. 60
ADDITIONAL INFORMATION................................................... 62
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 August 9,
1996, a 13,566.431 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 "The Distribution--The Stock Split" and
"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). Commercial
Intertech also believes that the Spin-off will increase the long-term value of
Commercial Intertech and its shareholders' investment. Furthermore, Commercial
Intertech 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 higher growth rate of the
CUNO Business as compared to the Commercial Intertech Remaining Businesses, and
the higher price-to-earnings multiple that the Common Stock should trade at as
the Company's market value becomes realized. See "The Distribution--Background
and Reasons for the Distribution."
Commercial Intertech believes that the CUNO Business requires different
management experience and capabilities, due to its distinct marketing and
selling techniques and strategic planning, than Commercial Intertech's
hydraulic systems business and Commercial Intertech's building systems and
metal products business, in order to maximize the potential growth of each
business. 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 may, however,
have an adverse effect on the Commercial Intertech Common Shares. See "Risk
Factors--Effects on Commercial Intertech Common Shares."
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....
13,566,431 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 August 9, 1996. The shares to
be distributed will constitute all of the shares
of the Common Stock outstanding immediately after
the Distribution. No certificates
2
<PAGE>
representing fractional shares will be issued as
part of the Distribution. The Distribution Agent
(as defined below) will, as soon as practicable,
aggregate all fractional shares of the Common
Stock and distribute such shares to Goldman,
Sachs & Co. ("Goldman Sachs") which will sell
such shares on Nasdaq (as defined below) or
otherwise at then-prevailing market prices and
remit the net proceeds to stockholders otherwise
entitled to fractional shares. This number
excludes stock options and performance shares to
be granted on the Distribution Date. See "The
Distribution--Manner of Effecting the
Distribution."
Distribution Ratio.......... One share of Common Stock for each Commercial
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...........
No certificates representing fractional shares
will be issued as part of the Distribution. The
Distribution Agent will, as soon as practicable,
aggregate all fractional shares of the Common
Stock and distribute such shares to Goldman Sachs
which will sell such shares on Nasdaq or
otherwise at then-prevailing market prices and
remit the net proceeds to stockholders otherwise
entitled to fractional shares. See "The
Distribution--Manner of Effecting the
Distribution."
Trading Market and Symbol...
There is currently no public market for the
Common Stock. The Common Stock has been approved
for listing on the Nasdaq National Market
("Nasdaq") under the symbol "CUNO." Trading of
such shares will commence upon (i) the Company's
Form 10, of which this Information Statement is a
part, being declared effective by the Securities
and Exchange Commission and (ii) official notice
of issuance of the shares from the Company. 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
3
<PAGE>
the Distribution Date any injunction, order or
decree of any court or any governmental authority
which prohibits or makes illegal the
Distribution. The Common Stock has been approved
for listing on Nasdaq. Trading of such shares
will commence upon (i) the Company's Form 10, of
which this Information Statement is a part, being
declared effective by the Securities and Exchange
Commission and (ii) official notice of issuance
of the shares from the Company. 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.
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) eliminate 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.
4
<PAGE>
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.
However, five of the nine Directors of the
Company are not members of the Commercial
Intertech Board of Directors. See "Arrangements
Between the Company and Commercial Intertech."
5
<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.... $.34 $.32
Shares Used to Calculate
Net Income Per
Share(3)............... 13,566 13,566
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
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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, Including Affiliate Loan Payable and
Excluding Current Maturities(5)........................ 33,484 33,484
Total Shareholder's Equity.............................. 84,406 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 initial 8.5% per annum
interest rate which is based on the current Prime Rate of 8.25%, 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 13,566,431 Commercial Intertech shares outstanding as of
August 9, 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, as if 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.,
occurred as of the earliest period presented.
(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. However, such agreements contain certain provisions
dealing with corporate opportunities presented to the Company's officers or
members of the Company's Board of Directors who are also officers of
Commercial Intertech or members of Commercial Intertech's Board of Directors.
Although such provisions by themselves would not necessarily have resulted if
Commercial Intertech and the Company had been unaffiliated parties negotiating
at arm's length, the Company and Commercial Intertech believe that the
intercompany agreements as a whole reflect the results which would have been
reached by unaffiliated parties negotiating at arm's length. 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. On August 5, 1996, United terminated its tender
offer for Commercial Intertech. 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: Japan, Brazil, France and
Australia. 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, in fiscal year 1995 the Company received
approximately 54% 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
8
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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 factual 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 nine initial members of the Board are also
members of the Commercial Intertech Board of Directors. Five 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)
eliminate 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") 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 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 fact that given the higher growth rate of the CUNO
Business as compared to the Commercial Intertech Remaining Businesses, the
Common Stock would likely trade at a higher price-to-earnings multiple than the
Commercial Intertech Common Shares; the fact that the Company's market value
had not previously been fully realized because of Commercial Intertech's mix of
lower multiple industrial businesses; the Company's historical difficulties in
attracting and retaining qualified personnel in light of the fact that the
Company was not publicly-traded and could not offer stock-based compensation in
the Company commensurate with the Company's performance; 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. The committee noted
that, because of the Company's low tax-basis, a taxable sale of the Company
would result in Commercial Intertech incurring substantial tax liabilities. In
addition, the committee believed that, because of the Company's improvements in
operating performance and profitability in recent years, its market position in
the fluid filtration industry and its growth potential, Commercial Intertech
shareholders would be better served by retaining their interest in the Company
and participating in the Company's future growth, rather than undertaking an
immediate sale of the Company.
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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 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 the Commercial Intertech Board
rejected United's proposal and United continued to pursue its proposal,
shareholders of Commercial Intertech would not realize the true value of
Commercial Intertech's investment in the Company. In addition, the Commercial
Intertech Board believed, after consultation with its financial advisor, that
it would not be practicable to pursue the public offering, in view of the
uncertainties created by United's proposal, including uncertainties as to the
future ownership of the Company and the strategic direction of the Company's
business in the event of a change in ownership of 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, subject to customary conditions, including the
receipt of an opinion of counsel with respect to the tax-free nature of the
Spin-off. The Commercial Intertech Board determined to proceed with the Spin-
off at this time for the reasons discussed below. The Commercial Intertech
Board believed that the Spin-off would also ensure that shareholders of
Commercial Intertech, rather than United, would realize the benefits of the
Company's leading position in the worldwide fluid filtration business and its
long-term growth potential.
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In reaching its conclusions referred to above, the Commercial Intertech
Board considered numerous factors, including but not limited to:
(i) the Commercial Intertech Board's familiarity with the business,
financial condition, prospects and current business strategy of Commercial
Intertech, the nature of the businesses in which Commercial Intertech
operates and the Commercial Intertech Board's belief that the Revised Offer
(as defined below) does not reflect the long-term values inherent in the
Company;
(ii) Commercial Intertech's financial performance in recent years,
including its record results for its 1995 fiscal year and three consecutive
years of improving operating results, including strong improvements in
operating performance and profitability by the Company;
(iii) Commercial Intertech's long-term strategic plan to build value for
its shareholders by growing its core businesses (the strategic plan
includes, with respect to Commercial Intertech, the launch of new products,
reductions in corporate and operating unit overhead, continued improvement
in Commercial Intertech's German businesses, increased penetration by the
building systems division in Central and Eastern European markets and, with
respect to the Company, the development of new products from the Company's
core technologies, decreasing product development cycles, increased
customer focus, improved distribution, improved operating efficiencies and
growth though selective acquisitions);
(iv) Commercial Intertech's plan to proceed with the Spin-off, in light
of the belief of the Commercial Intertech Board and Commercial Intertech's
management that:
. the Spin-off should enhance the abilities of the managements of both
Commercial Intertech and the Company to focus more closely on the
objectives of their respective businesses, enhance the two companies'
ability to create incentives that align the interests of their
management and employees with the performance of their respective
companies and permit the Company to use its publicly traded stock as
a currency for expansion through acquisitions; and
. the Spin-off should enable shareholders of Commercial Intertech to
benefit in the near term from the higher growth rate of the CUNO
Business as compared to the Commercial Intertech Remaining
Businesses, and the higher price-to-earnings multiple that the Common
Stock should likely trade at as the Company's market value becomes
realized. The Commercial Intertech Board took into consideration that
there is some risk that the tax-free nature of the Spin-off could be
impacted, with attendant adverse tax consequences to Commercial
Intertech and certain of its shareholders, in the event of an
acquisition of the Company by certain third parties (including
United) following a spin-off; and
(v) the Commercial Intertech Board's belief, in light of Commercial
Intertech's strategic plan and its plan to proceed with the Spin-off, that
this is not the appropriate time to sell Commercial Intertech (the
Commercial Intertech Board's belief was based upon (a) its view that the
Spin-off would unlock the value of the Company by benefiting from the
higher growth rate of the CUNO Business as compared to the Commercial
Intertech Remaining Businesses, and the higher price-to-earnings multiple
that the Common Stock should likely trade at as the Company's market value
becomes realized and (b) its view that Commercial Intertech's strategic
plan, including the Spin-off, would result in greater value of Commercial
Intertech and its shareholders over the long-term).
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.
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On August 5, 1996, United terminated its tender offer for Commercial
Intertech.
The Spin-off could have certain anti-takeover effects with respect to the
Revised Offer, including adversely impacting United's interest in an
acquisition of Commercial Intertech, causing United to restructure its Revised
Offer or causing United to reduce the price payable pursuant to the Revised
Offer. United's August 5, 1996 announcement noted that the Spin-off was one of
factors that caused United to terminate its Revised Offer.
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 directly to the
respective company's performance. The Company is in a high-technology
industry. Employees of high-tech companies expect stock-based compensation
which gives them a significant equity share in the growth of their company
because such stock traditionally trades at high multiples of earnings, making
this type of program an important and effective compensation incentive. 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, the Company
has been presented with opportunities to acquire complimentary businesses in
the filtration industry. For tax and other reasons, such potential targets
desired to effect an acquisition through a stock-for-stock transaction. Such
acquisitions were made more difficult because potential targets did not desire
to hold Commercial Intertech Common Shares. The Company believes that this is
because, though the businesses of potential targets were sought to enhance the
CUNO Business, the performance of Commercial Intertech Common Shares would not
necessarily reflect the enhanced performance of the CUNO Business. In
addition, to consumate certain potential acquisitions, Commercial Intertech
would have had to have issued a disproportionate amount of Commercial
Intertech Common Shares for shares of the potential target, which would have
diluted the Commercial Intertech Common Shares, because the Commercial
Intertech Common Shares trade at a significantly lower price-to-earnings
multiple than the common stock of the potential targets. The Distribution
should also enable shareholders to benefit in the near term from the higher
growth rate of the CUNO Business as compared to the Commercial Intertech
Remaining Businesses, and the higher price-to-earnings multiple that the
Common Stock should likely trade at as the Company's market value becomes
realized.
Commercial Intertech believes that the two Commercial Intertech Remaining
Businesses and the CUNO Business, require management experience and
capabilities specific to their industries, 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. The
Distribution may, however, have an adverse effect on the Commercial Intertech
Common Shares. See "Risk Factors--Effects on Commercial Intertech Common
Shares."
THE STOCK SPLIT
Prior to the Distribution, there were 1,000 shares of Common Stock
outstanding, all of which were held by Commercial Intertech. Immediately prior
to the Distribution, each of these shares of Common Stock will become
13,566.431 shares of Common Stock. This stock split will result in 13,566,431
shares of Common Stock being outstanding at the time of the Distribution and
is being effected so as to provide Commercial Intertech with enough shares of
Common Stock to distribute to its shareholders pursuant to the Distribution.
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
15
<PAGE>
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 to holders of Commercial Intertech Common Shares as part of the
Distribution. The Distribution Agent will, as soon as practicable, aggregate
all fractional shares of the Common Stock and distribute such shares to
Goldman Sachs which will sell such shares on Nasdaq or otherwise at then-
prevailing market prices and remit the net proceeds to stockholders otherwise
entitled to fractional shares.
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
3,826 holders of record of the Common Stock and 13,566,431 shares of Common
Stock outstanding, based on the number of holders of record and outstanding
Commercial Intertech Common Shares as of August 9, 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.
LISTING AND TRADING OF THE COMMON STOCK
There is not currently a public market for the Common Stock. After the
Company's Form 10, of which this Information Statement is a part, is declared
effective by the Securities and Exchange Commission and before the
Distribution, the Common Stock may be traded on a "when issued" basis. 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.
The Common Stock has been approved for listing on Nasdaq. Trading of such
shares will commence upon (i) the Company's Form 10, of which this Information
Statement is a part, being declared effective by the Securities and Exchange
Commission and (ii) official notice of issuance of the shares from the
Company. 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
16
<PAGE>
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, 324,800 shares or 2.4% 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 the CUNO Business and the officers and employees of Commercial
Intertech. See "Management--Executive Officers."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Commercial Intertech has received substantially identical 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. These opinions represent each firm's best legal judgment as to the
matters set forth in the opinions based upon each firm's review of the Code,
the Department of Treasury regulations promulgated thereunder and judicial
authority, any of which may be changed at any time with retroactive effect.
Both opinions provide that 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
(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.
17
<PAGE>
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. On August 5,
1996, United terminated its tender offer for Commercial Intertech. 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.
18
<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.
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, (i) the principal corporate transactions
required to effect the separation of the CUNO Business from the Commercial
Intertech Remaining Businesses and the Distribution and (ii) certain other
arrangements, which are summarized below, 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 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 CUNO Business with the Company, and financial
responsibility for the liabilities of the Commercial Intertech Remaining
Businesses 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 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 the Company.
The Distribution and Interim Services Agreement provides that certain
services, including tax, accounting, payroll, employee benefit and legal
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 CUNO Business. Such
opportunities could lead to a conflict of interest between Commercial
Intertech and the Company. To the extent a conflict arises between Commercial
Intertech and the Company under the Distribution and Interim Services
Agreement, the Tax Allocation Agreement or the Benefits Agreement, the
following procedures shall be used: (i) each party shall appoint two members
to a dispute resolution committee; (ii) if such committee is unable to resolve
such dispute, it shall refer the dispute to the chief executive officer of
each company for resolution; and (iii) if such chief executive officers are
unable to resolve such dispute, they shall refer the dispute to final, binding
arbitration.
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<PAGE>
This procedure to resolve disputes between the companies could currently
result in a conflict as the same individual, Mr. Powers, currently serves as
Chief Executive Officer of both Commercial Intertech and the Company.
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 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 not to
take any action that would be inconsistent with any requirement, nor fail to
take any action required, 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. For
purposes of the Tax Allocation Agreement "a change of control" shall mean a
greater than 50% change in stock ownership, measured by vote and value of
either 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 former and current Company employees and their beneficiaries and
dependents, as well as former employees of 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
20
<PAGE>
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 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 entered into a credit
agreement with Mellon Bank, N.A., (the "Bank"), in its capacity as agent for
various banks, pursuant to which the Bank has agreed 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 subsidiaries of the Company
and expires on January 30, 1998. The Company intends to draw down the term
facility immediately after the Distribution and use the proceeds 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.
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<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........................... $ 33,484(2) $33,484
Shareholder's Equity..................... 78,696 (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;
13,566,431 shares issued and
outstanding as adjusted(1)............ -- 14 (4) 14
Additional Paid-in-Capital............. -- 40,507 (4) 40,507
-------- -------
78,696 40,521
Translation Adjustments.................. 5,710 5,710
-------- -------
Total Shareholder's Equity........... 84,406
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". Also excludes preferred share
purchase rights. See "Description of Capital Stock--Stockholder Rights
Agreement."
(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 13,566,431 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."
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<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.
23
<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 which will be paid by the
Company. 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............ $0.34 $0.70 $0.83
Shares Used to
Calculate Pro Forma
Net Income Per
Share................ 13,566 13,566 13,566
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,
Including Affiliate
Loan Payable and
Excluding Current
Maturities........... 35,580 35,175 34,060 34,060 32,415 28,421
Stockholders' Equity.. 73,743 76,466 82,189 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.
24
<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.
25
<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... $.34 $.32
Shares Used to
Calculate Net Income
Per Share(3).......... 13,566 13,566
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,
Including Affiliate
Loan Payable and
Excluding Current
Maturities(5)......... 36,450 34,418 35,580 35,175 34,060 33,484 33,484
Total Shareholder's
Equity................ 81,910 77,314 73,743 76,466 82,189 84,406 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 initial 8.5% per annum
interest rate which is based on the current Prime Rate of 8.25%, 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 13,566,431 Commercial Intertech shares outstanding as of
August 9, 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, as if 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.,
occurred as of the earliest period presented.
(6) Adjusts total shareholder's equity to reflect, as if the Distribution
occurred as of 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.
26
<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. In fiscal year 1995, the Company
received approximately 54% 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.
Reported financial information contained herein may not necessarily be
indicative of future operating results or future financial condition. In
particular, while Commercial Intertech did not historically service debt
specifically related to the Company or its subsidiaries, a total of $30
million of the Commercial Intertech's long-term debt will be allocated to the
Company as part of the Distribution giving rise to additional interest expense
in future periods. Other than the additional interest expense described above,
the Company does not expect to incur other costs materially different from
historical results. See "Pro Forma Statements of Condensed Combined Income."
27
<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 and
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, administrative
and general 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
28
<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 and
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
29
<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 and 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 and
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 reversal 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.
30
<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 declared a
dividend of $35.7 million payable to Commercial Intertech and the Company will
assume $30.0 million of Commercial Intertech's debt. Also in connection with
the Distribution, the Company has entered into the $55.0 million CUNO Facility
maturing on January 30, 1998. The CUNO Facility consists of a $30 million term
facility and a $25 million revolving facility. The Company intends to draw down
the term facility immediately after the Distribution and use 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 funds available in capital markets 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.
31
<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>
32
<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
33
<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
34
<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).
35
<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.
36
<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>
37
<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>
38
<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 65
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
39
<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 25% 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 31, 1996, the Company employed over 250
people as sales people. Of such employees, 160 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 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
40
<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 amount and type of contaminants per volume of water they
discharge as locally regulated.
EMPLOYEES
At July 31, 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 135 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.
41
<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
Joel B. Alvord....................... 57 Director
Charles L. Cooney.................... 51 Director
Norbert A. Florek.................... 56 Director
John M. Galvin....................... 63 Director
Gerald C. McDonough.................. 68 Director
C. Edward Midgley.................... 59 Director
David L. Swift....................... 59 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 has been a director of the Company since July
1996 and will be President and Chief Operating Officer of the Company as of
the Distribution. Since joining the Company in 1994, Mr. Kachur has been 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 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 joining the Company as Senior Vice
President, Chief Financial Officer, Secretary and Treasurer 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.
Joel B. Alvord. Mr. Alvord has been a director of the Company since August
19, 1996. Since 1995, he has been the Chairman of the Board and a director of
the Fleet Financial Group, one of the largest banks in the country. In 1978,
he became the President of Hartford National Bank & Trust Company. From 1988
to 1995, he served as Chief Executive Officer and Chairman of the Board of the
Shawmut National Corporation, a bank
42
<PAGE>
resulting from a merger between Hartford National Bank and Shawmut National.
He was educated at Loomis Chaffee School and Dartmouth College, where he holds
a bachelor's degree in History and a master's degree in Business
Administration from the Amos Tuck School of Business Administration. Mr.
Alvord is also a director of the Hartford Steam Boiler Inspection & Insurance
Company and has been a member of the Board of Directors of the Federal Reserve
Bank of Boston.
Charles L. Cooney. Dr. Cooney has been a director of the Company since
August 19, 1996. 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.
Norbert A. Florek. Mr. Florek has been a director of the Company since
August 19, 1996. Mr. Florek retired from the Allstate Insurance Company in
1995, where he served as Chief Financial Officer since 1990. Since then, he
has been a private financial consultant. He holds a bachelor's degree in
Business Administration from Loyola University.
David L. Swift. Mr. Swift has been a director of the Company since August
19, 1996. Mr. Swift retired in 1996 from Acme-Cleveland Corporation, a
manufacturer of communications, motion control and measurement products, where
he served as Chairman of the Board since 1993 and Chief Executive Officer and
President since 1988. He holds a bachelor of science degree from Ball State
University and a juris doctorate from the Salmon P. Chase College of Law. Mr.
Swift is also a director of Alltrista Corporation, a consumer products
manufacturer, and Twin Disc, Inc., an industrial parts manufacturer.
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 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.
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 in 1994, he held various
marketing positions, including Marketing Manager--Food
43
<PAGE>
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 in 1996, 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 joining the Company as Vice
President--Controller and Assistant Secretary 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 in 1994, he was with Pall
Corporation where he held the position of Vice President of Sales. He holds a
bachelor 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 1996, 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. Mr. Disinski
joined the Company in 1987. He holds a bachelor of science degree in Chemistry
from the State University of New York at Corning.
At present, Mr. Powers is the only person who is an officer of both the
Company and Commercial Intertech. Mr. Powers will receive a salary and other
benefits as an officer of Commercial Intertech. The Company will either
reimburse Commercial Intertech on an equitable basis or pay Mr. Powers
directly for his services to the Company. In the event Mr. Powers is paid
directly by the Company for these services, his Commercial Intertech salary
shall be correspondingly reduced.
BOARD OF DIRECTORS
Prior to the Distribution, the nine persons on the Board were divided into
three classes. The Board is composed of three Class I directors (Mssrs.
Galvin, Alvord and Dr. Cooney), three Class II directors (Messrs. Kachur,
McDonough and Florek) and three Class III directors (Messrs. Midgley, Powers
and Swift). 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.
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), Alvard, Florek 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
44
<PAGE>
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 Alvord. 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 five members: Messrs. Powers
(Chairman), Galvin, Midgley, McDonough and Swift.
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 five members: Messrs. Galvin (Chairman), Swift,
Florek, Powers and Dr. Cooney.
Other Committees
The Board of Directors may establish such other committees as deemed
necessary and appropriate from time to time.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are not employees or officers 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 or officers
of the Company do not receive compensation for serving as directors. Directors
are also reimbursed for reasonable travel expenses to and from meetings of the
Board and committees. 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. Mr. Powers, as an officer of the
Company, will not be compensated for serving as a director of the Company.
Messrs. Galvin, McDonough and Midgley will receive compensation from both the
Company and Commercial Intertech for serving as a director of each company.
Directors of Commercial Intertech who are not employees or officers of
Commercial Intertech receive an annual retainer in the amount of $19,000, plus
$1,000 for attending each meeting of Commercial Intertech's Board and $950 for
attending each respective committee meeting. Directors of Commercial Intertech
are also reimbursed for reasonable travel expenses to and from meetings of the
Commercial Intertech Board and committees. Each year outside directors receive
non-qualified stock options to purchase 2,250 Commercial Intertech Common
Shares, which vest over a three-year period.
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.
45
<PAGE>
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 $100,000 during such period (each, a "Named
Executive Officer"). The compensation described in this table was paid by
Commercial Intertech and all of the compensation for Mark G. Kachur and
Michael H. Croft and a portion of the compensation for Paul J. Powers was
charged to the Company.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ---------------------
RESTRICTED SECURITIES ALL
OTHER ANNUAL STOCK UNDERLYING OTHER
NAME YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS(1) OPTIONS COMPENSATION
---- ---- ---------- --------- ---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul J. Powers(2)....... 1995 481,667 440,000 -- 131,995 34,000 15,810(3)
Chairman and Chief Ex- 1994 461,667 400,000 -- 835,634 37,500 15,876
ecutive Officer 1993 434,500 165,000 -- -- 36,000 16,105
Mark G. Kachur(4)....... 1995 247,500 135,000 38,414(5) 24,008 15,000 --
President and Chief Op- 1994 134,300 120,000 0 174,375 15,000 --
erating Officer 1993 -- -- -- -- -- --
Michael H. Croft(6)..... 1995 183,000 30,000 -- -- -- 36,050(7)
Senior Vice President
</TABLE>
- --------
(1) This column shows the market value of Commercial Intertech restricted
share awards on the date of award. The aggregate holdings/value of
Commercial Intertech Restricted Stock held on October 31, 1995 by the
individuals listed in this table, not including awards which were earned
after the end of the fiscal year as part of Commercial Intertech's
Salaried Employee Incentive Plan and were elected to be taken in the form
of Commercial Intertech Restricted Stock are: Paul J. Powers--75,059
shares/$1,266,621 and Mark G. Kachur--11,250 shares/$189,844. Regular
quarterly dividends are paid on Commercial Intertech Restricted Stock held
by these individuals.
(2) During the years presented, Mr. Powers was Chairman of the Board,
President and Chief Executive Officer of Commercial Intertech.
(3) Includes Commercial Intertech matching contributions pursuant to
Commercial Intertech's Non-Qualified Stock Purchase Plan in the amount of
$10,475; Commercial Intertech matching contributions pursuant to the
Commercial Intertech 401(k) Plan in the amount of $3,975; and Commercial
Intertech contribution pursuant to the Commercial Intertech Employee Stock
Ownership Plan in the amount of $1,360.
(4) 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.
(5) Amount represents relocation and moving expenses and the related gross-up
tax payments.
(6) During the year presented, Mr. Croft was President--U.S. Operations of
CUNO.
(7) Amount represents payments to a supplemental executive retirement plan
equal to $16,625, foreign service payments equal to $12,000, ESOP
contributions equal to $1,360 and contribution matches to retirement plans
equal to $6,065.
46
<PAGE>
The following table sets forth, for each of the Named Executive Officers,
options granted in respect of Commercial Intertech Common Shares during fiscal
year 1995 pursuant to Commercial Intertech's Stock Option and Award Plan. As
set forth in the Benefits Agreement, subject to receipt of any necessary
consents, stock options for Commercial Intertech Common Shares held by CUNO
employees will, as of the Distribution Date, be replaced with stock options for
Common Stock, adjusted so that the value thereof after the Distribution Date
will equal the value of the replaced award before the Distribution Date. See
"Arrangements between the Company and Commercial Intertech--Benefits
Agreement."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL RATE
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
----------------------- -------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#) (1) YEAR ($/SHARE)(1) DATE 5% ($) 10% ($)
- ---- ---------- ---------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Powers.......... 34,000 29.1% $19.375 1/24/05 $414,354 $1,050,048
Mark G. Kachur.......... 15,000 12.8 19.375 1/24/05 182,803 463,256
Michael H. Croft........ -0- -0- -0- -0- -0- -0-
</TABLE>
- --------
(1) The options listed in the above table were granted subject to a three-year
vesting period, with 50% of the options granted becoming exercisable on the
second anniversary of the grant date and 50% on the third anniversary. No
stock appreciation rights were granted. The exercisability of the options
may be accelerated in the event of a change in control or a potential
change in control.
(2) Potential Realizable Value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains are dependent on the future performance of the Commercial Intertech
Common Shares and the option holder's continued employment throughout the
vesting period. The amounts reflected in the table may not necessarily be
achieved.
47
<PAGE>
The following table sets forth, for each of the Named Executive Officers,
information regarding the exercise of options for Commercial Intertech Common
Shares during fiscal year 1995 and unexercised options held as of the end of
fiscal year 1995 pursuant to Commercial Intertech's Stock Option and Award
Plan. As set forth in the Benefits Agreement, subject to receipt of any
necessary consents, stock options for Commercial Intertech Common Shares held
by CUNO employees will, as of the Distribution Date, be replaced with stock
options for Common Stock, adjusted so that the value thereof after the
Distribution Date will equal the value of the replaced award before the
Distribution Date. See "Arrangements between the Company and Commercial
Intertech--Benefits Agreement."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END(1) ($)
------------------------- -------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul J. Powers.......... 15,000 $118,125 115,500/89,500 $532,437/$205,810
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."
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>
Paul J. Powers....... 42,750 1/25/98 21,375 42,750 64,125
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.
48
<PAGE>
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. Powers had thirteen
years of credited years of service with Commercial Intertech and Mr. Kachur
had one credited year of service with Commercial Intertech. Mr. Croft was not
a participant in the Commercial Intertech pension plan.
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.
49
<PAGE>
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
$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. Mr. Kachur shall not
receive compensation from the Company and Commercial Intertech simultaneously.
At present, Mr. Powers is the only person who is an officer of both the
Company and Commercial Intertech. Mr. Powers will receive a salary and other
benefits as an officer of Commercial Intertech. The Company will either
reimburse Commercial Intertech on an equitable basis or pay Mr. Powers
directly for his services to the Company. In the event Mr. Powers is paid
directly by the Company for these services, his Commercial Intertech salary
shall be correspondingly reduced.
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
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<PAGE>
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
could receive (in addition to certain other benefits described below) (i) two
to 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. The Company has not yet entered
into a Termination Agreement with any Executive.
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 could 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 could be
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, an Executive may voluntarily
terminate his employment and continue to receive all benefits otherwise
payable following such change in control. In addition, payment received by an
Executive in connection with such change in control could 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
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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 on the date of the Distribution 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 the Distribution, and
Non-Employee Directors will be granted options for 1,000 shares of Common
Stock on the date of each annual stockholder's meeting beginning in 1997. 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 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
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<PAGE>
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.
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 an aggregate
of 301,000 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 an aggregate of 227,000 Performance Shares. In addition, each
Non-Employee Director of the Company will receive 5,000 Performance Shares
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.
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<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 August 9, 1996.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF VOTING
NAME OWNERSHIP(1) SHARES
- ---- ------------ -----------------
<S> <C> <C>
Paul J. Powers....................... 267,847(2)(3)(4)(5) 2.0%
Mark G. Kachur....................... 20,039(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..................... 11,669(4)(6) *
Norbert A. Florek.................... 1,000 *
David L. Swift....................... 0 *
Joel B. Alvord....................... 0 *
All directors and executive officers
as a group (eleven persons)......... 324,800 2.4%
</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 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 July 30, 1996 upon exercise of
options issued under Commercial Intertech's Stock Option and award plans as
follows: Mr. Powers--110,250 shares; Mr. Kachur--7,500 shares; Mr. Galvin--
2,250 shares; and Mr. McDonough--1,500 shares.
(4) Includes shares credited by the Trustee acting under the provisions of
Commercial Intertech's 401(k) plan as of July 30, 1996, as follows: Mr.
Powers--5,011; Mr. Croft--1,516.
(5) Includes two shares as a result of participation in the ESOP.
(6) Includes 109 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.
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
August 9, 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. 933,931(1) 6.8%
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 1,791 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 633,567
shares and shared voting power over 170,806 shares. National City Bank N.E.
has sole investment power over 299,516 shares and shared investment power
over 634,415 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 Goldman Sachs, Robert W. Baird & Co. Incorporated ("Baird") and Cleary
Gull Reiland & McDevitt Inc. ("Cleary") (each, an "Advisor"). Each Advisor
agrees to provide investment banking services in connection with the Spin-off.
Goldman Sachs has also provided financial advisory services in connection with
United's tender offer proposal. See "The Distribution--Background and Reasons
for the Distribution." Commercial Intertech has paid Goldman Sachs $500,000
for its services and agrees to pay Goldman Sachs additional fees in the event
Commercial Intertech enters into certain transactions in the future.
Commercial Intertech agrees to pay each of Baird and Cleary $250,000 for their
services. Commercial Intertech has agreed to reimburse each Advisor 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").
COMMON STOCK
As of August 9, 1996, there were 1,000 shares of Common Stock outstanding,
all of which were held by Commercial Intertech. There will be 13,566,431
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 Common Stock has
been approved for listing on the Nasdaq National Market under the symbol
"CUNO." Trading of such shares will commence upon (i) the Company's Form 10,
of which this Information Statement is a part, being declared effective by the
Securities and Exchange Commission and (ii) official notice of issuance of the
shares from the Company. 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
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<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 adopted 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 as of 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.
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
57
<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
58
<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.
59
<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. The limitations on liability provided by the Restated Certificate and
Restated Bylaws do not eliminate monetary liability of directors under the
federal securities laws.
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
60
<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.
61
<PAGE>
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. 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.
62
<PAGE>
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) and Pro Forma April 30, 1996..................................... 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
Affiliate loan payable..................................... 30,000 30,000
Deferred income taxes...................................... 4,653 4,067
Retirement benefits........................................ 1,294 2,757
-------- --------
Total noncurrent liabilities............................. 41,122 40,884
Shareholder's equity
Equity..................................................... 70,689 75,650
Translation adjustments.................................... 5,777 6,539
-------- --------
76,466 82,189
-------- --------
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..................... $72,870 $70,912 $70,689
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........................... 70,912 70,689 75,650
Translation adjustments............................ 2,831 5,777 6,539
------- ------- -------
Total shareholder's equity..................... $73,743 $76,466 $82,189
======= ======= =======
</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 transfer of Commercial Intertech's interests and assets in the business
and divisions which compromise the Company will be accounted for as a
reorganization of entities under common control in a manner similar to a
pooling of interests as of the time of the combination. Accordingly, the
historical basis is carried over. The Company's shareholders' equity will be
retroactively restated as if it had occurred at the beginning of the earliest
period presented. 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.
F-7
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
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
F-8
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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. Cash equivalents
consist of time deposits in financial institutions at October 31, 1994 and
1995.
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>
F-9
<PAGE>
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 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. Drawdowns
under the unused short-term lines of credit are subject to the lender's
approval. Outstanding bank loans at October 31, 1994 and 1995 had weighted
average interest rates of 3.2 percent and 2.5 percent, respectively. The bank
loans and unused short-term lines of credit are payable upon demand and are
unsecured. There are no significant commitment fees related to the bank loans
or unused lines of credit.
The Affiliate loan payable, representing the debt to be assumed from
Commercial Intertech upon distribution, has been presented as if it was
outstanding for all periods presented. No interest expense related to the
Affiliate loan payable is reflected in the statements of combined income.
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 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 JAPAN OTHER ELIMINATION CONSOLIDATED
-------- ------- ------- ------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1993
Sales to customers...... $ 68,842 $20,440 $22,215 $19,274 $ 0 $130,771
Inter-area sales........ 11,598 923 123 1,129 (13,773) 0
-------- ------- ------- ------- -------- --------
Total net sales......... 80,440 21,363 22,338 20,403 (13,773) 130,771
Operating income
(loss)................. (3,095) (1,825) 1,233 2,009 0 (1,678)
Identifiable assets..... 97,306 13,994 22,689 10,011 0 144,000
1994
Sales to customers...... $ 71,964 $21,651 $25,234 $24,262 $ 0 $143,111
Inter-area sales........ 12,981 1,069 236 1,197 (15,483) 0
-------- ------- ------- ------- -------- --------
Total net sales......... 84,945 22,720 25,470 25,459 (15,483) 143,111
Operating income (loss)
....................... (1,413) 373 2,392 3,626 0 4,978
Identifiable assets..... 96,174 13,749 25,125 13,615 0 148,663
1995
Sales to customers...... $ 74,893 $27,700 $30,508 $29,598 $ 0 $162,699
Inter-area sales........ 16,516 1,423 593 1,470 (20,002) 0
-------- ------- ------- ------- -------- --------
Total net sales......... 91,409 29,123 31,101 31,068 (20,002) 162,699
Operating income........ 1,607 2,351 2,533 4,349 0 10,840
Identifiable assets..... 101,640 11,381 26,595 16,471 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 August 9, 1996, 13,566,431
Commercial Intertech shares were outstanding.
F-16
<PAGE>
The Company declared a dividend of approximately $35,675,000 payable to
Commercial Intertech and, immediately prior to the Distribution, will assume
$30,000,000 of Commercial Intertech's debt.
The Company has entered into 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 are 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 Company intends to draw down the
term facility immediately upon distribution and use the proceeds 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. In addition, the Company and Commercial
Intertech will enter into a Distribution and Interim Services Agreement which
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 of up to twelve months following the Distribution Date, with certain
exceptions. The Tax Allocation Agreement and Distribution and Interim Services
Agreement are not expected to result in expenses materially different from
those reflected in the historical financial statements.
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 301,000 common shares and 227,000 performance shares
will be granted. An additional 672,000 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>
PRO FORMA
OCTOBER 31, APRIL APRIL 30,
1995 30, 1996 1996
----------- -------- ---------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C>
Current assets
Cash (including equivalents of $1,582,000 in
1995 and $845,000 in 1996)................... $ 6,740 $ 5,521 $ 5,521
Accounts and notes receivable................. 34,517 37,319 37,319
Less allowances for doubtful accounts....... 1,136 980 980
-------- -------- --------
33,381 36,339 36,339
Inventories................................... 21,763 18,566 18,566
Deferred income tax benefits.................. 5,766 4,993 4,993
Prepaid expenses and other current assets..... 2,511 2,456 2,456
Receivables from affiliates................... 18,767 27,122 27,122
-------- -------- --------
Total current assets........................ 88,928 94,997 94,997
Noncurrent assets
Intangible assets............................. 21,663 20,528 20,528
Pension assets................................ 3,264 3,233 3,233
Other noncurrent assets....................... 1,041 1,370 1,370
-------- -------- --------
Total noncurrent assets..................... 25,968 25,131 25,131
Property, plant and equipment
Land and land improvements.................... 6,672 6,364 6,364
Buildings and equipment....................... 84,256 83,062 83,062
Construction in progress...................... 2,451 3,134 3,134
-------- -------- --------
93,379 92,560 92,560
Less allowances for depreciation and
amortization................................. 45,448 45,488 45,488
-------- -------- --------
47,931 47,072 47,072
-------- -------- --------
Total assets................................ $162,827 $167,200 $167,200
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities
Bank loans.................................... $ 10,440 $ 11,948 $ 11,948
Accounts payable.............................. 10,780 11,485 11,485
Accrued payrolls and related taxes............ 8,446 7,786 7,786
Accrued expenses.............................. 6,105 6,060 6,060
Accrued income taxes.......................... 2,947 4,267 6,767
Dividend payable to parent.................... -- -- 35,675
Current portion of long-term debt............. 1,036 1,014 1,014
-------- -------- --------
Total current liabilities................... 39,754 42,560 80,735
Noncurrent liabilities
Long-term debt................................ 4,060 3,484 3,484
Affiliate loan payable........................ 30,000 30,000 30,000
Deferred income taxes......................... 4,067 4,023 4,023
Retirement benefits........................... 2,757 2,727 2,727
-------- -------- --------
Total noncurrent liabilities................ 40,884 40,234 40,234
Shareholder's equity
Equity........................................ 75,650 78,696 40,521
Translation adjustments....................... 6,539 5,710 5,710
-------- -------- --------
82,189 84,406 46,231
-------- -------- --------
Total Liabilities and Shareholder's Equity.. $162,827 $167,200 $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>
NOTE C--SUBSEQUENT EVENTS
The Company declared a dividend of approximately $35,675,000 payable to
Commercial Intertech and, immediately prior to the Distribution, will assume
$30,000,000 of Commercial Intertech's debt. In addition, under the Tax
Allocation Agreement, the Company will pay approximately $2,500,000 of capital
gain tax incurred because the distribution is considered a change of the
ownership group of CUNO Pacific Pty., Ltd. under Australian tax law.
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................... 30,000(1) 0 30,000
Deferred income taxes.................... 4,023 0 4,023
Postretirement benefits.................. 2,727 0 2,727
-------- -------- --------
Total noncurrent liabilities........... 40,234 0 40,234
Shareholder's equity:
Equity................................. $ 78,696 $(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, 13,566,431 shares
issued and outstanding as adjusted...... -- 14 (3) 14
Additional paid-in-capital............... -- 40,507 (3) 40,507
-------- -------- --------
78,696 (38,175) 40,521
Translation adjustments.................. 5,710 5,710
-------- -------- --------
Total shareholder's equity................. 84,406
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 13,566,431 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.................. $ 0.32
Shares used to calculate net income
per share............................ 13,566
</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 initial 8.5% per annum
interest rate which is based on the current Prime Rate of 8.25%, 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................ $ 0.34
Shares used to calculate net income
per share.......................... 13,566
</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 initial 8.5% per annum
interest rate which is based on the current Prime Rate of 8.25%, 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 20, 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
NO. DESCRIPTION
------- -----------
<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 CUNO Incorporated Rights Agreement dated August 19, 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 Sharing Agreement by and between CUNO Incorporated
and Commercial Intertech Corp.
10.6 Form of Employee Benefits and Compensation Allocation 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
10.10 Credit Agreement dated as of August 9, 1996 by and among CUNO
Incorporated and the Banks party thereto and Mellon Bank, N.A.
*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>
- --------
*Previously filed.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CUNO INCORPORATED
-----------------
(Original Certificate of Incorporation filed May 23, 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:
2. Stock Split of Common Stock
---------------------------
At the time the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware becomes
effective, a stock split wil take effect whereby each outstanding share of
the Company's Common Stock shall automatically and without the necessity of
any other action become 13,566.431 shares of the Company's Common Stock
having the terms specified in this Article IV. Upon the occurrence of the
stock split of the Common Stock effected by this Section A.2. (the "Stock
Split"), each certificate for outstanding shares of Common Stock dated
prior to the effective date of the Stock Split shall evidence, and be
deemed to evidence, the number of shares of Common Stock into which the
shares previously evidenced by such certificate shall have been split in
accordance with this Section A.2., and the Stock Split shall become
effective in accordance with the terms hereof, whether or not any or all of
the certificates evidencing Common Stock shall have been surrendered or new
certificates evidencing the number of shares of Common Stock into which
such shares have been split have been issued in accordance with Section
A.3. hereof.
3. Subsequent Reissuance of Certificates
-------------------------------------
Following the occurrence of the Stock Split, the holders of shares of
Common Stock shall either (a) surrender each certificate evidencing any
such shares at the office of the Company, or (b) notify the Company that
such certificate has been lost, stolen or destroyed and execute an
agreement satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection with the reissuance of such lost, stolen
or destroyed certificate. The Company shall thereupon issue and deliver to
each such holder a certificate or certificates, in the name shown on such
certificate evidencing Common Stock, for the number of shares of Common
Stock into which the shares of Common Stock evidenced by the surrendered
(or lost, stolen or destroyed) certificate have been split, dated as of the
date on which the Stock Split becomes effective. The Company shall not be
obligated to issue any certificate evidencing shares of Common Stock in
connection with the Stock Split except in accordance with this Section
A.3.
3
<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
nine (9) and shall consist of the following persons: John M. Galvin,
Mark G. Kachur, Gerald C. McDonough, C. Edward Midgley, Paul J. Powers,
Charles L. Cooley, Joel B. Alvord, Norbert A. Florek and David L. Swift.
The directors shall be divided into three classes, Class I, Class II and
Class III; with each of Class I, Class II and Class III having three members.
Class I shall initially consist of the following directors: John M. Galvin,
Charles L. Cooley and Joel B. Alvord. Class II shall initially consist of the
following directors: Mark G. Kachur, Gerald C. McDonough and Norbert A. Florek.
Class III shall initially consist of the following directors: C. Edward Midgley,
Paul J. Powers and David L. Swift. 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.
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<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.
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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 August 19, 1996.
CUNO INCORPORATED
By:______________________________________
Name: Paul J. Powers
Title: Chief Executive Officer
9
<PAGE>
__________________________________________
CUNO INCORPORATED
AND
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF AUGUST 19, 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>
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<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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Exhibit 4.1
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of August 19, 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 Commercial Intertech Corp., an Ohio corporation
("CTEK"), has authorized and declared a dividend (the "Spinoff") of one Common
Share (as hereinafter defined) of the Corporation with respect to each share of
common stock of CTEK outstanding at the close of business on August 9, 1996 (the
"Record Date"). 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 distributed pursuant to the Spinoff, 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.
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(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
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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 August 19, 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
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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.
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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
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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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<PAGE>
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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<PAGE>
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 300,000; provided, however, that, if more than
a total of 300,000 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 August 19, 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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(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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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
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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
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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
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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).
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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.
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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
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<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
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<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
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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.
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[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
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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
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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
C-3
<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 10.4
DISTRIBUTION
AND INTERIM SERVICES
AGREEMENT
BY AND BETWEEN
COMMERCIAL INTERTECH CORP.
AND
CUNO INCORPORATED
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
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<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
SECTION 3.09 Corporate Opportunities.................................... 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
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<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, including,
without limitation, any liabilities relating to or arising in connection with
the Commercial Intertech Guarantees 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: the 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.
Form 10: the registration statement on Form 10 of CUNO, as filed with the
Commission, of which the Information Statement is a part.
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 Stockholder Rights Agreement, to be entered into on or
prior to the Distribution Date, between CUNO and ChaseMellon Shareholder
Services, L.L.C, 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 later of August 19, 1996 or the earliest practicable date
following approval by Nasdaq of the CUNO Common Stock for trading thereon and
the commencement of trading and (ii) the absence of any order, injunction or
decree of any court or any governmental authority which prohibits or makes
illegal the Distribution.
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.
8
<PAGE>
(b) In connection with the transfers of assets other than capital stock and
the assumptions of Liabilities contemplated by subsection (a) 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 ensure that CUNO may
continue to conduct business during the interim period,
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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. Commercial Intertech shall perform the 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
existing 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 existing 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 3.05(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
3.05(F). The provisions of this SECTION 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 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 3.05 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.
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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. CUNO shall bear all costs and expenses related to
the Distribution, including but not limited to legal, audit, tax, employee
benefit, printing, advising and other personal services.
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 SHARING AGREEMENT
BY AND BETWEEN
COMMERCIAL INTERTECH CORP.
AND
CUNO INCORPORATED
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................... -2-
"1996 Fiscal Year"....................................... -2-
"AAA".................................................... -2-
"Affiliate".............................................. -2-
"Control"................................................ -2-
"Carryover" and "Carryback".............................. -2-
"Chairman"............................................... -2-
"Code"................................................... -2-
"Commercial Intertech"................................... -2-
"Commercial Intertech Group"............................. -2-
"Commercial Intertech Tax Reduction"..................... -2-
"Compromising Party"..................................... -2-
"CUNO"................................................... -2-
"CUNO 1996 Tax".......................................... -2-
"CUNO Carryback"......................................... -2-
"CUNO Group"............................................. -2-
"Cutoff Date"............................................ -2-
"Deemed Tax Reduction"................................... -3-
"Dispute Resolution Committee"........................... -3-
"Distribution"........................................... -3-
"Distribution Agreement"................................. -3-
"Distribution Date"...................................... -3-
"Foreign Taxes".......................................... -3-
"Gross-up Payment"....................................... -3-
"Group".................................................. -3-
"Indemnification Payment"................................ -3-
"Indemnified Party"...................................... -3-
"Indemnifying Party"..................................... -3-
"IRS".................................................... -3-
"Joint Contest".......................................... -3-
"Law".................................................... -3-
"Liable Party"........................................... -3-
"Non-Compromising Party"................................. -3-
"Officers' Certificate".................................. -3-
"Person"................................................. -3-
"Pre-Distribution Period"................................ -4-
"Preparing Party"........................................ -4-
"Prime Rate"............................................. -4-
"Post-Distribution Period"............................... -4-
"Restructuring Taxes".................................... -4-
"Return"................................................. -4-
"Separate Contest"....................................... -4-
"Spin-Off Taxes"......................................... -4-
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<PAGE>
"State Taxes"............................................ -4-
"Straddle Period"........................................ -4-
"Taxes".................................................. -4-
"Tax Adjustment"......................................... -5-
"Tax Authority".......................................... -5-
"Tax Benefit"............................................ -5-
"Tax Contest"............................................ -5-
"Tax Period"............................................. -5-
"Tax Records"............................................ -5-
"Transaction Steps"...................................... -5-
"United States Federal Taxes"............................ -5-
ARTICLE II ALLOCATION OF TAX LIABILITIES................. -6-
2.01 United States Federal Tax Liabilities.............. -6-
2.02 State Tax Liabilities.............................. -7-
2.03 Foreign Tax Liabilities............................ -9-
2.04 Restructuring Taxes................................ -10-
2.05 Spin-Off Taxes..................................... -10-
2.06 Gross-up Payment................................... -10-
ARTICLE III PREPARATION AND FILING OF TAX RETURNS......... -11-
3.01 General............................................ -11-
3.02 Joint Returns...................................... -11-
3.03 Method of Pro Ration For Straddle Periods.......... -11-
3.04 Tax Accounting Practices........................... -12-
3.05 Right to Review Returns............................ -12-
ARTICLE IV TAX REFUNDS AND CARRYBACKS.................... -12-
4.01 Refunds............................................ -12-
4.02 Carrybacks......................................... -13-
ARTICLE V TAX PAYMENTS.................................. -14-
5.01 Payment of Consolidated Federal Income Tax for
Pre-Distribution Periods........................... -14-
5.02 Payment of State and Foreign Taxes for Which
Commercial Intertech has Filing Responsibility..... -14-
5.03 Payment of State and Foreign Taxes for Which
CUNO has Filing Responsibility..................... -14-
5.04 Indemnification Payments........................... -15-
ARTICLE VI TAX RECORDS: COOPERATION...................... -15-
6.01 Tax Records........................................ -15-
6.02 Cooperation........................................ -16-
ARTICLE VI TAX AUDITS AND APPEALS........................ -16-
7.01 Notice............................................. -16-
7.02 Control of Audits and Appeals...................... -16-
-ii-
<PAGE>
7.03 Consent to Settlements in Joint Contests........... -17-
7.04 Expenses........................................... -18-
ARTICLE VIII DISPUTE RESOLUTION............................ -18-
8.01 Dispute Resolution Committee....................... -18-
8.02 Binding Arbitration................................ -18-
ARTICLE IX MISCELLANEOUS MATTERS......................... -19-
9.01 No Inconsistent Actions............................ -19-
9.02 Amendment and Waiver............................... -19-
9.03 Tax Allocation Agreements.......................... -20-
9.04 Entire Agreement; Inconsistent Provisions.......... -20-
9.05 Affiliate Obligations.............................. -20-
9.06 Further Action..................................... -20-
9.07 Time for Notice.................................... -20-
9.08 Notices............................................ -20-
9.09 Remedies........................................... -21-
9.10 Successors and Assigns............................. -21-
9.11 Severability....................................... -21-
9.12 Counterparts....................................... -21-
9.13 Descriptive Headings............................... -21-
9.14 No Third-Party Beneficiaries....................... -21-
9.15 Construction....................................... -22-
9.16 Form of Payments and Late Payments................. -22-
9.17 Treatment of Payments.............................. -22-
9.18 Governing Law...................................... -22-
9.19 Confidentiality.................................... -22-
SCHEDULE 1 PREPARATION AND FILING OF TAX RETURNS......... -23-
-iii-
<PAGE>
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT ("Agreement") is made and entered into as of
___________________________, 1996, by and between Commercial Intertech Corp.,
an Ohio corporation ("Commercial Intertech") and CUNO Incorporated, a Delaware
corporation ("CUNO"), on behalf of themselves and their respective Affiliates.
RECITALS
--------
WHEREAS, the Commercial Intertech Board of Directors has determined that it
is appropriate and desirable to distribute all outstanding shares of CUNO common
stock on a pro rata basis to the holders of the Commercial Intertech common
stock (the "Distribution") in a transaction intended to qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Code; and
WHEREAS, CUNO and its Affiliates will accordingly cease to be members of
the affiliated group (within the meaning of Section 1504(a) of the Code) of
which Commercial Intertech is the common parent, effective as of the
Distribution Date; and
WHEREAS, Commercial Intertech and CUNO have set forth the principal
corporate transactions required to effect such Distribution in the Distribution
and Interim Services Agreement between Commercial Intertech and CUNO dated as of
the date hereof, and to which this Agreement is attached as an exhibit (the
"Distribution Agreement"); and
WHEREAS, Commercial Intertech and CUNO desire to provide for and agree upon
the allocation of liabilities for Taxes with respect to the parties prior to,
arising out of, and subsequent to the Distribution; and
WHEREAS, the parties hereto also desire to provide for: (1) the preparation
and filing of Tax Returns along with the payment of Taxes thereon, (2) the
retention and maintenance of relevant records necessary to prepare and file
appropriate Tax Returns, as well as the provision for appropriate access to
those records, (3) the conduct of audits, examinations and proceedings by
appropriate governmental entities which could result in a redetermination of
Taxes of the parties to this Agreement, (4) the treatment of refunds of Taxes
and Carryovers and Carrybacks of the parties, (5) the cooperation of all parties
with one another in order to fulfill their duties and responsibilities under
this Agreement and under the Code and other applicable Law, and (6) any other
matters related to Taxes.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
<PAGE>
ARTICLE I
---------
DEFINITIONS
-----------
As used in this Agreement, (including the recitals hereof), the following
terms shall have the following meanings:
"1996 Fiscal Year" has the meaning set forth in Section 5.01 below.
"AAA" has the meaning set forth in Section 8.02(b) below.
"Affiliate" means any Person that directly or indirectly controls, is under
the control of, or is under common control with, the Person in question.
"Control" of a Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership or voting securities, by contract or
otherwise. Except as otherwise provided herein, the term "Affiliate" shall
refer to Affiliates of a Person determined immediately after the Distribution
Date.
"Carryover" and "Carryback" mean any net operating loss, net capital loss,
excess tax credit, or other similar Tax item which may or must be carried
forward or back, respectively, from one Tax Period to another under the Code or
other applicable Laws.
"Chairman" has the meaning set forth in Section 8.02(b) below.
"Code" means the U. S. Internal Revenue Code of 1986, as amended, or any
successor law.
"Commercial Intertech" has the meaning set forth in the Recitals above.
"Commercial Intertech Group" means Commercial Intertech and its Affiliates.
"Commercial Intertech Tax Reduction" has the meaning set forth in Section
4.02(b) below.
"Compromising Party" has the meaning set forth in Section 7.03(b) below.
"CUNO" has the meaning set forth in the Recitals above.
"CUNO 1996 Tax" has the meaning set forth in Section 5.01(a) below.
"CUNO Carryback" has the meaning set forth in Section 4.02(a) below.
"CUNO Group" means CUNO and its Affiliates.
"Cutoff Date" has the meaning set forth in Section 3.03 below.
"Deemed Tax Reduction" has the meaning set forth in Section 4.02(c) below.
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<PAGE>
"Dispute Resolution Committee" has the meaning set forth in Section 8.01
below.
"Distribution" has the meaning set forth in the Recitals above.
"Distribution Agreement" has the meaning set forth in the Recitals above.
"Distribution Date" means the effective date of the Distribution as set
forth in the Distribution Agreement.
"Foreign Taxes" means any Taxes imposed or collected by any foreign
government, and the term "Foreign Tax" means any one of the foregoing Foreign
Taxes.
"Gross-up Payment" has the meaning set forth in Section 2.06 below.
"Group" means each of the Commercial Intertech Group and the CUNO Group
whenever no distinction is otherwise required between them.
"Indemnification Payment" means a payment subject to Section 5.05 below.
"Indemnified Party" has the meaning set forth in Section 5.05 below.
"Indemnifying Party" has the meaning set forth in Section 5.05 below.
"IRS" means the United States Internal Revenue Service and any successor
department, agency or organization of the United States.
"Joint Contest" means any Tax Contest seeking a redetermination of Taxes
which involves or could involve one or more members of both the Commercial
Intertech Group and the CUNO Group.
"Law" means the law of any governmental entity or political subdivision
thereof, other than the Code, relating to any Tax.
"Liable Party" has the meaning set forth in Section 2.01(c)(3) below.
"Non-Compromising Party" has the meaning set forth in Section 7.03(b)
below.
"Officers' Certificate" means the Officers' Certificate, dated July 29,
1996, of Commercial Intertech and CUNO issued in connection with the Tax
Opinion.
"Person" means any individual and any partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
other business entity formed or operating under United States or foreign law.
-3-
<PAGE>
"Pre-Distribution Period" means any Tax Period ending on or before the
Distribution Date, and, in the case of any Tax Period that begins before and
ends after the Distribution Date, the portion of such Tax Period ending on the
Distribution Date.
"Preparing Party" has the meaning set forth in Section 3.04 below.
"Prime Rate" means the prime interest rate published in The Wall Street
Journal from time to time.
"Post-Distribution Period" means any Tax Period beginning after the
Distribution Date, and in the case of any Tax Period that begins before and ends
after the Distribution Date, the portion of such Tax Period ending after the
Distribution Date.
"Restructuring Taxes" means any Taxes (other than Spin-Off Taxes) incurred
by or imposed on either Commercial Intertech or CUNO (or their respective
Affiliates) resulting from any of the Transaction Steps (including, without
limitation, any United States federal income Taxes attributable to the
recognition of intercompany gains or any other deferred Taxes that must be taken
into account as a result of any of the Transaction Steps).
"Return" means any report of Taxes due, any information return with respect
to Taxes, or any other similar report, statement, declaration, or document
required to be filed under the Code or other laws, any claims for refund of
Taxes paid, and any amendments or supplements to any of the foregoing.
"Separate Contest" means a Tax Contest which involves (i) only Commercial
Intertech and members of the Commercial Intertech Group, or (ii) only CUNO and
members of the CUNO Group.
"Spin-Off Taxes" means any income taxes imposed on Commercial Intertech
solely as a result of the Distribution failing to qualify under Code Section
355.
"State Taxes" means all Taxes imposed or collected by any state or local
government in the United States (including possessions and territories of the
United States), and the term "State Tax" means any one of the foregoing State
Taxes.
"Straddle Period" means (i) any Tax Period that begins before and ends
after the Distribution Date, (ii) any Short Period that ends on the Distribution
Date and (iii) any Short Period that begins on the first day following the
Distribution Date. The term "Short Period" means any Tax Period which is based
on an accounting period which is shorter than the normal accounting period used
for determining such Tax (e.g., in the case of the United States federal income
Tax, any Tax Period of less than one year).
"Taxes" means all federal, state, territorial, local, foreign and other net
income, gross income, gross receipts, sales, use, value added, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, unemployment insurance, workers compensation, social
security, excise, severance, stamp, business license, occupation, premium,
property, environmental, windfall profits, customs, duties, alternative minimum,
estimated or other taxes, fees,
-4-
<PAGE>
premiums, assessments or charges of any kind whatever imposed or collected by
any governmental entity or political subdivision thereof, which any member of
the Commercial Intertech Group or the CUNO Group is required to pay, collect or
withhold, together with any interest and any penalties, additions to Tax or
additional amounts with respect thereto, and the term "Tax" means any one of the
foregoing Taxes.
"Tax Adjustment" has the meaning provided in Section 2.01(c) below.
"Tax Authority" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax and the agency (if any)
charged with the determination or collection of such Taxes for such entity or
subdivision.
"Tax Benefit" means any refund, credit Carryover, Carryback or other
reduction in otherwise required Tax payments. Such term does not include a
decrease in any Tax in one Tax Period that results from a Tax Adjustment in
another Tax Period, such as an increase in a deduction for depreciation that
results from a determination that, in a previous Tax Period, an expenditure is
capitalized and not deducted, or an item of gain is recognized.
"Tax Contest" means an audit, review, examination, or any other
administrative or judicial proceeding (including any determination with respect
to a claim for refund) with the purpose or effect of redetermining Taxes of any
member of either the Commercial Intertech Group or the CUNO Group for
(1) any Pre-Distribution Period,
(2) any Straddle Period, or
(3) any Post-Distribution Period, if such proceeding could result in
any Tax Adjustment or Tax Benefit for any Pre-Distribution Period
or Straddle Period (without regard to whether such matter was
initiated by an appropriate Tax Authority or in response to a
claim for a refund of Taxes).
"Tax Period" means, with respect to any Tax, the period for which the Tax
is reported as provided under the Code or other applicable Laws,
"Tax Records" has the meaning set forth in Section 6.01(a) below.
"Transaction Steps" means the transaction steps as set forth in Sections
3.01 and 3.02 of the Distribution Agreement.
"United States Federal Taxes" means all Taxes imposed or collected by the
United States Federal Government, and the term "United States Federal Tax" means
any one of the foregoing United States Federal Taxes.
Any capitalized term not otherwise defined in this Agreement shall have the
meaning ascribed to it in the Distribution Agreement.
-5-
<PAGE>
ARTICLE II
----------
ALLOCATION OF TAX LIABILITIES
-----------------------------
2.01 United States Federal Tax Liabilities.
(a) Subject to Sections 2.04 and 2.05, Commercial Intertech and its
Affiliates shall be liable for, and shall indemnify and hold CUNO and the CUNO
Group harmless from:
(1) any United States Federal Taxes for any Pre-Distribution Period
imposed on Commercial Intertech, CUNO or their respective Affiliates, but
only to the extent such Taxes arise from the income, profits, or
transactions of, or are otherwise attributable to, Commercial Intertech or
any member of the Commercial Intertech Group; and
(2) all United States Federal Taxes imposed on, or with respect to,
Commercial Intertech and its Affiliates for any Post-Distribution Period.
(b) Subject to Sections 2.04 and 2.05, CUNO and its Affiliates shall
be liable for, and shall indemnify and hold Commercial Intertech and the
Commercial Intertech Group harmless from:
(1) any United States Federal Taxes for any Pre-Distribution Period
imposed on Commercial Intertech, CUNO or their respective Affiliates, but
only to the extent such Taxes arise from the income, profits, or
transactions of, or are otherwise attributable to, CUNO or any member of
the CUNO Group; and
(2) all United States Federal Taxes imposed on, or with respect to,
CUNO and its Affiliates for any Post-Distribution Period.
(c) For purposes of this Section 2.01, if, as a result of any Tax
Contest, there is any redetermination of United States Federal Taxes on a
consolidated basis for any Pre-Distribution Period, the determination of whether
additional United States Federal Taxes imposed on Commercial Intertech or CUNO
(or their respective Affiliates) for any Pre-Distribution Period shall be deemed
to arise from the income, profits or transactions of, or are otherwise
attributable to, Commercial Intertech or CUNO (or their respective Affiliates),
shall be made pursuant to the following principles:
(1) Each party shall compute the difference between (A) the recomputed
consolidated federal tax liability for each Pre-Distribution Period
affected, taking into account solely those adjustments which relate to or
arise out of the income, profits or activities of such party or its
Affiliates, and (B) the consolidated federal tax liability of the
consolidated group for such Tax Period based on the Tax Return as
originally filed (the difference between (A) and (B) shall be referred to
herein as a party's "Tax Adjustment").
(2) If one party's Tax Adjustment for the Tax Period is greater than
or equal to zero, that party shall then be liable for that portion of
additional Taxes equal to the amount
-6-
<PAGE>
obtained by multiplying the additional Taxes by a percentage equal to such
party's Tax Adjustment divided by the aggregate Tax Adjustment of the
parties.
(3) If one party's Tax Adjustment for the Tax Period is greater than
zero (the "Liable Party") and the other party's Tax Adjustment for the Tax
Period is less than zero (the "Other Party"), the Liable Party shall be
responsible for all of the additional Taxes owed for such Tax Period. In
addition, the Liable Party shall make an Indemnification Payment to the
Other Party equal to the Other Party's Tax Adjustment for such Tax Period
(for this purpose, the Tax Adjustment of the Other Party shall be deemed to
be positive); provided, however, that such Indemnification Payment shall
not exceed the amount by which the Liable Party's Tax Adjustment exceeds
the additional Taxes for the Tax Period. Further, the Other Party shall be
entitled to any refund received in respect of such Tax Period.
(4) If each party's Tax Adjustment for the Tax Period is less than or
equal to zero, each party shall be entitled to that portion of any refund
received in respect of such Tax Period equal to the amount obtained by
multiplying the amount of the refund by a percentage equal to such party's
Tax Adjustment divided by the aggregate Tax Adjustment of the parties.
(5) If a Tax Adjustment is due to an increase in the amount of
expenses or losses allocated under Reg. Section 1.861-8 against foreign
source income which decreases the consolidated foreign tax credit for the
applicable Tax Period, the Tax Adjustment shall be allocated to Commercial
Intertech and CUNO pro rata to the amount that each party contributed to
the foreign tax credit for the Tax Period.
2.02 State Tax Liabilities. Subject to Sections 2.04 and 2.05, each
party's liability for State Taxes shall be determined under this Section 2.02.
(a) Commercial Intertech and its Affiliates shall be liable for, and
shall indemnify and hold CUNO and the CUNO Group harmless from, the following
State Taxes:
(1) in the case of any Pre-Distribution Period: (A) any State
Taxes imposed with respect to a separate Tax Return of Commercial Intertech
or any member of the Commercial Intertech Group for such Tax Period, and
(B) with respect to any joint, combined, consolidated or unitary Tax Return
filed for such Tax Period, any State Taxes for such Tax Period, whether
imposed on Commercial Intertech or CUNO (or their respective Affiliates),
but only to the extent such Taxes arise from the income, profits, or
transactions of, or are otherwise attributable to, Commercial Intertech or
any member of the Commercial Intertech Group; and
(2) any State Taxes imposed on, or with respect to, Commercial
Intertech or any member of the Commercial Intertech Group for any Post-
Distribution Period.
(b) CUNO and its Affiliates shall be liable for, and shall indemnify
and hold Commercial Intertech and the Commercial Intertech Group harmless from,
the following State Taxes:
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(1) in the case of any Pre-Distribution Period: (A) any State
Taxes imposed with respect to a separate Tax Return of CUNO or any member
of the CUNO Group for such Tax Period, and (B) with respect any joint,
combined, consolidated or unitary Tax Return filed for such Tax Period, any
State Taxes for such Tax Period, whether imposed on Commercial Intertech or
CUNO (or their respective Affiliates), but only to the extent such Taxes
arise from the income, profits, or transactions of, or are otherwise
attributable to, CUNO or any member of the CUNO Group; and
(2) any State Taxes imposed on, or with respect to, CUNO or any
member of the CUNO Group for any Post-Distribution Period.
(c) For purposes of Section 2.02(a)(1)(B) and 2.02(b)(1)(B) hereof,
the determination of whether additional State Taxes for any Pre-Distribution
Period shall be deemed to arise from the income, profits or transactions of, or
to otherwise be attributable to, a party, shall be made pursuant to the
following principles:
(1) Each party shall compute the difference between (A) the
recomputed net taxable income (computed in accordance with the rules
applied by the state in question) for each Pre-Distribution Period
affected, and (B) the net taxable income of its Group for such Tax Period
based on the State Tax Return as originally filed (the difference between
(A) and (B) shall be referred to herein as a party's "State Tax
Adjustment").
(2) If one party's State Tax Adjustment for the Tax Period is
greater than or equal to zero, that party shall then be liable for that
portion of additional Taxes equal to the amount obtained by multiplying the
additional State Taxes by a percentage equal to such party's State Tax
Adjustment divided by the aggregate State Tax Adjustment of the parties.
(3) If one party's State Tax Adjustment for the Tax Period is
greater than zero and the other party's State Tax Adjustment for the Tax
Period is less than zero, the liable party shall be responsible for all of
the additional Taxes owed for such Tax Period (provided, however, that such
party shall not be liable for making any payment to the other party in
respect of such other party's negative State Tax Adjustment). In addition,
the other party shall be entitled to any refund received in respect of such
Tax Period.
(4) If each party's State Tax Adjustment for the Tax Period is
less than or equal to zero, each party shall be entitled to that portion of
any refund received in respect of such Tax Period equal to the amount
obtained by multiplying the amount of the refund by a percentage equal to
such party's State Tax Adjustment divided by the aggregate State Tax
Adjustment of the parties.
(5) If a Tax Adjustment is due to an increase in the amount of
expenses or losses allocated against any type of income which decreases the
utilization of any state or foreign tax credit for the applicable Tax
Period, the Tax Adjustment shall be allocated to Commercial Intertech and
CUNO pro rata to the amount that each party contributed to the state or
foreign tax credit for the Tax Period.
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(d) Notwithstanding anything to the contrary above, with respect to
any joint, combined, consolidated or unitary State Tax Return for any Pre-
Distribution Period, if Commercial Intertech or CUNO (or any of their respective
Affiliates) is required to file an amended Return (or Returns) on a separate
company basis, each Person filing such a separate Return shall be liable for,
and shall hold the other parties to this Agreement harmless from, any Taxes owed
with respect to such separate Return (or Returns).
2.03 Foreign Tax Liabilities.
(a) Subject to Sections 2.04 and 2.05, each party's liability for
Foreign Taxes shall be determined under this Section 2.03(a).
(1) Commercial Intertech and its Affiliates shall be liable for,
and shall indemnify and hold CUNO and the CUNO Group harmless from, the
following Foreign Taxes:
(A) in the case of any Pre-Distribution Period: (i) any
Foreign Taxes imposed with respect to a separate Tax Return filed by
Commercial Intertech or any member of the Commercial Intertech Group
for such Tax Period, and (ii) with respect to any joint, combined,
consolidated or unitary Tax Return filed for such Tax Period, any
Foreign Taxes for such Tax Period imposed on Commercial Intertech or
CUNO (or their respective Affiliates) but only to the extent such
Taxes arise from the income, profits, or transactions of, or are
otherwise attributable to, Commercial Intertech or any member of the
Commercial Intertech Group; and
(B) any Foreign Taxes imposed on, or with respect to,
Commercial Intertech or any member of the Commercial Intertech Group
for any Post-Distribution Period.
(2) CUNO and its Affiliates shall be liable for, and shall
indemnify and hold Commercial Intertech and the Commercial Intertech Group
harmless from, the following Foreign Taxes:
(A) in the case of any Pre-Distribution Period: (i) any
Foreign Taxes imposed with respect to a separate Tax Return filed by
CUNO or any member of the CUNO Group for such Tax Period, and (ii)
with respect to any joint, combined, consolidated or unitary Tax
Return filed for such Tax Period, any Foreign Taxes for such Tax
Period imposed on Commercial Intertech or CUNO (or their respective
Affiliates) but only to the extent such Taxes arise from the, income,
profits, or transactions of, or are otherwise attributable to, CUNO or
any member of the CUNO Group, and
(B) any Foreign Taxes imposed on, or with respect to CUNO or
any member of the CUNO Group for any Post-Distribution Period.
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(3) For purposes of Section 2.03(a)(1)(A)(ii) and
2.03(a)(2)(A)(ii) hereof, the determination of whether additional Foreign
Taxes for any Pre-Distribution Period shall be deemed to arise from the
income, profits or transactions of, or to otherwise be attributable to, a
party, shall be made in the same manner as provided in Section 2.01(c)
hereof.
2.04 Restructuring Taxes.
CUNO and its Affiliates shall be liable for, and shall indemnify and hold
Commercial Intertech and the Commercial Intertech Group harmless from, all
Restructuring Taxes.
2.05 Spin-Off Taxes.
If the Distribution is ultimately determined to not qualify under Code
Section 355, any Spin-Off Taxes shall be allocated as follows:
(i) If the Spin-Off Taxes are incurred in whole or in part due to a
change of control of Commercial Intertech pursuant to a tender offer,
Commercial Intertech shall pay, indemnify and hold the CUNO Group
harmless from all Spin-Off Taxes.
(ii) If the Spin-Off Taxes are incurred due to either party breaching
any of the representations or covenants in the Officers' Certificate,
any Spin-Off Taxes shall be paid by and be the responsibility of the
breaching party which shall indemnify and hold the non-breaching party
harmless from such Spin-Off Taxes.
(iii) If the Spin-Off Taxes are incurred for any reason other than
(i) or (ii) above, CUNO and Commercial Intertech will each pay 50% of
such taxes and indemnify and hold harmless the other party for the
other 50% of such taxes.
2.06 Gross-up Payment.
Commercial Intertech and CUNO acknowledge that in determining the proper
amount of working capital required by each Group after the Distribution, it is
assumed by the parties that the Distribution will qualify for tax-free treatment
under Code Section 355 and that such working capital would be allocated
differently if the Spin-Off Taxes, were anticipated. Therefore, it is agreed
that any payment or indemnification made relating to Spin-Off Taxes as well as
any Restructuring Taxes, shall, for income tax purposes, relate back and be
deemed to have been paid immediately prior to the Distribution. If the
Indemnified Party is required to pay 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 (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. 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.
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ARTICLE III
-----------
PREPARATION AND FILING OF TAX RETURNS
-------------------------------------
3.01 General. Except as otherwise provided in this Article III, Tax
Returns shall be prepared and filed by the Person liable for the Tax reported on
such Tax Return, or otherwise obligated to file such Return, under the Code or
other applicable Laws. Without limiting the foregoing, the party responsible
for filing such a Return shall also be responsible for filing and/or responding
to any revenue agent request or any other formal or informal request for
information or otherwise relating to such Return by the IRS or any other
applicable Tax Authority. The parties shall assist and cooperate with one
another in accordance with Section 6.02 hereof with respect to the preparation
and filing of Tax Returns.
3.02 Joint Returns.
(a) Any Tax Returns for United States Federal Taxes imposed for any Pre-
Distribution Period which reflect Taxes for which one or more members of both
the Commercial Intertech Group and the CUNO Group have liability under Article
II hereof (including, without limitation, Commercial Intertech's consolidated
federal income Tax Return for the Tax Period in which the Distribution occurs)
shall be prepared by and filed by Commercial Intertech.
(b) Any Tax Returns for State Taxes for any Pre-Distribution Period
which reflect Taxes for which one or more members of the Commercial Intertech
Group and the CUNO Group have liability under Article II hereof, shall be
prepared and filed by Commercial Intertech.
(c) Any Tax Returns for Foreign Taxes for any Pre-Distribution Period
which reflect Taxes for which one or more members of both the Commercial
Intertech Group and the CUNO Group have liability under Article II hereof, shall
be prepared and filed by Commercial Intertech.
3.03 Method of Pro Ration For Straddle Periods. In the case of any
Straddle Period relating to Commercial Intertech, CUNO or their respective
Affiliates, unless the books of such Person are closed on the Distribution Date,
Taxes shall be apportioned for purposes of Article II, between Pre-Distribution
and Post-Distribution Periods, as follows: First, Taxes for Tax Periods or
portions thereof ending on the last day of the calendar month preceding the
Distribution Date (such date is hereinafter referred to as the "Cutoff Date")
shall be based on actual events and activities through the Cutoff Date and in
accordance with past accounting practices. Second, Taxes for the Tax Period
from the Cutoff Date through the Distribution Date shall be computed by
prorating the activities of the calendar month which includes the Distribution
Date on a daily pro rata basis. Notwithstanding the foregoing provisions of this
Section 3.03, (i) depreciation, amortization and depletion for any Straddle
Period shall be apportioned on a daily pro rata basis and (ii) extraordinary
items not arising in the ordinary course of business shall be apportioned to the
Tax Period in which the event giving rise to such item occurs.
3.04 Tax Accounting Practices. Any Straddle Period Returns prepared by
one or more members of the Commercial Intertech Group or the CUNO Group, as the
case may be (the "Preparing Party"), shall be prepared in accordance with past
Tax accounting practices used with
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respect to the Returns in question (unless such past practices are no longer
permissible under the Code or other applicable Laws), and to the extent any
items are not covered by past practices (or in the event such past practices are
no longer permissible under the Code or other applicable Laws), in accordance
with reasonable Tax accounting practices selected by the Preparing Party (except
that accounting elections and determinations shall be made, where reasonably
possible, in a manner that minimizes the net Tax incurred by the other party and
its Affiliates). In the event the Preparing Party files Tax Returns for Straddle
Periods inconsistently with such past Tax accounting practices, then,
notwithstanding any provision of this Agreement to the contrary, in addition to
any other remedies available, the other party and its Affiliates shall only be
responsible for the amount of Taxes they would owe if such Tax Returns had been
filed consistently with such past Tax accounting practices.
3.05 Right to Review Returns. Upon the request of either party, the other
party shall make available for inspection and copying all Tax Returns (and
related workpapers) with respect to Taxes to the extent that (i) such Return
relates to Taxes for which the requesting party may be liable under this
Agreement, (ii) such Return relates to Taxes for which the requesting party may
have a claim for Tax Benefits hereunder, or (iii) the requesting party
reasonably determines that it must inspect such Return to confirm compliance
with the terms of this Agreement. Commercial Intertech and CUNO shall attempt
in good faith to resolve any issues arising out of the review of such Returns.
ARTICLE IV
----------
TAX REFUNDS AND CARRYBACKS
--------------------------
4.01 Refunds.
(a) In the case of any separate Tax Return filed by Commercial Intertech,
CUNO or their respective Affiliates for a Pre-Distribution Period, the
Person that filed such Tax Return shall be entitled to any refund of Taxes
with respect to such Return.
(b) Subject to Section 4.02, any refund of Taxes with respect to a joint,
combined, consolidated or unitary Tax Return for any Pre-Distribution
Period shall be allocated between the Commercial Intertech Group and the
CUNO Group in accordance with the principles in Section 2.01(c) or 2.02(c)
as applicable.
(c) Notwithstanding anything to the contrary above, with respect to any
refund or credit for overpayment of any estimated taxes for any Tax Period
ending in 1996, the Person that filed the Tax Return to which the refund or
credit for overpayment relates shall be entitled to the refund or credit
for overpayment.
(d) If any amounts become payable under this Section 4.01, the Person
obligated to make such payment shall notify the Person entitled to receive
such payment within 30 days after receipt of the refund or credit for
overpayment and shall remit the amount of the refund to such Person within
30 days after such receipt.
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4.02 Carrybacks.
(a) In the event CUNO or any member of the CUNO Group desires to carry back
a loss or other Tax attribute arising after the Distribution Date (the "CUNO
Carryback") to a Pre-Distribution Period with respect to a joint, combined,
consolidated or unitary Tax Return, CUNO shall notify Commercial Intertech in
writing of its intent to carry back such item (and to forego any election to
waive such Carryback). Such notification shall include a certification by an
appropriate officer of CUNO setting forth CUNO's belief, based on a thorough
examination of the facts and law relating to the tax treatment of such item,
that the tax treatment of such item is supported by "substantial authority"
within the meaning of Section 6662 of the Code (and the Treasury Regulations
promulgated thereunder). Promptly upon its receipt of such notification,
Commercial Intertech shall notify CUNO, in writing, as to whether Commercial
Intertech believes that the filing of the CUNO Carryback will result in any
Deemed Tax Reduction under Section 4.02(c) and if so, Commercial Intertech shall
provide information to CUNO pertaining to the amount of such Deemed Tax
Reduction and the computation thereof. Commercial Intertech shall cooperate with
CUNO in connection with the filing and processing of any CUNO Carryback and
shall provide CUNO with copies of all correspondence in connection therewith.
(b) Subject to Section 4.02(c), if, pursuant to the terms of Section
4.02(a) hereof, CUNO elects to carry back a loss or other Tax attribute to a
Pre-Distribution Period, Commercial Intertech shall be obligated to make a
payment to CUNO equal to the amount by which the Taxes imposed on the Commercial
Intertech Group for such Pre-Distribution Period have been reduced as a result
of utilization of the CUNO Carryback (the "Commercial Intertech Tax Reduction").
(c) For purposes of computing the amount of the Commercial Intertech Tax
Reduction, if, in the absence of the CUNO Carryback, losses or other Tax
attributes of Commercial Intertech or its Affiliates would have resulted in a
reduction of Taxes of the Commercial Intertech Group for such Period (the
"Deemed Tax Reduction"), the amount of the Commercial Intertech Tax Reduction
shall be reduced by the amount of the Deemed Tax Reduction. In the event any
losses or other Tax attributes of Commercial Intertech which are taken into
account in computing a Deemed Tax Reduction are subsequently utilized by the
Commercial Intertech Group to reduce Taxes in a future Tax Period, Commercial
Intertech shall be obligated to pay to CUNO the amount of such subsequent Tax
reduction (provided that the aggregate amount of payments to CUNO with respect
to any CUNO Carryback shall not exceed the Commercial Intertech Tax Reduction
computed without regard to the first sentence of this Section 4.02(c)).
(d) If Commercial Intertech is required to make a payment to CUNO with
respect to any CUNO Carryback under this Section 4.02(b), Commercial Intertech
shall have the option, in its sole discretion, of (i) making such payment within
30 days of receiving the Tax refund attributable to such CUNO Carryback, or (ii)
making such payment not later than 30 days of the date on which the statutory
period (under the Code of other applicable law) for examining the Return on
which such CUNO Carryback was claimed has expired (provided, such payment shall
bear interest at the Prime Rate for the period commencing 30 days from the date
of receipt of such refund and ending on the date of such payment).
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ARTICLE V
---------
TAX PAYMENTS
------------
5.01 Payment of Consolidated Federal Income Tax for Pre-Distribution
Periods. Commercial Intertech shall pay to the IRS all Taxes due (or shall
receive all refunds) in connection with the filing of Commercial Intertech's
consolidated federal income Tax Return for the Tax Period ending on October 31,
1996 (the "1996 Fiscal Year"). If the consolidated federal income Tax Return for
the 1996 Fiscal Year has not been filed on the Distribution Date, immediately
prior to the due date for filing Commercial Intertech's consolidated federal
income Tax Return for the 1996 Fiscal Year (taking into account any extension of
time for filing that Commercial Intertech requests and is granted), the parties
shall compute, based on the information contained in the federal consolidated
income Tax Return for the 1996 Fiscal Year, CUNO's share of the consolidated
federal income Tax liability for the 1996 Fiscal Year determined as if the CUNO
Group were a separate group of companies filing a consolidated federal income
Tax Return (the "CUNO 1996 Tax"). CUNO shall pay to Commercial Intertech the
CUNO 1996 Tax immediately prior to the due date for filing Commercial
Intertech's consolidated federal income Tax Return for the 1996 Fiscal Year.
5.02 Payment of State and Foreign Taxes for Which Commercial Intertech has
Filing Responsibility. Commercial Intertech shall pay to the appropriate Tax
Authority all State and Foreign Taxes for Tax Returns with respect to which
Commercial Intertech (or another member of the Commercial Intertech Group) has
filing responsibility pursuant to Article III of this Agreement. Immediately
prior to the Distribution and immediately before such Return is due (taking into
account any extension of time for filing that Commercial Intertech requests and
is granted), or immediately after receipt of any refund, CUNO shall make
payments to Commercial Intertech (or Commercial Intertech shall make payments to
CUNO) of amounts which shall, in each case, be determined in accordance with the
principles, applied mutatis mutandis, set forth in Section 5.01 of the
Agreement.
5.03 Payment of State and Foreign Taxes for Which CUNO has Filing
Responsibility. CUNO shall pay to the appropriate Tax Authority all State and
Foreign Taxes for Tax Returns with respect to which CUNO (or another member of
the CUNO Group) has filing responsibility pursuant to Article III of this
Agreement. Immediately prior to the Distribution and immediately before the
time such Return is due (taking into account any extension of time for filing
that CUNO requests and is granted), or immediately after receipt of any refund,
Commercial Intertech shall make payments to CUNO (or CUNO shall make payments to
Commercial Intertech) of amounts which shall, in each case, be determined in
accordance with the principles, applied mutatis mutandis, set forth in Section
5.01 of the Agreement.
5.04 Indemnification Payments.
(a) Upon payment of any Taxes with respect to which a party is entitled to
receive indemnification hereunder, such party (the "Indemnified Party") shall
send the other party (the "Indemnifying Party") an invoice accompanied by
evidence of payment and a statement detailing the Taxes paid and describing in
reasonable detail the particulars relating thereto. The Indemnifying Party (or
such one or more members of the Indemnifying Party's Group as it shall nominate)
shall remit payment for Taxes for which the Indemnifying Party is liable for
indemnification hereunder
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to the Indemnified Party (or such one or more members of the Indemnified Party's
Group as it shall nominate) within 30 days of receipt of such invoice, evidence
of payment and statement, or at any earlier time identified by the Indemnifying
Party.
(b) If any Indemnified Party realizes a Tax Benefit or a Tax detriment in
one or more Tax Periods by reason of having, incurred any Tax for which such
Indemnified Party receives indemnification hereunder, then such Indemnified
Party shall pay to such Indemnifying Party an amount equal to the Tax Benefit or
such Indemnifying Party shall pay to such Indemnified Party 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 Indemnified
Party by reason of having incurred a Tax for which such Indemnified Party
received indemnification hereunder shall be deemed to equal the product obtained
by multiplying (i) the amount of any deduction or inclusion in income for such
period resulting from such Tax or the payment thereof, as the case ma be, by
(ii) the highest applicable marginal Tax rate for such Period. Any payment due
under this Section 5.05(b) with respect to a Tax benefit or Tax detriment
realized by an Indemnified Party 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.
ARTICLE VI
----------
TAX RECORDS: COOPERATION
------------------------
6.01 Tax Records.
(a) Commercial Intertech and CUNO (and their respective Affiliates)
shall keep in their possession all Tax Records relating to Taxes for which the
other party may have liability under this Agreement, until the expiration of any
applicable statute of limitations and as otherwise required by law.
Notwithstanding the foregoing, CUNO shall retain all Tax Records relating to
Pre-Distribution Periods until such time as Commercial Intertech shall consent
to the disposition of such Tax Records, which consent shall not be unreasonably
withheld. For purposes of this Article VI, "Tax Records" shall include, inter
alia, journal vouchers, cash vouchers, general ledgers, material contracts and
authorizations for expenditures.
(b) Commercial Intertech and CUNO (and their respective Affiliates)
shall make available to each other for inspection and copying during normal
business hours all Tax Records in their possession, to the extent such Tax
Records are reasonably required by the other party in connection with the
preparation of Tax Returns, audits, litigation or the resolution of items under
this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary, if
either party fails to comply with the requirements of this Section 6.01, the
party failing so to comply shall be liable for, and shall hold the other party
harmless from, any Taxes (including penalties for failure to comply with the
record retention requirements of the Code) and other costs resulting from such
party's failure to comply.
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6.02 Cooperation. Commercial Intertech and CUNO shall each provide the
other with such assistance as may reasonably be requested in connection with the
preparation of any Tax Return, audit or other examination by any Tax Authority
or judicial or administrative proceedings relating to liability for any Taxes.
ARTICLE VI
----------
TAX AUDITS AND APPEALS
----------------------
7.01 Notice. Commercial Intertech and CUNO shall provide prompt notice to
the other party of any pending or threatened Tax Contest that it becomes aware
of relating to Taxes for Tax Periods for which it is indemnified by, or is to
indemnify, the other party hereunder. Such notice shall contain factual
information (to the extent known) describing any asserted Tax liability in
reasonable detail and shall be accompanied by copies of any notice or other
document received from any Tax Authority in respect of any such matter. If any
party has knowledge of an asserted Tax liability with respect to a matter for
which it is to be indemnified hereunder and such party fails to give the
indemnifying party notice of such asserted Tax liability within 30 days after it
has received written notice thereof, then, unless such failure has no material
adverse effect upon the indemnifying party's ability to participate in the Tax
Contest, the indemnifying party shall have no obligation to indemnify the
indemnified party for any Taxes arising out of such asserted Tax liability.
7.02 Control of Audits and Appeals.
(a) Separate Contests. Any Separate Contest shall be controlled solely
by the party involved in the Tax Contest.
(b) Joint Contests.
(1) Commercial Intertech shall control any Joint Contest. The
personnel and outside advisers (including counsel) of CUNO may shall
participate, at CUNO's expense, in the proceeding to the extent such
proceeding relates to items or adjustments for which CUNO may incur
indemnity liability under this Agreement. Such participation shall
include: (i) participation in all conferences, meetings or proceedings
with any Tax Authority; (ii) participation in all appearances before any
court; (iii) with respect to matters described in the preceding clauses
(i) and (ii), participation in the submission and determination of
content of documentation, protests, memoranda of fact and law and
briefs, the conduct of oral arguments or presentations, the selection of
witnesses and the negotiation of stipulations of fact in such matters.
If CUNO fails to timely and fully participate in any proceeding to the
extent to which such proceeding relates to items or adjustments for
which CUNO has indemnity liability under this Agreement, CUNO shall be
liable for, in addition to all Taxes for which CUNO shall be liable
under this Agreement, any and all costs imposed on, or incurred by,
Commercial Intertech as a result of CUNO's failure to participate.
(2) Each of the parties hereto agrees to cooperate in seeking an
agreement with the IRS or any other Tax authority under which such
authority would conduct separate
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audits of Commercial Intertech and CUNO with respect to returns
including both parties. To the extent permitted by such an Agreement,
each party would control its separate audits in accordance with the
terms thereof, and the procedures provided in the remainder of this
Section 7.02(b) and in Section 7.03 hereof shall not apply.
7.03 Consent to Settlements in Joint Contests.
(a) With respect to any Joint Contest, 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).
(b) In the case of any Joint Contest, either party (the "Compromising
Party"), without the consent or permission of the other party (the "Non-
Compromising Party"), may, if permitted by the appropriate agency or tribunal,
accept or enter into the settlement of any Tax liability to the extent such
liability relates solely to items for which such party has indemnity liability
hereunder. In the event the Non-Compromising Party's refusal to settle its
portion of the contest prevents the Compromising Party from reaching a
settlement as to its portion of the contest, the Non-Compromising Party shall
indemnify the Compromising Party from and against any outcome less favorable
than the settlement which the Compromising Party was willing to accept. With
respect to any Joint Contest, each of CUNO and Commercial Intertech hereby
agrees that it shall not participate in the negotiation, settlement or other
resolution of any item at issue in such Joint Contest in a manner discriminating
against the other party's interests in such contest.
(c) Notwithstanding anything to the contrary in the foregoing, in the
event the judgment of the United States Tax Court or other court of competent
jurisdiction results in an adverse determination with respect to the liability
of either party hereunder, such party shall have the right (at its own expense)
to appeal such adverse determination; provided, however, that the second
sentence of Section 7.03(b) shall apply for purposes of determining the
liability of any non-appealing party hereunder.
7.04 Expenses.
(a) With respect to any Separate Contest, the party involved in such
contest shall bear all expenses related thereto.
(b) With respect to any Joint Contest, except as otherwise provided
herein, the parties shall share any and all costs and expenses incurred in
connection with such contest based on each party's potential liability with
respect to such contest as agreed to by the parties at the outset of such
contest.
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ARTICLE VIII
------------
DISPUTE RESOLUTION
------------------
8.01 Dispute Resolution Committee.
In the event of any dispute or disagreement relating to this Agreement or
the transactions contemplated by this Agreement, Commercial Intertech and CUNO
shall each appoint two members from their respective management staffs to serve
on a joint committee (the "Dispute Resolution Committee"). The Dispute
Resolution Committee shall meet at either Commercial Intertech or CUNO's
offices, whichever is more appropriate in view of the issues under
consideration, at such reasonable time as either party may notify the other in
writing, for the purpose of resolving any dispute arising under this Agreement.
No dispute arising under this Agreement shall be the subject of arbitration or
other formal proceedings until such dispute has been considered by the Dispute
Resolution Committee. If the Dispute Resolution Committee is unable to resolve
any dispute submitted to it within 30 days of such submission, the Dispute
Resolution Committee shall refer the issue to the Chief Executive Officers of
Commercial Intertech and CUNO for their resolution. If such officers are unable
to resolve such dispute within 15 days after referral, any member of the Dispute
Resolution Committee may refer such dispute to binding arbitration as provided
in Section 8.02 hereof.
8.02 Binding Arbitration.
(a) Any controversy, dispute or claim (whether in contract or tort)
between the parties arising out of or related to this Agreement or the
transactions contemplated hereby, shall, after the dispute resolution process
set forth in Section 8.01 has been completed, at the request of any party, be
submitted to arbitration in accordance with this Section 8.02.
(b) Each controversy, dispute or claim submitted by a party to
arbitration shall be heard by an arbitration panel composed of three
arbitrators. Commercial Intertech and CUNO shall each appoint one arbitrator
who shall be an independent tax attorney or accountant with at least ten years
professional experience in the matters subject to the arbitration and not be
related to the appointing party, within 15 days after the matter has been
submitted to arbitration. If any party fails to appoint its arbitrator within
such 15 day period, any party may apply to the American Arbitration Association
(the "AAA") to appoint an arbitrator on behalf of the party that has failed to
appoint its arbitrator. The two arbitrators appointed by, or on behalf of, the
parties shall jointly appoint a third arbitrator with similar background who
shall chair the arbitration panel (the "Chairman"). If the arbitrators appointed
by, or on behalf of, the parties do not succeed in appointing a Chairman within
15 days of the latter of the two arbitrators appointed by, or on behalf of, the
parties has been appointed, the Chairman shall, at the request of either party,
be appointed by the AAA. 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 specified herein, arbitration proceedings shall
be conducted in accordance with such rules as the parties mutually agree. In
any arbitration proceeding hereunder: (i) proceedings shall, unless otherwise
agreed by the parties, be held in Cleveland, Ohio;
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<PAGE>
(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 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 SUBMIT 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 9.08 hereof
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 8.02 shall limit the right of any party
to this Agreement to exercise self-help remedies such as set-off, or obtaining
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.
ARTICLE IX
----------
MISCELLANEOUS MATTERS
---------------------
9.01 No Inconsistent Actions. Neither Commercial Intertech nor CUNO (nor
their respective Affiliates) shall take any action inconsistent with, nor fail
to take any action required by any representations covenants or other similar
conditions made in connection with the Officers' Certificate.
9.02 Amendment and Waiver. This Agreement shall not be amended or
modified in any manner whatsoever without the written consent of each of the
parties hereto. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
9.03 Tax Allocation Agreements. Immediately prior to the Distribution,
Commercial Intertech shall cause any and all tax allocation, tax sharing and
similar agreements or arrangements existing between Commercial Intertech
(including its Affiliates) and CUNO (including its Affiliates) to be terminated
with respect to the CUNO Group, as of an effective date agreed to by the parties
prior to the Distribution Date, and shall cause any amounts due under such
agreements or arrangements to be settled in the manner agreed to by the parties
prior to the Distribution Date.
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<PAGE>
Upon such termination and settlement, no further payments made by one party to
the other with respect to such agreements or arrangements shall be made, and all
other rights and obligations resulting from such agreements or arrangements
between the parties shall cease as of such time.
9.04 Entire Agreement; Inconsistent Provisions. The parties agree that
this Agreement constitutes the entire Agreement between them in respect of the
subject matter of this Agreement, and that, in the event of a conflict or other
inconsistency between any provision or term of this Agreement and any provision
or term of the Distribution Agreement or the Employee Benefits and Compensation
Allocation Agreement this Agreement shall prevail.
9.05 Affiliate Obligations. To the extent that the provisions of this
Agreement pertain to an Affiliate of Commercial Intertech or CUNO, Commercial
Intertech and CUNO hereby respectively agree that they will cause such Affiliate
to carry out the terms of this Agreement.
9.06 Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking any action as may be
necessary or appropriate to achieve the purposes of this Agreement. Without
limiting the preceding sentence, and subject to Section 7.02(b) hereof, each
party and its Affiliates shall provide the other party and its Affiliates with
such powers of attorney or other authorizing documentation as is reasonably
necessary to empower them to execute and file Tax Returns, refunds and
equivalent claims for Taxes for which they are responsible hereunder, and
contest, settle and resolve any Tax Contests that they control under Article VII
hereof.
9.07 Time for Notice. Notice of any indemnification claim under this
Agreement must be received by the party against whom such claim is made no later
than six months from the date on which the Taxes to which such claim relates
have been paid.
9.08 Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally to the
recipient or when sent to the recipient by telecopy (receipt confirmed), one
business day after the date when sent to the recipient by reputable express
courier service (charges prepaid) or two business days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the parties at their addresses indicated below:
If to Commercial Intertech:
Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44505
Attention: Director, Taxes
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<PAGE>
If to CUNO Incorporated:
CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: President
Or to such other address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
9.09 Remedies. Any party having any rights under any provision of this
Agreement will have all rights and remedies set forth in this Agreement and all
rights and remedies which such party may have been granted at any time under any
other agreement or contract and all of the rights which such party may have
under any law. Any such party will be entitled to enforce such rights
specifically, without posting a bond or other security, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
9.10 Successors and Assigns. No party hereto may assign or delegate any
of such party's rights or obligations under or in connection with this Agreement
without the written consent of the other parties hereto. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto will be binding upon and enforceable against the respective successors
and assigns of such party and will be enforceable by and will inure to the
benefit of the respective successors and permitted assigns of such party.
9.11 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
9.12 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together will constitute one and
the same Agreement.
9.13 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
9.14 No Third-Party Beneficiaries. This Agreement will not confer any
rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
9.15 Construction. The language used in this Agreement will be deemed to
be the language mutually chosen by the parties to express their mutual intent
and no rule of strict construction will
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<PAGE>
be applied against any party. The use of the word "including" in this Agreement
means "including without limitation" and is intended by the parties to be by way
of example rather than limitation.
9.16 Form of Payments and Late Payments. Any payments owed by one party
to another under this Agreement shall be made in the currency in which the Tax
to which such payment relates is assessed by the Tax Authority, and shall be
paid in immediately available funds and in such other manner as the party to
whom such payment is owed may reasonably request. Any payments required by this
Agreement that are not made when due shall bear interest at the Prime Rate plus
six percent from the due date of the payment to the date paid.
9.17 Treatment of Payments. The parties agree that, in the absence of any
change in law or fact, any Indemnification Payments made under this agreement
shall be reported for tax purposes by the payor and the recipient as capital
contributions or dividends, as appropriate, relating back to the Tax Period
beginning before the Distribution Date.
9.18 Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND
NOT THE LAW OF CONFLICTS, OF THE STATE OF OHIO.
9.19 Confidentiality. If, pursuant to the terms of this Agreement, either
Commercial Intertech or CUNO (or any of their respective Affiliates) is required
to provide or disclose any information to the other party to this Agreement (or
any Affiliate of such other party), the Person receiving such information shall
hold and keep such information confidential, and shall not disclose such
information (except as otherwise required by Law) without the prior written
consent of the Person from whom such information was received.
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<PAGE>
IN WITNESS WHEREOF, the Agreement has been duly executed as of the day and
year first above written.
COMMERCIAL INTERTECH CORP.
By ________________________________________________________________________
Name: _____________________________________________________________________
Title: ____________________________________________________________________
CUNO INCORPORATED
By ________________________________________________________________________
Name: _____________________________________________________________________
Title: ____________________________________________________________________
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SCHEDULE 1
----------
PREPARATION AND FILING OF TAX RETURNS
This schedule lists the Tax Returns that Commercial Intertech will file
which includes members of both the Commercial Intertech Group and the CUNO
Group. The returns will include members of the CUNO Group through the
distribution date for 1996.
<TABLE>
<CAPTION>
1996
- --------
TAX DUE
PERIOD DESCRIPTION DATE
- ------ ----------- ----
<S> <C> <C>
1996 U.S. Consolidated Corporation 01/15/97
Income Tax Return
1996 California Unitary Tax Return 02/15/97
1996 Illinois Combined Tax Return 02/15/97
</TABLE>
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<PAGE>
EXHIBIT 10.6
EMPLOYEE BENEFITS AND 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 .............................. 10
SECTION 2.11 Indemnification .......................... 10
SECTION 2.12 Special Provisions ....................... 10
ARTICLE III - MISCELLANEOUS .................................. 11
SECTION 3.01 Guarantee of Subsidiaries' Obligations ... 11
SECTION 3.02 Failure of Commercial Intertech and CUNO
To Agree on Certain Determinations ....... 11
SECTION 3.03 Sharing of Information ................... 11
SECTION 3.04 Governing Law ............................ 11
SECTION 3.05 Notices .................................. 11
SECTION 3.06 Amendments ............................... 12
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.
Cut-off Date: August 19, 1996
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
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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
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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
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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.
SECTION 2.12 Special Provisions. Notwithstanding any other provision of
this Agreement, the Chairman of Commercial Intertech shall not be treated as a
Commercial Intertech Employee or a CUNO Employee for purposes of this Agreement,
no provision of this Agreement shall apply to him, and all Liabilities relating
to or arising out of his employment with Commercial Intertech or CUNO shall be
dealt with as specifically determined by the Board of Directors of Commercial
Intertech before the Distribution Date.
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
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EXHIBIT 10.10
EXECUTION COPY
$25,000,000 REVOLVING CREDIT FACILITY
$30,000,000 TERM LOAN FACILITY
CREDIT AGREEMENT
by and among
CUNO INCORPORATED, as Borrower
and
THE BANKS PARTY HERETO
and
MELLON BANK, N.A., as Agent
Dated as of August 9, 1996
<PAGE>
TABLE OF CONTENTS
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1. CERTAIN DEFINITIONS................................................... 1
1.1 Certain Definitions................................................ 1
1.2 Construction....................................................... 18
1.2.1 Number; Inclusion.............................................. 18
1.2.2 Determination.................................................. 19
1.2.3 Agent's Discretion and Consent................................. 19
1.2.4 Documents Taken as a Whole..................................... 19
1.2.5 Headings....................................................... 19
1.2.6 Implied References to this Agreement........................... 19
1.2.7 Persons........................................................ 19
1.2.8 Modifications to Documents..................................... 19
1.2.9 From, To and Through........................................... 20
1.2.10 Shall; Will.................................................... 20
1.3 Accounting Principles.............................................. 20
2. REVOLVING CREDIT FACILITY AND TERM FACILITY........................... 20
2.1 Revolving Credit Commitments....................................... 20
2.2 Nature of Banks' Obligations with Respect to Revolving Credit Loans 20
2.3 Revolving Credit and Term Loan Commitment Fees..................... 21
2.4 Voluntary Reduction of Revolving Credit and Term Loan Commitments.. 21
2.5 Revolving Credit Loan Requests..................................... 22
2.6 Making Revolving Credit Loans...................................... 22
2.7 Revolving Credit Notes............................................. 23
2.8 Use of Revolving Credit Proceeds................................... 23
2.9 Letters of Credit Subfacility...................................... 23
2.9.1 Issuance of Letters of Credit.................................. 23
2.9.2 Participations................................................. 23
2.9.3 Letter of Credit Fees.......................................... 24
2.9.4 Disbursements, Reimbursement................................... 24
2.9.5 Documentation.................................................. 25
2.9.6 Determinations to Honor Drawing Requests....................... 25
2.9.7 Nature of Participation and Reimbursement Obligations.......... 25
2.9.8 Indemnity...................................................... 27
2.9.9 Liability for Acts and Omissions............................... 27
2.10 Term Facility..................................................... 28
2.10.1 Term Loan Commitments......................................... 28
2.10.2 Nature of Banks' Obligations With Respect to Term Loans....... 28
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2.10.3 Term Loan Notes.....................................28
2.10.4 Use of Term Loan Proceeds...........................29
3. INTEREST RATES....................................................29
--------------
3.1 Interest....................................................29
3.1.1 Interest Rate Options................................29
3.2 Interest Periods............................................31
3.2.1 Ending Date and Business Day.........................31
3.2.2 Amount of Borrowing Tranche..........................31
3.2.3 Termination Before Expiration Date...................31
3.2.4 Renewals.............................................31
3.3 Interest After Default......................................31
3.3.1 Letters of Credit Fees, Interest Rate................31
3.3.2 Other Obligations....................................31
3.3.3 Acknowledgment.......................................32
3.4 Euro-Rate Unascertainable...................................32
3.4.1 Unascertainable......................................32
3.4.2 Illegality; Increased Costs; Deposits Not Available..32
3.4.3 Agent's and Bank's Rights............................33
3.5 Selection of Interest Rate Options..........................33
4. PAYMENTS..........................................................34
--------
4.1 Payments....................................................34
4.2 Pro Rata Treatment of Banks.................................34
4.3 Interest Payment Dates......................................34
4.4 Voluntary Prepayments.......................................35
4.4.1 Right to Prepay......................................35
4.5 Mandatory Reduction of Commitments; Mandatory Prepayments...36
4.5.1 Sale of Assets.......................................36
4.6 Additional Compensation in Certain Circumstances............36
4.6.1 Increased Costs or Reduced Return Resulting
From Taxes, Reserves, Capital Adequacy
Requirements, Expenses, Etc..........................36
4.6.2 Indemnity............................................37
5. REPRESENTATIONS AND WARRANTIES....................................38
------------------------------
5.1 Representations and Warranties..............................38
5.1.1 Organization and Qualification.......................38
5.1.2 Subsidiary Matters...................................39
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5.1.3 Power and Authority.............................................. 39
5.1.4 Validity and Binding Effect...................................... 39
5.1.5 No Conflict...................................................... 39
5.1.6 Litigation....................................................... 40
5.1.7 Title to Properties.............................................. 40
5.1.8 Financial Statements............................................. 40
5.1.9 Margin Stock..................................................... 41
5.1.10 Full Disclosure.................................................. 42
5.1.11 Taxes............................................................ 42
5.1.12 Consents and Approvals........................................... 42
5.1.13 No Event of Default; Compliance with Instruments................. 42
5.1.14 Patents, Trademarks, Copyrights, Licenses, Etc................... 43
5.1.15 Insurance........................................................ 43
5.1.16 Compliance with Laws............................................. 43
5.1.17 Material Contracts............................................... 43
5.1.18 Investment Companies............................................. 44
5.1.19 Plans and Benefit Arrangements................................... 44
5.1.20 Employment Matters............................................... 45
5.1.21 Environmental Matters............................................ 46
5.1.22 Senior Debt Status............................................... 48
5.1.23 Security Interests............................................... 48
5.1.24 Mortgage Liens................................................... 49
5.1.25 Status of the Pledged Collateral................................. 49
5.1.26 Solvency......................................................... 49
5.2 Updates to Schedules.................................................. 49
6. CONDITIONS OF LENDING................................................... 50
6.1 First Revolving Credit Loans and Term Loans......................... 50
6.1.1 Officer's Certificate............................................ 50
6.1.2 Secretary's Certificate.......................................... 50
6.1.3 Delivery of Loan Documents....................................... 51
6.1.4 Opinions of Counsel.............................................. 51
6.1.5 Legal Details.................................................... 51
6.1.6 Payment of Fees.................................................. 52
6.1.7 Consents......................................................... 52
6.1.8 Officer's Certificate Regarding MACs............................. 52
6.1.9 No Violation of Laws............................................. 52
6.1.10 No Actions or Proceedings........................................ 52
6.1.11 Insurance Policies; Certificates of Insurance.................... 52
6.1.12 Termination of Existing Debt..................................... 53
6.1.13 Solvency Certificate............................................. 53
6.1.14 Spin-Off......................................................... 53
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6.2 Each Additional Loan...............................................53
6.3 Syndication........................................................54
6.3.1 Syndication Representation and Warranties................54
6.3.2 Syndication Documents....................................54
7. COVENANTS................................................................55
7.1 Affirmative Covenants..............................................55
7.1.1 Preservation of Existence, Etc...........................55
7.1.2 Payment of Liabilities, Including Taxes, Etc.............55
7.1.3 Maintenance of Insurance.................................55
7.1.4 Maintenance of Properties and Leases.....................57
7.1.5 Maintenance of Patents, Trademarks, Etc..................57
7.1.6 Visitation Rights........................................57
7.1.7 Keeping of Records and Books of Account..................57
7.1.8 Plans and Benefit Arrangements...........................57
7.1.9 Compliance with Laws.....................................58
7.1.10 Use of Proceeds.........................................58
7.1.11 Subordination of Intercompany Loans.....................58
7.1.12 Further Assurances Regarding Banks' Liens and Prior
Security Interests......................................59
7.1.13 Post-Closing Matters....................................59
7.1.14 Payments of Inter-Company Obligations Related to
Intertech...............................................59
7.2 Negative Covenants.................................................59
7.2.1 Indebtedness.............................................60
7.2.2 Liens....................................................60
7.2.3 Guaranties...............................................61
7.2.4 Loans and Investments....................................61
7.2.5 Dividends and Related Distributions......................62
7.2.6 Liquidations, Mergers, Consolidations,
Acquisitions.............................................62
7.2.7 Dispositions of Assets or Subsidiaries...................63
7.2.8 Affiliate Transactions...................................64
7.2.9 Subsidiaries, Partnerships and Joint Ventures............65
7.2.10 Continuation of or Change in Business...................65
7.2.11 Plans and Benefit Arrangements..........................65
7.2.12 Fiscal Year.............................................66
7.2.13 Issuance of Stock.......................................67
7.2.14 Changes in Organizational Documents.....................67
7.2.15 Capital Expenditures and Leases.........................67
7.2.16 Minimum Interest Coverage Ratio.........................68
7.2.17 Consolidated Funded Indebtedness to Consolidated
EBITDA Ratio............................................68
7.2.18 Minimum Consolidated Tangible Net Worth.................69
7.2.19 Amendments to Certain Documents.........................69
7.2.20 No Prepayment of Existing Indebtedness..................69
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7.3 Reporting Requirements.............................................70
7.3.1 Quarterly Financial Statements...........................70
7.3.2 Annual Financial Statements..............................70
7.3.3 Certificate of the Borrower..............................71
7.3.4 Notice of Default........................................71
7.3.5 Notice of Litigation.....................................71
7.3.6 Certain Events...........................................71
7.3.7 Budgets, Forecasts, Other Reports and Information........72
7.3.8 Notices Regarding Plans and Benefit Arrangements.........73
8. DEFAULT..................................................................74
8.1 Events of Default..................................................74
8.1.1 Payments Under Loan Documents............................74
8.1.2 Breach of Warranty.......................................75
8.1.3 Breach of Negative Covenants and Section 7.1.13..........75
8.1.4 Breach of Other Covenants................................75
8.1.5 Defaults in Other Agreements or Indebtedness.............75
8.1.6 Final Judgments or Orders................................75
8.1.7 Loan Document Unenforceable..............................76
8.1.8 Notice of Lien or Assessment.............................76
8.1.9 Insolvency...............................................76
8.1.10 Events Relating to Plans and Benefit Arrangements.......76
8.1.11 Cessation of Business...................................77
8.1.12 Change of Control.......................................77
8.1.13 Involuntary Proceedings.................................77
8.1.14 Voluntary Proceedings...................................78
8.2 Consequences of Event of Default...................................78
8.2.1 Events of Default Other Than Bankruptcy, Insolvency
or Reorganization Proceedings............................78
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.....79
8.2.3 Set-off..................................................79
8.2.4 Suits, Actions, Proceedings..............................79
8.2.5 Application of Proceeds..................................80
8.2.6 Other Rights and Remedies................................80
8.3 Notice of Sale.....................................................80
9. THE AGENT................................................................81
9.1 Appointment........................................................81
9.2 Delegation of Duties...............................................81
9.3 Nature of Duties; Independent Credit Investigation.................81
9.4 Actions in Discretion of Agent; Instructions from the Banks........82
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9.5 Reimbursement and Indemnification of Agent by the Borrower........................ 82
9.6 Exculpatory Provisions............................................................ 83
9.7 Reimbursement and Indemnification by Banks of the Agent........................... 83
9.8 Reliance by Agent................................................................. 84
9.9 Notice of Default................................................................. 84
9.10 Notices.......................................................................... 84
9.11 Banks in Their Individual Capacities............................................. 84
9.12 Holders of Notes................................................................. 85
9.13 Equalization of Banks............................................................ 85
9.14 Successor Agent.................................................................. 85
9.15 Other Fees....................................................................... 86
9.16 Availability of Funds............................................................ 86
9.17 Calculations..................................................................... 86
9.18 Beneficiaries.................................................................... 86
10. MISCELLANEOUS...................................................................... 87
10.1 Modifications, Amendments or Waivers............................................. 87
10.1.1 Increase of Commitments; Extension or Expiration Date........................ 87
10.1.2 Extension of Payment; Reduction of Principal Interest or Fees;
Modification of Terms of Payment............................................ 87
10.1.3 Release of Guarantor; Release of Security.................................... 87
10.1.4 Miscellaneous................................................................ 87
10.2 No Implied Waivers; Cumulative Remedies; Writing Required........................ 88
10.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes................ 88
10.4 Holidays......................................................................... 89
10.5 Funding by Branch, Subsidiary or Affiliate....................................... 89
10.5.1 Notional Funding............................................................. 89
10.5.2 Actual Funding............................................................... 90
10.5.3 Changes to Other Branches, Subsidiaries or Affiliates........................ 90
10.6 Notices.......................................................................... 90
10.7 Severability..................................................................... 91
10.8 Governing Law.................................................................... 91
10.9 Prior Understanding.............................................................. 91
</TABLE>
vi
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
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<S> <C> <C>
10.10 Duration; Survival..................................... 91
10.11 Successors and Assigns................................. 92
10.12 Confidentiality........................................ 93
10.13 Counterparts........................................... 93
10.14 Agent's or Bank's Consent.............................. 93
10.15 Exceptions............................................. 93
10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL................. 94
10.17 Tax Withholding Clause................................. 94
10.18 Joinder of Subsidiaries................................ 95
</TABLE>
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULE
<S> <C> <C>
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS
SCHEDULE 1.1(I) - EXISTING DEPOSITORY INSTITUTIONS
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 5.1.1 - SUBSIDIARIES
SCHEDULE 5.1.2 - SUBSIDIARY MATTERS
SCHEDULE 5.1.12 - CONSENTS AND APPROVALS
SCHEDULE 5.1.6 - LITIGATION
SCHEDULE 5.1.7 - PROPERTY
SCHEDULE 5.1.17 - MATERIAL CONTRACTS
SCHEDULE 5.1.19 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 5.1.21 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 5.1.25 - STATUS OF PLEDGED COLLATERAL
SCHEDULE 6.1.4 - COUNSEL TO LOAN PARTIES
SCHEDULE 7.1.13 - POST-CLOSING MATTERS
SCHEDULE 7.2.1 - EXISTING INDEBTEDNESS
SCHEDULE 7.2.4 - LOANS AND INVESTMENTS
SCHEDULE 7.2.8 - AFFILIATE TRANSACTIONS
EXHIBITS
EXHIBIT 1.1(A) - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(I)(1) - FORM OF INTERCOMPANY NOTE
EXHIBIT 1.1(M)(1) - FORM OF MASTER GUARANTY AGREEMENT
EXHIBIT 1.1(M)(2) - FORM OF MASTER INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(M)(3) - FORM OF MORTGAGE
EXHIBIT 1.1(M)(4) - FORM OF LEASEHOLD MORTGAGE
EXHIBIT 1.1(N) - FORM OF NOTE PLEDGE AGREEMENT
EXHIBIT 1.1(P)(1) - FORM OF PATENT, TRADEMARK AND COPYRIGHT SECURITY
AGREEMENT
EXHIBIT 1.1(P)(2) - FORM OF PLEDGE AGREEMENT
EXHIBIT 1.1(S) - FORM OF SECURITY AGREEMENT
EXHIBIT 1.1(R) - FORM OF REVOLVING CREDIT NOTE
EXHIBIT 1.1(T) - FORM OF TERM NOTE
EXHIBIT 2.5 - FORM OF LOAN REQUEST
EXHIBIT 2.9.1 - FORM OF APPLICATION AND AGREEMENT FOR LETTERS OF CREDIT
EXHIBIT 6.1.4 - OPINION OF COUNSEL
EXHIBIT 7.3.3 - FORM OF COMPLIANCE CERTIFICATE
</TABLE>
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of August 9, 1996 and is made by and
among CUNO INCORPORATED, a Delaware corporation (the "Borrower"), the BANKS (as
hereinafter defined), and MELLON BANK, N.A., in its capacity as Agent.
WITNESSETH:
WHEREAS, the Borrower has requested a revolving credit facility in an
aggregate principal amount of $25,000,000, including a $20,000,000 sublimit for
letters of credit and a $30,000,000 term loan facility; and
WHEREAS, the Banks are willing to provide such credit facilities upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
-------------------
1.1 Certain Definitions.
------------------------
In addition to words and terms defined elsewhere in this Agreement,
the following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Affiliate as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 5% or more of any class
of the voting or other equity interests of such Person, or (iii) 5% or more of
any class of voting or other equity interests of which is beneficially owned or
held, directly or indirectly, by such Person. Control, as used in this
definition, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, including
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
Agent shall mean Mellon Bank, N.A., in its capacity as agent and
its successors and assigns.
Agent's Fee shall have the meaning assigned to that term in
Section 9.15.
Agreement shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and exhibits.
<PAGE>
Annual Statements shall have the meaning assigned to that term in
Section 5.1.8(i).
Applicable Percentage Over Base Rate shall have the meaning
assigned to that term in Section 3.1.1.
Applicable Percentage Over Euro Rate shall have the meaning
assigned to that term in Section 3.1.1.
Assignment and Assumption Agreement shall mean an Assignment and
Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the
Agent on behalf of the other Banks, substantially in the form of Exhibit 1.1(A).
Authorized Officer shall mean those individuals, designated by
written notice to the Agent from the Borrower, authorized to execute notices,
reports and other documents on behalf of the Loan Parties required hereunder.
The Borrower may amend such list of individuals from time to time by giving
written notice of such amendment to the Agent.
Banks shall mean the financial institutions named on Schedule
1.1(B) and their respective successors and assigns as permitted hereunder, each
of which is referred to herein as a "Bank".
Base Rate shall mean the greater of (i) the interest rate per
annum announced from time to time by the Agent at its Principal Office as its
then prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus
1/2% per annum.
Base Rate Option shall mean Loans subject to the Revolving Credit
Base Rate Option or the Term Loan Base Rate Option.
Benefit Arrangement shall mean at any time an "employee benefit
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan nor
a Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
Borrower shall mean CUNO Incorporated, a corporation organized
and existing under the laws of the State of Delaware.
Borrowing Date shall mean, with respect to any Loan, the date for
the making thereof or the renewal or conversion thereof at or to the same or a
different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans
outstanding as follows: (i) Loans to which a Euro-Rate applies by reason of the
selection of, conversion to or
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renewal of such Interest Rate Option on the same day and having the same
Interest Period shall constitute one Borrowing Tranche, and (ii) with respect to
the Loans to which the Base Rate Option applies by reason of the selection of or
conversion to such Interest Rate Option shall constitute one Borrowing Tranche.
Business Day shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania or New York, New York, and, if
the applicable Business Day relates to any Loan to which the Euro-Rate Option
applies, such day must also be a day on which dealings in Dollar deposits are
carried on in the London interbank market.
Capitalized Lease shall mean any lease of Property by a Person as
lessee which is a capital lease in accordance with GAAP.
Closing Date shall mean the date of the Spin-Off. The closing
shall take place at 10:00 a.m., Pittsburgh time, on the Closing Date at the
offices of Buchanan Ingersoll Professional Corporation, Pittsburgh,
Pennsylvania, or at such other time and place as the parties agree.
Collateral shall mean the Pledged Collateral, the UCC Collateral,
the property described in the Patent, Trademark and Copyright Security Agreement
and the Property.
Commitment shall mean as to any Bank the aggregate of its
Revolving Credit Commitment and Term Loan Commitment, and Commitments shall mean
the aggregate of the Revolving Credit Commitments and Term Loan Commitments of
all of the Banks.
Commitment Fee shall have the meaning assigned to that term in
Section 2.3.
Consolidated Capital Expenditures means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including that portion of Capitalized Leases which is capitalized on a
consolidated balance sheet of the Borrower and its Subsidiaries) by the Borrower
and its Subsidiaries during that period that, in conformity with GAAP, are
required to be included in or reflected in the property, plant or equipment or
similar fixed asset accounts reflected on a consolidated balance sheet of the
Borrower and its Subsidiaries. Any amount which is included in any period as an
accrual shall not be duplicated in any calculation at the time payment thereof
is actually made to the extent included in such prior accrual.
Consolidated EBITDA for any period of determination shall mean an
amount equal to the sum of (i) the net income for such period plus (ii) interest
expense in respect of Indebtedness to the extent deducted in determining net
income for such period ("Interest Expense"), plus (iii) the provision for taxes
for such period based on income or profits to the
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<PAGE>
extent such income or profits were included in computing net income for such
period, plus (iv) depreciation deducted in determining net income for such
period, plus (v) amortization deducted in determining net income for such
period, plus (vi) expense to the extent deducted in determining net income for
such period in respect of fees and costs which were incurred in connection with
the consummation of the transactions contemplated hereby and in connection with
the Tender Offer and the Spin-Off (provided, that no such expense described in
this clause (vi) shall be added to determine Consolidated EBITDA for any period
of determination if the aggregate expense for that period of determination
together with all expense included in determining net income in all periods
prior to the period of determination for all such fees and costs would exceed
$4,000,000), in each case of the Borrower and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided, however,
there shall be excluded from the foregoing computation all extraordinary income,
gains and losses to the extent included in net income under the foregoing clause
(i) for such period.
Consolidated Funded Indebtedness as of any date of determination
shall mean the aggregate of any and all indebtedness, obligations or liabilities
of the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP for or in respect of: (i) borrowed money, (ii) amounts
raised under or liabilities in respect of any note purchase or acceptance credit
facility, (iii) reimbursement obligations under any letter of credit drawn upon
and not reimbursed within the time period required, currency swap agreement,
interest rate swap, cap, collar or floor agreement or other interest rate
management device (net of any payments made to the Borrower under any of the
foregoing interest rate management devices), (iv) any other transaction
(including forward sale or purchase agreements, capitalized leases (but not
operating leases) and conditional sales agreements) having the commercial effect
of a borrowing of money entered into by such Person to finance its operations or
capital requirements (but not including trade payables, trade credits and
accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note or other evidence of indebtedness and which are
not more than sixty (60) days past due), or (v) any Guaranty of any liability
described in the foregoing clauses (i) through (iv).
Consolidated Cash Income Tax Expense for any period of
determination shall be equal to the aggregate cash payments of income taxes by
the Borrower and its Subsidiaries in respect of their consolidated net income
for such period.
Consolidated Interest Expense for any period of determination
shall be equal to the Interest Expense of the Borrower and its Subsidiaries as
determined in subclause (ii) of clause (A) of the definition of the term
"Consolidated EBITDA" for such period on a consolidated basis determined in
accordance with GAAP less any amortization of fees and costs which were incurred
and paid in a period prior to the period of determination in connection with the
consummation of the transactions contemplated hereby and are included in
Interest Expense for such period.
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<PAGE>
Consolidated Tangible Net Worth shall mean as of any date of
determination total stockholders' equity of the Borrower and its Subsidiaries,
less intangible assets of the Borrower and its Subsidiaries as of such date
determined and consolidated in accordance with GAAP.
Cumulative Consolidated Net Income shall mean as of any date of
determination the sum of the net income of the Borrower and its Subsidiaries on
a consolidated basis determined in accordance with GAAP for each fiscal quarter
completed prior to the date of determination commencing with the fiscal quarter
beginning on August 1, 1996, provided that there shall be excluded (and the
computation of Cumulative Consolidated Net Income shall not be reduced by) any
net loss incurred by the Borrower and its Subsidiaries on a consolidated basis
in any fiscal quarter.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful
money of the United States of America.
Domestic Subsidiary shall mean any Subsidiary of Borrower other
than a Foreign Subsidiary and Domestic Subsidiaries shall mean more than one
Domestic Subsidiary.
Environmental Complaint shall mean any written complaint setting
forth a cause of action for personal or property damage or natural resource
damage or equitable relief, order, notice of violation, citation, request for
information issued pursuant to any Environmental Laws by an Official Body,
subpoena or other written notice of any type relating to, arising out of, or
issued pursuant, to any of the Environmental Laws or any Environmental
Conditions, as the case may be.
Environmental Conditions shall mean any conditions of the
environment, including the workplace, the ocean, natural resources (including
flora or fauna), soil, surface water, groundwater, any actual or potential
drinking water supply sources, substrata or the ambient air, relating to or
arising out of, or caused by, the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, emptying,
discharging, injecting, escaping, leaching, disposal, dumping, threatened
release or other management or mismanagement of Regulated Substances resulting
from the use of, or operations on, any Property.
Environmental Laws shall mean all federal, state, local and
foreign Laws and regulations, including permits, licenses, authorizations,
bonds, orders, judgments, and consent decrees issued, or entered into, pursuant
thereto, relating to pollution or protection of human health or the environment
or employee safety in the workplace.
ERISA shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
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<PAGE>
ERISA Group shall mean, at any time, the Borrower and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control and all other entities which, together
with the Borrower, are treated as a single employer under Section 414 of the
Internal Revenue Code.
Euro-Rate shall mean with respect to the Loans comprising any
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the Agent by dividing (the resulting
quotient rounded upward to the nearest 1/16 of 1% per annum) (i) the rate of
interest determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank offered rates set forth on the "LIBO" page of the Reuters
Monitor Money Rate Service (or appropriate successor) or, if Reuters or its
successor ceases to provide such quotes, a comparable replacement determined by
the Agent, at approximately 11:00 a.m. London time two (2) Business Days prior
to the first day of such Interest Period for an amount comparable to such
Borrowing Tranche and having a maturity comparable to such Interest Period by
(ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-
Rate may also be expressed by the following formula:
Average of London interbank offered rates
on LIBO page of Reuters Monitor Money
Euro-Rate = Rate Service or appropriate successor
-------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Agent shall give prompt notice to the Borrower of the
Euro-Rate as determined or adjusted in accordance herewith, which determination
shall be conclusive absent manifest error.
Euro-Rate Option shall mean Loans subject to the Revolving Credit
Euro-Rate Option or the Term Loan Euro-Rate Option.
Euro-Rate Reserve Percentage shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Agent which is in effect during any relevant period, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
Event of Default shall mean any of the events described in
Section 8.1.
Executive Officer shall mean as to any designated Person a
natural Person who constitutes an executive officer of such designated Person
for purposes of item 401(b) of Regulation S-K promulgated under the Securities
Act of 1933 and the Securities Exchange Act of 1934.
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<PAGE>
Expiration Date shall mean January 30, 1998.
Federal Funds Effective Rate for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day of which such rate was announced.
Financial Projections shall have the meaning assigned to that
term in Section 5.1.8(ii).
Foreign Subsidiary means any Subsidiary of Borrower that (i) is
formed under the laws of a jurisdiction other than the United States, any state
of the United States, the District of Columbia or any territory or possession of
the United States and (ii) maintains the major portion of its assets outside of
the United States and Foreign Subsidiaries means more than one Foreign
Subsidiary.
Form 10 shall mean the Borrower's Form 10 filed with the
Securities and Exchange Commission on July 29, 1996, as amended.
GAAP shall mean generally accepted accounting principles as are
in effect from time to time, subject to the provisions of Section 1.3, and
applied on a consistent basis both as to classification of items and amounts.
Governmental Acts shall have the meaning assigned to that term in
Section 2.9.8.
Guarantor shall mean each of the Domestic Subsidiaries of the
Borrower which is designated as a "Guarantor" on the signature page to the
Master Guaranty Agreement and each other Domestic Subsidiary of the Borrower
which joins the Master Guaranty Agreement and the other Loan Documents as a
Guarantor after the date hereof pursuant to Section 10.18.
Guarantor Joinder shall mean a joinder to the Master Guaranty
Agreement as provided in the Master Guaranty Agreement.
Guaranty of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly (whether matured or
unmatured, liquidated or
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<PAGE>
unliquidated, direct or indirect, absolute or contingent or joint or several),
including any agreement to indemnify or hold harmless any other Person, any
performance bond or other suretyship arrangement and any other form of assurance
against loss, except endorsement of negotiable or other instruments for deposit
or collection in the ordinary course of business.
Historical Statements shall have the meaning assigned to that
term in Section 5.1.8(i).
Indebtedness shall mean, as to any Person at any time, any and
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations (contingent or
otherwise) under any letter of credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other interest rate management device
(net of any payments made to Borrower under any of the foregoing interest rate
management devices), (iv) any other transaction (including forward sale or
purchase agreements, capitalized leases (but not operating leases) and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such Person to finance its operations or capital
requirements (but not including trade payables, trade credits and accrued
expenses incurred in the ordinary course of business which are not represented
by a promissory note or other evidence of indebtedness and which are not more
than sixty (60) days past due), or (v) any Guaranty of the Indebtedness
described in the foregoing clauses (i) through (iv).
InterCompany Loans shall mean loans made by one Loan Party to one
or more other Loan Parties or their Subsidiaries and, in the case of loans
between the Borrower and the Material Subsidiaries, evidenced by intercompany
notes (the "Intercompany Notes") in the form attached hereto as Exhibit
1.1(I)(1).
Intercompany Notes shall have the meaning assigned to that term
in the definition of the term "Intercompany Loans".
Interest Coverage Ratio shall mean on any date of determination,
the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense with
such ratio determined as of October 31, 1996 for the fiscal quarter then ended,
as of January 31, 1997 for the two fiscal quarters then ended, as of April 30,
1997 for the three fiscal quarters then ended and as of July 31, 1997 and
thereafter for the four fiscal quarters then ended.
Interest Payment Date shall mean each date specified for the
payment of interest in Section 4.3.
Interest Period shall have the meaning assigned to such term in
Section 3.2.
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Interest Rate Option shall mean any Euro-Rate Option or Base Rate
Option.
Internal Revenue Code shall mean the Internal Revenue Code of
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
Intertech shall mean Commercial Intertech Corp., an Ohio
corporation which until the Spin-Off owns all of the capital stock of the
Borrower.
Labor Contracts shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among any Loan
Party or Subsidiary of a Loan Party and its employees.
Law shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to that term in
Section 2.9.1.
Letter of Credit Outstandings shall mean collectively at any time
the sum of: (i) the aggregate undrawn face amount of all Letters of Credit and,
without duplication, (ii) all unpaid and outstanding Reimbursement Obligations.
Letters of Credit Fees shall have the meaning assigned to that
term in Section 2.9.3.
Lien shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
Loan Documents shall mean this Agreement, the Master Guaranty
Agreement, the Master Intercompany Subordination Agreement, the Mortgages, the
Notes, the Patent, Trademark and Copyright Security Agreements, the Pledge
Agreements, the Security Agreements, the Note Pledge Agreement, the Intercompany
Notes, and any other instruments, certificates or documents delivered or
contemplated to be delivered hereunder or thereunder or in connection herewith
or therewith, as the same may be supplemented or amended from time to time in
accordance herewith or therewith, and Loan Document shall mean any of the Loan
Documents.
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Loan Parties shall mean the Borrower and the Guarantors.
Loan Request shall have the meaning ascribed thereto in Section
2.5.
Loans shall mean collectively the Revolving Credit Loans and Term
Loans and Loan shall mean separately any of the Loans.
Master Guaranty Agreement shall mean the Master Guaranty and
Suretyship Agreement in substantially the form of Exhibit 1.1(M)(1) or in such
other form as is acceptable to the Agent in form and substance in its sole
discretion, in all cases executed and delivered by the Guarantors to the Agent
for the benefit of the Banks.
Master Intercompany Subordination Agreement shall mean a
subordination agreement among the Loan Parties in the form attached hereto as
Exhibit 1.1(M)(2).
Material Adverse Change shall mean any circumstance or event or
set of circumstances or events which (a) has or could reasonably be expected to
have any material adverse effect whatsoever upon the validity or enforceability
of this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Loan Parties taken as a whole to duly and
punctually pay or perform their indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of the Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
Material Subsidiary shall mean any Subsidiary of the Borrower
having at least 5% of the total consolidated assets of the Borrower and its
Subsidiaries or at least 5% of the total consolidated revenues of the Borrower
and its Subsidiaries for the 12-month period ending on the last day of the most
recent fiscal quarter of the Borrower.
Month, with respect to an Interest Period under the Euro-Rate
Option, shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any Euro-
Rate Interest Period begins on a day of a calendar month for which there is no
numerically corresponding day in the month in which such Interest Period is to
end, the final month of such Interest Period shall be deemed to end on the last
Business Day of such final month.
Mortgages shall mean collectively the Mortgages in substantially
the form of Exhibits 1.1(M)(3) or 1.1(M)(4) hereto, or in such other form as is
acceptable to the Agent in form and substance in its sole discretion, as the
case may be, with respect to the Property, in all cases executed and delivered
by the Borrower and each Domestic Subsidiary to the Agent for the benefit of the
Banks, and Mortgage shall mean separately any Mortgage.
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Multiemployer Plan shall mean any employee benefit plan which is
a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
Note Pledge Agreement shall mean that certain Note Pledge
Agreement in substantially form of Exhibit 1.1(N) executed and delivered by the
Borrower and each Subsidiary to the Agent for the benefit of the Banks with
respect to the pledge of the Intercompany Notes.
Notes shall mean collectively the Revolving Credit Notes and Term
Notes and Note shall mean separately any of the Notes.
Notices shall have the meaning assigned to that term in Section
10.6.
Obligation shall mean any obligation or liability of any of the
Loan Parties to the Agent or any of the Banks, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under or in connection with this Agreement,
the Notes, the Letters of Credit or any other Loan Document.
Official Body shall mean any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
Patent, Trademark and Copyright Security Agreements shall mean
collectively the Patent, Trademark and Copyright Security Agreements in
substantially the form attached hereto as Exhibit 1.1(P)(1) or such other form
satisfactory in form and substance to the Agent in its sole discretion, in all
cases executed and delivered by the Borrower and each Domestic Subsidiary to the
Agent for the benefit of the Banks and Patent, Trademark and Copyright Security
Agreement shall mean separately any Patent, Trademark and Copyright Security
Agreement.
PBGC shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any successor
thereto.
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Permitted Cash Equivalent Investments shall mean readily
marketable:
(i) direct obligations of the United States of America or
any agency or instrumentality thereof or obligations backed by the full faith
and credit of the United States of America maturing in six (6) months or less
from the date of acquisition;
(ii) commercial paper maturing in six (6) months or less
rated not lower than "A-1" by Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc. or "P-1" by Moody's Investors Service, Inc. on
the date of acquisition;
(iii) demand deposits, time deposits or certificates of
deposit maturing within six (6) months which either (x) are held by any
commercial bank listed on Schedule 1.1(I) or (y) held by any commercial bank
which the Agent has approved or which has capital and surplus in excess of
$500,000,000 and has, or the holding company of which has, obligations rated not
lower than "A-1" by Standard & Poor's Ratings Services, a division of The McGraw
Hill Companies, Inc. or "P-1" by Moody's Investors Service, Inc. on the date of
acquisition;
(iv) repurchase obligations of any commercial bank described
in clause (iii) above with a term of not more than seven days for underlying
securities of the type described in clause (i) above; and
(v) investments in common funds which invest exclusively in
obligations of the type describe in clauses (i) through (iv) above.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due and
payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation, or to participate in any
fund in connection with workmen's compensation, unemployment insurance, old-age
pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable and Liens of landlords
securing obligations to pay lease payments that are not yet due and payable or
in default;
(iv) Good-faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases, not in excess of the aggregate
amount due thereunder, or to secure
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statutory obligations, or surety, appeal, indemnity, performance or other
similar bonds required in the ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements or
other restrictions on the use of real property, none of which materially impairs
the use of such property or the value thereof, and none of which is violated in
any material respect by existing or proposed structures or land use;
(vi) Liens and security interests in favor of the Agent for the
benefit of the Banks or any Issuing Letter of Credit Bank in the application for
a Letter of Credit;
(vii) Liens on property leased by any Loan Party or Subsidiary of
a Loan Party or other interest or title of the lessor under capital and
operating leases not otherwise prohibited by Section 7.2.15 securing
obligations of such Loan Party or Subsidiary to the lessor under such leases;
(viii) Any Lien or rights or restrictions with respect thereto
existing on the date of this Agreement and described on Schedule 1.1(P),
provided that the principal amount secured thereby is not hereafter increased
(although it may be refinanced), and no additional assets become subject to such
Lien, other than additions or accessions to the assets which are subject to such
Lien or any replacements of any such assets acquired in the ordinary course of
business;
(ix) Purchase Money Security Interests to the extent that (X)
such Purchase Money Security Interests attach to inventory purchased in the
ordinary course of business pursuant to customary payment terms and are not
perfected by the filing of financing statements or other public filings or (Y)
the aggregate amount of loans and deferred payments secured by Purchase Money
Security Interests not described in the foregoing clause (X) do not exceed at
any one time outstanding $5,000,000 (excluding for the purpose of this
computation any loans or deferred payments secured by Liens described on
Schedule 1.1(P));
(x) Liens relating to the licensing by Borrower, the other Loan
Parties or their Subsidiaries of intellectual property;
(xi) Liens relating to a sublease entered into by a Loan
Party or its Subsidiary;
(xii) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within thirty (30) days of entry or (C) if payments thereof are covered in full
(subject to customary deductibles) by an insurance company of reputable standing
which insurance company has acknowledged that the applicable policy applies to
the following and is not reserving any right to contest applicability, and in
any case
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they do not in the aggregate, materially impair the ability of any Loan Party to
perform its Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges by the United
States, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency, including the PBGC,
due and payable and subject to interest or penalty, provided that the
applicable Loan Party maintains such reserves or other appropriate
provisions as shall be required by GAAP and pays all such taxes,
assessments or charges forthwith upon the commencement of proceedings to
foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects of title to, real
or personal property, including any attachment of personal or real property
or other legal process prior to adjudication of a dispute on the merits;
and
(3) Claims or Liens of mechanics, materialmen, warehousemen, carriers,
or other statutory nonconsensual Liens;
(xiii) Liens granted by the Japanese Foreign Subsidiary in its accounts
receivable to Japanese commercial banks to secure Indebtedness incurred in the
ordinary course of business by such Japanese Subsidiary for working capital in
Japan; and
(xiv) additional Liens securing Indebtedness not to exceed $3,000,000.
Person shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, limited
liability company, government or political subdivision or agency thereof, or any
other entity.
Plan shall mean at any time an employee pension benefit plan (including a
Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title
IV of ERISA or is subject to the minimum funding standards under Section 412 of
the Internal Revenue Code and either (i) is maintained by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained by any entity which was at
such time a member of the ERISA Group for employees of any entity which was at
such time a member of the ERISA Group.
Pledge Agreements shall mean collectively the Pledge Agreements in
substantially the form attached hereto as Exhibit 1.1(P)(2) hereto or in such
other form as is acceptable to the Agent in form and substance in its sole
discretion, in all cases, executed and delivered by the Borrower and each
Domestic Subsidiary owning equity interests in any Subsidiary of the Borrower,
as pledgors, to the Agent for the benefit of the Banks, and Pledge Agreement
shall mean separately any Pledge Agreement.
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Pledged Collateral shall have the meaning assigned to that term in the
Pledge Agreements.
Potential Default shall mean any event or condition which with notice,
passage of time or a determination by the Agent or the Required Banks, or any
combination of the foregoing, would constitute an Event of Default.
Principal Office shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania at the address shown on the signature page hereto.
Prior Security Interest shall mean a valid and enforceable perfected first
priority security interest under the Uniform Commercial Code in the UCC
Collateral and the Pledged Collateral which is subject only to Liens for taxes
not yet due and payable to the extent such prospective tax payments are given
priority by statute or Purchase Money Security Interests as permitted hereunder.
Prohibited Transaction shall mean any prohibited transaction as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.
Property shall mean all real property, both owned and leased, of the
Borrower or any Subsidiary.
Purchase Money Security Interest shall mean Liens upon real or personal
property securing loans to any Loan Party or Subsidiary of a Loan Party or
deferred payments by such Loan Party or Subsidiary for the purchase of such
property.
Purchasing Bank shall mean a Bank which becomes a party to this Agreement
by executing an Assignment and Assumption Agreement.
Ratable Share shall mean the proportion that a Bank's Revolving Credit
Commitment and Term Loan Commitment bears to the Revolving Credit Commitments
and Term Loan Commitments of all of the Banks, respectively.
Regulated Substances shall mean any substance including any solid, liquid,
semisolid, gaseous, thermal, thoriated or radioactive material, refuse, garbage,
wastes, chemicals, petroleum products, by-products and coproducts, impurities,
dust, scrap, and heavy metals defined as a "hazardous substance," "pollutant,"
"pollution," "contaminant," "hazardous or toxic substance," "extremely hazardous
substance," "toxic chemical," "toxic waste," "hazardous waste," "industrial
waste," "residual waste," "solid waste," "municipal waste," "mixed waste,"
"infectious waste," "chemotherapeutic waste," "medical waste," or "regulated
substance" or any related materials, substances or wastes as now or hereafter
defined pursuant to any Environmental Laws, ordinances, rules, regulations or
other directives of any Official Body, the generation, manufacture, extraction,
processing, distribution, treatment, storage, disposal,
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transport, recycling, reclamation, use, reuse, spilling, leaking, dumping,
injection, pumping, leaching, emptying, discharge, escape, release or other
management or mismanagement of which is regulated by the Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as promulgated by the Board
of Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligation shall have the meaning assigned to such term in
Section 2.9.4.
Reportable Event shall mean a reportable event described in Section 4043 of
ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan.
Required Banks shall mean (i) if there are no Loans outstanding, Banks
whose Commitments aggregate at least 66-2/3% of the Commitments of all of the
Banks, or (ii) if there are Loans outstanding, Banks whose Loans outstanding
aggregate at least 66-2/3% of the total principal amount of the Loans
outstanding hereunder.
Revolving Credit Base Rate Option shall mean the option of the Borrower to
have Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 3.1.1(i).
Revolving Credit Commitment shall mean, as to any Bank at any time the
amount initially set forth opposite its name on Schedule 1.1(B) in the column
labeled "Revolving Credit Commitment" and thereafter on Schedule I to the most
recent Assignment and Assumption Agreement, as the same may have been reduced in
accordance with Section 2.4 or Section 4.5.1 and Revolving Credit Commitments
shall mean the aggregate Revolving Credit Commitments of all of the Banks.
Revolving Credit Euro-Rate Option shall mean the option of the Borrower to
have Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 3.1.1(ii).
Revolving Credit Loans shall mean collectively and Revolving Credit Loan
shall mean separately all loans or any loan made by the Banks or one of the
Banks to the Borrower pursuant to Section 2.1 or 2.9.4.
Revolving Credit Notes shall mean collectively and Revolving Credit Note
shall mean separately all the Revolving Credit Notes of the Borrower in the form
attached hereto as Exhibit 1.1(R) evidencing the Revolving Credit Loans together
with all amendments, extensions, renewals, replacements, refinancings or
refundings thereof in whole or in part.
Revolving Facility Usage shall mean at any time the sum of the Revolving
Credit Loans outstanding and the Letter of Credit Outstandings.
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Security Agreements shall mean the Security Agreements in substantially the
form attached hereto as Exhibit 1.1(S) or such other form as is acceptable in
form and substance to the Agent, in its sole discretion, in all cases executed
and delivered by the Borrower and each Domestic Subsidiary to the Agent for the
benefit of the Banks, and Security Agreement shall mean separately any Security
Agreement.
Solvent shall mean, with respect to any Person on a particular date, that
on such date (i) the fair value of the property of such Person is greater than
the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
Spin-Off shall mean the dividend distribution by Intertech to its
shareholders of all of the outstanding shares of common stock of the Borrower.
Subsidiary of any Person at any time shall mean (i) any corporation or
trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, or any partnership of which such Person is a general partner or of
which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries, or
(ii) any corporation, trust, partnership or other entity which is controlled or
capable of being controlled by such Person and/or one or more of such Person's
Subsidiaries.
Subsidiary Shares shall have the meaning assigned to that term in Section
5.1.2.
Syndication Date shall mean a date on or before 30 days after the Closing
Date selected by the Agent and notice of which is given by the Agent to the
Borrower at least five (5) Business Days prior thereto.
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Tender Offer shall mean the offer by United Dominion, Inc. to purchase any
and all shares of the common stock of Intertech.
Term Loans shall mean collectively and Term Loan shall mean separately all
Term Loans or any Term Loan made by the Banks or one of the Banks to the
Borrower pursuant to Section 2.10.1 hereof.
Term Loan Base Rate Option shall mean the option of the Borrower to have
Term Loans bear interest at the rate and under the terms and conditions set
forth in Section 3.1.1(i).
Term Loan Commitment shall mean, as to any Bank at any time, the amount
initially set forth opposite its name on Schedule 1.01(B) hereto in the column
labeled "Amount of Commitment for Term Loans," and thereafter on Schedule I to
the most recent Assignment and Assumption Agreement, and Term Loan Commitments
shall mean the aggregate Term Loan Commitments of all of the Banks.
Term Loan Euro-Rate Option shall mean the option of the Borrower to have
Term Loans bear interest at the rate and under the terms and conditions set
forth in Section 3.1.1(ii).
Term Notes shall mean collectively and Term Note shall mean separately all
of the Term Notes of the Borrower in the form of Exhibit 1.1(T) hereto
evidencing the Term Loans together with all amendments, extensions, renewals,
replacements, refinancings or refunds thereof in whole or in part.
Transferor Bank shall mean the selling Bank pursuant to an Assignment and
Assumption Agreement.
UCC Collateral shall mean the property of the Borrower and each Domestic
Subsidiary in which security interests are granted under the Security Agreements
and under the Note Pledge Agreement.
1.2 Construction.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1 Number; Inclusion.
References to the plural include the singular, the plural, the part and the
whole; "or" has the inclusive meaning represented by the phrase "and/or," and
"including" has the meaning represented by the phrase "including without
limitation";
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1.2.2 Determination.
References to "determination" of or by the Agent or the Banks shall be
deemed to include good-faith estimates by the Agent or the Banks (in the case of
quantitative determinations) and good-faith beliefs by the Agent or the Banks
(in the case of qualitative determinations) and such determination shall be
conclusive absent manifest error;
1.2.3 Agent's Discretion and Consent.
Whenever the Agent or the Banks are granted the right herein to act in its
or their sole discretion or to grant or withhold consent such right shall be
exercised in good-faith;
1.2.4 Documents Taken as a Whole.
The words "hereof," "herein," "hereunder," "hereto" and similar terms in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document as a whole and not to any particular provision of this Agreement
or such other Loan Document;
1.2.5 Headings.
The section and other headings contained in this Agreement or such other
Loan Document and the Table of Contents (if any) preceding this Agreement or
such other Loan Document are for reference purposes only and shall not control
or affect the construction of this Agreement or such other Loan Document or the
interpretation thereof in any respect;
1.2.6 Implied References to this Agreement.
Article, section, subsection, clause, schedule and exhibit references are
to this Agreement or such other Loan Document, as the case may be, unless
otherwise specified;
1.2.7 Persons.
Reference to any Person includes such Person's successors and assigns but,
if applicable, only if such successors and assigns are permitted by this
Agreement or such other Loan Document, as the case may be, and reference to a
Person in a particular capacity excludes such Person in any other capacity;
1.2.8 Modifications to Documents.
Reference to any agreement (including this Agreement and any other Loan
Document together with the schedules and exhibits hereto or thereto), document
or instrument means such agreement, document or instrument as amended, modified,
replaced, substituted for, superseded or restated;
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1.2.9 From, To and Through.
Relative to the determination of any period of time, "from" means "from and
including," "to" means "to but excluding," and "through" means "through and
including"; and
1.2.10 Shall; Will.
References to "shall" and "will" are intended to have the same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP. In the event that on or after the date hereof, a
material change occurs in GAAP, the Banks and the Borrower will consult in good
faith regarding whether such change in GAAP affects any financial covenants
contained herein that should be adjusted due to such change in GAAP.
2. REVOLVING CREDIT FACILITY AND TERM FACILITY
2.1 Revolving Credit Commitments.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make Revolving Credit Loans to the Borrower at any time or from time to time on
or after the date hereof to the Expiration Date in an aggregate principal amount
not to exceed at any one time such Bank's Revolving Credit Commitment minus such
Bank's Ratable Share of the Letter of Credit Outstandings. Within such limits of
time and amount and subject to the other provisions of this Agreement, the
Borrower may borrow, repay and reborrow pursuant to this Section 2.1.
2.2 Nature of Banks' Obligations with Respect to Revolving Credit Loans.
Each Bank shall be obligated to participate in each request for Revolving
Credit Loans pursuant to Section 2.5 in accordance with its Ratable Share. The
aggregate of each Bank's Revolving Credit Loans outstanding hereunder to the
Borrower at any time shall never exceed its Revolving Credit Commitment minus
its Ratable Share of the Letter of Credit Outstandings. The obligations of each
Bank hereunder are several. The failure of any Bank to perform its obligations
hereunder shall not affect the Obligations of the Borrower to any other party
nor shall any other party be liable for the failure of such Bank to perform its
obligations
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hereunder. The Banks shall have no obligation to make Revolving Credit Loans
hereunder on or after the Expiration Date.
2.3 Revolving Credit and Term Loan Commitment Fees.
Accruing from the date hereof until the Expiration Date, the Borrower
agrees to pay to the Agent for the account of each Bank, as consideration for
such Bank's Commitment hereunder, a nonrefundable commitment fee (the
"Commitment Fee") equal to one half of one percent (0.5%) per annum (computed on
the basis of a year of 360 days, as the case may be, and actual days elapsed)
times the average daily difference between (i) the amount of such Bank's
Commitment as the same may be constituted from time to time, and (ii) the sum of
such Bank's Revolving Credit Loans outstanding, its Term Loans outstanding plus
its Ratable Share of Letters of Credit Outstandings.
All Commitment Fees shall be payable monthly in arrears on the first
Business Day of each month after the date hereof and on the Expiration Date or
upon acceleration of the Notes.
2.4 Voluntary Reduction of Revolving Credit and Term Loan Commitments.
The Borrower shall have the right at any time and from time to time upon
not less than three (3) Business Days' prior written notice to the Banks to
permanently reduce, in a minimum amount of $5,000,000 and in integral multiples
of $1,000,000, or terminate the Commitments, both without penalty or premium,
except as hereinafter set forth, provided that any such reduction or termination
shall be accompanied by (a) the payment in full of any Commitment Fee then
accrued on the amount of such reduction or termination and (b) prepayment of the
Revolving Credit Notes and/or Term Notes in an amount equal to such reduction or
termination, as applicable, together with the full amount of interest accrued on
the principal sum to be prepaid (and all amounts referred to in Section 4.6)
and the Borrower shall deposit in a non-interest bearing account (provided that
with the consent of the Agent, such account may be an interest bearing account)
with the Agent, as cash collateral for its Obligations in respect of the Letters
of Credit and related applications and agreements, an amount equal to the
maximum amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit, and the Borrower hereby pledges to the Agent and
the Banks, and grants to the Agent and the Banks a security interest in, all
such cash as security for such Obligations, to the extent that the Revolving
Facility Usage then exceeds the Revolving Credit Commitments as so reduced or
terminated. From time to time the Agent shall return to the Borrower any excess
of the amount held in such account over the amount by which the Revolving
Facility Usage then exceeds the Revolving Credit Commitments. From the effective
date of any such reduction or termination, the obligations of Borrower to pay
the Commitment Fee pursuant to Section 2.3 shall correspondingly be reduced or
cease.
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2.5 Revolving Credit Loan Requests.
Except as otherwise provided herein, the Borrower may from time to time
prior to the Expiration Date request the Banks to make Revolving Credit Loans,
or renew or convert the Interest Rate Option applicable to existing Revolving
Credit Loans pursuant to Section 3.1.1, by delivering to the Agent, (i) not
later than 12:00 p.m., Pittsburgh, Pennsylvania time, three (3) Business Days
prior to the proposed Borrowing Date with respect to the making of Revolving
Credit Loans to which the Revolving Credit Euro-Rate Option applies or the
conversion to or the renewal of the Revolving Credit Euro-Rate Option for any
Revolving Credit Loans; and (ii) not later than 12:00 p.m., Pittsburgh,
Pennsylvania time on the proposed Borrowing Date with respect to the making of a
Revolving Credit Loan to which the Revolving Credit Base Rate Option applies or
the last day of the preceding Interest Period with respect to the conversion to
the Revolving Credit Base Rate Option for any Revolving Credit Loan, of a duly
completed request therefor substantially in the form of Exhibit 2.5 or a request
by telephone immediately confirmed in writing by letter, facsimile or telex in
such form (each, a "Loan Request"), it being understood that the Agent may rely
on the authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Loan Request shall be
irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Revolving Credit Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $1,000,000 and not
less than $3,000,000 for each Borrowing Tranche to which the Revolving Credit
Euro-Rate Option applies and not less than the lesser of $1,000,000 or the
maximum amount available for Borrowing Tranches to which the Revolving Credit
Base Rate Option applies; (iii) whether the Revolving Credit Euro-Rate Option or
Revolving Credit Base Rate Option shall apply to the proposed Revolving Credit
Loans comprising the applicable Borrowing Tranche; and (iv) in the case of a
Borrowing Tranche to which the Revolving Credit Euro-Rate Option applies, an
appropriate Interest Period for the proposed Revolving Credit Loans comprising
such Borrowing Tranche.
2.6 Making Revolving Credit Loans.
The Agent shall, promptly after receipt by it of a Loan Request pursuant to
Section 2.5, notify the Banks of its receipt of the related Loan Request
specifying: (i) the proposed Borrowing Date of such Revolving Credit Loans; (ii)
the amount and type of each such Revolving Credit Loan and the applicable
Interest Period (if any); and (iii) the apportionment among the Banks of such
Revolving Credit Loans as determined by the Agent in accordance with Section
2.2. Each Bank shall remit the principal amount of each Revolving Credit Loan
to the Agent such that the Agent is able to, and the Agent shall, to the extent
the Banks have made funds available to it for such purpose, fund such Revolving
Credit Loans to the Borrower in Dollars and immediately available funds at the
Principal Office prior to 2:00 p.m., Pittsburgh, Pennsylvania time, on the
applicable Borrowing Date, provided that if the Agent assumes pursuant to
Section 9.16 that a Bank will make available to the Agent such Bank's portion
of a Revolving Credit Loan and such Bank fails to remit such funds to the Agent
in a timely manner, the Agent may elect in its sole discretion to fund with its
own funds the Revolving Credit Loans
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of such Bank on such Borrowing Date, and such Bank shall be subject to the
repayment obligation in Section 9.16.
2.7 Revolving Credit Notes.
-----------------------
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Revolving Credit Loans made to it by each Bank, together with
interest thereon, shall be evidenced by a Revolving Credit Note payable to the
order of such Bank in a face amount equal to the Revolving Credit Commitment of
such Bank.
2.8 Use of Revolving Credit Proceeds.
---------------------------------
The proceeds of the Revolving Credit Loans shall be used for working
capital and other general corporate purposes.
2.9 Letters of Credit Subfacility.
------------------------------
2.9.1 Issuance of Letters of Credit.
------------------------------
The Borrower may request the issuance of (or modification of any
issued) letters of credit (each a "Letter of Credit" and in the aggregate the
"Letters of Credit") on behalf of itself delivering by no later than 12:00 p.m.,
Pittsburgh, Pennsylvania time three (3) Business Days prior to the requested
date of issuance of such Letter of Credit to the Agent a written notice
specifying the proposed beneficiary, date of issuance and expiry date for such
Letter of Credit or modification to an existing Letter of Credit and the nature
of the transactions to be supported thereby. Subject to the terms and conditions
hereof and to the execution of a completed application and agreement for letters
of credit in the form attached hereto as Exhibit 2.9.1 or such other form as the
Agent may specify from time to time and in reliance on the agreements of the
Banks set forth in this Section 2.9, the Agent will issue a Letter of Credit
provided that each Letter of Credit shall (A) have a maximum maturity of 365
days from and including the date of issuance, (B) in no event expire later than
five Business Days prior to the Expiration Date and provided further that in no
event shall (i) the Letter of Credit Outstandings exceed, at any one time,
$20,000,000 or (ii) the Revolving Facility Usage exceed, at any one time, the
Revolving Credit Commitments. In the event of any conflict between the terms of
this Agreement and the terms of any Issuing Letter of Credit Bank's application
and agreement for letters of credit, the terms of this Agreement shall control
(provided that terms of any Issuing Letter of Credit Bank's application and
agreement for letters of credit which are in addition to those contained herein
and which do not expressly conflict with the terms contained herein shall not be
deemed to be in conflict with this Agreement).
2.9.2 Participations.
----------------------
Immediately upon issuance of each Letter of Credit, and without further
action, each Bank shall be deemed to, and hereby agrees that it shall, have
irrevocably purchased
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<PAGE>
for such Bank's own account and risk from the Agent an individual participation
interest in such Letter of Credit and drawings thereunder in an amount equal to
such Bank's Ratable Share of the maximum amount which is or at any time may
become available to be drawn thereunder, and each Bank shall be responsible to
reimburse the Agent immediately for its Ratable Share of any disbursement under
any Letter of Credit which has not been reimbursed by Borrower in accordance
with Section 2.9.4 by making its Ratable Share of the Revolving Credit Loans
referred to in Section 2.9.4 available to the Agent. Upon the request of any
Bank and no less frequently than once in each calendar month, the Agent shall
notify each Bank of the amount of such Bank's participation in Letters of
Credit.
2.9.3 Letter of Credit Fees.
---------------------
The Borrower shall pay to the Agent for the ratable account of the Banks
fees ("Letters of Credit Fees") with respect to Letter of Credit Outstandings in
an amount equal to the Letter of Credit Outstandings multiplied by a rate per
annum (computed on the basis of a year of 360 days and actual days elapsed) as
specified below, for the applicable period specified below, payable monthly in
arrears commencing with the first Business Day of the month following the
Closing Date and on the earlier of the Expiration Date or the acceleration of
the Notes:
<TABLE>
<CAPTION>
Period Letters of Credit Fees
- ---------------------------------------- -----------------------
<S> <C>
From the Closing Date through and
including 1/30/97 3.00%
1/31/97 through and including 4/29/97 3.50%
4/30/97 through and including 7/30/97 4.00%
7/31/97 through and including 10/30/97 4.50%
10/31/97 through and including the
Expiration Date 5.00%
</TABLE>
The Borrower shall also pay to the Agent for its sole account (i) a
facing fee equal to one-eighth of one percent (0.125%) per annum of the
aggregate undrawn face amount of each Letter of Credit payable monthly in
arrears and (ii) its then in effect customary issuance fees and administrative
expense payable with respect to its Letters of Credit as the Agent may generally
charge or incur from time to time in connection with the issuance, maintenance,
modification (if any), assignment or transfer (if any), negotiation, and
administration of letters of credit, payable at such times as the Agent may
specify.
2.9.4 Disbursements, Reimbursement.
----------------------------
Borrower shall be obligated immediately to reimburse the Agent (each a
"Reimbursement Obligation") for all amounts which the Agent is required to pay
pursuant to the Letters of Credit issued by the Agent on or before the date on
which the Agent is required to make payment with respect to a draft presented
thereunder. The Agent will promptly notify the Borrower of each demand or
presentment for payment or draft accepted for payment or other drawing under
each Letter of Credit issued by the Agent. The Agent shall promptly notify each
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<PAGE>
Bank of the amount required to be paid by such Bank as a result of a drawing
upon such Letter of Credit if the Borrower has not timely reimbursed the Agent
for such draw. If such notice is received by a Bank before 1:00 p.m.,
Pittsburgh, Pennsylvania time, such Bank shall deliver such Bank's Ratable Share
of such payment in immediately available funds to the Agent on that Business
Day. If such notice is received by a Bank after 1:00 p.m., Pittsburgh,
Pennsylvania time, such Bank shall before 10:00 a.m., Pittsburgh, Pennsylvania
time, on the next succeeding Business Day deliver to the Agent such Bank's
Ratable Share of such payment as a Revolving Credit Loan from such Bank in
immediately available funds.
2.9.5 Documentation.
-------------
The Borrower agrees to be bound by the terms of the Agent's application
and agreement for letters of credit and the Agent's written regulations and
customary practices relating to letters of credit, though such interpretation
may be different from the Borrower's own. In the event of a conflict between
such application or agreement and this Agreement, this Agreement shall govern
(provided that terms of the Agent's application and agreement for letters of
credit which are in addition to those contained herein and which do not
expressly conflict with the terms contained herein shall be deemed not to be in
conflict with this Agreement). It is understood and agreed that, except in the
case of gross negligence or willful misconduct, the Agent shall not be liable
for any error, negligence and/or mistakes, whether of omission or commission, in
following the Borrower's instructions or those contained in the Letters of
Credit issued by the Agent or any modifications, amendments or supplements
thereto.
2.9.6 Determinations to Honor Drawing Requests.
----------------------------------------
In determining whether to honor any request for drawing under any Letter
of Credit by the beneficiary thereof, the Agent shall be responsible only to
determine that the documents and certificates required to be delivered under
such Letter of Credit have been delivered and that they appear to comply on
their face with the requirements of such Letter of Credit.
2.9.7 Nature of Participation and Reimbursement Obligations.
-----------------------------------------------------
The obligation of the Banks to participate in Letters of Credit pursuant
to Section 2.9.2 and the obligation of the Banks pursuant to Section 2.9.4 to
fund Revolving Credit Loans upon a draw under a Letter of Credit or to acquire
participations in Letters of Credit and the Obligations of the Borrower to
reimburse the Agent upon a draw under any Letter of Credit pursuant to Section
2.9 shall be absolute unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of such sections under all circumstances,
including the following circumstances:
(i) the failure of any Loan Party or any other Person to comply with
the conditions set forth in Sections 2.1 or 6.2 or as otherwise
set forth in this Agreement for the making of a Revolving
Credit Loan, it being acknowledged that such conditions are not
required for the making of a Revolving Credit Loan under
Section 2.9.4;
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<PAGE>
(ii) any lack of validity or enforceability of any Letter of Credit;
(iii) the existence of any claim, set-off, defense or other right which any
Loan Party or any Bank may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), the Agent or any Bank or any other Person or
whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);
(iv) any draft, demand, certificate or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect even if the Agent has been notified thereof;
(v) payment by the Agent under any Letter of Credit against presentation of a
demand, draft or certificate or other document which does not comply with
the terms of such Letter of Credit;
(vi) any adverse change in the business, operations, properties, assets,
condition (financial or otherwise) or prospects of the Borrower, any
other Loan Party or Subsidiaries of a Loan Party;
(vii) any breach of this Agreement or any other Loan Document by any party
thereto;
(viii) any other circumstance or happening whatsoever, whether or not similar
to any of the foregoing;
-26-
<PAGE>
(ix) the fact that an Event of Default or a Potential Default
shall have occurred and be continuing; and
(x) the fact that the Expiration Date shall have passed or
this Agreement or the Revolving Credit Commitments
hereunder shall have been terminated.
2.9.8 Indemnity.
----------
In addition to amounts payable as provided in Section 9.5, the
Borrower hereby agrees to pay and to protect, indemnify and save harmless the
Agent and the Banks from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable fees,
expenses and disbursements of counsel and allocated costs of internal counsel)
which any of them may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit, other than as a result of
(A) the gross negligence or willful misconduct of the Agent with respect to the
Letters of Credit as determined by a final judgment of a court of competent
jurisdiction or (B) subject to the following clause (ii), the wrongful dishonor
by the Agent of a proper demand for payment made under any Letter of Credit or
(ii) the failure of the Agent to honor a drawing under any such Letter of Credit
as a result of any act or omission, whether rightful or wrongful, of any present
or future de jure or de facto government or governmental authority (all such
acts or omissions herein called "Governmental Acts").
2.9.9 Liability for Acts and Omissions.
---------------------------------
As between any Loan Party and the Agent, such Loan Party assumes all
risks of the acts and omissions of, or misuse of the Letters of Credit by, the
respective beneficiaries of the Letters of Credit. In furtherance and not in
limitation of the foregoing, neither the Agent nor any Bank shall be responsible
for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the application for an
issuance of any Letter of Credit issued by the Agent, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged (even if the Agent shall have been notified thereof); (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of
-27-
<PAGE>
the Agent, including any Governmental Acts, and none of the above shall affect
or impair, or prevent the vesting of, any of the Agent's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by the Agent under or in
connection with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good faith, shall not
put the Agent under any resulting liability to the Borrower or any Banks.
The Banks and any Loan Party may not commence a proceeding against the
Agent for wrongful disbursement under a Letter of Credit issued by the Agent as
a result of acts or omissions constituting gross negligence or willful
misconduct of the Agent, until the Banks have made and the Borrower has repaid
the Revolving Credit Loans described in Section 2.9.4; provided, however, that
nothing in this Section 2.9 shall adversely affect the right of any Loan Party,
after such payment, to commence any proceeding against the Agent for any breach
of its obligations hereunder.
2.10 Term Facility.
--------------
2.10.1 Term Loan Commitments.
----------------------
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make a term loan (the "Term Loan") to the Borrower on the Closing Date in such
principal amount as the Borrower shall request up to but not exceeding such
Bank's Term Loan Commitment.
2.10.2 Nature of Banks' Obligations With Respect to Term Loans.
--------------------------------------------------------
The obligations of each Bank to make a Term Loan to the Borrower shall
be in the proportion that such Bank's Term Loan Commitment bears to the Term
Loan Commitments of all Banks to the Borrower, but each Bank's Term Loan to the
Borrower shall never exceed its Term Loan Commitment. The failure of any Bank
to make a Term Loan shall not relieve any other Bank of its obligations to make
a Term Loan nor shall it impose any additional liability on any other Bank
hereunder. The Banks shall have no obligation to make Term Loans hereunder
after the Closing Date. The Term Loan Commitments are not revolving credit
commitments and the Borrower shall not have the right to borrow, repay and
reborrow under Section 2.10.1.
2.10.3 Term Loan Notes.
----------------
The obligation of the Borrower to repay the unpaid principal amount of
the Term Loans made to it by each Bank, together with interest thereon, shall be
evidenced by a promissory note of the Borrower dated the Closing Date in
substantially the form attached hereto as Exhibit 1.1(T) payable to the order of
each Bank in a face amount equal to the Term Loan
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<PAGE>
Commitment of such Bank. The outstanding principal amount of the Term Notes
shall be payable on the Expiration Date.
2.10.4 Use of Term Loan Proceeds
-------------------------
The proceeds of the Term Loans will be used to repay Indebtedness
owing by the Borrower to Intertech and to pay a dividend declared by the
Borrower to Intertech.
3. INTEREST RATES
--------------
3.1 Interest.
---------
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected by it from the Base Rate Option or
Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this Agreement, the Borrower by delivering to
the Agent a duly completed Loan Request may select different Interest Rate
Options and different Interest Periods to apply simultaneously to the Loans
comprising different Borrowing Tranches and may convert to or renew one or more
Interest Rate Options with respect to all or any portion of the Revolving Credit
Loans or Term Loans comprising any Borrowing Tranche by delivering to the Agent
a duly completed Loan Request by the time described in Section 2.5 for
conversion or renewal of such Interest Rate Option for a Revolving Credit Loan,
provided that there shall not be at any one time outstanding more than ten (10)
Borrowing Tranches in the aggregate among all the Loans. If at any time the
designated rate applicable to any Loan made by any Bank exceeds such Bank's
highest lawful rate, the rate of interest on such Bank's Loan shall be limited
to such Bank's highest lawful rate.
3.1.1 Interest Rate Options.
------------------------
The Borrower shall have the right to select from the following
Interest Rate Options applicable to the Loans:
(i) Base Rate Option: A fluctuating rate per annum
(computed on the basis of a year of 365 days and
actual days elapsed) equal to the Base Rate plus the
percentage rate per annum (the "Applicable Percentage
Over Base Rate") for the applicable period, as set
forth below, such interest rate to change
automatically from time to time effective as of the
effective date of each change in the Base Rate:
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<PAGE>
<TABLE>
<CAPTION>
Applicable Percentage
Period Over Base Rate
------ ---------------------
<S> <C>
From the Closing Date through and .25%
including 1/30/97
1/31/97 through and including 4/29/97 .75%
4/30/97 through and including 7/30/97 1.25%
7/31/97 through and including 10/30/97 1.75%
10/31/97 through and including the 2.25%
Expiration Date
</TABLE>
(ii) Euro-Rate Option: A rate per annum (computed on the
basis of a year of 360 days and actual days elapsed)
equal to the Euro-Rate plus a percentage rate per
annum (the "Applicable Percentage over Euro-Rate")
for the applicable period, set forth below:
<TABLE>
<CAPTION>
Applicable Percentage
Period Over Euro-Rate
------ ---------------------
<S> <C>
From the Closing Date through and 3.00%
including 1/30/97
1/31/97 through and including 4/29/97 3.50%
4/30/97 through and including 7/30/97 4.00%
7/31/97 through and including 10/30/97 4.50%
10/31/97 through and including the 5.00%
Expiration Date
</TABLE>
The Euro-Rate Option shall be adjusted on the beginning date of each
period which changes the Applicable Percentage Over Euro-Rate.
-30-
<PAGE>
3.2 Interest Periods.
-----------------
The interest period specified in a Loan Request (the "Interest
Period") during which a Euro Rate Option shall apply shall be one, two, three or
six Months, provided, that prior to the Business Day following the Syndication
Date, such Interest Period shall be one month and provided, further, that:
3.2.1 Ending Date and Business Day.
-----------------------------
Any Interest Period which would otherwise end on a date which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day;
3.2.2 Amount of Borrowing Tranche.
----------------------------
Each Borrowing Tranche of a Loan to which the Euro-Rate Option applies
shall be in integral multiples of $1,000,000 and not less than $3,000,000;
3.2.3 Termination Before Expiration Date.
-----------------------------------
The Borrower shall not select, convert to or renew an Interest Period
for any portion of the Loans that would end after the Expiration Date; and
3.2.4 Renewals.
---------
In the case of the renewal of a Euro-Rate Option at the end of an
Interest Period, the first day of the new Interest Period shall be the last day
of the preceding Interest Period, without duplication in payment of interest for
such day.
3.3 Interest After Default.
-----------------------
To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time such Event of Default shall have been cured or
waived:
3.3.1 Letters of Credit Fees, Interest Rate.
--------------------------------------
The Letters of Credit Fees and the rate of interest for each Loan
otherwise applicable pursuant to Section 2.9 or Section 3.1, respectively,
shall be increased by 1.0% per annum;
3.3.2 Other Obligations.
------------------
Each other Obligation hereunder if not paid when due shall bear
interest at a rate per annum equal to the sum of the rate of interest applicable
under the Base Rate Option
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<PAGE>
plus an additional 1.0% per annum from the time such Obligation becomes due and
payable and until it is paid in full; and
3.3.3 Acknowledgment.
The Borrower acknowledges that the increased rates referred to in this
Section 3.3 reflect, among other things, the fact that the Loans or other
amounts have become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such risk. All such
interest shall be payable by Borrower upon demand by the Agent.
3.4 Euro-Rate Unascertainable.
3.4.1 Unascertainable.
If on any date on which a Euro-Rate would otherwise be determined, the
Agent shall have determined that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially and adversely
affects the London interbank eurodollar market relating
to the Euro-Rate,
then the Agent shall have the rights specified in Section 3.4.3.
3.4.2 Illegality; Increased Costs; Deposits Not Available.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to which a
Euro-Rate Option applies has been made impracticable or
unlawful by compliance by such Bank in good faith with
any Law or any interpretation or application thereof by
any Official Body or with any request or directive of any
Official Body (whether or not having the force of Law),
or
(ii) such Euro-Rate Option will not adequately and fairly
reflect the cost to such Bank of the establishment or
maintenance of any such Loan, or
(iii) after making all reasonable efforts, deposits of the
relevant amount in Dollars for the relevant Interest
Period for a Loan to which a Euro-Rate Option applies,
are not
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<PAGE>
available to such Bank with respect to such Loan in the
London interbank market,
then such Bank shall have the rights specified in Section 3.4.3.
3.4.3 Agent's and Bank's Rights.
In the case of any event specified in Section 3.4.1, the Agent shall
promptly so notify the Banks and the Borrower thereof, and in the case of a
determination specified in Section 3.4.2, such Bank shall promptly so notify
the Agent and endorse a certificate to such notice as to the specific
circumstances of such notice, and the Agent shall promptly send copies of such
notice and certificate to the other Banks and the Borrower. Upon such date as
shall be specified in such notice (which shall not be earlier than the date such
notice is given) the obligation of (A) the Banks, in the case of such notice
given by the Agent in respect of Section 3.4.1, or (B) such Bank, in the case
of such notice given by such Bank in respect of Section 3.4.2, to allow the
Borrower to select, convert to or renew a Euro-Rate Option shall be suspended
until the Agent shall have later notified the Borrower, or such Bank shall have
later notified the Agent, of the Agent's or such Bank's, as the case may be,
determination that the circumstances giving rise to such previous determination
no longer exist. If at any time the Agent makes a determination under Section
3.4.1 and the Borrower has previously notified the Agent of its selection of,
conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to the affected Loans. If any Bank notifies the Agent of
a determination under Section 3.4.2, the Borrower shall, subject to the
Borrower's indemnification Obligations under Section 4.6.2, as to any Loan of
such Bank to which a Euro-Rate Option applies, on the date specified in such
notice convert such Loan to the Base Rate Option otherwise available with
respect to such Loan. Absent due notice from the Borrower of conversion, such
Loan shall automatically be converted to the Base Rate Option otherwise
available with respect to such Loan upon such specified date. Upon any such
conversion, the Borrower shall have the right to prepay Loans in the amount of
such Loan on the date of such conversion without providing the notice otherwise
required by Section 4.4.1.
3.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period to apply to any
Borrowing Tranche to which a Euro-Rate Option applies at the expiration of an
existing Interest Period applicable to such Borrowing Tranche in accordance with
the provisions of Section 3.2, the Borrower shall be deemed to have converted
such Borrowing Tranche to the Base Rate Option commencing upon the last day of
such Interest Period.
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<PAGE>
4. PAYMENTS
4.1 Payments.
All payments and prepayments to be made in respect of principal, interest,
Commitment Fees, Letters of Credit Fees, the Agent's Fee, or other amounts due
from the Borrower hereunder (other than the fees and expenses referenced in
Section 2.9.3 which are to be paid to the Agent as provided in such sections and
the fees and expenses referenced in Section 9.15, each of which shall be paid in
accordance with such sections) shall be payable prior to 12:00 p.m., Pittsburgh,
Pennsylvania time, on the date when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrower,
and without set-off, counterclaim or other deduction of any nature, and an
action therefor shall immediately accrue. Payments of principal and interest on
Loans and of Commitment Fees and Letters of Credit Fees shall be made to the
Agent at the Principal Office for the ratable accounts of the Banks in Dollars
and in immediately available funds, and the Agent shall promptly distribute such
amounts to the Banks in immediately available funds; provided that in the event
payments are received by noon (Pittsburgh, Pennsylvania time) by the Agent with
respect to the Loans and such payments are not distributed to the Banks on the
same day received by the Agent, the Agent shall pay the Banks the Federal Funds
Effective Rate with respect to the amount of such payments for each day held by
the Agent and not distributed to the Banks. The Agent's and each Bank's
statement of account, ledger or other relevant record shall, in the absence of
manifest error, be conclusive as the statement of the amount of principal of and
interest on the Loans and other amounts owing under this Agreement and shall be
deemed an "account stated."
4.2 Pro Rata Treatment of Banks.
Each borrowing of a Loan shall be allocated to each Bank according to its
Ratable Share, and each selection of, conversion to or renewal of any Interest
Rate Option and each payment or prepayment by the Borrower with respect to
principal, interest, Commitment Fees, Letters of Credit Fees, or other fees
(except for the Agent's Fee, any fees to the Agent with respect to the issuance,
administration or payments under Letters of Credit) or amounts due from the
Borrower hereunder to the Banks with respect to the Loans, shall (except as
provided in Section 3.4.2 [Illegality, Increased Costs; Deposits not Available],
4.4 [Voluntary Prepayments] or 4.6 [Additional Compensation in Certain
Circumstances]) be made in proportion to the applicable Loans outstanding from
each Bank and, if no such Loans are then outstanding, in proportion to the
Ratable Share of Each Bank.
4.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall be due and
payable in arrears on the first Business Day of each month after the date hereof
and on the Expiration Date or upon acceleration of the Notes. Interest on Loans
to which the Euro-Rate Option applies shall be due and payable on the last day
of each Interest Period for those Loans and, if any such
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<PAGE>
Interest Period is longer than three Months, also on the last day of every third
Month during such Interest Period. Without limitation on Section 4.4.1, interest
on mandatory prepayments of principal under Section 4.5 shall be due on the date
such mandatory prepayment is due. Interest on the principal amount of each Loan
or other monetary Obligation shall be due and payable on demand after such
principal amount or other monetary Obligation becomes due and payable (whether
on the stated maturity date, upon acceleration or otherwise).
4.4 Voluntary Prepayments.
4.4.1 Right to Prepay.
The Borrower shall have the right at its option from time to time to prepay
the Loans in whole or part without premium or penalty (except as provided in
Section 4.6):
(i) at any time with respect to any Loan to which the Base
Rate Option applies,
(ii) on the last day of the applicable Interest Period with
respect to Loans to which a Euro-Rate Option applies, and
(iii) on the date specified in a notice by any Bank pursuant to
Section 3.4 [Euro-Rate Unascertainable] with respect to
any Loan to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it shall
provide a prepayment notice to the Agent not later than 10:00 a.m., Pittsburgh,
Pennsylvania time on the Business Day prior to the date of prepayment of Loans
setting forth the following information (provided no notice from Borrower is
required pursuant to subsection (iii) above):
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment to the
Revolving Credit Loans or Term Loans; and
(z) the total principal amount of such prepayment, which shall not be
less than $1,000,000 or integral multiples thereof.
All prepayment notices shall be irrevocable. The principal amount of the
Loans for which a prepayment notice is given, together with interest on such
principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is to be made. If the
Borrower prepays a Loan pursuant to this section but fails to specify the
applicable Borrowing Tranche which the Borrower is prepaying, the prepayment
shall be applied
- 35 -
<PAGE>
first to Loans to which the Base Rate Option applies, then to Loans to which the
Euro-Rate Option applies. If the Borrower prepays a loan pursuant to this
section but fails to specify whether the Term Loans or Revolving Credit Loans
are being prepaid, the prepayment shall be applied first to Revolving Credit
Loans and then to Term Loans. Upon any voluntary prepayment of Term Loans
pursuant to this Section 4.4, the Term Loan Commitments shall be automatically
and permanently reduced in an amount equal to the amount of the prepayment of
the Term Loans. Any prepayment hereunder shall be subject to the Borrower's
Obligation to indemnify the Banks under Section 4.6.2.
4.5 Mandatory Reduction of Commitments; Mandatory Prepayments.
4.5.1 Sale of Assets.
Within five (5) Business Days of any sale of assets authorized by Section
7.2.7(v), the Borrower shall make a mandatory prepayment of principal on the
Loans (together with accrued interest on such principal amount) equal to the
lesser of (i) the aggregate after-tax net cash proceeds (including without
limitation cash, as and when collected, pursuant to any notes or other
securities received as consideration for such sale, transfer or lease), or (ii)
the amount of the outstanding Loans. All proceeds received for prepayment of
Loans pursuant to this Section 4.5.1 shall be first applied to the payment of
the Terms Loans and second to the payment of the Revolving Credit Loans.
Further, all proceeds received for prepayment of Loans pursuant to this Section
4.5.1 shall be first applied to Loans to which the Base Rate Option applies,
then to Loans to which the Euro-Rate Option applies. Upon mandatory prepayment
of Term Loans pursuant to this Section 4.5.1, the Term Loan Commitments
automatically shall be permanently and irrevocably reduced by an amount equal to
the aggregate after-tax net cash proceeds of such sale. Upon mandatory
prepayment of Revolving Credit Loans pursuant to this Section 4.5.1, the
Revolving Credit Commitments automatically shall be permanently and irrevocably
reduced by an amount equal to the aggregate after-tax net cash proceeds of such
sale and, from and after any such reduction, the obligation of Borrower to pay
the Commitment Fee pursuant to Section 2.3 shall correspondingly reduce. Each
reduction of Commitments required by this Section 4.5.1 shall first be a
reduction of the Term Loan Commitments and second a reduction of the Revolving
Credit Commitments.
4.6 Additional Compensation in Certain Circumstances.
4.6.1 Increased Costs or Reduced Return Resulting From Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation or any change in any Law, guideline
or interpretation or application thereof by any Official Body charged with the
interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of Law) of any central bank or other
Official Body:
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(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Notes, the
Loans or payments by the Borrower of principal, interest,
Commitment Fees, or other amounts due from the Borrower
hereunder or under the Notes (except for taxes on the
overall net income of such Bank),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or
commitments to extend credit extended by, or assets
(funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, any Bank,
or
(iii) imposes, modifies or deems applicable any capital adequacy
or similar requirement (A) against assets (funded or
contingent) of, or letters of credit, other credits or
commitments to extend credit extended by, any Bank, or (B)
otherwise applicable to the obligations of any Bank under
this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole discretion
deems to be material, such Bank shall from time to time notify the Borrower and
the Agent of the amount determined in good faith (using any averaging and
attribution methods employed in good faith and shall be binding upon the parties
absent manifest error) by such Bank to be necessary to compensate such Bank for
such increase in cost, reduction of income or additional expense or reduced
rates of return. Such notice shall set forth in reasonable detail the basis for
such determination. Such amount shall be due and payable by the Borrower to such
Bank five (5) Business Days after such notice is given, subject, however, to the
provisions of Section 10.5.3.
4.6.2 Indemnity.
In addition to the compensation required by Section 4.6.1, the Borrower
shall indemnify each Bank against all liabilities, losses or expenses (including
loss of margin, any loss or expense incurred in liquidating or employing
deposits from third parties and any loss or expense incurred in connection with
funds acquired by a Bank to fund or maintain Loans subject to a Euro-Rate
Option) which such Bank sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or renewal of any Loan to which
a Euro-Rate Option applies on a day other than the
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last day of the corresponding Interest Period (whether or
not such payment or prepayment is mandatory, voluntary or
automatic and whether or not such payment or prepayment is
then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any
Loan Requests under Section 2.5 or any notice relating to
prepayments under Section 4.4, or
(iii) default by the Borrower in the performance or observance
of any covenant or condition contained in this Agreement
or any other Loan Document, including any failure of the
Borrower to pay when due (by acceleration or otherwise)
any principal, interest, Commitment Fee or any other
amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it shall from time
to time notify the Borrower of the amount determined in good faith by such Bank
(which determination may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as such Bank shall deem reasonable
and shall be binding on the parties absent manifest error) to be necessary to
indemnify such Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due and
payable by the Borrower to such Bank ten (10) Business Days after such notice is
given.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.
The Borrower represents and warrants to the Agent and each of the Banks as
follows:
5.1.1 Organization and Qualification.
Each Loan Party and each Subsidiary of any Loan Party is a corporation or
partnership, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each Loan Party and each Subsidiary of
any Loan Party has the lawful power to own or lease its properties and to engage
in the business it presently conducts or proposes to conduct. Each Loan Party
and each Subsidiary of any Loan Party is listed on Schedule 5.1.1 and is duly
licensed or qualified and in good standing in each jurisdiction where the
property owned or leased by it or the nature of the business transacted by it or
both makes such licensing or qualification necessary (except where the failure
to be so licensed or qualified would not constitute a Material Adverse Change),
and upon request of the Agent, the Borrower
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will promptly furnish a written list of every jurisdiction where each
Subsidiary and Loan Party is so qualified.
5.1.2 Subsidiary Matters.
-------------------
Schedule 5.1.2 sets forth the authorized, issued and outstanding
capital stock of each Subsidiary and the record owner of such capital stock.
Other than as set forth on Schedule 5.1.2, each of the Borrower's Subsidiaries
is directly or indirectly wholly owned by the Borrower and all of the issued and
outstanding shares of capital stock of each such Subsidiary (referred to herein
as the "Subsidiary Shares") are owned free and clear in each case of any Lien.
All Subsidiary Shares have been validly issued, and all Subsidiary Shares are
fully paid and, except as otherwise set forth on such Schedule 5.1.2
nonassessable. There are no options, warrants or other rights outstanding to
purchase any Subsidiary Shares except as indicated on Schedule 5.1.2.
5.1.3 Power and Authority.
--------------------
Each Loan Party has full power to enter into, execute, deliver and
carry out this Agreement and the other Loan Documents to which it is a party, to
incur the Indebtedness contemplated by the Loan Documents and to perform its
Obligations under the Loan Documents to which it is a party, and all such
actions have been duly authorized by all necessary proceedings on its part.
5.1.4 Validity and Binding Effect.
----------------------------
This Agreement has been duly and validly executed and delivered by
each Loan Party, and each other Loan Document which any Loan Party is required
to execute and deliver on or after the date hereof will have been duly executed
and delivered by such Loan Party on the required date of delivery of such Loan
Document. This Agreement and each other Loan Document constitutes, or will
constitute, legal, valid and binding obligations of each Loan Party which is or
will be a party thereto on and after its date of delivery thereof, enforceable
against such Loan Party in accordance with its terms, except to the extent that
enforceability of any such Loan Document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance.
5.1.5 No Conflict.
------------
Neither the execution and delivery of this Agreement or the other Loan
Documents by any Loan Party nor the consummation of the transactions herein or
therein contemplated or compliance with the terms and provisions hereof or
thereof by any of them (i) will conflict with, constitute a default under or
result in any breach of (A) the terms and conditions of the certificate of
incorporation, bylaws or other organizational documents of any Loan Party or any
of its Subsidiaries or (B) any Law or any agreement or instrument or order,
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writ, judgment, injunction or decree to which any Loan Party or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to
which it or any of its Subsidiaries is subject, which conflict, default or
breach reasonably would be expected to result in a Material Adverse Change, or
(ii) will result in the creation or enforcement of any Lien whatsoever upon any
property (now or hereafter acquired) of any Loan Party or any of its
Subsidiaries (other than Liens granted under the Loan Documents).
5.1.6 Litigation.
-----------
Except as set forth on Schedule 5.1.6, there are no actions, suits,
proceedings or investigations pending or, to the knowledge of any Loan Party,
threatened against such Loan Party or any Subsidiary of any Loan Party at law or
equity before any Official Body which individually or in the aggregate may
result in any Material Adverse Change. None of the Loan Parties or any
Subsidiaries of any Loan Party is in violation of any order, writ, injunction or
any decree of any Official Body which reasonably would be expected to result in
any Material Adverse Change.
5.1.7 Title to Properties.
--------------------
Each Loan Party and each Subsidiary of any Loan Party has good and
marketable title to or a valid leasehold interest in all material properties,
assets and other rights which it purports to own or lease or which are reflected
as owned or leased on its books and records, free and clear of all Liens except
Permitted Liens, and subject to the terms and conditions of the applicable
leases. All material leases of property are in full force and effect without
the necessity for any consent which has not previously been obtained upon
consummation of the transactions contemplated hereby. Schedule 5.1.7 sets
forth a correct and accurate description of the Property.
5.1.8 Financial Statements.
---------------------
(i) Historical Statements. The Borrower has delivered to the
Agent copies of its audited consolidated year-end
financial statements for and as of the end of the three
fiscal years ended October 31, 1995 (the "Annual
Statements" and the Annual Statements are sometimes
collectively referred to as the "Historical Statements").
The Historical Statements were compiled from the books and
records maintained by the Borrower's management, are
correct and complete and fairly represent the consolidated
financial condition of the Borrower and its Subsidiaries
as of their dates and the results of operations for the
fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied;
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(ii) Financial Projections. The Borrower has delivered to the Agent
financial projections of the Borrower and its Subsidiaries for
fiscal years 1996 through 2000 derived from various assumptions
of the Borrower's management (the "Financial Projections"). The
Financial Projections reflect the reasonable expectations of
the Borrower's management as of the Closing Date in light of
the history of the business, present and foreseeable conditions
and intentions of the Borrower's management, all based on the
assumptions thereto, which assumptions were made and based upon
information available at the time of preparation of such
projections. The Financial Projections accurately reflect the
liabilities of the Borrower and its Subsidiaries incurred
pursuant to the Loan Documents upon consummation of the
transactions contemplated hereby as of the Closing Date; and
(iii) Accuracy of Financial Statements. Neither the Borrower nor any
Subsidiary of the Borrower has as of the date of the Historical
Statements any material liabilities, contingent or otherwise,
or forward or long-term commitments that are not disclosed in
the Historical Statements or in the notes thereto, and except
as disclosed therein there are no unrealized or anticipated
losses from any commitments of the Borrower or any Subsidiary
of the Borrower which reasonably would be expected to cause a
Material Adverse Change. Since October 31, 1995, no Material
Adverse Change has occurred.
5.1.9 Margin Stock.
None of the Loan Parties or any Subsidiaries of any Loan Party engages or
intends to engage principally, or as one of its important activities, in the
business of extending credit for the purpose, immediately, incidentally or
ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan or issued Letter of Credit
has been or will be used, immediately, incidentally or ultimately, to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or to refund Indebtedness originally
incurred for such purpose, or for any purpose which entails a violation of or
which is inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System.
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5.1.10 Full Disclosure.
Neither this Agreement nor any other Loan Document, nor any certificate,
statement, agreement or other documents furnished to the Agent or any Bank in
connection herewith or therewith, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to any Loan Party which
materially adversely affects the business, property, assets, financial
condition, results of operations or prospects of any Loan Party or Subsidiary of
any Loan Party which has not been set forth in this Agreement or in the
certificates, statements, agreements or other documents furnished in writing to
the Agent and the Banks prior to or at the date hereof in connection with the
transactions contemplated hereby.
5.1.11 Taxes.
All federal, state, local and other tax returns required to have been filed
with respect to each Loan Party and each Subsidiary of any Loan Party have been
filed, other than those for which the failure to file the same would not
reasonably be expected to result in a Material Adverse Change, and payment or
adequate provision has been made for the payment of all taxes, fees, assessments
and other governmental charges shown to be owing pursuant to said returns or to
assessments received, except to the extent that such taxes, fees, assessments
and other charges are being contested in good faith by appropriate proceedings
diligently conducted and for which such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made. There are
no agreements or waivers extending the statutory period of limitations
applicable to any federal income tax return of any Loan Party or Subsidiary of
any Loan Party for any period.
5.1.12 Consents and Approvals.
No consent, approval, exemption, order or authorization of, or a
registration or filing with, any Official Body or any other Person is required
by any Law or any agreement in connection with the execution, delivery and
carrying out of this Agreement and the other Loan Documents by any Loan Party,
except as listed on Schedule 5.1.12, all of which shall have been obtained or
made on or prior to the Closing Date except as otherwise indicated on Schedule
5.1.12.
5.1.13 No Event of Default; Compliance with Instruments.
No event has occurred and is continuing and no condition exists now or will
exist after giving effect to and as a result of the extensions of credit to be
made on the Closing Date under the Loan Documents which constitutes an Event of
Default or Potential Default. None of the Loan Parties or any Subsidiaries of
any Loan Party is in violation of (i) any term of its certificate of
incorporation, bylaws, or other organizational documents or (ii) any
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material agreement or instrument to which it is a party or by which it or any of
its properties may be subject or bound where such violation would constitute a
Material Adverse Change.
5.1.14 Patents, Trademarks, Copyrights, Licenses, Etc.
A Loan Party or a Subsidiary of a Loan Party owns or possesses all the
material patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises, permits and rights necessary to own and operate its
properties and to carry on its business as presently conducted and planned to be
conducted by the Borrower and its Subsidiaries taken as a whole, without known
conflict by, or with the rights of, others.
5.1.15 Insurance.
The Borrower has delivered to the Agent a true and correct listing of the
property and general liability insurance of the Borrower. No notice has been
given or claim made and to the best knowledge of the Loan Parties no grounds
exist to cancel or avoid any of such policies or bonds or to reduce the coverage
provided thereby. Such policies and bonds provide adequate coverage from
reputable and financially sound insurers in amounts sufficient to insure the
assets and risks of each Loan Party and each Subsidiary of any Loan Party in
accordance with prudent business practice in the industry of the Loan Parties
and their Subsidiaries.
5.1.16 Compliance with Laws.
The Loan Parties and their Subsidiaries are in compliance in all material
respects with all applicable Laws (other than Environmental Laws which are
specifically addressed in Section 5.1.21) in all jurisdictions in which any
Loan Party or Subsidiary of any Loan Party is presently or currently anticipates
it will be doing business except where the failure to do so would not constitute
a Material Adverse Change.
5.1.17 Material Contracts.
Schedule 5.1.17 lists all material contracts relating to the business
operations of each Loan Party and each Subsidiary of any Loan Party, including
all employee benefit plans and Labor Contracts. All such material contracts are
valid, binding and enforceable upon such Loan Party or Subsidiary in accordance
with their respective terms, and the Loan Party which is a party thereto has not
received actual notice of a default thereunder with respect to parties other
than such Loan Party or Subsidiary. For purposes of this Section 5.1.17 the
term "material contracts" shall mean those contracts or other agreements which
the Borrower would be required to file with the Securities and Exchange
Commission pursuant to item 601(a)(10) of Regulation S-K promulgated under the
Securities Act of 1933 and the Securities Exchange Act of 1934.
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5.1.18 Investment Companies.
None of the Loan Parties or any Subsidiaries of any Loan Party is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment company"
as such terms are defined in the Investment Company Act of 1940 and shall not
become such an "investment company" or under such "control".
5.1.19 Plans and Benefit Arrangements.
Except as set forth on Schedule 5.1.19:
(i) The Borrower and each other member of the ERISA Group are in
compliance in all material respects with any applicable
provisions of ERISA with respect to all Benefit Arrangements,
Plans and Multiemployer Plans. There has been no Prohibited
Transaction with respect to any Benefit Arrangement or any Plan
or, to the best knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which reasonably
would be expected to result in any material liability of the
Borrower or any other member of the ERISA Group. The Borrower
and all other members of the ERISA Group have made when due any
and all payments required to be made under any agreement
relating to a Multiemployer Plan or a Multiple Employer Plan or
any Law pertaining thereto. With respect to each Plan and
Multiemployer Plan, the Borrower and each other member of the
ERISA Group (i) have fulfilled in all material respects their
obligations under the minimum funding standards of ERISA, (ii)
have not incurred any liability to the PBGC, and (iii) have not
had asserted against them any penalty for failure to fulfill the
minimum funding requirements of ERISA;
(ii) To the best of each Loan Parties' knowledge, each Multiemployer
Plan and Multiple Employer Plan is able to pay benefits
thereunder when due;
(iii) Neither the Borrower nor any other member of the ERISA Group
has instituted or intends to institute proceedings to terminate
any Plan;
(iv) No event requiring notice to the PBGC under Section 302(f)(4)(A)
of ERISA has occurred or is
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reasonably expected to occur with respect to any Plan, and no
amendment with respect to which security is required under
Section 307 of ERISA has been made or is reasonably expected
to be made to any Plan;
(v) The aggregate actuarial present value of all benefit
liabilities (whether or not vested) under the Plans,
determined on an ongoing basis, as disclosed in, and as of the
date of, the most recent actuarial report for each such Plan,
does not exceed the aggregate fair market value of the assets
of such Plans;
(vi) Neither the Borrower nor any other member of the ERISA Group
has incurred or reasonably expects to incur any material
withdrawal liability under ERISA to any Multiemployer Plan or
Multiple Employer Plan. Neither the Borrower nor any other
member of the ERISA Group has been notified by any
Multiemployer Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been
terminated within the meaning of Title IV of ERISA and, to the
best knowledge of the Borrower, no Multiemployer Plan or
Multiple Employer Plan is reasonably expected to be
reorganized or terminated, within the meaning of Title IV of
ERISA;
(vii) To the extent that any Benefit Arrangement is insured, the
Borrower and all other members of the ERISA Group have paid
when due all premiums required to be paid for all periods
through the Closing Date. To the extent that any Benefit
Arrangement is funded other than with insurance, the Borrower
and all other members of the ERISA Group have made when due
all contributions required to be paid for all periods through
the Closing Date; and
(viii) All Plans, Benefit Arrangements and Multiemployer Plans have
been administered in accordance with their terms and
applicable Law.
5.1.20 Employment Matters.
Each of the Loan Parties and each of their Subsidiaries is in compliance
with the Labor Contracts and all applicable federal, state and local labor and
employment Laws including those related to equal employment opportunity and
affirmative action, labor relations, minimum wage, overtime, child labor,
medical insurance continuation, worker adjustment and
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relocation notices, immigration controls and worker and unemployment
compensation, where the failure to comply reasonably would be expected to
constitute a Material Adverse Change. There are no outstanding grievances,
arbitration awards or appeals therefrom arising out of the Labor Contracts or
current or threatened strikes, picketing, handbilling or other work stoppages or
slowdowns at facilities of any of the Loan Parties or any of their Subsidiaries
which in any case would constitute a Material Adverse Change.
5.1.21 Environmental Matters.
Except as disclosed on Schedule 5.1.21:
(i) Except for notices which would not reasonably be expected to
result in a Material Adverse Change, none of the Loan Parties
or any Subsidiaries of any Loan Party has received any
Environmental Complaint from any Official Body or private
Person alleging that such Loan Party or Subsidiary or any prior
owner of any Property or acquirer of any Property from any Loan
Party or Subsidiary is a potentially responsible party under
the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S) 9601, et seq., and none of the
Loan Parties has any reason to believe that such an
Environmental Complaint might be received. There are no pending
or, to any Loan Party's knowledge, threatened Environmental
Complaints relating to any Loan Party or any Subsidiary of any
Loan Party or, to any Loan Party's knowledge, any prior or
subsequent owner of any Property pertaining to, or arising out
of, any Environmental Conditions which reasonably would be
expected to result in a Material Adverse Change,
(ii) Except for Environmental Conditions, violations or failures
which individually and in the aggregate would not reasonably be
expected to result in a Material Adverse Change, there are no
circumstances at, on or under any Property that constitute a
breach of or non-compliance with any of the Environmental Laws,
and there are no past or present Environmental Conditions at,
on or under any Property or, to any Loan Party's knowledge, at,
on or under adjacent property, that prevent compliance with the
Environmental Laws at any Property,
(iii) Neither any Property nor any structures, improvements,
equipment, fixtures, activities or facilities thereon or
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thereunder contain or use Regulated Substances, except in
compliance with Environmental Laws, which would reasonably be
expected to result in a Material Adverse Change. There are no
processes, facilities, operations, equipment or other activities
at, on or under any Property, or, to any Loan Party's knowledge,
at, on or under adjacent property, that currently result in the
release or threatened release of Regulated Substances onto any
Property, except to the extent that such releases or threatened
releases are not a breach of or otherwise not a violation of the
Environmental Laws or would not reasonably be expected to result
in a Material Adverse Change,
(iv) There are no aboveground storage tanks, underground storage
tanks or underground piping associated with such tanks, used for
the management of Regulated Substances at, on or under any
Property that (a) do not have, to the extent required by
Environmental Laws, a full operational secondary containment
system in place, and (b) are not otherwise in compliance with
all Environmental Laws, except in any case where such would not
reasonably be expected to result in a Material Adverse Change.
There are no abandoned underground storage tanks or underground
piping associated with such tanks, previously used for the
management of Regulated Substances at, on or under any Property
that have not either been closed in place in accordance with
Environmental Laws or removed in compliance with all applicable
Environmental Laws and no contamination associated with the use
of such tanks exists on any Property that is not in compliance
with Environmental Laws, except in any case where such would not
reasonably be expected to result in a Material Adverse Change,
(v) The applicable Loan Party or a Subsidiary of a Loan Party has
all permits, licenses, authorizations, plans and approvals
necessary under the Environmental Laws for the conduct of the
business of the Borrower and its Subsidiaries taken as a whole,
except in any case where the failure to so have would not
reasonably be expected to result in a Material Adverse Change.
Each Loan Party and each Subsidiary of a Loan Party has
submitted all notices, reports and other filings required by the
Environmental
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Laws to be submitted to an Official Body which pertain to past
and current operations on any Property, except in any case where
the failure to so submit would not reasonably be expected to
result in a Material Adverse Change, and
(vi) Except for violations which individually and in the aggregate
would not result in a Material Adverse Change, all past and
present on-site generation, storage, processing, treatment,
recycling, reclamation, disposal or other use or management of
Regulated Substances at, on, or under any Property and all off-
site transportation, storage, processing, treatment, recycling,
reclamation, disposal or other use or management of Regulated
Substances have been done in accordance with the Environmental
Laws.
5.1.22 Senior Debt Status.
The Obligations of each Loan Party under this Agreement, the Notes, the
Master Guaranty Agreement and each of the other Loan Documents to which it is a
party do rank and will rank at least pari passu in priority of payment with all
other Indebtedness of such Loan Party except Indebtedness of such Loan Party to
the extent secured by Permitted Liens. There is no Lien upon or with respect to
any of the properties or income of any Loan Party or Subsidiary of any Loan
Party which secures indebtedness or other obligations of any Person except for
Permitted Liens.
5.1.23 Security Interests.
The Liens and security interests granted to the Agent for the benefit of
the Banks pursuant to the Patent, Trademark and Copyright Security Agreements,
the Pledge Agreements, the Note Pledge Agreement and the Security Agreements in
the Collateral (other than the Real Property) constitute and will continue to
constitute Prior Security Interests under the Uniform Commercial Code as in
effect in each applicable jurisdiction (the "Uniform Commercial Code") or other
applicable Law entitled to all the rights, benefits and priorities provided by
the Uniform commercial Code or such Law. Upon the filing of financing statements
relating to said security interests in each office and in each jurisdiction
where required in order to perfect the security interests described above,
taking possession of any stock certificates evidencing the Pledged Collateral,
taking possession of the Intercompany Notes pledged pursuant to the Note Pledge
Agreement and recordation of the Patent, Trademark and Copyright Security
Agreements in the United States Patent and Trademark office and United States
Copyright Office (or equivalent Office of a foreign Official Body in the case of
Patents, Trademarks or Copyrights granted by such foreign Official Body) as
applicable, all such action as is necessary or advisable to establish such
rights of the Agent will have been taken, and there will be upon execution and
delivery of the Patent, Trademark and Copyright Security
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Agreements, the Pledge Agreements, the Note Pledge Agreement and the Security
Agreements, such filings and such taking of possession, no necessity for any
further action in order to preserve, protect and continue such rights, except
the filing of continuation statements with respect to such financing statements
within six months prior to each five-year (five year and six month anniversary
with respect to Tennessee) anniversary of the filing of such financing
statements. All filing fees and other expenses in connection with each such
action have been or will be paid by the Borrower.
5.1.24 Mortgage Liens.
---------------
The Liens granted to the Agent for the benefit of the Banks pursuant
to the Mortgages constitute a valid first priority Lien under applicable law.
Upon the due recordation of the Mortgages in the filing offices designated in
each Mortgage, all such action as have been necessary or advisable to establish
such Lien of the Agent and its priority as described in the preceding sentence
will have been taken, and there will be no necessity for any further action in
order to protect, preserve and continue such Lien and such priority.
5.1.25 Status of the Pledged Collateral.
---------------------------------
All the shares of capital stock included in the Pledged Collateral to
be pledged pursuant to the Pledge Agreements are or will be upon issuance duly
authorized, validly issued, fully paid, (except as described on Schedule
5.1.25) nonassessable and owned beneficially and of record by the pledgor, free
and clear of any Lien or restriction on transfer, except as otherwise provided
by the Pledge Agreements and except as the right of the Banks to dispose of such
shares may be limited by the Securities Act of 1933, as amended, and the
regulations promulgated by the Securities and Exchange Commission thereunder and
by applicable state securities laws. There are no shareholder or other
agreements or understandings with respect to the shares of capital stock
included in the Pledged Collateral.
5.1.26 Solvency.
---------
The Borrower and each Material Subsidiary is Solvent. After giving
effect to the Spin-Off and the transactions contemplated by the Loan Documents,
including all Indebtedness incurred thereby, the Liens granted by the Loan
Parties in connection therewith and the payment of all fees related thereto, the
Borrower and each Material Subsidiary will be Solvent as of the Closing Date.
5.2 Updates to Schedules.
---------------------
Should any of the information or disclosures provided on any of the
Schedules attached hereto become outdated or incorrect in any material respect,
the applicable Loan Parties shall promptly provide to the Agent in writing with
such revisions or updates to such Schedule as may be necessary or appropriate to
update or correct same; provided, however,
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that no Schedule shall be deemed to have been amended, modified or superseded by
any such correction or update, nor shall any breach of warranty or
representation resulting from the inaccuracy or incompleteness of any such
Schedule be deemed to have been cured thereby, unless and until the Required
Banks, in their sole and absolute discretion, shall have accepted in writing
such revisions or updates to such Schedule, which decision to accept or not must
be communicated to the Borrower promptly.
6. CONDITIONS OF LENDING
---------------------
The obligation of each Bank to make Loans and of the Agent to issue
Letters of Credit is subject to the performance by each of the Loan Parties of
its Obligations to be performed hereunder at or prior to the making of any such
Loans or issuance of such Letters of Credit and to the satisfaction of the
following further conditions:
6.1 First Revolving Credit Loans and Term Loans.
-------------------------------------------
On the Closing Date:
6.1.1 Officer's Certificate.
---------------------
The representations and warranties of each of the Loan Parties
contained in Article 5 and in each of the other Loan Documents shall be true
and accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and each of the Loan Parties shall
have performed and complied with all covenants and conditions hereof and
thereof, no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; and there shall be delivered to the Agent for the
benefit of each Bank a certificate of the Borrower, and each of the Material
Subsidiaries, dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of such Person, to each such effect.
6.1.2 Secretary's Certificate.
-----------------------
There shall be delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Borrower, each other Loan Party and each Foreign Subsidiary
which is directly owned by one or more Loan Parties certifying as appropriate as
to:
(i) all action taken by such Loan Party in connection with
this Agreement and the other Loan Documents;
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(ii) the names of the officer or officers authorized to sign this Agreement
and the other Loan Documents and the true signatures of such officer or
officers and specifying the Authorized Officers permitted to act on
behalf of such Loan Party for purposes of this Agreement and the true
signatures of such officers, on which the Agent and each Bank may
conclusively rely; and
(iii) copies of its organizational documents, including its certificate of
incorporation and bylaws (or their equivalents) as in effect on the
Closing Date certified by the appropriate governmental official where
such documents are filed in a governmental office together with
certificates from the appropriate governmental officials as to the
continued existence and good standing of such Loan Party and Foreign
Subsidiary in each jurisdiction where organized or qualified to do
business.
6.1.3 Delivery of Loan Documents.
---------------------------
The Loan Documents shall have been executed and delivered to the
Agent for the benefit of the Banks.
6.1.4 Opinions of Counsel.
--------------------
There shall be delivered to the Agent for the benefit of each Bank
written opinions of counsel for the Loan Parties listed on Schedule 6.1.4 (who
may rely on the opinions of such other counsel as may be acceptable to the
Agent), dated the Closing Date and in form and substance satisfactory to the
Agent and its counsel.
6.1.5 Legal Details.
--------------
All legal details and proceedings in connection with the transactions
contemplated by this Agreement, the Spin-Off and the other Loan Documents shall
be in form and substance reasonably satisfactory to the Agent and its counsel,
and the Agent shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection with
such transactions, in form and substance reasonably satisfactory to the Agent
and said counsel, as the Agent or said counsel may reasonably request.
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6.1.6 Payment of Fees.
----------------
The Borrower shall have paid or caused to be paid to the Agent for
itself and for the account of the Banks to the extent not previously paid all
commitment and other fees accrued through the Closing Date including without
limitation all fees set forth in that certain agreement between the Borrower and
the Agent dated July 11, 1996, with respect to the Commitments and the costs and
expenses for which the Agent and the Banks are entitled to be reimbursed.
6.1.7 Consents.
---------
All material consents required to effectuate the transactions
contemplated hereby as set forth on Schedule 5.1.12 and the Spin-Off shall have
been obtained.
6.1.8 Officer's Certificate Regarding MACs.
-------------------------------------
Since October 31, 1995 (i) no Material Adverse Change shall have
occurred and (ii) there shall have been no material change in the management of
the Borrower other than those described in the Form 10 and there shall have been
delivered to the Agent for the benefit of each Bank a certificate dated the
Closing Date and signed by the Chief Executive Officer, President or Chief
Financial Officer of the Borrower to each such effect.
6.1.9 No Violation of Laws.
---------------------
The making of the Loans and issuance of the Letters of Credit shall
not contravene any Law applicable to any Loan Party or any of the Banks.
6.1.10 No Actions or Proceedings.
--------------------------
No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed against the Borrower, any
Subidiary, the Agent or any Bank or any of their respective officers or
directors in their capacity as such before any court, governmental agency or
legislative body (i) to enjoin, restrain or prohibit, or to obtain damages in
respect of, this Agreement or the other Loan Documents, or (ii) arising out of
or relating to the tender offer commenced by United Dominion, Inc., on July 11,
1996 for shares of Intertech, which, in either case, in the Agent's sole
discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.
6.1.11 Insurance Policies; Certificates of Insurance.
----------------------------------------------
The Borrower shall have delivered to the Agent upon its request
evidence acceptable to the Agent that adequate insurance in compliance with
Section 7.1.3 is in full force and effect and that all premiums then due
thereon have been paid, together with if requested by the Agent a certified copy
of each Loan Party's casualty insurance policy or policies.
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6.1.12 Termination of Existing Debt.
-----------------------------
The Borrower simultaneously shall have terminated the Indebtedness
listed on section 3 of Schedule 7.2.1 and paid all amounts owed thereunder.
6.1.13 Solvency Certificate.
---------------------
The Chief Financial Officer of the Borrower and each Material
Subsidiary shall certify as to the solvency and capital adequacy of the Borrower
and each Material Subsidiary after giving effect to the transactions
contemplated hereby and shall also certify as to the other matters set forth in
Section 5.1.26.
6.1.14 Spin-Off.
---------
With respect to the Spin-Off:
(i) opinions of counsel shall have been delivered addressed to the
Banks and in form and substance satisfactory to the Agent and the Required Banks
relating to the Spin-Off being "tax-free" under the Internal Revenue Code of
1986 to the Borrower and Intertech under Section 355 of the Internal Revenue
Code of 1986, as amended, and compliance of the Spin-Off with all applicable
securities laws and NYSE and NASDAQ rules and requirements;
(ii) Intertech shall have entered into and closed under an Amended and
Restated Credit Agreement for a credit facility providing then available credit
in an aggregate amount of $135,000,000 in form and substance satisfactory to the
Agent and the Required Banks;
(iii) the Agent and the Required Banks shall have been delivered
copies of all agreements which relate to the post-Spin-Off obligations between
the Borrower and Intertech (including, without limitation, the Distribution and
Interim Services Agreement, the Tax Allocation Agreement and the Employee
Benefit Agreement) and the Agent and the Required Banks shall have been
satisfied with the form and substance of such agreements; and
(iv) the Agent and the Required Banks shall be satisfied with the
results of their due diligence with respect to the Spin-Off and its affect upon
the Borrower and Intertech including, without limitation, being satisfied with
the capital structure of the Borrower and Intertech after giving effect to the
Spin-Off and with the financial condition, operations, assets, nature of assets
liabilities and prospects of the Borrower and Intertech.
6.2 Each Additional Loan.
---------------------
At the time of making any Loans or issuance of any Letters of Credit
other than Loans made on the Closing Date and after giving effect to the
proposed extensions of credit: the representations and warranties of the Loan
Parties contained in Article 5 and in the other Loan
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Documents shall be true on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower
shall have delivered to the Agent, a duly executed and completed Loan Request or
application for a Letter of Credit, as the case may be.
6.3 Syndication.
------------
6.3.1 Syndication Representation and Warranties.
------------------------------------------
On the Syndication Date, the representations and warranties of
the Loan Parties contained in Article 5 and in the other Loan Documents shall
be true on and as of such date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an earlier date
or time, which representations and warranties shall be true and correct on and
as of the specific dates or times referred to therein) and the Loan Parties
shall have performed and complied with all covenants and conditions hereof; and
no Event of Default or Potential Default shall have occurred and be continuing
or shall exist.
6.3.2 Syndication Documents.
----------------------
On the Syndication Date, the Borrower shall deliver to the Agent
for the benefit of the Banks (a) an Officer's Certificate dated as of the
Syndication Date with respect to the matters set forth in Section 6.3.1 and
Section 6.1.8(i), (b) a Secretary's Certificate dated as of the Syndication
Date with respect to the matters set forth in Section 6.1.2(i) and 6.1.2(ii)
and that there have been no changes in the charter documents or bylaws of the
Borrower or any Material Subsidiary since the Closing Date, (c) Notes dated as
of the Syndication Date which give effect to the syndication on the Syndication
Date of the Commitments of the Banks which originally executed the Credit
Agreement in exchange for the original Notes issued to such Banks, (d) written
opinions of the counsel to the Borrower identified in Section 6.1.4 with respect
to such matters as the Agent may request and (e) acknowledgments dated as of the
Syndication Date to the Loan Documents in form and substance satisfactory to the
Agent.
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7. COVENANTS
---------
7.1 Affirmative Covenants.
----------------------
The Borrower covenants and agrees that until payment in full of the
Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations under the Loan Documents and termination of the Commitments,
the Loan Parties and their Subsidiaries shall comply at all times with the
following affirmative covenants:
7.1.1 Preservation of Existence, Etc.
-------------------------------
The Borrower and, except as permitted by Section 7.2.6, each Material
Subsidiary shall maintain its corporate existence and its license or
qualification and good standing in each jurisdiction in which its ownership or
lease of property or the nature of its business makes such license or
qualification necessary, except where the failure to be so licensed or qualified
would not result in a Material Adverse Change.
7.1.2 Payment of Liabilities, Including Taxes, Etc.
---------------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to,
duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges, are being contested in good faith and by appropriate and
lawful proceedings diligently conducted and for which such reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made, but only to the extent that failure to discharge any such liabilities
would not result in any additional liability which would adversely affect to a
material extent the financial condition of the Loan Parties and their
Subsidiaries taken as a whole, provided that the Loan Parties and their
Subsidiaries will pay all such liabilities forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor
unless and as long as such proceedings are stayed.
7.1.3 Maintenance of Insurance.
-------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to,
insure its properties and assets against loss or damage by fire and such other
insurable hazards as such assets are commonly insured (including fire, extended
coverage, property damage, workers' compensation, public liability and business
interruption insurance) and against other risks (including errors and omissions
with respect to directors and officers) in such amounts as similar properties
and assets are insured by prudent companies in similar circumstances carrying on
similar businesses, and with reputable and financially sound insurers, including
self-insurance to the extent customary, all as reasonably determined by the
Agent. At the request of the Agent, the
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Loan Parties shall deliver to the Agent (1) on the Closing Date and annually
thereafter an original certificate of insurance signed by the Loan Parties'
independent insurance broker describing and certifying as to the existence of
the insurance required to be maintained by this Agreement and the other Loan
Documents, and (2) from time to time a summary schedule indicating all insurance
then in force with respect to each of the Loan Parties; provided, however, that,
unless a Potential Default or Event of Default shall have occurred and be
continuing, no such request for a summary schedule shall be made more than twice
a year. At the request of the Agent, such policies of insurance shall contain
special endorsements, in form and substance acceptable to the Agent, which shall
(1) specify the Agent as an additional insured, mortgagee and lender loss payee
as its interests may appear, with the understanding that any obligation imposed
upon the insured (including the liability to pay premiums) shall be the sole
obligation of the applicable Loan Parties and not that of the insured, (2)
provide that the interest of the Banks shall be insured regardless of any breach
or violation by the applicable Loan Parties of any warranties, declarations or
conditions contained in such policies or any action or inaction of the
applicable Loan Parties or others insured under such policies, (3) provide a
waiver of any right of the insurers to set off or counterclaim or any other
deduction, whether by attachment or otherwise, (4) provide that any and all
rights of subrogation which the insurers may have or acquire shall be, at all
times and in all respects, junior and subordinate to the prior payment in full
of the Indebtedness hereunder until such time as the Indebtedness hereunder has
been paid in full and the Revolving Credit Commitments have terminated, (5)
provide, except in the case of public liability insurance and workmen's
compensation insurance, that all insurance proceeds for losses of less than
$2,500,000 shall be adjusted with and payable to the applicable Loan Parties and
that all insurance proceeds for losses of $2,500,000 or more shall be adjusted
with and payable to the Agent, (6) include effective waivers by the insurer of
all claims for insurance premiums against the Agent, (7) provide that no
cancellation of such policies for any reason (including non-payment of premium)
nor any change therein shall be effective until at least thirty (30) days after
receipt by the Agent of written notice of such cancellation or change (with the
exception that notice of cancellation for non-payment of premium in the State of
Ohio may be effective with no less than ten (10) days prior written notice to
Agent), (8) be primary without right of contribution of any other insurance
carried by or on behalf of any additional insureds with respect to their
respective interests in the Collateral, and (9) provide that inasmuch as the
policy covers more than one insured, all terms, conditions, insuring agreements
and endorsements (except limits of liability) shall operate as if there were a
separate policy covering each insured. The applicable Loan Parties shall notify
the Agent promptly of any occurrence causing a material loss or decline in value
of the Collateral and the estimated (or actual, if available) amount of such
loss or decline. Any moneys received by the Agent constituting insurance
proceeds or condemnation proceeds (pursuant to the Mortgages) may, at the option
of the Agent, (i) be applied by the Agent to the payment of the Loans in such
manner as the Agent may reasonably determine, or (ii) be disbursed to the
applicable Loan Parties on such terms as are deemed appropriate by the Agent for
the repair, restoration and/or replacement of property in respect of which such
proceeds were received.
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7.1.4 Maintenance of Properties and Leases.
------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in good repair, working order and condition (ordinary wear and tear
excepted) in accordance with the general practice of other businesses of similar
character and size, all of those material properties necessary to its business,
and from time to time, such Loan Party or such Subsidiary will make or cause to
be made all appropriate repairs, renewals or replacements thereof.
7.1.5 Maintenance of Patents, Trademarks, Etc.
---------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain in full force and effect all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and business if the
failure so to maintain the same would constitute a Material Adverse Change.
7.1.6 Visitation Rights.
-----------------
Each Loan Party shall, and shall cause each of its Subsidiaries to,
permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect any of its properties and to
examine and make excerpts from its books and records and discuss its business
affairs, finances and accounts with its Authorized Officers, all in such detail
as any of the Banks may reasonably request, provided that each Bank shall
provide the Borrower and the Agent with reasonable notice prior to any visit or
inspection, the Banks shall attempt to reasonably coordinate such requests and
all information obtained by any Bank shall be subject to Section 10.12.
7.1.7 Keeping of Records and Books of Account.
---------------------------------------
The Borrower shall, and shall cause each Subsidiary to, maintain and
keep proper books and records which enable the Borrower and its Subsidiaries
to issue consolidated financial statements in accordance with GAAP and as
otherwise required by applicable Laws of any Official Body having jurisdiction
over the Borrower or any Subsidiary of the Borrower, and in which full, true and
correct entries shall be made in all material respects of all dealings and
business and financial affairs on a consolidated basis.
7.1.8 Plans and Benefit Arrangements.
------------------------------
The Borrower shall, and shall cause each other member of the ERISA
Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws
applicable to Plans and Benefit Arrangements except where such failure, alone or
in conjunction with any other failure, would not result in a Material Adverse
Change. Without limiting the generality of the foregoing, the Borrower shall
cause all of its Plans and all Plans maintained by any other member of the ERISA
Group to be funded in accordance with the minimum funding
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requirements of ERISA and shall make, and cause each other member of the ERISA
Group to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
7.1.9 Compliance with Laws.
--------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to,
comply with all applicable Laws, including all Environmental Laws, in all
respects, provided that it shall not be deemed to be a violation of this Section
7.1.9 if any failure to comply with any Law would not result in fines,
penalties, remediation costs, other similar liabilities or injunctive relief
which in the aggregate would reasonably be expected to constitute a Material
Adverse Change.
7.1.10 Use of Proceeds.
---------------
The Borrower will use the Letters of Credit and the proceeds of the
Loans only for lawful purposes in accordance with Sections 2.8 and 2.10.4 and
such uses shall not contravene any applicable Law or any other provision hereof.
7.1.11 Subordination of Intercompany Loans.
-----------------------------------
Each Loan Party shall cause any Intercompany Loans owed by any Loan
Party to any other Loan Party or Domestic Subsidiary of a Loan Party to be
subordinated pursuant to the terms of the Master Intercompany Subordination
Agreement and evidenced by an Intercompany Note which is pledged to the Agent
for the benefit of the Banks pursuant to the Note Pledge Agreement.
7.1.12 Further Assurances Regarding Banks' Liens and Prior Security
------------------------------------------------------------
Interests.
---------
The Borrower shall, from time to time, at its expense, faithfully
preserve and protect the Agent's Lien on and Prior Security Interest in the
Collateral (subject, in the case of the Property which is part of the
Collateral, to maintaining such a first priority Lien at the request of the
Agent) as a continuing first priority perfected Lien, subject only to Permitted
Liens, and shall do such other acts and things as the Agent in its sole
discretion may deem necessary or advisable from time to time in order to
preserve, perfect and protect the Liens and Prior Security Interests granted
under the Loan Documents and to exercise and enforce its rights and remedies
thereunder with respect to the Collateral.
In the event that the Required Banks determine to record the
Mortgages, the Borrower and the other Loan Parties shall (i) within five days of
a request therefor of the Agent confirm in writing that the legal descriptions
of the Property are true, accurate and complete or provide true, accurate and
complete descriptions of the Property, (ii) in the event that any legal
descriptions of the Property are inaccurate, immediately execute amendments to
any Mortgages to correct any inaccuracies, (iii) upon request of the Agent,
deliver a title insurance
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policy or policies or binder or binders in favor of the Agent for the benefit of
the Banks, in customary ALTA current mortgagee's form, and in amounts not less
than $55,000,000, with premiums paid thereon, issued by a title insurance
company acceptable to the Agent and insuring the Mortgages as valid first
priority Lien upon the applicable Loan Parties' fee simple title to, or
leasehold interest in, the Property Collateral and all improvements and all
appurtenances thereto (including such easements and appurtenances as may be
required by the Agent), free and clear of any and all defects and Liens other
than Permitted Liens, with endorsements thereto as to such matters as the Agent
may designate, (iv) upon the request of the Agent furnish or engage third
parties of reputable standing to furnish any requested information for or
studies regarding the Property including without limitation any requested
environmental studies or audit, appraisals, surveys and evidence of zoning
compliance and (v) pay all transfer fees, mortgage or intangible taxes and
recording fees due upon recording of the Mortgages. Each of Borrower and
Guarantors will do all such other acts and things and, execute, deliver, file
and record all such other documents and instruments, including, without
limitation, mortgages, amendments to mortgagees, deeds of trust, financing
statements, security agreements, assignments and documents and powers of
attorney with respect to the Property, as the Agent in its reasonable discretion
may deem necessary or advisable from time to time in order to continue,
preserve, perfect and protect the Lien created by the Mortgages; and each Loan
Party hereby irrevocably appoints the Agent, its officers, employees and agents,
or any of them, as attorneys-in-fact for such Loan Party to execute, deliver,
file and record such items for such Loan Party and in the Loan Party's name,
place and stead. This power of attorney, being coupled with an interest, shall
be irrevocable for the life of this Agreement; provided, however, that the Agent
may not exercise any actions hereunder unless and until either (i) an Event of
Default has occurred; or (ii) if prior to an Event of Default, five (5) Business
Days have elapsed since the Agent has requested a Loan Party to undertake
certain actions and the Loan Party has not complied with such request within
such five (5) Business Day time period.
7.1.13 Post-Closing Matters.
--------------------
The Borrower shall deliver to the Agent for the benefit of the Banks
the documents set forth on Schedule 7.1.13 at the times indicated therein.
7.1.14 Payment of Inter-Company Obligations Related to Intertech
---------------------------------------------------------
The Borrower and its Subsidiaries shall settle all inter-company
obligations owed by them in respect of all dividends and Indebtedness owed as of
the date of the Spin-Off to Intertech and its Subsidiaries (after the Spin-Off)
in the manner (including by set-off to the extent feasible) and within the time
period stated in the Form 10.
7.2 Negative Covenants.
------------------
The Borrower covenants and agrees that until payment in full of the
Loans and Reimbursement Obligations and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations hereunder and termination of the
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Commitments, the Loan Parties and their Subsidiaries shall comply with the
following negative covenants:
7.2.1 Indebtedness.
------------
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) existing Indebtedness as set forth on Schedule 7.2.1
(including any extensions, amendments or refinancings or
renewals thereof, provided there is no increase in the
outstanding amount thereof or imposition of additional
material obligations therein unless otherwise specified on
Schedule 7.2.1);
(iii) Indebtedness of a Foreign Subsidiary to a Foreign
Subsidiary, Indebtedness of a Loan Party to a Foreign
Subsidiary or Indebtedness of a Loan Party to a Loan
Party;
(iv) Indebtedness of a Foreign Subsidiary to a Loan Party or
Indebtedness of a Foreign Subsidiary to any other Person,
provided, that the aggregate of all such Indebtedness,
including any Indebtedness of this type set forth on
Schedule 7.2.1, does not exceed at any one time
outstanding $22,000,000;
(v) any other Indebtedness (x) which constitutes Consolidated
Funded Indebtedness, (y) which is not of a type described
in clause (iv) above of this Section 7.2.1 and (z) which,
after giving effect thereto, the Borrower is in compliance
with Section 7.2.17.
7.2.2 Liens.
-----
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, (i) at any time create, incur, assume or suffer to exist any
Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted Liens
or (ii) at any time enter into an agreement, directly or indirectly, with
respect to any asset of the Borrower or any Subsidiary, that would be violated
if the Borrower or any Subsidiary were to grant to the Agent a Lien on any of
the Borrower's or any Subsidiary's real or personal property.
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7.2.3 Guaranties.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time, directly or indirectly, become liable in respect
of any Guaranty, except for: (i) Guaranties of Indebtedness of the Loan Parties
under the Loan Documents; (ii) Guaranties of Indebtedness of Foreign
Subsidiaries which constitute Consolidated Funded Indebtedness; and (iii) such
other Guaranties so long as the liability of the Loan Parties thereunder under
such other Guaranties does not exceed in the aggregate at any time outstanding
$2,000,000.
7.2.4 Loans and Investments.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, at any time make or suffer to remain outstanding any loan or
advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) in, or any other
investment or interest in, or make any capital contribution to, any other
person, or agree, become or remain liable to do any of the foregoing, except as
set forth on schedule 7.2.4 and:
(i) trade credit extended on usual and customary terms in the
ordinary course of business;
(ii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business;
(iii) Permitted Cash Equivalent Investments;
(iv) investments in Foreign Subsidiaries by Loan Parties so
long as the aggregate outstanding amount of such
investments permitted by this Section 7.2.4(iv)
(excluding Indebtedness of Foreign Subsidiaries to Loan
Parties permitted by Section 7.2.1(iv), Indebtedness of
Foreign Subsidiaries to Loan Parties set forth on
Schedule 7.2.1, and investments which arise and exist as
part of a Loan Party's permitted acquisition pursuant to
Section 7.2.6) does not exceed at any one time
$5,000,000;
(v) investments in other Loan Parties;
(vi) investments in Foreign Subsidiaries by Foreign
Subsidiaries;
(vii) liquidations, mergers, consolidations and acquisitions
permitted by Section 7.2.6, provided, that in the case of
a
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Foreign Subsidiary making an acquisition, after giving
effect thereto, the aggregate investments in Foreign
Subsidiaries by Loan Parties does not exceed the amount
permitted by clause (iv) above;
(viii) capital expenditures permitted by Section 7.2.15; and
(ix) investments permitted by clause (iii) of Section 7.2.9;
provided, however, in no event shall the aggregate investments made by the Loan
Parties after the date hereof of the types described in clauses (vii) and (ix)
above exceed $10,000,000.
7.2.5 Dividends and Related Distributions.
Except dividends or other distributions payable to a shareholder that
is another Loan Party or Subsidiary and except for the dividend described in
Section 7.1.14, each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, declare, make or pay, or agree to become or remain liable
to make or pay, any dividend or other distribution of any nature (whether in
cash, property, securities or otherwise) on account of or in respect of its
shares of capital stock or partnership interests on account of the purchase,
redemption, retirement or acquisition of its shares of capital stock (or
warrants, options or rights therefor) or partnership interests.
7.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
Except as permitted by Section 7.2.7 the Borrower shall not, and
shall not permit any of its Subsidiaries to, dissolve, liquidate or wind-up its
affairs, or become a party to any merger or consolidation, or acquire by
purchase, lease or otherwise all or substantially all of the assets or capital
stock of any other Person; provided that any Domestic Subsidiary may
consolidate, liquidate, dissolve or merge into, or acquire, any Domestic
Subsidiary which is wholly-owned, directly or indirectly, by the Borrower, so
long as at all times all the capital stock or other equity interests of each
Domestic Subsidiary shall be pledged to the Agent for the benefit of the Banks,
on a first priority perfected basis, pursuant to a Pledge Agreement; provided
further that any Foreign Subsidiary that is not directly owned by the Borrower
and/or one or more Domestic Subsidiaries may consolidate, liquidate, dissolve or
merge into or acquire a Foreign Subsidiary that is not directly owned by the
Borrower and/or one or more Domestic Subsidiaries; provided further that any
Foreign Subsidiary directly owned by the Borrower and/or one or more Domestic
Subsidiaries may consolidate, liquidate, dissolve or merge with or into, or
acquire, any Foreign Subsidiary so long as at all times 65 percent of the
outstanding capital stock or other equity interests of either of such Foreign
Subsidiaries shall be pledged to the Agent for the benefit of the Banks, on a
first priority perfected basis, pursuant to a Pledge Agreement; and provided
further that on and after September 30, 1996 the Borrower, any Domestic
Subsidiary, or any Foreign Subsidiary which either has pledged 65 percent of its
capital stock or other equity to the Agent for the benefit of the Banks pursuant
to Section 10.18
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or is owned directly or indirectly by another Foreign Subsidiary that pledged 65
percent of its capital stock or other equity to the Agent for the benefit of the
Banks pursuant to Section 10.18, may acquire by merger, purchase or otherwise
all or substantially all of the assets of any other Person or any division or
subsidiary which constitutes a "reportable industry segment" or "class of
similar products" of an industry segment (as such terms are defined in Item
101(c) of Regulation S-K promulgated under the Securities Act of 1933 and the
Securities Exchange Act of 1934) of such other Person if (a) after giving effect
to such acquisition, the aggregate of the purchase prices (as determined in
accordance with GAAP) for all acquisitions by the Borrower and its Subsidiaries
permitted pursuant to this clause from the Closing Date through the Expiration
Date shall not exceed $10,000,000 (with respect to any non-cash consideration
paid by a Loan Party, the value reasonably assigned to such consideration on the
books of such Loan Party shall be used for purposes of this calculation), (b)
the Borrower and the other Loan Parties are in compliance with all of the
provisions of this Agreement and the other Loan Documents immediately prior to
such acquisition and after giving effect to such acquisition the Borrower and
the other Loan Parties will be in compliance with all of the provisions of this
Agreement and the other Loan Documents, and (c) with respect to any acquisition
of capital stock of another Person, (1) within ten (10) business days of such
acquisition of any capital stock of another Person, all outstanding shares of
capital stock of such Person (other than minimum legally required director's
qualifying or similar shares) are acquired by the Borrower and one or more
Subsidiaries and no rights to acquire shares of such capital stock shall be held
by any person other than the Borrower and its Subsidiaries, (2) if such other
Person becomes a Foreign Subsidiary that is directly owned by one or more Loan
Parties, 65 percent of its capital stock or other equity is pledged to the Agent
for the benefit of the Banks in accordance with Section 10.18, and (3) if such
other Person becomes a Domestic Subsidiary of the Borrower or other Loan Party,
it joins in the Master Guaranty Agreement and other Loan Documents in accordance
with Section 10.18 and 100% of its capital stock or other equity interest is
pledged to the Agent for the benefit of the Banks in accordance with Section
10.18.
7.2.7 Dispositions of Assets or Subsidiaries.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or
dispose of, voluntarily or involuntarily, any of its properties or assets,
tangible or intangible (including sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of beneficial
interest or partnership interests of a Subsidiary of such Loan Party), except:
(i) transactions involving the sale of inventory in the
ordinary course of business;
(ii) any sale, transfer or lease of assets in the ordinary
course of business which are no longer necessary or
required in the conduct of such Loan Party's or such
Subsidiary's business;
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(iii) any sale, transfer or lease of assets (x) by any Domestic
Subsidiary to another Loan Party so long as at all times
all of the capital stock or other equity interests of
each Domestic Subsidiary shall be pledged to the Agent
for the benefit of the Banks, on a first priority
perfected basis, pursuant to a Pledge Agreement, (y) by
any Foreign Subsidiary directly owned by one or more Loan
Parties to another Foreign Subsidiary so long as at all
times 65 percent of the capital stock or equity interests
of either of such Foreign Subsidiaries shall be pledged
to the Agent for the benefit of the Banks, on a first
priority perfected basis, pursuant to a Pledge Agreement,
or (z) by any Foreign Subsidiary that is not directly
owned by one or more Loan Parties to a Foreign
Subsidiary;
(iv) the discounting, assigning or sale of accounts receivable
of the Japanese Foreign Subsidiary in connection with
Indebtedness incurred in the ordinary course of business
by such Foreign Subsidiary for working capital in Japan;
and
(v) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through
(iii) above, provided that the aggregate after-tax net
cash proceeds (including without limitation cash, as and
when collected, pursuant to any notes or other securities
received as consideration for such sale, transfer or
lease) of all such sales, transfers or leases on and
after the date hereof through the Expiration Date shall
not exceed $10,000,000 in the aggregate and all such cash
proceeds in excess of $1,000,000 shall be applied as a
mandatory prepayment of the loans in accordance with the
provisions of section 4.5.1.
7.2.8 Affiliate Transactions.
Except as set forth on Schedule 7.2.8 each of the Loan Parties shall
not, and shall not permit any of its Subsidiaries to, enter into or carry out
any transaction with any of its Affiliates (including purchasing property or
services from or selling property or services to any Affiliate of any Loan Party
or other Person other than a Loan Party) unless such transaction is not
otherwise prohibited by this Agreement, is entered into in the ordinary course
of business upon fair and reasonable arm's-length terms and conditions or is
approved by the independent Compensation Committee of the Borrower's Board of
Directors as being upon fair and reasonable arm's length terms and conditions
(including without limitation employment
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arrangements with any Executive Officer of the Borrower or any Subsidiary), all
of which are fully disclosed to the Agent and is in accordance with all
applicable Law.
7.2.9 Subsidiaries, Partnerships and Joint Ventures.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, own or create directly or indirectly any Subsidiaries other
than (i) any Domestic Subsidiary which has (x) joined the Master Guaranty
Agreement, as Guarantor on the Closing Date, joined the Master Intercompany
Subordination Agreement, duly executed and delivered all Pledge Agreements,
Security Agreements, Mortgages, Patent, Trademark and Copyright Collateral
Assignments and such other documents to perfect in favor of the Banks a Prior
Security Interest in all personal property of such Subsidiary and to create a
valid Lien in favor of the Banks on all Property of such Subsidiary, and (y) the
owners of all of the equity interests of such Domestic Subsidiary shall have
pledged all such equity interests, on a first priority perfected basis, to the
Agent for the benefit of the Banks, (ii) any Foreign Subsidiary which is
directly owned by the Borrower and/or one or more Domestic Subsidiaries who
shall have pledged 65 percent of all equity interests of such Foreign
Subsidiary, on a first priority perfected basis, to the Agent for the benefit of
the Banks; and (iii) any Foreign Subsidiary which is directly owned by one or
more Foreign Subsidiaries. Each of the Loan Parties shall not become or agree to
become or permit any of its Subsidiaries to become a general or limited partner
in any general or limited partnership or a joint venturer in any joint venture
or a member in any limited liability company other than (i) solely with Persons
who are or pursuant to such transaction will become other Loan Parties; and (ii)
for transactions which when aggregated do not exceed $2,500,000, except that the
Loan Parties may be general or limited partners in other Loan Parties.
7.2.10 Continuation of or Change in Business.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, engage in any business other than substantially those businesses as
conducted and operated by the Borrower and its Subsidiaries on the Closing Date
and those businesses reasonably related thereto.
7.2.11 Plans and Benefit Arrangements.
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of ERISA
and the Internal Revenue Code with respect to any Plan
where such would result in a Material Adverse Change;
(ii) request a minimum funding waiver from the Internal
Revenue Service with respect to any Plan;
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(iii) engage in a Prohibited Transaction with any Plan,
Benefit Arrangement or Multiemployer Plan which, alone
or in conjunction with any other circumstances or set of
circumstances resulting in liability under ERISA, would
constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all
benefit liabilities (whether or not vested) under the
Plans, determined on an ongoing basis, as disclosed in
the most recent actuarial report completed with respect
to each such Plan, to exceed, as of any actuarial
valuation date, the fair market value of the assets of
such Plans;
(v) fail to make when due any contribution to any
Multiemployer Plan that the Borrower or any member of
the ERISA Group may be required to make under any
agreement relating to such Multiemployer Plan, or any
Law pertaining thereto where such would result in a
Material Adverse Change;
(vi) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed under
Section 4062(e) of ERISA to withdraw) from any Multiple
Employer Plan, where any such withdrawal would result in
a material liability of the Borrower or any member of
the ERISA Group;
(vii) terminate, or institute proceedings to terminate, any
Plan, where such termination would result in a material
liability to the Borrower or any member of the ERISA
Group;
(viii) make any amendment to any Plan with respect to which
security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all
disclosures and governmental filings required under
ERISA or the Internal Revenue Code, where such failure
would result in a Material Adverse Change.
7.2.12 Fiscal Year.
The Borrower shall not, and shall not permit any Subsidiary of the
Borrower to, change its fiscal year from the fiscal year beginning on and ending
on October 31 each year.
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7.2.13 Issuance of Stock.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, issue any additional shares of its capital stock or any
options, warrants or other rights in respect thereof other than to another Loan
Party or Subsidiary of a Loan Party or to a Person which becomes a Loan Party or
Subsidiary of a Loan Party; provided that, (i) in the case of a Domestic
Subsidiary, all such additional shares, options, warrants or other rights are
pledged to the Agent for the benefit of the Banks pursuant to a Pledge Agreement
on a first priority perfected basis resulting in all of its equity interests
being pledged to the Agent and (ii) in the case of a Foreign Subsidiary directly
owned by the Borrower and/or one or more Domestic Subsidiaries, a sufficient
number of such additional shares, options, warrants, rights or other equity are
pledged to the Agent for the benefit of the Banks pursuant to a Pledge Agreement
on a first priority perfected basis resulting in 65 percent of its capital stock
or other equity interests being pledged to the Agent. Notwithstanding the
foregoing, nothing contained herein shall prohibit the Borrower from issuing
shares of its capital stock or other equity interests of the Borrower.
7.2.14 Changes in Organizational Documents.
Except as permitted by Section 7.2.6, each of the Loan Parties shall
not, and shall not permit any of its Subsidiaries to, amend in any respect its
certificate of incorporation (including any provisions or resolutions relating
to capital stock), by-laws or other organizational documents without providing
at least five (5) calendar days' prior written notice to the Agent and the Banks
and, in the event such change would be adverse to the Banks as determined by the
Required Banks in their sole discretion, obtaining the prior written consent of
the Required Banks.
7.2.15 Capital Expenditures and Leases.
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, make any payments or incure any obligation on account of
Consolidated Capital Expenditures if the aggregate of such payments and incurred
obligations together with all other similar payments and incurred obligations
made during such period would exceed the amount set forth below for such period:
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<PAGE>
<TABLE>
<CAPTION>
Maximum Consolidated
Period Capital Expenditures
-------------------------- --------------------
<S> <C>
November 1, 1995 to and $12,500,000
including October 31, 1996
November 1, 1996 to and $12,500,000
including October 31, 1997
November 1, 1997 to and $ 3,125,000
including January 31, 1998
</TABLE>
7.2.16 Minimum Interest Coverage Ratio.
--------------------------------
The Loan Parties shall not permit the Interest Coverage Ratio to be
less than the amount set forth below for the indicated period:
<TABLE>
<CAPTION>
Minimum Interest
Period Coverage Ratio
---------------------------- ----------------
<S> <C>
August 1, 1996 to and 2.75 to 1.00
including October 31, 1996
August 1, 1996 to and 2.75 to 1.00
including January 31, 1997
August 1, 1996 to and 2.75 to 1.00
including April 30, 1997
August 1, 1996 to and 2.75 to 1.00
including July 31, 1997 and
each four consecutive fiscal
quarter periods thereafter
</TABLE>
7.2.17 Consolidated Funded Indebtedness to Consolidated EBITDA Ratio.
--------------------------------------------------------------
The Loan Parties shall not permit at any time the ratio of (i)
Consolidated Funded Indebtedness, as of the last day of the fiscal quarter most
recently ended, to (ii) Consolidated EBITDA, for the four fiscal quarters most
recently ended, to be greater than (A) 3.15 to 1.0 for the four quarter fiscal
periods ending on January 31, 1997, April 30, 1997 and July 31, 1997, and (B)
3.0 to 1.0 for each four quarter fiscal period ending thereafter.
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<PAGE>
7.2.18 Minimum Consolidated Tangible Net Worth.
---------------------------------------
The Loan Parties shall not permit at any time Consolidated Tangible
Net Worth to be less than the following amounts for the indicated period:
<TABLE>
<CAPTION>
Minimum Consolidated
Period Tangible Net Worth
---------------------------- ------------------------------------
<S> <C>
On the Closing Date $20,000,000
Each fiscal quarter The sum of $20,000,000 plus seventy-
subsequent to the fiscal five percent (75%) of Cumulative
quarter ended July 31, 1996 Consolidated Net Income since July
31, 1996 plus 100% of all net
proceeds received by the Borrower
after August 9, 1996 in respect of
capital contributions and in respect
of the issuance of of shares of its
capital stock of any class.
</TABLE>
7.2.19 Amendments to Certain Documents.
-------------------------------
The Loan Parties shall not permit, without the prior written consent
of the Required Banks, any material amendment, waiver or modification to any
document, indenture, agreement or instrument evidencing any Indebtedness set
forth on Schedule 7.2.1 except for amendments, waivers or modifications to
provisions which do not change or otherwise affect the terms of such agreements
or instruments in a material manner.
7.2.20 No Prepayment of Existing Indebtedness.
--------------------------------------
The Loan Parties shall not permit the prepayment, directly or
indirectly (including without limitation on the foregoing any purchase of one or
more of the notes issued thereunder or any interest or participation in any such
notes), prior to the stated maturity thereof of any principal of any
Indebtedness set forth on section 1 of Schedule 7.2.1.
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7.3 Reporting Requirements.
The Borrower covenants and agrees that until payment in full of the Loans
and Reimbursement Obligations and interest thereon, expiration or termination of
all Letters of Credit, satisfaction of all of the Loan Parties' other
Obligations hereunder and under the other Loan Documents and termination of the
Commitments, the Loan Parties will furnish or cause to be furnished to the Agent
and each of the Banks (wherever referenced in Section 7.3, the term
"consolidating" is limited to consolidating information on a basis consistent
with current accounting practices of the Borrower):
7.3.1 Quarterly Financial Statements.
As soon as available and in any event within forty-five (45) calendar
days after the end of each of the first three fiscal quarters in each
fiscal year, financial statements of the Borrower, consisting of a
consolidated and consolidating balance sheet as of the end of such fiscal
quarter and related consolidated and consolidating statements of income,
stockholders' equity and cash flows for the fiscal quarter then ended and
the fiscal year through that date, all in reasonable detail and certified
(subject to normal year-end audit adjustments) by the Chief Executive
Officer, President or Chief Financial Officer of the Borrower as having
been prepared in accordance with GAAP and as to fairness of presentation,
consistently applied, and setting forth in comparative form the respective
financial statements for the corresponding date and period in the previous
fiscal year.
7.3.2 Annual Financial Statements.
As soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Borrower, consolidated and consolidating
financial statements of the Borrower consisting of a consolidated and
consolidating balance sheet as of the end of such fiscal year, and related
consolidated and consolidating statements of income, stockholders' equity
and cash flows for the fiscal year then ended, all in reasonable detail and
setting forth in comparative form the financial statements as of the end of
and for the preceding fiscal year, and with respect to the consolidated
statements, certified by independent certified public accountants of
nationally recognized standing reasonably satisfactory to the Agent. The
certificate or report of accountants shall be free of qualifications (other
than any consistency qualification that may result from a change in the
method used to prepare the financial statements as to which such
accountants concur) and shall not indicate the occurrence or existence of
any event, condition or contingency which would materially impair the
prospect of payment or performance of any covenant, agreement or duty of
any Loan Party under any of the Loan Documents, together with a letter of
such accountants substantially to the effect that, based upon their
ordinary and customary examination of the affairs of the Borrower,
performed in connection with the preparation of such consolidated financial
statements, and in accordance with generally accepted auditing standards,
they are not aware of the existence of any condition or event which
constitutes an Event of Default or Potential Default or, if they are aware
of such condition or
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<PAGE>
event, stating the nature thereof and confirming the Borrower's
calculations with respect to the certificate to be delivered pursuant to
Section 7.3.3 with respect to such financial statements.
7.3.3 Certificate of the Borrower.
Concurrently with the financial statements of the Borrower furnished
to the Agent and to the Banks pursuant to Sections 7.3.1 and 7.3.2, a
certificate of the Borrower signed by the Chief Executive Officer,
President or Chief Financial Officer of the Borrower, in the form of
Exhibit 7.3.3, to the effect that, except as described pursuant to Section
7.3.4, (i) the representations and warranties contained in Article 5 and in
the other Loan Documents are true on and as of the date of such certificate
with the same effect as though such representations and warranties had been
made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time) and the Loan Parties
have performed and complied with all covenants and conditions hereof, (ii)
no Event of Default or Potential Default exists and is continuing on the
date of such certificate and (iii) containing calculations in sufficient
detail to demonstrate compliance as of the date of such financial
statements with all financial covenants contained in Section 7.2.
7.3.4 Notice of Default.
Promptly after any Executive Officer of any Loan Party has learned of
the occurrence of an Event of Default or Potential Default, a certificate
signed by the Chief Executive Officer, President or Chief Financial Officer
of such Loan Party setting forth the details of such Event of Default or
Potential Default and the action which the such Loan Party proposes to take
with respect thereto.
7.3.5 Notice of Litigation.
Promptly after the commencement thereof, notice of all actions, suits,
proceedings or investigations before or by any Official Body or any other
Person against any Loan Party or Subsidiary of any Loan Party which involve
a claim or series of uninsured claims (provided that a claim shall be
deemed to be uninsured unless the insurance company is a reputable
insurance company and has acknowledged that the claim is covered by the
applicable insurance policy without any reservation to challenge the
applicability thereof) in excess of $5,000,000 or which if adversely
determined would reasonably be expected to constitute a Material Adverse
Change.
7.3.6 Certain Events.
Written notice:
(i) at least ten (10) Business Days prior thereto, with respect
to any proposed sale or transfer of assets pursuant to
Section 7.2.7(v) which exceed $1,000,000, and
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(ii) within the time limits set forth in Section 7.2.14, any
amendment to the organizational documents of any Loan Party.
7.3.7 Budgets, Forecasts, Other Reports and Information.
Promptly upon their becoming available to any Loan Party:
(i) the consolidated annual budget of the Borrower, to be
supplied not later than the earlier of (i) thirty (30) days
following the end of each fiscal year with respect to the
budget for the next fiscal year, or (ii) two (2) Business
Days following the date on which the Board of Directors of
the Borrower approves such annual budget;
(ii) any reports including management letters submitted to the
Borrower by independent accountants in connection with any
annual, interim or special audit;
(iii) any reports, notices or proxy statements generally
distributed by the Borrower to its stockholders on a date no
later than the date supplied to such stockholders;
(iv) regular or periodic reports, including Forms 10-K, 10-Q and
8-K, registration statements and prospectuses, as may be
filed by the Borrower with the Securities and Exchange
Commission;
(v) a copy of any material order in any proceeding to which the
Borrower or any of its Subsidiaries is a party issued by any
Official Body; and
(vi) such other reports and information as any of the Banks may
from time to time reasonably request. The Loan Parties shall
also notify the Banks promptly of the enactment or adoption
of any Law which reasonably would be expected to result in a
Material Adverse Change.
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7.3.8 Notices Regarding Plans and Benefit Arrangements.
7.3.8.1 Certain Events.
Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken
or threatened by the Internal Revenue Service or the PBGC with respect
thereto) of:
(i) any Reportable Event with respect to the Borrower or any
other member of the ERISA Group (regardless of whether the
obligation to report said Reportable Event to the PBGC has
been waived),
(ii) any Prohibited Transaction which could subject the Borrower
or any other member of the ERISA Group to a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Internal Revenue Code in
connection with any Plan, any Benefit Arrangement or any
trust created thereunder,
(iii) any assertion of material withdrawal liability with respect
to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a Multiemployer Plan
by the Borrower or any other member of the ERISA Group under
Title IV of ERISA (or assertion thereof), where such
withdrawal is likely to result in material withdrawal
liability,
(v) any cessation of operations (by the Borrower or any other
member of the ERISA Group) at a facility in the
circumstances described in Section 4063(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the ERISA
Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of the ERISA
Group to make a payment to a Plan required to avoid
imposition of a Lien under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307
of ERISA, or
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(ix) any change in the actuarial assumptions or funding methods
used for any Plan, where the effect of such change is to
materially increase or materially reduce the unfunded
benefit liability or obligation to make periodic
contributions.
7.3.8.2 Notices of Involuntary Termination and Annual Reports.
Promptly after receipt thereof, copies of (a) all notices
received by the Borrower or any other member of the ERISA Group of the
PBGC's intent to terminate any Plan administered or maintained by the
Borrower or any member of the ERISA Group, or to have a trustee
appointed to administer any such Plan; and (b) at the request of the
Agent or any Bank each annual report (IRS Form 5500 series) and all
accompanying schedules, the most recent actuarial reports, the most
recent financial information concerning the financial status of each
Plan administered or maintained by the Borrower or any other member of
the ERISA Group, and schedules showing the amounts contributed to each
such Plan by or on behalf of the Borrower or any other member of the
ERISA Group in which any of their personnel participate or from which
such personnel may derive a benefit, and each Schedule B (Actuarial
Information) to the annual report filed by the Borrower or any other
member of the ERISA Group with the Internal Revenue Service with
respect to each such Plan.
7.3.8.3 Notice of Voluntary Termination.
Promptly upon the filing thereof, copies of any Form 5310, or any
successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
8. DEFAULT
8.1 Events of Default.
An Event of Default shall mean the occurrence or existence of any one or
more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
8.1.1 Payments Under Loan Documents.
The Borrower shall fail to pay when due any principal of any Loan
(including scheduled installments, mandatory prepayments or the payment due
at maturity) or any Reimbursement Obligations or shall fail to pay within
two (2) Business Days when due any interest on any Loan or on any
Reimbursement Obligations or any other amount owing hereunder
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or under the other Loan Documents after such principal, interest or other amount
becomes due in accordance with the terms hereof or thereof;
8.1.2 Breach of Warranty.
Any representation or warranty made or deemed made at any time by any
of the Loan Parties herein or by any of the Loan Parties in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or deemed made or
furnished;
8.1.3 Breach of Negative Covenants and Section 7.1.13.
Any of the Loan Parties shall default in the observance or performance
of any covenant contained in Section 7.2 or the covenant contained in Section
7.1.13;
8.1.4 Breach of Other Covenants.
Any of the Loan Parties shall default in the observance or performance
of any other covenant, condition or provision hereof or of any other Loan
Document and such default shall continue unremedied for a period of thirty (30)
Business Days after any Executive Officer of the Borrower becomes aware of the
occurrence thereof (such grace period to be applicable only in the event such
default can be remedied by corrective action of the Loan Parties as determined
by the Agent in its sole discretion);
8.1.5 Defaults in Other Agreements or Indebtedness.
If a breach, default or event of default shall occur at any time under
the terms of any other agreement involving borrowed money or the extension of
credit or any other Indebtedness under which any Loan Party or Subsidiary of any
Loan Party may be obligated as a borrower or guarantor in excess of $5,000,000
in the aggregate and such breach, default or event of default consists of the
failure to pay (beyond any period of grace permitted with respect thereto,
whether waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or such breach or default permits or causes the
acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
8.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of money in excess of
$5,000,000 in the aggregate shall be entered against any Loan Party by a court
having jurisdiction in the premises, which judgment either (i) is not
discharged, vacated, bonded or stayed pending appeal within a period of sixty
(60) days from the date of entry, or (ii) is not fully insured (provided that a
judgment shall be deemed to be uninsured unless the insurance company
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is a reputable insurance company and has acknowledged that the judgment is
covered by the applicable insurance policy without any reservation to challenge
the applicability thereof) or any Loan Parties' or any of their Subsidiaries'
assets having a value on the Borrower's books in excess of $5,000,000 are
attached, seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver, trustee, custodian or assignee
for the benefit of creditors and the same is not cured within sixty (60) days
thereafter;
8.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the party executing the same or such party's
successors and assigns (as permitted under the Loan Documents) in accordance
with the respective terms thereof or shall in any way be terminated (except in
accordance with its terms) or become or be declared ineffective or inoperative
or shall in any way be challenged or contested;
8.1.8 Notice of Lien or Assessment.
A notice of Lien or assessment in excess of $5,000,000 which is not a
Permitted Lien is filed of record with respect to all or any part of any of the
Loan Parties' or any of their Subsidiaries' assets by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including the PBGC, or if any taxes or
debts owing at any time or times hereafter to any one of these becomes payable
and the same is not paid within sixty (60) days after the same becomes payable
(unless the validity or amount thereof is being contested in good faith by
appropriate and lawful proceedings diligently conducted so long as levy and
execution thereon have been stayed and continue to be stayed);
8.1.9 Insolvency.
The Borrower, any Material Subsidiary, or one or more other
Subsidiaries of the Borrower which individually or in the aggregate represent
more than five percent (5%) of the book value of the consolidated assets of the
Borrower and its Subsidiaries, ceases to be able to pay its debts as they become
due, admits in writing its inability to pay its debts as they mature or is no
longer Solvent;
8.1.10 Events Relating to Plans and Benefit Arrangements.
Any of the following occurs: (i) any Reportable Event, which the Agent
and the Required Banks determine in good faith constitutes grounds for the
termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to
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administer or liquidate any Plan; and, in the case of the occurrence of (i),
(ii), (iii) or (iv) above, the Agent determines in good faith that the amount of
the Borrower's liability is likely to exceed 10% of its Consolidated Tangible
Net Worth; (v) the Borrower or any member of the ERISA Group shall fail to make
any contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower
or any other member of the ERISA Group shall make any amendment to a Plan with
respect to which security is required under Section 307 of ERISA; (vii) the
Borrower or any other member of the ERISA Group shall withdraw completely or
partially from a Multiemployer Plan; (viii) the Borrower or any other member of
the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of
ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is
adopted, changed or interpreted by any Official Body with respect to or
otherwise affecting one or more Plans, Multiemployer Plans or Benefit
Arrangements and, with respect to any of the events specified in (v), (vi),
(vii), (viii) or (ix), the Agent and the Required Banks determine in good faith
that any such occurrence would be reasonably likely to materially and adversely
affect the total enterprise represented by the Borrower and the other members of
the ERISA Group;
8.1.11 Cessation of Business.
The Borrower, (except as permitted by Section 7.2.6 or Section
7.2.7) any Material Subsidiary, or (except as permitted by Section 7.2.6 or
Section 7.2.7) one or more other Subsidiaries of the Borrower which
individually or in the aggregate represent more than five percent (5%) of the
book value of the consolidated assets of the Borrower and its Subsidiaries,
ceases to conduct its business as contemplated or such Loan Party is enjoined,
restrained or in any way prevented by court order from conducting all or any
material part of its business and such injunction, restraint or other preventive
order is not dismissed within thirty (30) days after the entry thereof;
8.1.12 Change of Control.
(i) Any person or group of persons (within the meaning of Section
13(a) or 14(a) of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership of (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under said Act) 20% or more of the
voting capital stock of the Borrower; or (ii) within a period of twelve (12)
consecutive calendar months, individuals who were directors on the board of
directors of the Borrower on the first day of such period together with any
directors whose election by such board of directors or whose nomination for
election by the shareholders was approved by a vote of the majority of the
directors then in office shall cease to constitute a majority of the board of
directors of the Borrower;
8.1.13 Involuntary Proceedings.
A proceeding shall have been instituted in a court having jurisdiction
in the premises seeking a decree or order for relief in respect of the Borrower,
any Material Subsidiary, or any other Subsidiary the result of which proceeding
against the Borrower, any
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Material Subsidiary or any other Subsidiary would be a Material Adverse Change,
in an involuntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, or for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Loan Party or any
Subsidiary of any Loan Party for any substantial part of its property, or for
the winding-up or liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of sixty (60) consecutive
days or such court shall enter a decree or order granting any of the relief
sought in such proceeding; or
8.1.14 Voluntary Proceedings.
The Borrower, any Material Subsidiary or any other Subsidiary the
result of which voluntary case by the Borrower, any Material Subsidiary or such
other Subsidiary would be a Material Adverse Change, shall commence a voluntary
case under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, shall consent to the entry of an order
for relief in an involuntary case under any such law, or shall consent to the
appointment or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator, conservator (or other similar official) of itself or for
any substantial part of its property or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action in furtherance of any of the foregoing.
8.2 Consequences of Event of Default.
8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.
If an Event of Default specified under Sections 8.1.1 through 8.1.12
shall occur and be continuing, the Banks and the Agent shall be under no further
obligation to make Loans or issue Letters of Credit, as the case may be, and the
Agent may, and upon the request of the Required Banks, shall (i) by written
notice to the Borrower, terminate the Commitments, declare the unpaid principal
amount of the Notes and all Reimbursement Obligations then outstanding and all
interest accrued thereon, any unpaid fees and all other Indebtedness of the
Borrower to the Banks hereunder and thereunder to be forthwith due and payable,
and the same shall thereupon become and be immediately due and payable to the
Agent for the benefit of each Bank without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, and (ii)
require the Borrower to, and the Borrower shall thereupon, deposit in a non-
interest bearing account with the Agent, as cash collateral for its Obligations
under the Loan Documents, an amount equal to the maximum amount currently or at
any time thereafter available to be drawn on all outstanding Letters of Credit,
and the Borrower hereby pledges to the Agent and the Banks, and grants to the
Agent and the Banks a security interest in, all such cash as security for such
Obligations. Upon the curing of all existing Events of Default
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to the satisfaction of the Required Banks, the Agent shall return such cash
collateral to the Borrower;
8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.
If an Event of Default specified under Section 8.1.13 or 8.1.14 shall
occur, the Commitments shall automatically terminate, the Banks shall make no
Loans hereunder and the unpaid principal amount of the Notes, and all
Reimbursement Obligations then outstanding and all interest accrued thereon, any
unpaid fees and all other Indebtedness of the Borrower to the Banks hereunder
and thereunder shall be immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived;
8.2.3 Set-off.
If an Event of Default shall occur and be continuing, any Bank to whom
any Obligation is owed by any Loan Party hereunder or under any other Loan
Document or any participant of such Bank which has agreed in writing to be bound
by the provisions of Section 9.13 and any branch, Subsidiary or Affiliate of
such Bank or participant anywhere in the world shall have the right, subject to
the approval of the Required Banks, in addition to all other rights and remedies
available to it, without notice to such Loan Party, to set off against and apply
to the then unpaid balance of all the Loans and all other Obligations of the
Borrower and the other Loan Parties hereunder or under any other Loan Document
any debt owing to, and any other funds held in any manner for the account of,
the Borrower or such other Loan Party by such Bank or participant or by such
branch, Subsidiary or Affiliate, including all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by the Borrower or such
other Loan Party for its own account (but not including funds held in custodian
or trust accounts) with such Bank or participant or such branch, Subsidiary or
Affiliate. Such right shall exist whether or not any Bank or the Agent shall
have made any demand under this Agreement or any other Loan Document, whether or
not such debt owing to or funds held for the account of the Borrower or such
other Loan Party is or are matured or unmatured and regardless of the existence
or adequacy of any collateral, any Guaranty or any other security, right or
remedy available to any Bank or the Agent;
8.2.4 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing, and whether or
not the Agent shall have accelerated the maturity of Loans pursuant to any of
the foregoing provisions of this Section 8.2, the Agent or any Bank, with the
approval of the Required Banks, if owed any amount with respect to the Notes,
may proceed to protect and enforce its rights by suit in equity, action at law
and/or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement or the Notes, including as
permitted by applicable Law the obtaining of the ex parte appointment of a
receiver, and, if
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such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of the Agent
or such Bank;
8.2.5 Application of Proceeds.
From and after the date on which the Agent has taken any action
pursuant to this Section 8.2 and until all Obligations of the Loan Parties have
been paid in full, any and all proceeds received by the Agent from any sale or
other disposition of any collateral, or any part thereof, the exercise of any
other remedy by the Agent, shall be applied as follows:
(i) first, to reimburse the Agent and the Banks for out-of-pocket
costs, expenses and disbursements, including reasonable attorneys' and
paralegals' fees and legal expenses, incurred by the Agent or the
Banks in connection with realizing on any collateral or collection of
any Obligations of any of the Loan Parties under any of the Loan
Documents, including advances made by the Banks or any one of them or
the Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, any collateral, including
advances for taxes, insurance, repairs and the like and reasonable
expenses incurred to sell or otherwise realize on, or prepare for sale
or other realization on, any of any collateral;
(ii) second, to the repayment of all Indebtedness then due and
unpaid of the Loan Parties to the Banks incurred under this Agreement
or any of the other Loan Documents, whether of principal, interest,
fees, expenses or otherwise, in such manner as the Agents may
determine in their discretion; and
(iii) the balance, if any, to the Borrower or as required by Law;
and
8.2.6 Other Rights and Remedies.
The Agent may, and upon the request of the Required Banks shall,
exercise all post-default rights granted to the Agent and the Banks under the
Loan Documents or applicable Law.
8.3 Notice of Sale.
Any notice required to be given by the Agent of a sale, lease, or
other disposition of the any collateral or any intended action by the Agent, if
given ten (10) days prior to such
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proposed action, shall constitute commercially reasonable and fair notice
thereof to the Borrower.
9. THE AGENT
9.1 Appointment.
Each Bank hereby irrevocably designates, appoints and authorizes
Mellon Bank, N.A. to act as Agent for such Bank under this Agreement and to
execute and deliver or accept on behalf of each of the Banks the other Loan
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of a Note shall be deemed irrevocably to authorize, the Agent
to take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and any other instruments and agreements referred to
herein, and to exercise such powers and to perform such duties hereunder as are
specifically delegated to or required of the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. Mellon Bank, N.A. agrees
to act as the Agent on behalf of the Banks to the extent provided in this
Agreement.
9.2 Delegation of Duties.
The Agent may perform any of its respective duties hereunder by or
through agents or employees (provided such delegation does not constitute a
relinquishment of its duties as Agent) and, subject to Sections 9.5 and 9.6,
shall be entitled to engage and pay for the advice or services of any attorneys,
accountants or other experts concerning all matters pertaining to its duties
hereunder and to rely upon any advice so obtained.
9.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature. Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the Agent
has not made any representations or warranties to it and that no act by the
Agent hereafter taken, including any review of the affairs of any of the Loan
Parties, shall be deemed to constitute any representation or warranty by the
Agent to any Bank; (ii) that it has made and will continue to make, without
reliance upon the Agent, its own independent investigation of the financial
condition and affairs and its own appraisal of the creditworthiness of each of
the Loan Parties in connection with this Agreement and the making and
continuance of the Loans hereunder; and (iii) except as expressly provided
herein, that the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank with any
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credit or other information with respect thereto, whether coming into its
possession before the making of any Loan or at any time or times thereafter.
9.4 Actions in Discretion of Agent; Instructions from the Banks.
The Agent agrees, upon the written request of the Required Banks, to
take or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
9.6. Subject to the provisions of Section 9.6, no Bank shall have any right
of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
9.5 Reimbursement and Indemnification of Agent by the Borrower.
The Borrower agrees unconditionally upon demand to pay or reimburse
the Agent and to save the Agent harmless against (i) liability for the payment
of all reasonable out-of-pocket costs, expenses and disbursements, including
fees and expenses of counsel, appraisers and environmental consultants, incurred
by the Agent (a) in connection with the development, negotiation, preparation,
printing, execution, syndication, administration, performance and interpretation
of this Agreement and the other Loan Documents, and other instruments and
documents to be delivered hereunder, (b) relating to any amendments, waivers or
consents pursuant to provisions hereof, (c) in connection with the enforcement
of this Agreement or any other Loan Document, or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising under
this Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (d) in any workout, restructuring or in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of any rights hereunder or under any other Loan Document or in
connection with any foreclosure, collection or bankruptcy proceedings; (ii) all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted by or asserted against the Agent, in its
capacity as such, as a result of the use of the proceeds of the Loans, including
without limitation, as a result of a Change of Control; and (iii) all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent, in its capacity as such,
in any way relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by the Agent hereunder or thereunder,
provided that the Borrower shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties,
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actions, judgments, suits, costs, expenses or disbursements (A) if the same
results from the Agent's gross negligence or willful misconduct, or (B) if the
Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrower
shall remain liable to the extent such failure to give notice does not result in
a loss to the Borrower), or (C) if the same results from a compromise or
settlement agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. In addition, the Borrower agrees to
reimburse and pay all reasonable out-of-pocket expenses of the Agent's regular
employees and agents engaged to perform audits of the books, records and
properties of the Loan Parties and their Subsidiaries.
9.6 Exculpatory Provisions.
None of the Agent or any of its respective directors, officers,
employees, agents, attorneys or Affiliates shall (a) be liable to any Bank for
any action taken or omitted to be taken by it or them hereunder, or in
connection herewith including pursuant to any Loan Document, unless caused by
its or its respective directors, officers, employees, agents, attorneys or
Affiliates own gross negligence or willful misconduct, (b) be responsible in any
manner to any of the Banks for the effectiveness, enforceability, genuineness,
validity or due execution of this Agreement or any other Loan Documents or for
any recital, representation, warranty, document, certificate, report or
statement herein or made or furnished under or in connection with this Agreement
or any other Loan Documents, or (c) be under any obligation to any of the Banks
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions hereof or thereof on the part of the Loan
Parties, or the financial condition of the Loan Parties, or the existence or
possible existence of any Event of Default or Potential Default. None of the
Agent or any Bank or any of their respective directors, officers, employees,
agents, attorneys or Affiliates shall be liable to any of the Loan Parties for
any consequential, special or indirect damages, losses or expenses (including
without limitation, counsel fees) resulting from any breach of contract, tort or
other wrong in connection with the negotiation, documentation, administration or
collection of the Loans or any of the Loan Documents.
9.7 Reimbursement and Indemnification by Banks of the Agent.
Each Bank agrees to reimburse and indemnify the Agent (to the extent
not reimbursed by the Borrower and without limiting the Obligation of the
Borrower to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in its capacity as such or
in its capacity of issuing Letters of Credit, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by the Agent hereunder or thereunder, provided that no Bank shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements (a) if the same
results from the Agent's gross negligence or willful misconduct, or (b) if such
Bank was not given notice of the subject claim and the opportunity to
participate in
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the defense thereof, at its expense (except that such Bank shall remain liable
to the extent such failure to give notice does not result in a loss to the
Bank), or (c) if the same results from a compromise and settlement agreement
entered into without the consent of such Bank, which shall not be unreasonably
withheld. In addition, each Bank agrees promptly upon demand to reimburse the
Agent (to the extent not reimbursed by the Borrower and without limiting the
Obligation of the Borrower to do so) in proportion to its Ratable Share for all
amounts due and payable by the Borrower to the Agent in connection with the
Agent's periodic audit of the Loan Parties' books, records and business
properties.
9.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing, telegram, telex
or teletype message, resolution, notice, consent, certificate, letter,
cablegram, statement, order or other document or conversation by telephone or
otherwise believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon the advice and opinions of
counsel and other professional advisers selected by the Agent. The Agent shall
be fully justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense (other than a liability or expense relating to gross
negligence or willful misconduct) which may be incurred by it by reason of
taking or continuing to take any such action.
9.9 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the Agent has
received written notice from a Bank or the Borrower referring to this Agreement,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default."
9.10 Notices.
The Agent shall promptly send to each Bank a copy of all notices and
other documents received from the Borrower pursuant to the provisions of this
Agreement or the other Loan Documents promptly upon receipt thereof. The Agent
shall promptly notify the Borrower and the other Banks of each change in the
Base Rate and the effective date thereof.
9.11 Banks in Their Individual Capacities.
With respect to the Commitments and the Loans made by it, the Agent
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the Agent, and the term "Banks" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates and each of the Banks and their
respective Affiliates may, without liability to account, except as prohibited
herein, make loans to, accept deposits from, discount drafts for, act as trustee
under indentures of, and generally engage in any kind of banking or trust
business with, the Loan Parties and their Affiliates, in the case of
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the Agent, as though it were not acting as Agent hereunder and in the case of
each Bank, as though such Bank were not a Bank hereunder.
9.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as the owner
thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
9.13 Equalization of Banks.
The Banks and the holders of any participations in any Notes agree
among themselves that, with respect to all amounts received by any Bank or any
such holder for application on any Obligation hereunder or under any Note or
under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Banks and such holders
in proportion to their interests in payments under the Notes, except as
otherwise provided in Sections 3.4.2 or 4.6.1. The Banks or any such holder
receiving any such amount shall purchase for cash from each of the other Banks
an interest in such Bank's Loans in such amount as shall result in a ratable
participation by the Banks and each such holder in the aggregate unpaid amount
under the Notes, provided that if all or any portion of such excess amount is
thereafter recovered from the Bank or the holder making such purchase, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, together with interest or other amounts, if any, required by law
(including court order) to be paid by the Bank or the holder making such
purchase.
9.14 Successor Agent.
The Agent (i) may resign as Agent or (ii) shall resign if such
resignation is requested by the Required Banks (if the Agent is a Bank, the
Agent's Loans and its Commitment shall be considered in determining whether the
Required Banks have requested such resignation), in either case of (i) or (ii)
by giving not less than thirty (30) days' prior written notice to the borrower.
if the Agent shall resign under this Agreement, then subject to the consent of
the Borrower (which consent shall not be unreasonably withheld and which consent
shall not be required during any period in which an Event of Default exists)
either (a) the Required Banks shall appoint from among the Banks a successor
agent for the Banks, or (b) if a successor agent shall not be so appointed and
approved within the thirty (30) day period following the Agent's notice to the
Banks of its resignation, then the Agent shall appoint a successor agent who
shall serve as Agent until such time as the Required Banks appoint a successor
agent. Upon its appointment, such successor agent shall succeed to the rights,
powers and duties of the Agent
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and the term "Agent" shall mean such successor effective upon its appointment,
and the former Agent's rights, powers and duties as Agent shall be terminated
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement. After the resignation of any Agent hereunder,
the provisions of this Article 9 shall inure to the benefit of such former
Agent and such former Agent shall not by reason of such resignation be deemed to
be released from liability for any actions taken or not taken by it while it was
an Agent under this Agreement.
9.15 Other Fees.
The Borrower shall pay to the Agent the administrative fees due
pursuant to that certain commitment letter dated July 11, 1996 and any other
fees due pursuant to that certain fee letter dated July 30, 1996 among the
Borrower and the Agent at the times set forth in such letters.
9.16 Availability of Funds.
Unless the Agent shall have been notified by a Bank prior to the date
upon which a Loan is to be made that such Bank does not intend to make available
to the Agent such Bank's portion of such Loan, the Agent may assume that such
Bank has made or will make such proceeds available to the Agent on such date and
the Agent may, in reliance upon such assumption (but shall not be required to),
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank, the Agent shall
be entitled to recover such amount on demand from such Bank (or, if such Bank
fails to pay such amount forthwith upon such demand from the Borrower) together
with interest thereon, in respect of each day during the period commencing on
the date such amount was made available to the Borrower and ending on the date
the Agent recovers such amount, at a rate per annum equal to the Federal Funds
Effective Rate.
9.17 Calculations.
In the absence of gross negligence or willful misconduct, the Agent
shall not be liable for any error in computing the amount payable to any Bank
whether in respect of the Loans, fees or any other amounts due to the Banks
under this Agreement. In the event an error in computing any amount payable to
any Bank is made, the Agent, the Borrower and each affected Bank shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
9.18 Beneficiaries.
Except as expressly provided herein, the provisions of this Article 9
are solely for the benefit of the Agent and the Banks, and the Loan Parties
shall not have any rights to rely on or enforce any of the provisions hereof.
In performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be
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deemed to have assumed any obligation toward or relationship of agency or trust
with or for any of the Loan Parties.
10. MISCELLANEOUS
10.1 Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the Agent, acting on
behalf of all the Banks, and the Borrower, on behalf of the Loan Parties, may
from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Loan Parties hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the Obligations of the
Loan Parties hereunder or thereunder; provided, however, that the written
consent of the Required Banks shall not be required with respect to the joinder
of additional Loan Parties pursuant to Section 10.18. Any such agreement,
waiver or consent made with such written consent shall be effective to bind all
the Banks and the Loan Parties; provided, that, without the written consent of
all the Banks, no such agreement, waiver or consent may be made which will:
10.1.1 Increase of Commitments; Extension or Expiration Date.
Increase the amount of the Commitment of any Bank hereunder or
extend the Expiration Date;
10.1.2 Extension of Payment; Reduction of Principal Interest or
Fees; Modification of Terms of Payment.
Whether or not any Loans are outstanding, extend the time for
payment of principal or interest of any Loan, the Commitment Fee or any other
fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, the Commitment Fee or any other fee payable to any Bank;
10.1.3 Release of Guarantor; Release of Security.
Release any Material Subsidiary from its Obligations under the
Master Guaranty Agreement, release any security of the Borrower or any
Subsidiary or any other security for any of the Loan Parties' Obligations except
for sales or dispositions of assets permitted by Section 7.2.7; or
10.1.4 Miscellaneous
Amend Sections 4.2 [Pro Rata Treatment of Banks], 9.6
[Exculpatory Provisions] or 9.13 [Equalization of Banks] or this Section 10.1,
alter any provision regarding the
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pro rata treatment of the Banks, change the definition of Required Banks, or
change any requirement providing for the Banks or the Required Banks to
authorize the taking of any action hereunder.
No agreement, waiver or consent which would modify the interests,
rights or obligations of the Agent in its capacity as Agent, or its capacity as
the issuer of Letters of Credit shall be effective without the written consent
of the Agent.
10.2 No Implied Waivers; Cumulative Remedies; Writing Required.
No course of dealing and no delay or failure of the Agent or any Bank
in exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Agent and the Banks under
this Agreement and any other Loan Documents are cumulative and not exclusive of
any rights or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of any Bank of any
breach or default under this Agreement or any such waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
10.3 Reimbursement and Indemnification of Banks by the Borrower;
Taxes.
The Borrower agrees unconditionally upon demand to pay or reimburse to
each Bank and to save each Bank harmless against (i) liability for the payment
of all reasonable out-of-pocket costs, expenses and disbursements (including
fees and expenses of counsel for each Bank except with respect to (A), (B) and
(C) below), incurred by such Bank (a) in connection with the administration and
interpretation of this Agreement, the other Loan Documents, and the other
instruments and documents to be delivered hereunder, (b) relating to any
amendments, waivers or consents pursuant to provisions hereof, (c) in connection
with the enforcement of this Agreement or any other Loan Document, or collection
of amounts due hereunder or thereunder or the proof and allowability of any
claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout,
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings; (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted by or
asserted against such Bank as a result of the use of the proceeds of the Loans,
including without limitation, as a result of a Change of Control; and (iii) all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or
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asserted against such Bank, in its capacity as such, in any way relating to or
arising out of this Agreement or any other Loan Documents or any action taken or
omitted by such Bank hereunder or thereunder, provided that the Borrower shall
not be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or (B)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrower
shall remain liable to the extent such failure to give notice does not result in
a loss to the Borrower), or (C) if the same results from a compromise or
settlement agreement entered into without the consent of the Borrower, which
shall not be unreasonably withheld. The Banks will attempt to minimize the fees
and expenses of legal counsel for the Banks which are subject to reimbursement
by the Borrower hereunder by considering the usage of one law firm to represent
the Banks and the Agent if appropriate under the circumstances. The Borrower
agrees unconditionally to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter determined by the Agent
or any Bank to be payable in connection with this Agreement or any other Loan
Document, and the Borrower agrees unconditionally to save the Agent and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.
10.4 Holidays.
Whenever any payment or action to be made or taken hereunder shall be
stated to be due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day (except as provided in
Section 3.2.1 with respect to Interest Periods under the Euro-Rate Option), and
such extension of time shall be included in computing interest or fees, if any,
in connection with such payment or action.
10.5 Funding by Branch, Subsidiary or Affiliate.
10.5.1 Notional Funding.
Each Bank shall have the right from time to time, without notice
to the Borrower, to deem any branch, Subsidiary or Affiliate (which for the
purposes of this Section 10.5 shall mean any corporation or association which is
directly or indirectly controlled by or is under direct or indirect common
control with any corporation or association which directly or indirectly
controls such Bank) of such Bank to have made, maintained or funded any Loan to
which the Euro-Rate Option applies at any time, provided that immediately
following (on the assumption that a payment were then due from the Borrower to
such other office), and as a result of such change, the Borrower would not be
under any greater financial obligation pursuant to Section 4.6 than it would
have been in the absence of such change. Notional funding offices may be
selected by each Bank without regard to such Bank's actual methods of making,
maintaining or funding the Loans or any sources of funding actually used by or
available to such Bank; and
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10.5.2 Actual Funding.
--------------
Each Bank shall have the right from time to time to make or maintain
any Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to make
or maintain such Loan subject to the last sentence of this Section 10.5.2. If
any Bank causes a branch, Subsidiary or Affiliate to make or maintain any part
of the Loans hereunder, all terms and conditions of this Agreement shall, except
where the context clearly requires otherwise, be applicable to such part of the
Loans to the same extent as if such Loans were made or maintained by such Bank,
but in no event shall any Bank's use of such a branch, Subsidiary or Affiliate
to make or maintain any part of the Loans hereunder cause such Bank or such
branch, Subsidiary or Affiliate to incur any cost or expenses payable by the
Borrower hereunder or require the Borrower to pay any other compensation to any
Bank (including any expenses incurred or payable pursuant to Section 4.6) which
would otherwise not be incurred.
10.5.3 Changes to Other Branches, Subsidiaries or Affiliates.
-----------------------------------------------------
If a Bank claims any additional amounts payable pursuant to Section
4.6 or that it is unable to make Loans to which a Euro-Rate Option applies, it
shall use its reasonable efforts (consistent with legal and regulatory
restrictions) to avoid the need for paying such additional amounts or such
inability, including changing the jurisdiction of its applicable lending office
or moving the Loan to a Subsidiary or Affiliate; provided, however, that the
taking of any such action would not, in the reasonable judgment of such Bank, be
disadvantageous to such Bank.
10.6 Notices.
-------
All notices, requests, demands, directions and other communications (as
used in this Section 10.6, collectively referred to as "notices") given to or
made upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under their respective names on the signature pages hereof or in accordance with
any subsequent unrevoked written direction from any party to the others. All
notices shall, except as otherwise expressly herein provided, be effective (a)
in the case of telex or facsimile, when received, (b) in the case of hand-
delivered notice, when hand-delivered, (c) in the case of telephone, when
telephoned, provided, however, that in order to be effective, telephonic notices
must be confirmed in writing no later than the next day by letter, facsimile or
telex, (d) if given by mail, four (4) days after such communication is deposited
in the mail with first-class postage prepaid, return receipt requested, and (e)
if given by any other means (including by air courier), when delivered;
provided, that notices to the Agent shall not be effective until received. Any
Bank giving any notice to any Loan Party shall simultaneously send a copy
thereof to the Agent, and the Agent shall promptly notify the other Banks of the
receipt by it of any such notice.
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10.7 Severability.
------------
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
10.8 Governing Law.
-------------
Each Letter of Credit and Section 2.9 shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, as the same may be revised or amended
from time to time, and to the extent not inconsistent therewith, the internal
laws of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles and the balance of this Agreement shall be deemed to be a contract
under the Laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
10.9 Prior Understanding.
-------------------
This Agreement and the other documents and instruments executed in
connection herewith supersede all prior understandings and agreements, whether
written or oral, between the parties hereto and thereto relating to the
transactions provided for herein and therein, including any prior
confidentiality agreements and commitments.
10.10 Duration; Survival.
------------------
All representations and warranties of the Loan Parties contained
herein or made in connection herewith shall survive the making of Loans and
issuance of Letters of Credit and shall not be waived by the execution and
delivery of this Agreement, any investigation by the Agent or the Banks, the
making of Loans, issuance of Letters of Credit, or payment in full of the Loans.
All covenants and agreements of the Loan Parties contained in Sections 7.1, 7.2
and 7.3 shall continue in full force and effect from and after the date hereof
so long as the Borrower may borrow or request Letters of Credit hereunder and
until termination of the Commitments, repayment of all Loans and expiration or
termination of all Letters of Credit. All covenants and agreements of the
Borrower contained herein relating to the payment of principal, interest,
premiums, additional compensation or expenses and indemnification, including
those set forth in the Notes, Article 4 and Sections 9.5, 9.7 and 10.3, shall
survive payment in full of the Loans, expiration or termination of the Letters
of Credit and termination of the Commitments.
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10.11 Successors and Assigns.
----------------------
This Agreement shall be binding upon and shall inure to the benefit of
the Banks, the Agent, the Loan Parties and their respective successors and
assigns, except that none of the Loan Parties may assign or transfer any of its
rights and Obligations hereunder or any interest herein without consent of all
Banks. Each Bank may, at its own cost, make assignments of all or any part of
its Commitment and Loans and its Ratable Share of Letter of Credit Outstandings
to one or more banks or other entities, subject to the consent of the Borrower
(which consent shall not be required during any period in which an Event of
Default exists), the Issuing Letter of Credit Banks and the Agent with respect
to any assignee, such consents not to be unreasonably withheld, and provided
that assignments may not be made in amounts less than $5,000,000. No Bank shall
grant participations in all or any part of its Commitments and the Loans made by
it and of its Ratable Share of Letter of Credit Outstandings, except that each
Bank may, without the consent of any party hereto, at its own cost, grant
participations in all or any part of its Commitments and the Loans made by it
and of its Ratable Share of Letter of Credit Outstandings to one or more
affiliated banks or entities. In the case of an assignment, upon receipt by the
Agent of the Assignment and Assumption Agreement, the assignee shall have, to
the extent of such assignment (unless otherwise provided therein), the same
rights, benefits and obligations as it would have if it had been a signatory
Bank hereunder, the Commitments in Section 2.1 shall be adjusted accordingly,
and upon surrender of any Notes subject to such assignment, the Borrower shall
execute and deliver new Notes to the assignee in an amount equal to the amount
of the Commitments assumed by it and new Notes to the assigning Bank in an
amount equal to the Commitments retained by it hereunder. Any assigning Bank
shall pay to the Agent a service fee in the amount of $3,500 for each
assignment, which amount shall not be subject to reimbursement or
indemnification by the Borrower. In the case of a participation, the participant
shall only have the rights specified in Section 8.2.3 (the participant's rights
against such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto and
not to include any voting rights), all of such Bank's obligations under this
Agreement or any other Loan Document shall remain unchanged, and all amounts
payable by any Loan Party hereunder or thereunder shall be determined as if such
Bank had not sold such participation. Any assignee or participant which is not
incorporated under the Laws of the United States of America or a state thereof
shall deliver to the Borrower and the Agent the form of certificate described in
Section 10.17 relating to federal income tax withholding. Each Bank may furnish
any publicly available information concerning any Loan Party or its Subsidiaries
and any other information concerning any Loan Party or its Subsidiaries in the
possession of such Bank from time to time to assignees and participants
(including prospective assignees or participants), provided that such assignees
and participants agree to be bound by the provisions of Section 10.12.
Notwithstanding any other language in this Agreement, any Bank may at any time
assign all or any portion of its rights under this Agreement and its Notes to a
Federal Reserve Bank as collateral in accordance with Regulation A and the
applicable Operating Circular of such Federal Reserve Bank.
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10.12 Confidentiality.
----------------
The Agent and the Banks each agree to keep confidential all
information obtained from any Loan Party or its Subsidiaries which is nonpublic
and confidential or proprietary in nature (including any information the
Borrower specifically designates as confidential), except as provided below, and
to use such information only in connection with their respective capacities
under this Agreement and for the purposes contemplated hereby. The Agent and the
Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement and who are notified that the information is to be treated as
confidential, (ii) to assignees and participants as contemplated by Section
10.11, (iii) to the extent requested by any bank regulatory authority or, with
notice to the Borrower if not prohibited, as otherwise required by applicable
Law or by any subpoena or similar legal process, or in connection with any
investigation or proceeding arising out of the transactions contemplated by this
Agreement, (iv) if it becomes publicly available other than as a result of a
breach of this Agreement or becomes available from a source not known to be
subject to confidentiality restrictions, (v) if the Borrower shall have
consented to such disclosure, or (vi) after notice to the Borrower unless the
Borrower is an adverse party in such litigation, in connection with any
litigation to which any Bank is a party the subject matter of which involves
this Agreement or is deemed necessary upon the advice of legal counsel of such
Bank by such Bank in any defense of such litigation.
10.13 Counterparts.
-------------
This Agreement may be executed by different parties hereto on any
number of separate counterparts, including facsimiles, each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
10.14 Agent's or Bank's Consent.
--------------------------
Whenever the Agent's or any Bank's consent is required to be obtained
under this Agreement or any of the other Loan Documents as a condition to any
action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole discretion and to
condition its consent upon the giving of additional collateral, the payment of
money or any other matter.
10.15 Exceptions.
-----------
The representations, warranties and covenants contained herein shall
be independent of each other, and no exception to any representation, warranty
or covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
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10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
---------------------------------------
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN
PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 10.6 AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES
ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR INCONVENIENT FORUM. EACH LOAN PARTY, THE AGENT AND THE
BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT
OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
10.17 Tax Withholding Clause.
-----------------------
Each Bank or assignee or participant of a Bank that is not
incorporated under the Laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Agent two (2) duly
completed copies of the following: (i) Internal Revenue Service Form W-9, 4224
or 1001, or other applicable form prescribed by the Internal Revenue Service,
certifying that such Bank, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes, or is subject to such tax
at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue
Service Form W-8 or other applicable form or a certificate of such Bank,
assignee or participant indicating that no such exemption or reduced rate is
allowable with respect to such payments. Each Bank, assignee or participant
required to deliver to the Borrower and the Agent a form or certificate pursuant
to the preceding sentence shall deliver such form or certificate as follows: (A)
each Bank which is a party hereto on the Closing Date shall deliver such form or
certificate at least five (5) Business Days prior to the first date on which any
interest or fees are payable by the Borrower hereunder for the account of such
Bank; (B) each assignee or participant shall deliver such form or certificate at
least five (5) Business Days before the effective date of such assignment or
participation (unless the Agent in its sole discretion shall permit such
assignee or participant to deliver such form or certificate less than five (5)
Business Days before such date in which case it shall be due on the date
specified by the Agent). Each Bank, assignee or participant which so delivers a
Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of the
Borrower and the Agent two (2) additional copies of such form (or a successor
form) on or before the date that such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form so
delivered by it,
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and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Agent, either certifying that such
Bank, assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents without deduction or withholding of any
United States federal income taxes or is subject to such tax at a reduced rate
under an applicable tax treaty or stating that no such exemption or reduced rate
is allowable. The Agent shall be entitled to withhold United States federal
income taxes at the full withholding rate unless the Bank, assignee or
participant establishes an exemption or that it is subject to a reduced rate as
established pursuant to the above provisions.
10.18 Joinder of Subsidiaries.
------------------------
Any Subsidiary of the Borrower which is required to join the Master
Guaranty Agreement pursuant to Section 7.2.9 shall execute and deliver to the
Agent a signature page to the Master Guaranty Agreement and to the Master
Intercompany Subordination Agreement. The Loan Parties shall deliver such
Guarantor Joinder and the other documents required by this Section 10.18 to the
Agent within five (5) Business Days after the date of the filing of such
Subsidiary's articles of incorporation if the Subsidiary is a corporation, the
date of the filing of its certificate of limited partnership if it is a limited
partnership or the date of its organization if it is an entity other than a
limited partnership or corporation or, if acquired, the date of acquisition. In
addition, each such Subsidiary shall execute and deliver to the Agent, for the
benefit of the Banks, such Security Agreements, Pledge Agreements, Mortgages and
Patent, Trademark and Copyright Security Agreements, together with such other
documents requested to create a Prior Security Interest in the assets of such
Subsidiary (other than Property) and a perfected Lien on the Property of such
Subsidiary. Each Person owning equity interests of a Domestic Subsidiary shall
have duly executed Pledge Agreements and taken all action necessary to create a
Prior Security Interest in and Lien upon all equity interests of such Domestic
Subsidiary, in each case in favor of the Agent for the benefit of the Banks. The
Borrower and each Domestic Subsidiary which directly owns equity interests in a
Foreign Subsidiary shall have duly executed a Pledge Agreement and taken all
action necessary to create a Prior Security Interest and Lien upon 65 percent of
the equity interests of such Foreign Subsidiary, in each case in favor of the
Agent for the benefit of the Banks. The Agent shall have received, for its
benefit and the benefit of the Banks opinions of the Loan Parties legal counsel
in form and substance satisfactory to the Agent together with such other
documents, certificates and agreements as the Agent may request to effectuate
the provisions of this Section 10.18.
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[SIGNATURE PAGE 1 OF 2 TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
BORROWER:
ATTEST: CUNO INCORPORATED.
By: /s/ Ronald C. Drabik
--------------------------
Title: CFO
----------------------
[Seal]
Address for Notices:
400 Research Parkway
Meriden CT 06450
Telecopier No. (203) 238-8912
Attention: Ronald C. Drabik
Telephone No. (203) 237-5541
<PAGE>
[SIGNATURE PAGE 2 OF 2 TO CREDIT AGREEMENT]
MELLON BANK, N.A., Individually as a
Bank and as Agent
By: /s/ Charles ????
-------------------------------
Title: First Vice President
----------------------------
Address for Notices:
Legal Documents:
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-001
Telecopier No. (412) 236-1914
Attention: Mark F. Johnston
Telephone No. (412) 234-7366
Administrative Notices:
Mellon Bank, N.A.
Loan Administration
Three Mellon Bank Center
Pittsburgh, PA 15259
Telecopier No. (412) 236-2027
Mellon's Wiring Instructions:
MELLON BANK
PITTSBURGH, PA
ABA #043000261
ATTN: LOAN ADMINISTRATION
CREDIT ACCOUNT #___________
REF: CUNO Incorporated
