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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended October 31, 1996
COMMISSION FILE NUMBER 000-21109
CUNO INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 06-1159240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Research Parkway, Meriden, Connecticut 06450
(Address of principal executive offices) (Zip Code)
(203) 237-5541
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 2, 1997, 13,820,718 common shares were outstanding, and the
aggregate market value of the common shares (based upon the last price on that
date) was approximately $210,766,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents of the Registrant listed below have been
incorporated by reference into the indicated parts of this Annual Report on Form
10-K.
Notice of Annual Meeting of Shareholders March 27, 1997 and Proxy
Statement filed January 21, 1997 . . Part III, Items 10-13
Part IV, Item 14
The exhibit index is located on page 53.
1
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Part I
Item 1. Business
(a) General development of business:
On July 11, 1996, Commercial Intertech Corp. ("Commercial Intertech")
initiated a plan to separate its Fluid Purification group subsidiaries and
divisions (the "Company" or "CUNO") from the rest of Commercial Intertech's
businesses in a tax-free transaction, subject to regulatory approval. The
following companies and divisions made up the Fluid Purification group companies
- - CUNO Incorporated, USA; 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 located in England,
Germany and Italy.
On July 29, 1996, Commercial Intertech declared a distribution of 100
percent of its interest in the Company which was effected by a distribution on
September 10, 1996 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. On that date, there were approximately
13,566,000 common shares of Commercial Intertech outstanding.
In conjunction with the reorganization, the Company assumed $30,000,000
of Commercial Intertech's debt which was paid in the form of a dividend. The
dividend was paid out of the proceeds from a credit facility entered into by the
Company shortly after the reorganization. In addition, the Company declared an
additional dividend of $35,675,000 payable to Commercial Intertech.
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.
2
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ITEM 1. (Continued)
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, before
adjusting for foreign currency fluctuations, increased from $143 million to $179
million, a 25 percent increase from fiscal year 1994 to fiscal year 1996.
(b) Financial information about industry segments:
The Company operates in one industry segment which is the design,
development, manufacture and sale of liquid and gas filtration products.
(c) Narrative description of business:
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.
3
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ITEM 1. (Continued)
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 customers 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 the production of bacteria-free water and food
and beverage products. Sales to the health care market totalled $47,912,000,
$39,938,000, and $32,654,000 in 1996, 1995 and 1994, respectively.
Fluid Processing
Major customers in the fluid processing market include chemical,
petrochemical and oil and gas processors, manufacturers of paints and resins,
producers of electronics and semiconductors, 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.
One of the fastest growing areas 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. Sales to the fluid processing market totalled $81,839,000, $77,528,000
and $69,606,000 in 1996, 1995 and 1994 respectively.
4
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ITEM 1. (Continued)
Potable Water
The potable water market 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. Sales to the potable water market totalled
$49,317,000, $45,233,000 and $40,851,000 in 1996, 1995 and 1994, respectively.
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 competed
solely on price. To gain a better understanding of specific markets and guide
new product development, the Company introduced Scientific Application Support
Services ("S.A.S.S."). S.A.S.S. 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.
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ITEM 1. (Continued)
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
S.A.S.S. 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.
Increased 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
chose the best filtration alternative. The Company's S.A.S.S. 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 initiated a 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.
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ITEM 1. (Continued)
Pursue Selective Acquisitions. The Company believes that the continuing
trend towards consolidation in certain portions of the filtration industry,
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.
Products
The Company manufactures a full range of products by offering its
customers solutions to a wide range of filtration requirements. Many of the
products manufactured by the 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, and pleated membrane media.
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.
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ITEM 1. (Continued)
The Company's products include those 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 fibers 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 include those sold under the
following labels: Zeta Plus(R), Betafine(R), MicroKlean(R), Beta-Klean(R),
Betapure(R), MicroWynd(R), and PetroFit(R).
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.
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ITEM 1. (Continued)
The Company's cleanable filters and system products include those 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 petrochemical industries. The Company designs and markets
housings to meet the local regulatory requirements in most countries.
Backlog
The Company's backlog on October 31, 1996 was $15.3 million as compared
to $14.2 million the previous year. Due to the relatively short manufacturing
cycle and to the Company's use of wholesale distributors, as well as general
industry practice, backlog which typically represents approximately 30 days of
shipments is not deemed to be significant. A substantial portion of the
Company's revenues result from orders booked and billed in the same month.
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ITEM 1. (Continued)
Competition
The markets in which the Company competes are highly competitive. The
Company competes with many domestic and international filtration companies in
its global markets including some which are larger and which possess greater
resources. 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, some of which 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.
Research and Development and Product Development
The Company's research and development and engineering activities are
conducted in its own laboratories, supplemented by on-site development and
application of custom design and other technical skills. 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 1996, 1995, and 1994 were approximately $9.9 million, $8.3
million and $7.8 million, respectively, and 5.5 percent, 5.1 percent, and 5.4
percent 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. The Company
has begun to outsource some portfolios of its manufacturing processes, such as
certain segments of 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.
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ITEM 1. (Continued)
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.
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
distributors share market and customer related information other than pricing,
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 a significant adverse effect on the Company. The
Company's top ten distributors accounted for approximately 25 percent of its
total sales in fiscal year 1996.
The Company believes that no end-user of any of its products accounts
for more than 5 percent of sales. As of October 31, 1996, the Company employed
over 250 people as sales people. Of such employees, 155 are located overseas.
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ITEM 1. (Continued)
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 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.
The Company protects its intellectual property and believes there is
significant value associated with it. However, the Company believes that the
loss of one or more of its trademarks and patents would not have a material
adverse effect, as it is not heavily dependent on any one or few and is
continually expanding its intellectual estate through new additions.
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
handling of specified substances and 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 products.
Additionally, the Company maintains Drug Master File ("DMF") files on certain
products sold into the health care market.
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ITEM 1. (Continued)
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 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.
Environmental Matters
Compliance with foreign, federal, state and local laws and regulations
enacted to regulate the handling of and the discharge of specified materials
into the environment has not had, and is not expected to have, a material effect
upon the Company's business.
Employees
At October 31, 1996, the Company employed over 1,300 people worldwide
(exclusive of employees of independent distributors), with over 700 employees in
the United States and over 600 employees in other countries.
(d) Financial information about foreign and domestic
operations and export sales.
See Note J to the financial statements on page 44 of this document.
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ITEM 2. 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
<FN>
* 40 percent of this facility is sublet to an unrelated
third party.
</TABLE>
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.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof there is no pending litigation of a material
nature, other than ordinary routine litigation incidental to the business, to
which the Company or any of its subsidiaries is a party or which may affect the
income from, title, to, or possession of, any of their respective properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Registrant is presented
in Part III below and incorporated here by reference.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the NASDAQ market under the
symbol CUNO. The following table shows the high and low closing price on NASDAQ
for a share of the Company's common stock since the inception of trading:
<TABLE>
<CAPTION>
1996
------------
High Low
---- ---
<S> <C> <C>
Fourth Quarter *........................ $ 16 $ 14 1/2
<FN>
* Market price information includes the period September 10, 1996 (the
distribution date of CUNO shares) through the quarter ended October 31,
1996.
</TABLE>
As of October 31, 1996, there were 3,605 holders of record of the Company's
common stock.
The Company has not paid any dividends on its common stock since its
inception and does not intend to pay any dividends for the foreseeable future.
The Company is also prohibited from declaring any dividends on its capital stock
through October 31, 1998 in accordance with its senior unsecured revolving
credit facility.
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ITEM 6. SELECTED FINANCIAL DATA
CUNO INCORPORATED AND SUBSIDIARIES
SUMMARY OF FINANCIAL DATA, 1991 - 1996 (1)
(in thousands, except per-share data and ratios)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
--------------------------------------------------------
INCOME DATA
<S> <C> <C> <C> <C> <C> <C>
Net sales..................$179,068 $162,699 $143,111 $130,771 $128,195 $131,019
Gross profit............... 74,220 62,927 50,604 40,605 38,383 44,337
Distribution and other
nonrecurring costs (2).. 5,564 -- -- -- -- --
Interest expense........... 820 691 706 281 1,638 1,353
Income (loss) before
income taxes............ 11,011 9,563 2,043 (2,549) (4,814) 4,065
Net income (loss).......... 5,593 6,101 1,807 (701) (4,300) 1,209
Earnings per share:
Net income (loss)....... 0.41 0.45 0.13 (0.05) (0.32) 0.09
OTHER FINANCIAL DATA
Total assets...............$138,756 $162,827 $153,071 $145,952 $151,135 $153,524
Current assets............. 68,154 88,928 77,710 67,805 68,914 71,980
Less current liabilities... 56,597 39,754 35,483 31,264 33,130 30,077
Net working capital..... 11,557 49,174 42,227 36,541 35,784 41,903
Net plant investment....... 48,201 47,931 48,332 49,555 51,563 49,072
Gross capital expenditures. 6,472 5,728 3,816 3,241 6,729 8,554
Long-term debt............. 33,772 4,060 5,175 5,580 4,418 6,450
Shareholders' equity....... 43,148 112,189 106,466 103,743 107,314 111,910
Shareholders' equity per
share................... 3.13 8.27 7.85 7.65 7.91 8.25
Average number of shares
outstanding during
the year................ 13,566 13,566 13,566 13,566 13,566 13,566
RATIOS
Gross profit to net sales.. 41.4% 38.7% 35.4% 31.1% 29.9% 33.8%
Net income to net sales.... 3.1% 3.7% 1.3% (0.5)% (3.4)% 0.9%
Effective income tax rates. 49.2% 36.2% 11.6% 72.5% (10.7)% 70.3%
Net income to average
shareholders' equity.... 7.2% 5.6% 1.7% (0.7)% (3.9)% 1.1%
Ratio of current assets to
current liabilities..... 1.20:1 2.24:1 2.19:1 2.17:1 2.08.1 2.39.1
Ratio of long-term debt to
shareholders' equity
plus long-term debt..... 43.9% 3.5% 4.6% 5.1% 4.0% 5.4%
<FN>
(1) In the Summary of Financial Data above, it was assumed that the common
shares issued in conjunction with the reorganization were outstanding
for all periods presented. However, the Company's allocation of debt and
payment of dividends to Commercial Intertech, which resulted from the
reorganization and as more fully described in the footnotes to the
financial statements, are reflected in the 1996 amounts only.
(2) Included in 1996 operating income and net income were distribution and
other nonrecurring costs to the Company associated with the recent
reorganization. These expenses totaled $4,858 (net of income taxes of
$706).
</TABLE>
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 1996-1994
On July 29, 1996, Commercial Intertech Corp. (Commercial Intertech) of
Youngstown, Ohio announced that its Board of Directors declared a dividend to
its common shareholders of 100 percent of the common stock of CUNO Incorporated
of Meriden, Connecticut, its wholly-owned fluid purification business ("CUNO" or
the "Company"). The new CUNO shares were distributed on September 10, 1996 on
the basis of one common share of CUNO for each Commercial Intertech common share
outstanding, payable to holders of record as of the close of business on August
9, 1996 (the "Distribution" or "Spin-off"). The accompanying consolidated
financial statements present the financial condition and the results of
operations of the Company and its subsidiaries as if the Company were a
stand-alone corporation during the periods shown.
RESULTS OF OPERATIONS 1996 AS COMPARED TO 1995
Sales of $179.1 million in 1996 were an all time record for the Company
and were 12.6 percent greater than those recorded in 1995, after adjusting for
the effects of foreign exchange fluctuations on foreign sales reported in U.S.
dollars. CUNO's U.S. and foreign operations reported record sales in 1996,
surpassing in total 1995's record performance of $162.7 million. The effects of
foreign currency fluctuations decreased sales in 1996 by $4.0 million as
compared to 1995.
CUNO's U.S. operations posted a sales gain of $11.5 million in 1996,
15.4 percent over 1995 results. The sharp increase in U.S. sales was generated
primarily by new product introductions in both the health care and fluid
processing markets, which included the sale of proprietary nylon membrane
products. Sales of these high margin membrane products increased more than 100
percent in the U.S. in 1996. Additionally, improving general economic conditions
combined with the new sales programs to increase the sale of core products. The
sale of both new products and existing products also benefited from management
initiatives that place more focus on in-field customer service and improved
solution support. Much of this new customer support, especially in the health
care and fluid processing markets, has been provided through the Scientific
Application Support Service (S.A.S.S.) staff, a function organized in 1995. The
Company continued to increase the S.A.S.S. staff in 1996. Engineering employment
in the Company, including S.A.S.S. positions, has increased 28 percent since the
beginning of 1994.
17
<PAGE> 18
ITEM 7. (Continued)
U.S. sales into the potable water market increased 7.6 percent overall
in 1996, with certain market segments up sharply. Sales to the food service
market, which includes restaurants and institutions, increased at a double digit
rate in 1996 due to new products as well as successful collaborative projects
with key customers. The sale of reverse osmosis products sharply improved in
1996 due to the creation of a dedicated sales force for the product line and the
success of new product sales to customers both in the U.S. and offshore.
Sales from overseas operations increased $4.9 million in 1996 which,
after adjusting for currency differences, represents a 10.1 percent increase.
Sales improved in all international operations in 1996 when compared in local
currencies. Europe sales improved by 11 percent after adjusting for currency
differences, boosted by new product introductions and further penetration of the
eastern European market. Japan's sales, when adjusted for the changes in the
value of the Yen, increased 8.4 percent, but in U.S. dollar terms were $1.7
million less. Sales in other international regions grew by $3.8 million overall
in 1996, or 10.8 percent when adjusted for exchange rates. A portion of the
growth in these other regions was due to product line extensions launched over
the past two years as well as to the introduction of S.A.S.S. into these markets
during 1995.
Gross profit for the Company increased $11.3 million over 1995, with
$6.3 million of the 1996 change due to higher sales volume. A gross margin
improvement of 2.7 percentage points, from 38.7 percent in 1995 to 41.4 percent
in 1996, resulted in the balance of the increase. The enhanced percentage in
1996 was the result of the sale of higher margin new products, improved
operating efficiencies in the U.S. and Europe, and the extension of certain
product lines into the Brazilian market. The 1996 improvement continued a trend
begun in 1993. Also, during 1996 a portion of the intangible assets carried by
the Company became fully amortized, reducing amortization by $0.9 million.
Selling, general, and administrative expenses, net of distribution and
other nonrecurring costs, were $4.7 million higher in 1996 than 1995, a 9.0
percent increase, but 1.1 percentage points lower than the growth in revenue.
Although all operations reported increased expenses in 1996, no one segment of
the business increased proportionally more than the other segments. Generally,
the growth in selling, general, and administrative expenses stemmed from a
balanced program of: personnel recruitment in the sales and engineering
functions of the Company; increased sales training for both Company and
distributor personnel; and, improved sales and marketing promotional support.
18
<PAGE> 19
ITEM 7. (Continued)
Included in the 1996 selling, general and administrative expenses are
charges for services provided to the Company by its former parent, Commercial
Intertech. Similar services were provided in 1995 and 1994. Under an agreement
signed prior to the Distribution, Commercial Intertech will continue to provide
services in 1997 as part of the transition of CUNO to complete standalone
status. These expenses will be assigned to CUNO on a basis consistent with prior
years, but are expected to be less than prior years. These services are not
expected to continue beyond 1997.
As a result of the above, operating income of $11.9 million for 1996
also set a record.
RESULTS OF OPERATIONS 1995 AS COMPARED TO 1994
Sales increased $19.6 million in 1995, with currency fluctuations
favorably impacting results by $7.3 million. At comparable currency exchange
rates sales increased 8.7 percent, 5.0 percentage points less than growth in
reported dollars. Exchange rate fluctuations primarily benefited Japan and
Europe. All operations recorded increased sales in 1995, which resulted in a
record year for overall revenues.
Sales for CUNO's U.S. operations were $2.9 million higher in 1995 as
compared to 1994. General economic conditions as well as strength in the
electronics segment of the Company's fluid processing market supported much of
the growth in 1995. Additionally, management initiatives such as a market
focused sales organization, the creation of the S.A.S.S. teams to support
customers in certain markets, and closer interaction with distributors, all
begun during the last half of 1994, began to favorably affect the business
during the last six months of 1995.
CUNO's international operations recorded record sales in 1995 of $87.8
million, or $16.7 million better than 1994, with $7.3 million of the improvement
from currency fluctuations. After adjusting for currency movements, sales
increased 13.0 percent. All of the geographic regions reported improvements in
1995, and each set a record when sales were expressed in local currencies. Sales
in Europe increased $6.0 million or 13.6 percent in 1995 after currency
adjustments, with much of the gain attributable to the health care market.
19
<PAGE> 20
ITEM 7. (Continued)
The Company's gross profit of $62.9 million in 1995 increased $12.3
million from 1994 with $5.4 million of the improvement attributable to margin
increase from 35.4 percent in 1994 to 38.7 percent in 1995. Much of the
improvement was realized in the U.S. and was due to the manufacture of products
sold into the potable water market as well as the divestment of a poor
performing operation servicing the fluid processing market. Additionally, new
management in the European manufacturing operation sharply improved efficiencies
in 1995.
Selling, general, and administrative expenses increased $6.5 million or
14.2 percent. Much of the increase in these expenses in 1995 related to the
costs associated with enlarging the sales staff worldwide. From the end of 1994
to the end of 1995, the number of sales personnel in the company increased by
19.0 percent. However, income from the growth in revenue of 13.7 percent coupled
with improvement in the gross profit margin of 3.3 percentage points offset the
increase.
Due to the above, operating income of $10.8 million set a record in
1995.
OTHER MATTERS
DISTRIBUTION AND OTHER NONRECURRING COSTS. The Company recorded $5.6
million in distribution and other nonrecurring costs during 1996 ($4.9 after tax
or $.36 per share), of which $3.5 million related directly to the tax free
spin-off of CUNO; $1.6 million were associated with establishing the Company as
a stand-alone entity; and, $0.5 million related to the improvement of certain
foreign distribution channels in conjunction with stand-alone activities.
Certain of these costs are not tax deductible.
INFLATION EFFECTS ON OPERATIONS. Inflation had a negligible effect on
the Company's operations during 1996. Rates of inflation in Europe and North
America were in the 2 to 4 percent range. In Japan, inflation was near zero,
while in other parts of Asia inflation ranged from 3 to 6 percent. In Brazil,
where the Company has manufacturing and marketing operations, inflation slowed
dramatically in 1996 to 11.8 percent from 23.8 percent in 1995, reflecting
continued success of the government initiated Real Plan launched in the summer
of 1994. The Company estimates that inflationary effects, in aggregate, were
generally recovered or offset through increased pricing or cost reductions in
both 1996 and 1995.
20
<PAGE> 21
ITEM 7. (Continued)
NONOPERATING ACTIVITY. Nonoperating activity improved $0.4 million in
1996 and $1.7 million in 1995. 1996 was favorably impacted by a $0.3 million
reduction in exchange losses and $0.1 million gain on the sale of idle assets.
In 1995 exchange losses were $0.5 million better than 1994. Additionally, a $1.1
million loss on the sale of assets was recorded in 1994 as the Company disposed
of an under-performing product line.
TAXES. CUNO's 1996 effective tax rate was 49 percent, primarily due to
the nondeductibility of certain distribution expenses related to the spin-off of
CUNO which increased the rate 12 percentage points. The adjusted 1996 tax rate
is comparable to the 1995 effective rate of 36 percent. The 1994 calculated
effective tax rate of 12 percent was reduced by the reversal of SFAS No. 109 tax
valuation adjustments associated with certain foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company generated cash from normal operating
activities of $11.7 million, with a total amount generated of $36.7 million.
$25.0 million of this total related to the net decrease in the receivable from
Commercial Intertech. The decrease resulted from obligations paid by Commercial
Intertech on behalf of CUNO related to CUNO's spin-off and for services provided
by Commercial Intertech, net of CUNO's positive cash flows generated to its then
parent.
Driven by the increased level of operations, both accounts receivable
and accounts payable increased, by a net of $2.6 million in 1996 and a net of
$2.4 million in 1995. Due to a focused program to improve inventory management,
inventories declined by $3.2 million in 1996, increased $0.6 million in 1995,
and declined $1.3 million in 1994.
During 1996, the Company entered into an interim agreement for a $55.0
million bridge loan to provide funding for $30.0 million in debt assumed from
Commercial Intertech at the time of the spin-off, and to support operating
requirements. On October 31, 1996, the bridge loan was replaced with a 5 year
senior unsecured credit facility of $60.0 million. CUNO pays variable interest
rates under the facility based upon prime interest or LIBOR rates, plus an
applicable margin. In November 1996, the credit facility was fully syndicated
which allows CUNO to borrow at more favorable interest rates (5.97% at November
30, 1996). Under the terms of the senior credit facility, the Company is
prohibited from declaring dividends during fiscal 1997 and 1998.
Capital expenditures were $6.3 million in 1996, $5.2 million in 1995
and $2.9 million in 1994. Budgeted 1997 capital spending is $10.5 million. Cash
from operations and current lines of credit are considered adequate to provide
the necessary funding.
21
<PAGE> 22
ITEM 7. (Continued)
BUSINESS OUTLOOK
Sales orders in the fourth quarter of 1996 in South America and Europe
were impacted by generally weak economic conditions in the regions, rather than
specific market conditions. Macroeconomics are forecasted to strengthen somewhat
in both of these regions during the first quarter of 1997 and steadily improve,
although slowly, throughout 1997. In the U.S. and Asia economic conditions have
remained nearly constant throughout 1996. Economic forecasts indicate that
growth in the U.S. is expected to remain steady but slow during the year. In
Asia, growth in the electronics market slowed in 1996 but is expected to improve
slightly in 1997. While Japan and Australian economies are somewhat uncertain,
overall, the Company expects results in the Asian region to be generally
favorable again in 1997 as penetration of fluid processing markets such as oil
and gas refining and chemical processing continues.
The Company is committed to continuing its present strategy which has
proven successful to date. This strategy includes increasing the number and
frequency of new product introductions into all three of the company's major
markets, implementing additional customer focused programs in both marketing and
sales, and expanding use of the S.A.S.S support function. The Company expects to
continue its program of capital investment begun in 1996 with $10.5 million
budgeted for 1997. Much of this spending will be focused on expanding capacity
and productivity in membrane manufacturing and to improve processes, production
practices, and systems in other parts of the Company. Cash provided by
operations and standing lines of credit are expected to be adequate to fund the
Company's growth.
22
<PAGE> 23
ITEM 7. (Continued)
FORWARD LOOKING INFORMATION
Because CUNO wants to provide shareholders with more meaningful and
useful information, this Annual Report contains certain statements which reflect
the Company's current expectations regarding the future results of operations,
performance and achievements of the Company. CUNO has tried, wherever possible,
to identify these "forward looking" statements by using words such as
"anticipate," "believe," "estimate," "expect" and similar expressions. These
statements reflect the Company's current beliefs and are based on information
currently available to it. Accordingly, these statements are subject to risks
and uncertainties which could cause the Company's actual results, performance or
achievements to differ materially from those expressed in, or implied by these
statements. These risks and uncertainties include the following: absence of
history as a stand-alone company; volumes of shipments of the Company's
products, changes in the Company's product mix and product pricing; costs of raw
materials; the rate of economic and industry growth in the United States and the
other countries in which the Company conducts its business; economic and
political conditions in the foreign countries in which the Company conducts a
substantial part of its operations and other risks associated with international
operations including taxation policies, exchange rate fluctuations and the risk
of expropriation; the Company's ability to protect its technology, proprietary
products and manufacturing techniques; changes in technology, changes in
legislative, regulatory or industrial requirements and risks generally
associated with new product introductions and applications; and domestic and
international competition in the Company's global markets. The Company is not
obligated to update or revise these "forward looking" statements to reflect new
events or circumstances.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended October 31,
1996 1995 1994
-------- -------- ------
(in thousands, except
per share and common share data)
<S> <C> <C> <C>
Net sales............................. $179,068 $162,699 $143,111
Less costs and expenses:
Cost of products sold.............. 104,848 99,772 92,507
Selling, general and administrative
expenses......................... 56,750 52,087 45,626
Distribution and other
nonrecurring costs............... 5,564 -- --
--------- --------- ---------
167,162 151,859 138,133
--------- --------- ---------
Operating income...................... 11,906 10,840 4,978
Nonoperating income (expense):
Interest income.................... 156 145 88
Interest expense................... (820) (691) (706)
Exchange losses.................... (171) (449) (933)
Gain (loss) on sale of assets...... 121 -- (1,053)
Other.............................. (181) (282) (331)
--------- --------- ---------
(895) (1,277) (2,935)
--------- --------- ---------
Income before income taxes............ 11,011 9,563 2,043
Provision for income taxes:
Current............................ 5,293 4,697 1,491
Deferred........................... 125 (1,235) (1,255)
--------- --------- ---------
5,418 3,462 236
--------- --------- ---------
Net income............................ $ 5,593 $ 6,101 $ 1,807
========= ========= =========
Earnings per common share............. $ 0.41 $ 0.45 $ 0.13
Weighted average common shares
outstanding........................ 13,565,922 13,565,922 13,565,922
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
ITEM 8. (Continued)
CUNO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
1996 1995
--------------------
(in thousands)
<S> <C> <C>
Assets
CURRENT ASSETS
Cash and cash equivalents........................ $ 5,244 $ 6,740
Accounts and notes receivable (less
allowances of $1,133 and $1,136, respectively). 36,944 33,381
Inventories...................................... 19,149 21,763
Deferred income taxes............................ 5,333 5,766
Prepaid expenses and other current assets........ 1,484 2,511
Receivables from related party................... -- 18,767
--------- --------
Total current assets................... 68,154 88,928
NONCURRENT ASSETS
Intangible assets................................ 19,695 21,663
Pension assets................................... 1,174 3,264
Other noncurrent assets.......................... 1,532 1,041
--------- --------
Total noncurrent assets................ 22,401 25,968
PROPERTY, PLANT AND EQUIPMENT, NET.................. 48,201 47,931
--------- --------
Total assets....................... $138,756 $162,827
========= ========
</TABLE>
25
<PAGE> 26
ITEM 8. (Continued)
CUNO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
1996 1995
-------------------
(in thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Bank loans...................................... $ 10,690 $ 10,440
Accounts payable................................ 12,719 10,780
Accrued payroll and related taxes............... 9,084 8,446
Accrued other expenses.......................... 6,986 6,105
Accrued income taxes............................ 1,360 2,947
Current portion of long-term debt............... 962 1,036
Dividends payable to related party.............. 4,612 --
Payable to related party........................ 10,184 --
--------- ---------
Total current liabilities.......... 56,597 39,754
NONCURRENT LIABILITIES
Long-term debt.................................. 33,772 4,060
Deferred income taxes........................... 3,670 4,067
Retirement benefits............................. 1,569 2,757
--------- ---------
Total noncurrent liabilities....... 39,011 10,884
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 2,000,000
shares authorized, no shares issued
and outstanding............................... -- --
Common stock, $.001 par value;
Authorized: 50,000,000 shares
Issued: 1996 - 13,774,568 shares
(excluding 6,854 in treasury)
1995 - 13,565,922 shares ........... 14 14
Additional paid-in-capital...................... 6,736 3,391
Retained earnings............................... 33,636 102,245
Unearned compensation........................... (3,448) --
Minimum pension liability adjustment............ (811) --
Translation adjustments......................... 7,021 6,539
--------- ---------
Total shareholders' equity......... 43,148 112,189
--------- ---------
Total liabilities and shareholders' equity $138,756 $162,827
========= =========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
ITEM 8. (Continued)
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended October 31, 1996 1995 1994
-----------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
COMMON STOCK
Balance at end of year........... $ 14 $ 14 $ 14
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year..... 3,391 3,391 3,391
Performance shares issued........ 3,448 -- --
Shares repurchased............... (103) -- --
--------- --------- --------
Balance at end of year........... 6,736 3,391 3,391
RETAINED EARNINGS
Balance at beginning of year..... 102,245 97,284 97,507
Net income for the year.......... 5,593 6,101 1,807
Less:
Dividends to Commercial
Intertech................... 36,943 -- 1,958
Transfer of Commercial
Intertech debt.............. 30,000 -- --
Divisional equity retained by
Commercial Intertech........ 7,259 1,140 72
--------- --------- --------
Balance at end of year........... 33,636 102,245 97,284
UNEARNED COMPENSATION
Balance at beginning of year..... -- -- --
Performance shares issued........ (3,448) -- --
--------- --------- --------
Balance at end of year........... (3,448) -- --
MINIMUM PENSION LIABILITY
Balance at beginning of year..... -- -- --
Other............................ (811) -- --
--------- --------- --------
Balance at end of year........... (811) -- --
TRANSLATION ADJUSTMENTS
Balance at beginning of year..... 6,539 5,777 2,831
Net change for year.............. 482 762 2,946
--------- --------- --------
Balance at end of year........... 7,021 6,539 5,777
Total Shareholders' Equity.. $ 43,148 $112,189 $106,466
========= ========= ========
Shareholders' equity per share of
common stock.................... $3.13 $8.27 $7.85
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
ITEM 8. (Continued)
CUNO INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
1996 1995 1994
-------------------------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 5,593 $ 6,101 $ 1,807
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization. . 7,475 7,929 8,154
Loss on sale of fixed assets . . . . . . . . . -- -- 1,053
Pension plan credits . . . . . . . . . . . . . 692 1,019 676
Change in deferred income taxes. . . . . . . . (239) (1,222) (1,143)
Changes in current assets and liabilities:
(Increase) in accounts receivable . . . . . (5,050) (3,839) (756)
Decrease (increase) in inventories. . . . . 3,224 (636) 1,301
Decrease (increase) in prepaid expenses
and other current assets . . . . . . . . 838 (292) 166
Decrease (increase) in receivable from
affiliate. . . . . . . . . . . . . . . . 24,964 (3,128) (4,814)
Increase in accounts payable and accrued
expenses . . . . . . . . . . . . . . . . 2,425 1,477 1,323
(Decrease) increase in accrued income
taxes. . . . . . . . . . . . . . . . . . (3,236) 335 229
--------- --------- ---------
Net cash provided by operating activities. . . . . . 36,686 7,744 7,996
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets . . . . . . . . . 43 113 109
Investment in intangibles. . . . . . . . . . . . . . -- (343) (207)
Capital expenditures . . . . . . . . . . . . . . . . (6,325) (5,234) (2,927)
--------- --------- ---------
Net cash (used) by investing activities. . . . . . . (6,282) (5,464) (3,025)
FINANCING ACTIVITIES:
Proceeds from long-term debt . . . . . . . . . . . . 61,000 4,012 --
Principal payments on long-term debt . . . . . . . . (30,987) (4,900) (882)
Net borrowings under bank loan agreements. . . . . . 1,311 880 (104)
Conversion of other assets . . . . . . . . . . . . . (701) 1 32
Dividends paid to Commercial Intertech . . . . . . . (62,331) -- (1,958)
--------- --------- ---------
Net cash (used) by financing activities . . . . (31,708) (7) (2,912)
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . . (192) 59 396
--------- --------- ---------
Net (decrease)increase in cash and cash equivalents . . (1,496) 2,332 2,455
Cash and cash equivalents at beginning of year. . . . . 6,740 4,408 1,953
--------- --------- ---------
Cash and cash equivalents at end of year. . . . . . . . $ 5,244 $ 6,740 $ 4,408
========= ========= =========
Supplemental disclosures:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 694 $ 716 $ 703
Income taxes . . . . . . . . . . . . . . . . . . . . 9,732 4,338 1,149
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
ITEM 8. (Continued)
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES
Organization:
On July 11, 1996, Commercial Intertech Corp. ("Commercial Intertech")
initiated a plan to separate its Fluid Purification group subsidiaries and
divisions (the "Company" or "CUNO") from the rest of Commercial Intertech's
businesses in a tax-free transaction, subject to regulatory approval. The
following companies and divisions made up the Fluid Purification Group companies
- - CUNO Incorporated, USA; 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 located in England,
Germany and Italy.
On July 29, 1996, Commercial Intertech declared a distribution of 100
percent of its interest in the Company to be effected by a distribution on
September 10, 1996 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. On that date, there were approximately
13,566,000 common shares of Commercial Intertech outstanding.
As part of the distribution, the Company's 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 were issued with the distribution (see Note D).
In conjunction with the reorganization, the Company assumed $30,000,000
of Commercial Intertech's debt which was paid in the form of a dividend. The
dividend was paid out of the proceeds from a credit facility entered into by the
Company shortly after the reorganization (see Note C). In addition, the Company
declared an additional dividend of $35,675,000 payable to Commercial Intertech.
Of this amount, $4,612,000 remains payable at October 31, 1996. In addition,
CUNO Pacific Pty. Ltd. declared and paid a $1,268,000 dividend in February 1996.
29
<PAGE> 30
ITEM 8. (Continued)
The accounts of the Company represent the consolidation 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 comprise the Company has been 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 has been retroactively restated as if
the reorganization had occurred at the beginning of the earliest period
presented. The accompanying consolidated financial statements represent the
financial condition of the Company and the results of operations as if the
Company was a stand-alone corporation during the years shown. References to
subsidiaries include those companies and divisions which have been organized
under the consolidated Company. All significant transactions between the Company
and its subsidiaries have been eliminated.
The Company and Commercial Intertech have entered 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 have entered 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.
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 spends providing services to the Company.
Management believes that this allocation method provides the Company with a
reasonable amount of such expenses.
Consolidation:
The accounts of the Company and all of its subsidiaries are included in
the consolidated financial statements. All significant intercompany accounts and
transactions are eliminated in consolidation.
30
<PAGE> 31
ITEM 8. (Continued)
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 48 percent (49 percent in 1995) of worldwide inventories are
accounted for using the LIFO method. Inventories as of October 31 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Raw materials................. $ 2,817 $ 3,063
Work in process............... 6,503 6,784
Finished goods................ 9,829 11,916
-------- --------
$19,149 $21,763
======== ========
</TABLE>
If all inventories were priced using the FIFO method, which
approximates replacement cost, inventories would have been $2,296,000 higher in
1996 and $2,220,000 higher in 1995.
INTANGIBLES:
Intangible assets at October 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Goodwill, less accumulated amortization
(1996 - $5,519,000; 1995 - $4,944,000)...$16,164 $16,739
Other intangibles, less accumulated
amortization (1996 -$21,833,000;
1995 - $20,440,000)...................... 3,531 4,924
-------- --------
$19,695 $21,663
======== ========
</TABLE>
Goodwill, which is the excess of cost over the fair value of net assets
acquired, generally is amortized on a straight-line basis over 40 years.
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.
31
<PAGE> 32
ITEM 8. (Continued)
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.
Impairment of Long-Lived Assets:
In the event that facts and circumstances indicate that the carrying
value of intangibles and long-lived assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down is
required.
Income Taxes:
The Company uses the liability method 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 consolidated financial statements. 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 $3,000,000 at October 31, 1996, is
deemed to be indefinitely reinvested and, accordingly, no provision for US
federal and state income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both US income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of any unrecognized deferred US tax liability is not
practicable because of the complexities associated with its hypothetical
calculation.
32
<PAGE> 33
ITEM 8. (Continued)
Translation of Foreign Currencies:
The financial statements of foreign entities are translated in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
except for those entities located in highly inflationary countries. 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 US
dollars at the current exchange rate. Resulting translation adjustments are
recorded as a separate component of shareholders' 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, 1996 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,
general and administrative expenses". Advertising expenses were $3,124,000,
$2,906,000 and $2,738,000 for 1996, 1995 and 1994, respectively.
Distribution and Other Nonrecurring Costs:
Distribution and other nonrecurring costs represent incremental costs
to the Company associated with the recent reorganization. Such costs are
primarily comprised of professional service fees and costs associated with
combining operations under a unified management.
Earnings Per Share:
All share and per-share information has been retroactively restated to
reflect the distribution in a manner similar to a stock split. In determining
the weighted average number of common shares outstanding, it was assumed that
the shares issued in conjunction with the reorganization were outstanding during
each year presented. Fully diluted earnings per share is not presented as the
effect of other common stock equivalents on the 1996 earnings per share
calculation was not material.
33
<PAGE> 34
ITEM 8. (Continued)
Uses of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Newly Issued Accounting Standards:
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation" was issued. This standard establishes a fair value method of
accounting for or disclosing stock-based compensation plans. In 1997, the
Company intends to adopt the disclosure provisions of this standard which
requires disclosing the pro forma consolidated net income and earnings per share
amounts assuming the fair value method was effective on November 1, 1995. The
adoption of the disclosure provisions will not affect consolidated results of
operations, financial position, or cash flows.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is effective for
fiscal years beginning after December 15, 1996. The SOP does not make changes to
existing accounting rules, but it clarifies how existing authoritative guidance
on loss contingencies should be applied in determining environmental
liabilities. The Company does not believe the SOP will have any material impact
on its financial position or results of operations. The Company will be required
to report under the SOP in its 1998 financial statements.
34
<PAGE> 35
ITEM 8. (Continued)
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Land and land improvements................. $ 6,495 $ 6,672
Buildings.................................. 26,301 27,706
Machinery and equipment.................... 58,749 56,550
Construction in progress................... 4,605 2,451
------- -------
96,150 93,379
Less depreciation and amortization......... 47,949 45,448
------- -------
$48,201 $47,931
======= =======
</TABLE>
Depreciation expense was $5,614,000 in 1996, $5,330,000 in
1995 and $5,395,000 in 1994.
NOTE C - DEBT
Long-term debt obligations are summarized below:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Revolving credit....................... $31,000 $ --
Mortgages.............................. 3,675 4,973
Other.................................. 59 123
------- -------
34,734 5,096
Less current portion................... 962 1,036
------- -------
$33,772 $ 4,060
======= =======
</TABLE>
During the fourth quarter of fiscal 1996, the Company entered into a
$55.0 million bridge loan agreement to pay Commercial Intertech the $30.0
million of debt assumed as part of the spin-off in the form of a dividend. The
Company then replaced the bridge financing with a $60.0 million senior unsecured
revolving credit facility.
35
<PAGE> 36
ITEM 8. (Continued)
The new senior unsecured revolving credit facility was used to repay
all outstanding debt associated with the bridge financing and for other general
purposes. The credit facility matures in five years. The Company pays a variable
per annum fee on the unused amount of the commitment, payable quarterly in
arrears. The rate was 0.125 percent at October 31, 1996. The interest rate on
outstanding borrowings at October 31, 1996 was 8.25 percent. The facility has
interest options determinable by the Company based upon prime interest or LIBOR
rates plus an applicable margin. These significantly reduced rates were not
available to the Company on October 31, 1996 because the loan was not fully
syndicated. Syndication has been completed and the rate at November 30, 1996 was
5.97 percent. The Company has $7.0 million in outstanding letters of credit at
October 31, 1996 which reduces the availability of this credit facility. The
credit agreement includes covenants which require the maintenance of certain
financial ratios. The Company was in compliance with these covenants at October
31, 1996. The Company is prohibited from declaring dividends during fiscal 1997
and 1998. However, the Company may repurchase a maximum of $5,000,000 in
treasury stock during 1997 and 1998 for its employee benefit plans.
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 in KitaIbaragi, Japan (net book value at October 31, 1996
- -$5,466,000). 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,
1996 was $3,885,000.
Principal payments due in the five years after
October 31, 1996 are:
(in thousands)
1997................................$ 962
1998................................ 913
1999................................ 924
2000................................ 935
2001................................ 31,000
The Company had available unused short-term lines of credit in various
countries totaling approximately $9.2 million at October 31, 1996. Drawdowns
under the unused short-term lines of credit are subject to the lender's
approval.
Outstanding bank loans at October 31, 1996 and 1995 had weighted
average interest rates of 1.4 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.
36
<PAGE> 37
ITEM 8. (Continued)
NOTE - D 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.
Common Stock
In conjunction with the reorganization, 13,565,922 shares of Common
Stock were issued excluding shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's Stock Option Plans. 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 of Directors
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 of Directors 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 upon 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.
37
<PAGE> 38
ITEM 8. (Continued)
NOTE E - OPERATING LEASES
The Company has entered into certain lease agreements for various
facilities and equipment. Rent expense under operating leases was approximately
$1,672,000 in 1996, $1,729,000 in 1995, and $1,532,000 in 1994.
Future minimum lease payments under noncancellable operating leases
with an initial term of one year or more were as follows at October 31, 1996:
(in thousands)
1997...................................$ 705
1998................................... 509
1999................................... 380
2000................................... 349
2001................................... 348
Thereafter............................. 234
------
Total minimum lease payments...........$2,525
======
NOTE F - BENEFIT PLANS
The Company maintains noncontributory defined benefit 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 now provided under a successor plan with
essentially the same benefits which 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 also accounts for pension costs under the provisions of
SFAS 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 SFAS No. 87.
38
<PAGE> 39
ITEM 8. (Continued)
The following table sets forth the funded status and amounts recognized
in the Consolidated Balance Sheets at October 31, 1996 and 1995 for the
Company's US 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>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................... $(17,546) $(18,426)
========= =========
Accumulated benefit obligation.................. $(20,071) $(20,492)
========= =========
Projected benefit obligation..................... $(24,567) $(26,009)
Market value of plan assets...................... 19,632 16,921
--------- ---------
Projected benefit obligation in excess of
plan assets.................................... (4,935) (9,088)
Unrecognized net loss............................ 819 2,887
Unrecognized prior service cost.................. 1,132 1,451
Unrecognized net obligation...................... 567 3,590
Additional minimum liability..................... (408) (2,498)
--------- ---------
Net pension liability recognized in the
consolidated balance sheets................... $ (2,825) $ (3,658)
========= ========
</TABLE>
Plan assets at October 31, 1996 are invested in publicly traded and
restricted mutual funds, various corporate and government bonds, guaranteed
income contracts and listed stocks, including common stock of the Company having
a market value of $376,000 at that date. Salaried plan assets have been
estimated.
39
<PAGE> 40
ITEM 8. (Continued)
A summary of the various components of net periodic pension cost for
defined benefit plans and cost information for other plans for the three-year
period is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Defined benefit plans:
Service cost..............................$ 1,651 $ 1,337 $ 1,095
Interest cost............................. 1,049 1,065 831
Actual return on plan assets.............. (1,930) (1,785) (462)
Net amortization and deferral............. 1,369 1,145 (150)
-------- -------- --------
Net pension expense.................... 2,139 1,762 1,314
Other plans:
Foreign plans............................. 273 218 184
-------- -------- --------
Total pension expense..................$ 2,412 $ 1,980 $ 1,498
======== ======== ========
</TABLE>
Assumptions used in the accounting for the defined benefit plans as of
October 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic Plans
- --------------
Weighted-average discount rate.............. 7.75% 7.25% 8.5%
Rates of increase in compensation levels.... 5.0 % 4.5 % 4.5%
Expected long-term rate of return on assets. 10.0 % 10.0 % 10.0%
CUNO KK (Japan) Plan
- --------------------
Weighted-average discount rate.............. 4.0 % 4.0 % 5.0%
Rates of increase in compensation levels.... 4.0 % 5.0 % 5.0%
Expected long-term rate of return on assets. 4.5 % 5.5 % 6.0%
</TABLE>
40
<PAGE> 41
ITEM 8. (Continued)
NOTE G - INCOME TAXES
The components of income (loss) before income taxes and the provision
(benefit) for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income (loss) before income taxes
Domestic................................. $ 3,436 $ 3,652 $(1,037)
Foreign.................................. 7,575 5,911 3,080
-------- -------- --------
11,011 9,563 2,043
Provision (benefit) for income taxes
Current
Domestic - Federal..................... 1,947 1,466 (3)
- State and local............. 722 368 115
Foreign................................ 2,960 3,546 1,379
Benefit of operating loss carryforwards.. (336) (683) --
-------- -------- --------
5,293 4,697 1,491
Deferred
Domestic - Federal..................... 79 (633) (376)
- State and local............. 4 (95) (140)
Foreign................................ 42 (507) (739)
-------- -------- --------
125 (1,235) (1,255)
-------- -------- --------
5,418 3,462 236
Net income (loss)
Domestic................................. 684 2,546 (633)
Foreign.................................. 4,909 3,555 2,440
-------- -------- --------
$ 5,593 $ 6,101 $ 1,807
======== ======== ========
</TABLE>
A reconciliation of the effective tax rate to the US statutory rate
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory US federal income tax rate....... 35.0% 35.0% 35.0%
State and local taxes on income net of
domestic federal income tax benefit...... 4.4 1.9 (0.8)
Impact of foreign subsidiaries on effective
rate..................................... (2.8) 4.0 (36.6)
Benefit of operating loss carryforwards.... (3.1) (7.1) --
Nonrecurring distribution costs............ 11.9 -- --
Goodwill with no US tax benefit............ 3.1 4.7 21.8
All other.................................. .7 (2.3) (7.8)
------ ----- ------
Effective income tax rate................ 49.2% 36.2% 11.6%
====== ===== ======
</TABLE>
41
<PAGE> 42
ITEM 8. (Continued)
Significant components of the Company's deferred income tax liabilities
and assets as of October 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation................ $4,508 $4,925 $5,222
Other..................................... 61 87 103
------- ------- ------
Total deferred income tax liabilities... 4,569 5,012 5,325
Deferred income tax assets:
Pension liability......................... 942 684 511
Employee benefits......................... 1,919 2,209 2,031
Net operating loss carryforwards.......... 1,061 1,832 3,279
Inventory valuation....................... 1,001 877 538
Net operating loss carryback.............. 1,309 1,309 1,081
Other..................................... 1,061 1,632 1,628
------- ------- ------
Total deferred income tax assets........ 7,293 8,543 9,068
Valuation allowance for deferred income
tax assets.............................. 1,061 1,832 3,279
------- ------- ------
Net deferred income tax assets......... 6,232 6,711 5,789
------- ------- ------
Net deferred income tax assets......... $1,663 $1,699 $ 464
======= ======= ======
</TABLE>
The valuation allowance has decreased by $771,000 in 1996, $1,447,000
in 1995 and $931,000 in 1994. The decrease in 1996 is the result of the
reorganization of Cuno Latina Ltda. (Brazil), in addition to the utilization of
net operating loss carryforwards. Although realization of the net deferred
income tax assets is not assured, management believes it is more likely than not
that all of the remaining net deferred income tax assets will be realized. The
amount of the net deferred income tax assets considered realizable, however,
could be reduced if estimates of future taxable income are reduced.
The tax benefits from net operating loss carryforwards relate to the
operation in Brazil and are available indefinitely.
42
<PAGE> 43
ITEM 8. (Continued)
NOTE H - RELATED PARTY TRANSACTIONS
Transactions with Commercial Intertech included in the balance sheets
as "Receivables from related party", "Dividends payable to related party" and
"Payable to related party" represent a net balance as a result of various
transactions between the Company and Commercial Intertech. These accounts are
short-term and non-interest bearing. The balance is primarily the result of the
Company's declaration of dividends and other payments associated with the
reorganization. Prior to the reorganization, the balance was primarily the
result of the Company's participation in Commercial Intertech's domestic cash
management system as all excess cash was remitted to Commercial Intertech and
certain disbursements were 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. A summary of transactions follows:
<TABLE>
<CAPTION>
October 31,
---------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year......... $ 18,767 $ 15,104 $ 10,923
Net cash remitted to
Commercial Intertech............ 22,145 15,084 11,716
Administrative expenses........... (11,835) (9,869) (8,607)
Payment of dividends.............. (31,063) -- --
Other............................. (8,198) (1,552) 1,072
--------- --------- --------
Balance at end of year............... $(10,184) $ 18,767 $ 15,104
========= ========= ========
</TABLE>
NOTE I - 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 below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Research and development....... $ 3,625 $ 2,483 $ 1,884
Engineering.................... 6,236 5,825 5,888
-------- -------- -------
$ 9,861 $ 8,308 $ 7,772
======== ======== =======
Percent of net sales........... 5.5% 5.1% 5.4%
======== ======== =======
</TABLE>
43
<PAGE> 44
ITEM 8. (Continued)
NOTE J - 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
GEOGRAPHIC AREA
UNITED
STATES EUROPE JAPAN OTHER ELIMINATION CONSOLIDATED
- --------------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers.. $ 86,394 $ 30,541 $ 28,778 $ 33,355 $ -- $179,068
Inter-area sales.... 16,894 1,305 300 41 (18,540) --
----------------------------------------------------------------
Total net sales..... 103,288 31,846 29,078 33,396 (18,540) 179,068
Operating income.... 1,935 2,923 1,269 5,779 -- 11,906
Identifiable assets. 74,647 17,350 24,430 17,085 133,512
Corporate assets.... 5,244
Total assets........ 138,756
- --------------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------------
Sales to customers.. $ 74,893 $ 27,700 $ 30,508 $ 29,598 $ -- $162,699
Inter-area sales.... 16,516 1,423 593 1,470 (20,002) --
--------- --------- --------- --------- --------- --------
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 -- 10,840
Identifiable assets. 101,640 11,381 26,595 16,471 -- 156,087
Corporate assets.... 6,740
Total assets........ 162,827
- --------------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------------
Sales to customers.. $ 71,964 $ 21,651 $ 25,234 $ 24,262 $ -- $143,111
Inter-area sales.... 12,981 1,069 236 1,197 (15,483) --
--------- --------- --------- --------- --------- --------
Total net sales..... 84,945 22,720 25,470 25,459 (15,483) 143,111
Operating income.... (1,413) 373 2,392 3,626 -- 4,978
Identifiable assets. 96,174 13,749 25,125 13,615 -- 148,663
Corporate assets.... 4,408
Total assets........ 153,071
</TABLE>
Net assets of foreign subsidiaries at October 31, 1996 and 1995 were
$24,043,000 and $36,298,000, respectively, of which net current assets were
$9,677,000 and $19,558,000 respectively.
44
<PAGE> 45
ITEM 8. (Continued)
NOTE K - STOCK OPTIONS AND AWARDS
In September 1996, the Company adopted and approved a stock option and
award plan which allows for the grant of a number of stock incentive
instruments, including nonqualified and incentive stock options, restricted
stock, performance shares and stock appreciation rights which may be granted as
part of a stock option or as a separate right to the holders of any options
previously granted. The plan permits the granting of such stock awards of up to
1,200,000 shares of Common Stock. Accordingly, such shares have been authorized
and reserved. The options are exercisable at various dates and have varying
expiration dates. Approximately 946,760 shares of common stock are reserved for
issuance to key employees and nonemployee directors under the provisions of
these option and award plans as of October 31, 1996. Of its 353,961 stock
options which were granted during 1996, 81,961 related to Commercial Intertech
options held by Company executives prior to the September 10, 1996 distribution
date. Such options were issued in a manner to preserve the economic position of
the option holders which existed prior to the distribution. No accounting
expense was charged to earnings in connection with this issuance.
Awards of performance shares totaled 215,500 in 1996. When rights,
options or awards are granted, associated compensation expense is accrued from
date of grant to the date such options or awards are exercised.
A summary of the stock option activity follows for 1996:
<TABLE>
<CAPTION>
-----------------------------------
Shares Exercise
Under Price Options
Option (per share) Exercisable
-----------------------------------
<S> <C> <C> <C>
Outstanding at October 31, 1995 -- -- --
Options granted..............: 272,000 $ 15.13 --
Commercial Intertech
options exchanged..........: 81,961 7.47-10.99 --
Options exercised ...........: -- -- --
-----------------------------------
Outstanding at
October 31, 1996...........: 353,961 $7.47-15.13 --
</TABLE>
Shares available for future grants amounted to approximately 592,800
shares as of October 31, 1996.
45
<PAGE> 46
ITEM 8. (Continued)
NOTE L - 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 sheets 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
fair value of the Company's long-term debt approximates its carrying value
because of the variable interest rate of the majority of the debt.
The carrying amounts and fair values of the Company's financial
instruments follows:
<TABLE>
<CAPTION>
October 31,
-------------------------------------
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
------- ------- -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents.. $ 5,244 $ 5,244 $ 6,740 $ 6,740
Bank Loans................. 10,690 10,690 10,440 10,440
Long-term debt............. 34,734 34,719 5,096 5,068
</TABLE>
The carrying amounts of accounts and notes receivable, receivables from
related party, accounts payable and accrued expenses and amounts payable to
related party approximates fair value because of the short-term nature of those
transactions.
Foreign currency exchange contracts:
At times, the Company utilizes foreign currency exchange contracts to
minimize the impact of currency fluctuations on transactions. At October 31,
1996 and 1995, the Company held contracts for $1,000,000 and $500,000
respectively, with fair values of $1,002,000 and $500,000, respectively. The
fair value of foreign currency exchange contracts is estimated based on quoted
exchange rates at year end. The forward contracts are an effective hedge against
fluctuations in the value of the foreign currency. Therefore, the contracts have
no income statement impact.
46
<PAGE> 47
ITEM 8. (Continued)
NOTE M - 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 $2,224,000.
NOTE N - QUARTERLY DATA (unaudited)
<TABLE>
<CAPTION>
1996 First Second Third Fourth
- ---- ----- ------ ----- ------
(in thousands, except per-share amounts)
<S> <C> <C> <C> <C>
Net sales.................$ 41,004 $ 45,090 $ 48,542 $ 44,432
Gross profit.............. 15,748 18,460 20,796 19,216
Distribution and other
nonrecurring costs (1).. -- -- 2,876 2,688
Net income (loss)......... 1,851 3,251 630 (139)
Earnings per common
share................... $0.14 $0.24 $0.05 $(0.01)
1995 First Second Third Fourth
- ---- ----- ------ ----- ------
(in thousands, except per-share amounts)
Net sales................ $ 37,713 $ 39,630 $ 43,467 $ 41,889
Gross profit............. 13,926 14,995 17,025 16,981
Net income............... 1,416 1,241 1,419 2,025
Earnings per common
share.................. $0.10 $0.09 $0.10 $0.15
</TABLE>
The Company incurred $2,876,000 or $.21 per share during the third
quarter of 1996 and $1,982,000 or $.15 per share during the fourth quarter (net
of taxes) for distribution and other nonrecurring costs.
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
necessarily equal the total for the year.
(1) Included in 1996 operating income and net income were
distribution and other nonrecurring costs to the Company
associated with the recent reorganization. These expenses totaled
$4,858 (net of income taxes of $706).
47
<PAGE> 48
ITEM 8. (Continued)
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
CUNO Incorporated
Meriden, Connecticut
We have audited the accompanying consolidated balance sheets of CUNO
Incorporated and subsidiaries as of October 31, 1996 and 1995, and the related
statements of consolidated income, shareholders' equity and cash flows for each
of the three years in the period ended October 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
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 consolidated financial position of CUNO Incorporated
and subsidiaries at October 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended October 31, 1996, 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,
presents fairly, in all material respects, the information set forth therein.
/s/Ernst & Young LLP
Cleveland, Ohio
December 16, 1996
48
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Regarding the directors of the Registrant, reference is made to the
information set forth under the caption "Election of Directors" in the Company's
definitive Proxy Statement filed January 21, 1997, which information is
incorporated by reference herein.
The principal executive officers of the Company and their recent
business experience are as follows:
Name Office Held Age
---- ----------- ---
Paul J. Powers...........Chairman of the Board of 61
Directors and Chief
Executive Officer
Mark G. Kachur...........President and Chief Operating 53
Officer
Michael H. Croft.........Senior Vice President 52
Ronald C. Drabik.........Senior Vice President, Chief 50
Financial Officer,
Assistant Secretary and
Treasurer
Timothy B. Carney........Vice President and Controller 44
John A. Tomich...........Counsel and Secretary 39
None of the officers are related and they are elected from year to year
or until their successors are duly elected and qualified.
49
<PAGE> 50
ITEM 10. (Continued)
Paul J. Powers. Mr. Powers is the Chief Executive Officer of the
Company. He has also been a director of the Company and Commercial Intertech
since 1984, President and Chief Operating Officer of Commercial Intertech since
1984 and Chief Executive Officer of Commercial Intertech 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, Ind.
Mark G. Kachur. Mr. Kachur is the President and Chief Operating Officer
of the Company. Mr. Kachur has been a director of the Company since July 1996.
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 is the Senior Vice President of the
Company. From 1993 until 1996 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 is the Senior Vice President, Chief
Financial Officer, Secretary and Treasurer of the Company. 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 and Chief
Financial Officer. 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.
50
<PAGE> 51
ITEM 10. (Continued)
Timothy B. Carney. Mr. Carney is the Company's Vice President -
Controller and Assistant Secretary. 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.
John A. Tomich. Mr. Tomich is Counsel and Secretary of the Company.
Before joining CUNO Incorporated, after the spin-off, he was Counsel and
Assistant Secretary for Commercial Intertech Corporation, where he had been
employed since January 1990 and had been involved extensively with the legal
matters affecting CUNO. He holds a Bachelor of Engineering Degree (Mechanical
Engineering) from Youngstown State University, and Juris Doctor from the
University of Akron, School of Law. He is a licensed Patent Attorney.
51
<PAGE> 52
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation" appearing in the Company's definitive Proxy Statement
filed January 21, 1997, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Reference is made to the information contained under the captions
"Security Ownership of Board of Directors and Named Executives" and "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement filed January 21, 1997, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information contained under the caption
"Compensation of Directors" in the Company's definitive Proxy Statement filed
January 21, 1997, which information is incorporated herein by reference.
52
<PAGE> 53
Part IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) The following consolidated financial statements of
CUNO Incorporated and Subsidiaries
are included in Item 8:
Page Number
In This Report
--------------
Statements of Consolidated Income -
Years ended October 31, 1996,
1995, and 1994............................. 24
Consolidated Balance Sheets as of
October 31, 1996 and 1995.................. 25 and 26
Statements of Consolidated Shareholders'
Equity - Years ended October 31,
1996, 1995, and 1994....................... 27
Statements of Consolidated Cash Flows -
Years ended October 31, 1996, 1995,
and 1994................................... 28
Notes to Consolidated Financial Statements... 29 - 47
Report of Independent Auditors............... 48
(2) The following consolidated financial statement
schedule of CUNO Incorporated and Subsidiaries
are included in Item 14 (d):
Schedule II Valuation and Qualifying
Accounts............................. S-1
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
53
<PAGE> 54
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(Continued)
(3) Exhibits
3.1 -- Articles of Incorporation Filed as of
April 17, 1992 Incorporated by reference to
Exhibit 3.1 to the Company's Form 10
(as filed with Amendment No. 2 thereto
dated August 20, 1996).
10 -- Material Contracts
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.
10.9 Employment Agreement - Mark G. Kachur
dated December 3, 1993
10.11 Termination and Change of Control Agreement -
Paul J. Powers dated October 1, 1996
10.12 Termination and Change of Control Agreement -
Mark G. Kachur dated October 1, 1996
10.13 Termination and Change of Control Agreement -
Michael H. Croft dated October 1, 1996
10.14 Termination and Change of Control Agreement -
Ronald C. Drabik dated October 1, 1996
10.15 Termination and Change of Control Agreement -
Timothy B. Carney dated October 1, 1996
10.16 Termination and Change of Control Agreement -
John A. Tomich dated October 1, 1996
Exhibits for "Material Contracts" are incorporated by
reference to exhibits filed by the Company on Form 10:
Incorporated by Reference
-------------------------
Exhibit 10.9 Amendment No. 1
dated August 2, 1996
Exhibit 10.4 Amendment No. 1
dated August 20, 1996
Exhibit 10.5 Amendment No. 2
dated August 20, 1996
Exhibit 10.6 Amendment No. 2
dated August 20, 1996
54
<PAGE> 55
PART IV - (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(Continued)
Additional information relating to management contracts and
renumerative plans is contained in Note K - Stock Options and
Awards of the Notes to Consolidated Financial Statements
on page 45.
21 - Subsidiaries of the registrant
27 - Financial Data Schedule
(B) There were no reports on Form 8-K for the quarter
ended October 31, 1996.
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CUNO Incorporated
Date: January 23, 1997
/s/ Paul J. Powers /s/ Ronald C. Drabik
- ---------------------------- ----------------------------
Paul J. Powers Ronald C. Drabik
Chairman of the Board of Senior Vice President and
Directors, and Chief Financial Officer,
Chief Executive Officer Assistant Secretary and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated above.
Name Title Date
---- ----- ----
Joel B. Alvord Director January 23, 1997
Charles L. Cooney, Ph.D. Director January 23, 1997
Norbert A. Florek Director January 23, 1997
John M. Galvin Director January 23, 1997
Mark G. Kachur Director January 23, 1997
Gerald C. McDonough Director January 23, 1997
C. Edward Midgley Director January 23, 1997
David L. Swift Director January 23, 1997
56
<PAGE> 57
<TABLE>
<CAPTION>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
CUNO INCORPORATED AND SUBSIDIARIES
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
=================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------
Balance at Balance at
Description Beginning ADDITIONS Deductions End of
of Period -------------------------- Period
Charged to
Charged to Other
Costs and Accounts-
Expenses Describe
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $ 1,135,916 $ 21,673 $ 0 $ 24,136 (A) $ 1,133,453
============ =========== ============= =========== ===========
Valuation allowance for deferred 435,000 (B)
income tax assets $ 1,832,000 $ 0 $ 0 $ 336,000 (C) $ 1,061,000
============ =========== ============= =========== ===========
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 764,000 (B)
income tax assets $ 3,279,000 $ 0 $ 0 $ 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 (B) $ 3,279,000
============ =========== ============= =========== ===========
<FN>
(A) Uncollectible accounts written off, net of recoveries.
(B) Increase (decrease) in net operating loss carryforwards for the year.
(C) Net operating loss carryforwards utilized or expired.
</TABLE>
S-1
<PAGE> 1
Exhibit 10.11
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.11
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and Paul J. Powers ("Executive") is and shall become effective as of
October 1, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
After due consideration by the Board of Directors in meetings of the
Board of Directors held on July 15 and 25, 1996, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced, eliminated or otherwise adversely effected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
<PAGE> 3
2. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to
Commercial Intertech Corp. It is expressly understood and agreed that, to the
extent that any activities have been conducted by the Executive prior to the
Extension Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Extension Date
shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agrement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual
2
<PAGE> 4
Base Salary, the Executive shall be awarded, for each fiscal year ending during
the Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities
provided the Executive shall participate in any plan, practice, policy or
program in effect on the Extension Date only to the extent the Executive
participated in such plan, practice, policy or program immediately preceding the
Extension Date. During the Extended Employment Period, in no event shall such
plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Extension Date or, if more
favorable to the Executive, those provided generally at any time after the
Extension Date to other peer executives of the Company and its affiliated
companies.
3
<PAGE> 5
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
Executive's employment. In such event, the Executive's Date of Termination is
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of
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Section 13(c), the Company will pay Executive (or his beneficiaries or estate),
and Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, programs, and arrangements (and agreements
and documents thereunder) pursuant to which such compensation and benefits were
granted, including any supplemental retirement plan in which the Executive may
have participated;
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such
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payments shall be made at the earliest time that the payments would be
deductible by the Company without limitation under Section 162(m) (unless this
provision is waived by the Company). Any deferred payments shall be credited
with the interest at a rate applied to prevent the imputation of taxable income
under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal Retirement Date, death or Disability, the Term will
immediately terminate, and all obligations of the Company under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(i) The unpaid portion of Annual Base Salary at
the rate payable, in accordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not
theretofore paid;
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(ii) twenty-four (24) semi-monthly payments
during a twelve (12) consecutive month
period equal to the Executive's Annual Base
Salary divided by twenty-four (24);
provided, however, notwithstanding anything
to the contrary in the Termination Agreement
or in the Employment Agreement, none of such
amounts shall qualify Executive for any
incremental benefit under any plan or
program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the
plans and programs and the agreements and
other documents thereunder pursuant to which
such stock options were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
-----------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B)
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<PAGE> 9
the Executive's Annual Bonus paid or payable
for the Company's fiscal year in which
occurs the Date of Termination, assuming
Executive and Company satisfy all conditions
to Executive's receiving the full Annual
Bonus at target (and annualized for any
fiscal year consisting of less than twelve
(12) full months or during which the
Executive was employed for less than twelve
(12) full months) (such higher amount being
referred to as the "Highest Annual Bonus")
and (y) a fraction, the numerator of which
is the number of days in the current fiscal
year through the Date of Termination, and
the denominator of which is 365;
(ii) the amount equal to three (3) times the sum
of (1) $400,000 ("Referenced Salary") and
(2) the Executive's Highest Annual Bonus but
not less than 100% of target of his annual
incentive compensation based on his
Referenced Salary. (Payment of any amount
under Section 8(a)(i) shall not constitute a
payment or discharge of the Company's
obligation under Section 8(a)(ii) and VICE
VERSA);
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
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and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive is covered by the Company's medical plan on the Date of Termination
and is employed with another employer and is eligible to receive medical or
other welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For three
(3) years after the Executive's Date of Termination, or such longer period as
may be provided by the terms of the plan, the Company shall continue
tax-qualified defined contribution plan accruals for the Executive, including
participation and crediting of service, contributions and compensation at least
equal to what the Executive would have accrued in accordance with such plans of
the Company or affiliated companies if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
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(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination,
a continued application of the Company's auto leasing policy in effect with
respect to the Executive on the Extension Date, including, without limitation,
fuel, insurance, maintenance and car phone;
(f) for one (1) year after Executive's Date of Termination,
the provision of exclusive secretarial service unless the Executive is employed
or reemployed by another employer that provides the Executive with such
services;
(g) for three (3) years after Executive's Date of Termination,
the provision of reasonable personal tax accounting and financial planning by a
firm chosen by Executive and reasonably acceptable to the Company; and
(h) for three (3) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on the
Executive's Date of Termination but only to the extent of the company policy
regarding such clubs and applied to the Executive on the Extension Date.
9. Definitions Relating to Termination Events.
-------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
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(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A)
the then-outstanding shares of common stock
of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting
power of the then-outstanding voting
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that for purposes of this
subsection (i), the following acquisitions
shall not constitute a Change of Control:
(A) any acquisition directly from the
Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company, (D) any
acquisition by a lender to the Company
pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least
a majority of the Board; provided, however,
that any individual becoming a director
subsequent to the date hereof whose
election, or nomination for election by the
Company's shareholders, was approved by a
vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a
member of the Incumbent Board, but
excluding, for this purpose, any such
individual whose initial assumption of
office occurs as a result of an actual or
threatened election contest with respect to
the election or removal of directors or
other actual or threatened solicitation of
proxies or consents by or on behalf of a
Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the Company (a "Business Combination"), in
each case, unless, following such Business
Combination, (A) all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%)
of, respectively, the then-outstanding
shares of common stock and the combined
voting power of the
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<PAGE> 13
then outstanding voting securities entitled
to vote generally in the election of
directors, as the case may be, of the
corporation resulting from such Business
Combination (including, without limitation,
a corporation which as a result of such
transaction owns the Company or all or
substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time of the execution of the
initial agreement, or of the action of the
Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the
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<PAGE> 14
"Extension Date" shall mean the date immediately prior to the date of such
termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including status,
offices, titles and reporting requirements),
authority, duties or responsibilities as
contemplated by Section 2(a) of this
Termination Agreement, or any other action
by the Company which results in a diminution
in such position, authority, duties or
responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
action not taken in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4 of this
Termination Agreement or the Employment
Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is remedied
by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than
as provided in Section 2(b) hereof or the
Company's requiring the Executive to travel
on Company business to a substantially
greater extent than required immediately
prior to the Effective Date;
(iv) any failure by the Company to perform any
material obligation under, or breach by the
Company of any material provision of, this
Termination Agreement;
(v) any purported termination by the Company of
the Executive's employment otherwise than as
expressly permitted by this Termination
Agreement; or
(vi) any failure by the Company to comply with
and satisfy Section 12(b) of this
Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
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10. Excise Tax Gross-Up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar
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<PAGE> 16
year in which the Gross-up Payment is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and (C)
to have otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to Executive or
otherwise realized as a benefit by Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment and
shall indemnify and hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
15
<PAGE> 17
(ii) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority. If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of this Section 10) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section 10, a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
16
<PAGE> 18
11. Non-Competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of two years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business conducted
by the Company or any of its subsidiaries on the date of the consummation of the
Change of Control; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his employment with the Company or
any of its subsidiaries, to curtail or cancel their business with such companies
or any of them; or (iii) induce, or attempt to influence, any employee of the
Company or any of its subsidiaries to terminate employment. The provisions of
subparagraphs (i), (ii), and (iii) above are separate and distinct commitments
independent of each of the other subparagraphs. It is agreed that the ownership
of not more than one percent of the equity securities of any company having
securities listed on an exchange or regularly traded in the over-the-counter
market shall not, of itself, be deemed inconsistent with clause (i) of this
paragraph (a), neither shall service (whether as an employee, officer, director,
or consultant) with respect to Commercial Intertech Corp., nor shall service as
a member of a board of directors on which Executive is serving on the Date of
Termination (including any successor board thereto) be deemed, of itself, to be
inconsistent with clause (i) of this paragraph (a). The Executive and the
Company agree that the value to be assigned to the obligations of the Executive
under this paragraph (a) is an amount equal to one hundrd percent (100%) of the
Executive's Base Salary and Recent Annual Bonus. Violation of Section 11(a) or
(b) shall not require Executive to return any payment or benefit previously
distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
17
<PAGE> 19
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) release of employment claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section II and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
12. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Connecticut, without regard to Connecticut conflicts of law
principles, except insofar as federal laws and regulations may be applicable. If
under the governing law, any portion of this Termination Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Termination Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
11 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING
OF OBLIGATIONS. On and after the Extension Date, all reasonable costs and
expenses (including fees and disbursements of counsel) incurred by Executive in
seeking to enforce rights pursuant to this Termination Agreement shall be paid
on behalf of or reimbursed to Executive promptly by the Company, whether or not
Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no
reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that Executive's assertion of such
rights was in bad faith or frivolous, as determined by independent counsel
mutually acceptable to Executive and the Company and made without reference to
or not related to a Change of Control. Immediately prior to the Extension Date
but not less than five (5) days prior thereto, the Company agrees to maintain a
minimum amount in a rabbi trust (or to provide to the trustee of such rabbi
trust) an irrevocable letter of credit in an amount equal to such minimum amount
(and callable at will by such trustee) sufficient to fund any such litigation
and the aggregate present value of all liabilities potentially
18
<PAGE> 20
owed to the Executive under this Agreement as if he or she had incurred a
termination of employment by the Company other than for Cause.
13. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
19
<PAGE> 21
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: ----------------------------------------------
----------------------------------------------
----------------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are
for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages on or
after Executive's Date of Termination, nor shall the amount of any payment
hereunder be reduced by any compensation earned by the Executive as a result of
employment by another employer; PROVIDED, HOWEVER, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in this Termination Agreement,
any such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by
the Company to Executive pursuant to this Termination Agreement shall not be
subject to offset, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against
20
<PAGE> 22
Executive or others, other than with respect to any amounts that are owed to the
Company by Executive due to his receipt of Company funds as a result of his
fraudulent activity. The foregoing and other provisions of this Termination
Agreement notwithstanding, all payments to be made to Executive under this
Termination Agreement will be subject to required withholding taxes and other
required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
21
<PAGE> 23
IN WITNESS WHEREOF, Executive has hereunto set his hand and
the Company has caused this instrument to be duly executed as of the day and
year first above written.
CUNO INCORPORATED
By: /s/Ronald C. Drabik
----------------------------------
Name: Ronald C. Drabik
---------------------------------
Title: Sr. V.P. & C.F.O
----------------------------------
PAUL J. POWERS
/s/Paul J. Powers
-----------------------------------------
22
<PAGE> 24
<TABLE>
<CAPTION>
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<C> <C>
1. Term and Application................................................................. 1
2. Office and Duties.................................................................... 2
3. Salary and Annual Incentive Compensation............................................. 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement..................................... 3
5. Termination of Employment............................................................ 4
6. Termination Due to Normal Retirement, Death, or Disability........................... 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability........................................................................ 6
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period.................................... 7
9. Definitions Relating to Termination Events........................................... 10
10. Excise Tax Gross-Up.................................................................. 14
11. Non-Competition and Non-Disclosure; Executive Cooperation............................ 17
12. Governing Law; Disputes; Arbitration................................................. 18
13. Miscellaneous........................................................................ 19
14. Indemnification...................................................................... 21
</TABLE>
<PAGE> 1
Exhibit 10.12
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.12
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and MARK J. KACHUR ("Executive") is and shall become effective as of
October 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
After due consideration by the Board of Directors in meetings of the
Board of Directors held on July 15 and 25, 1996, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. TERM AND APPLICATION. The Term of this Termination Agreement shall commence
on the date hereof and shall terminate, except to the extent that any obligation
of the Company under this Termination Agreement remains unpaid as of such time,
on the date five (5) years from the date hereof (subject to earlier termination
in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the
Extension Date (as defined below), the Term of this Termination Agreement shall
be the Extended Employment Period (as defined below). As long as the Extension
Date has not occurred, commencing on the date five (5) years after the date of
this Termination Agreement and each anniversary date of this Termination
Agreement thereafter, the Term of this Termination Agreement shall automatically
be extended for one (1) additional year unless not later than on (1) year prior
to the date five (5) years after the date of this Termination Agreement or
subsequent anniversary date, the Company or Executive shall have given written
notice to the other of its intention not to extend this Termination Agreement.
If there is a conflict between the Employment Agreement, if any, between the
Company and Executive ("Employment Agreement") and this Termination Agreement,
this Termination Agreement shall supersede the Employment Agreement; provided
the Executive shall receive the more valuable payment, right or benefit under
the Employment Agreement (including without limitation, the continuation of
Medical benefits under the Employment Agreement) and this Termination Agreement.
In no event shall any payment, right or benefit under the Employment Agreement
be reduced, eliminated or otherwise adversely affected by this Termination
Agreement. In no event shall Executive receive any payment, right or benefit
under both this Termination Agreement and the Employment Agreement with respect
to the same Date of Termination (as defined below).
1
<PAGE> 3
1. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a violation
of the Employment Agreement or this Termination Agreement for the Executive to
(i) serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(iii) manage personal investments, so long as the activities listed in (i), (ii)
and (iii) do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Termination Agreement, and (iv) serve in any capacity (whether as employee,
officer, director or consultant) with respect to Commercial Intertech Corp. It
is expressly understood and agreed that, to the extent that any activities have
been conducted by the Executive prior to the Extension Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Extension Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to the
Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment Period,
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Extension Date or any office or location
less than thirty-five (35) miles from such location.
2. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended Employment
Period, any annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives, including, without limitation, the
Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
2
<PAGE> 4
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
3. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-----------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment
Period, the compensation plans, practices, policies and programs, in the
aggregate, including without limitation the long-term incentive features of the
Company's stock option and award plans, shall provide Executive with benefits,
options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
4. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
3
<PAGE> 5
Executive's employment. In such event, the Executive's Date of Termination is
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
5. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate payable,
in accordance with Section 3(a) hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at the
Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans,
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programs, and arrangements (and agreements and documents thereunder) pursuant to
which such compensation and benefits were granted, including any supplemental
retirement plan in which the Executive may have participated;
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability, for
the period extending from such Date of Termination until Executive reaches age
65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
6. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal
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Retirement Date, death or Disability, the Term will immediately terminate, and
all obligations of the Company under Sections 1 through 4 of this Termination
Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the
provisions of Section 13(c), the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(i) The unpaid portion of Annual Base Salary at the
rate payable, in accordance with Section 4(a)
hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an Executive's
Date of Termination by the Company prior to the Extension Date without Cause,
the Term will terminate and all obligations of the Company and Executive under
Sections 1 through 4 of this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company
shall pay to the Executive (or his or her beneficiaries) and Executive (or his
or her beneficiaries) shall be entitled to receive within, or commencing within,
thirty (30) days after the Date of Termination, the following amounts:
(i) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid;
(ii) twenty-four (24) semi-monthly payments during a
twelve (12) consecutive month period equal to the
Executive's Annual Base Salary divided by
twenty-four (24); provided, however,
notwithstanding anything to the contrary in the
Termination Agreement or in the Employment
Agreement, none of such amounts shall qualify
Executive for any incremental benefit under any
plan or program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such periods, and
otherwise governed, by the plans and programs and
the agreements and other documents
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<PAGE> 8
thereunder pursuant to which such stock options
were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period
---------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in cash
on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and (2) the product of (x) the
higher of (A) the Recent Annual Bonus and (B) the
Executive's Annual Bonus paid or payable for the
Company's fiscal year in which occurs the Date of
Termination, assuming Executive and Company satisfy
all conditions to Executive's receiving the full
Annual Bonus at target (and annualized for any
fiscal year consisting of less than twelve (12)
full months or during which the Executive was
employed for less than twelve (12) full months)
(such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the
current fiscal year through the Date of
Termination, and the denominator of which is 365;
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<PAGE> 9
(ii) the amount equal to three (3) times the sum of (1)
the Executive's Annual Base Salary and (2) the
Highest Annual Bonus. (Payment of any amount under
Section 8(a)(i) shall not constitute a payment or
discharge of the Company's obligation under Section
8(a)(ii) and VICE VERSA);
(iii) in lieu of any payment in respect of performance
shares, or other long term incentive awards granted
prior to the Extension Date or in accordance with
Section 4(a) hereof, for any performance period not
completed at the Executive's Date of Termination,
an amount equal to the cash amount payable plus the
value of any shares, dividends or other property
(valued at the Date of Termination) payable upon
the achievement of the then existing performance in
respect of each tranche of such performance shares
or awards as if the Date of Termination were the
end of the performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any tranche as of
the Date of Termination for which at least fifty
percent (50%) of the performance period has
elapsed, one hundred percent (100%), and (B) with
respect to any tranche as of the Date of
Termination for which less than fifty percent (50%)
of the performance period has elapsed, a fraction,
the numerator of which is the number of days that
have elapsed in the relevant performance period and
the denominator of which is the total number of
days in the relevant performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or
(iv), all vested, nonforfeitable amounts owing or
accrued at the Date of Termination under any other
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated, including any supplemental retirement
plan in which the Executive may have participated,
including any additional accruals provided under
such plan due to the Change of Control, will be
paid under the terms and conditions of the plans,
programs, and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable and
restricted stock held by the Executive will be vested to the extent and for such
periods, and otherwise governed, by the plans and programs (and the agreements
and other documents thereunder) pursuant to which such stock options or
restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other
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<PAGE> 10
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive is employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For three (3) years after the Executive's Date
of Termination, or such longer period as may be provided by the terms of the
plan, the Company shall continue tax-qualified defined contribution and
supplemental retirement plan accruals for the Executive, including participation
and crediting of service, contributions and compensation at least equal to what
the Executive would have accrued in accordance with such plans of the Company or
affiliated companies if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, provided by the Company at
its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive, including, without limitation,
fuel;
(f) for one (1) year after Executive's Date of Termination, the
provision of reasonable personal tax accounting and financial planning by a firm
chosen by Executive and reasonably acceptable to the Company;
(g) for three (3) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(h) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Group Replacement Insurance Program of
Commercial Intertech Corp., or any successor thereto.
8. Definitions Relating to Termination Events.
-------------------------------------------
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(a) "CAUSE." For purposes of this Termination Agreement, "Cause"
shall mean Executive's gross misconduct (as defined herein). For purposes of
this definition, "gross misconduct" shall mean (A) a felony conviction in a
court of law under applicable federal or state laws which results in material
damage to the Company or any of its subsidiaries or materially impairs the value
of Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which is
demonstrably and materially damaging to the Company or any of its subsidiaries,
including acts and omissions that constitute gross negligence in the performance
of Executive's duties under this Termination Agreement. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by a
majority affirmative vote of the membership of the Board of Directors of the
Company (the "Board") (excluding Executive, if he is then a member) at a meeting
of the Board called and held for such purpose (after giving Executive reasonable
notice specifying the nature of the grounds for such termination and not less
than 30 days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive was guilty of conduct which constitutes Cause as set forth in this
Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty
percent (20%) or more of either (A) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(B) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any
acquisition by a lender to the Company pursuant to
a debt restructuring of the Company, or (E) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of
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the directors then comprising the Incumbent Board
shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for
this purpose, any such indi vidual whose initial
assumption of office occurs as a result of an
actual or threatened election contest with respect
to the election or removal of directors or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then-
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan
(or related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such
Business Combination, or the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business Combination
and (C) at least a majority of the members of the
board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or
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disability as determined by a physician or physicians selected by the Company
and reasonably acceptable to Executive, unless, within 30 days after Executive
has received written notice from the Company of a proposed Date of Termination
due to such absence, Executive shall have returned to the full performance of
his duties hereunder and shall have presented to the Company a written
certificate of Executive's good health prepared by a physician selected by
Company and reasonably acceptable to Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing
on the Extension Date and ending on the third anniversary of such date.
(e) "EXTENSION DATE" shall mean the first date during the Term of
this Termination Agreement on which a Change of Control occurs. Anything in this
Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a) of
this Termination Agreement, or any other action by
the Company which results in a diminution in such
position, authority, duties or responsibilities,
excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4 of this Termination
Agreement or the Employment Agreement, other than
an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location other than as provided in
Section 2(b) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required
immediately prior to the Effective Date;
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(iv) any failure by the Company to perform any material
obligation under, or breach by the Company of any
material provision of, this Termination Agreement;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Termination Agreement; or
(vi) any failure by the Company to comply with and
satisfy Section 12(b) of this Termination
Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
9. Excise Tax Gross-Up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
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actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and (C)
to have otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to Executive or
otherwise realized as a benefit by Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment and
shall indemnify and hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
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Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income for employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the
15
<PAGE> 17
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by the Executive of
an amount advanced by the Company pursuant to this Section 10, the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of this Section
10) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Non-Competition and Non-disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the Board,
upon the Executive's Date of Termination for any reason, Executive will not, for
a period of two years thereafter, acting alone or in conjunction with others,
directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business then
conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to
Commercial Intertech Corp., nor shall service as a member of a board of
directors on which Executive is serving on the Date of Termination (including
any successor board thereto) be deemed, of itself, to be inconsistent with
clause (i) of this paragraph (a). The Executive and the Company agree that the
value to be assigned to the obligations of the Executive under this paragraph
(a) is an amount equal to one hundred percent (100%) of the Executive's Annual
Base Salary and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not
require Executive to return any payment or benefit previously distributed to
Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not
16
<PAGE> 18
otherwise been disclosed or is not otherwise in the public domain, except as
required by law or pursuant to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this Termination
Agreement to the contrary, the provisions of this Section 11 shall survive the
termination or expiration of this Termination Agreement, shall be valid and
enforceable, and shall be a condition precedent to the Executive (or his or her
beneficiaries) receiving any amounts payable hereunder. The obligations of
Executive under this Section 11 and any comparable type of obligation under the
Employment Agreement are expressly conditioned upon Company's satisfaction of
its obligations to Executive under this Termination Agreement and the Employment
Agreement.
11. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by and
is to be construed, administered, and enforced in accordance with the laws of
the State of Connecticut, without regard to Connecticut conflicts of law
principles, except insofar as federal laws and regulations may be applicable. If
under the governing law, any portion of this Termination Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Termination Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
11 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING OF
OBLIGATIONS. On and after the Extension Date, all reasonable costs and expenses
(including
17
<PAGE> 19
fees and disbursements of counsel) incurred by Executive in seeking to enforce
rights pursuant to this Termination Agreement shall be paid on behalf of or
reimbursed to Executive promptly by the Company, whether or not Executive is
successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by independent counsel mutually acceptable to
Executive and the Company and made without reference to or not related to a
Change of Control. Immediately prior to the Extension Date but not less than
five (5) days prior thereto, the Company agrees to maintain a minimum amount in
a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
12. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement nor
the rights or obligations hereunder of the parties hereto shall be transferable
or assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 13(c). The Company may assign this
Termination Agreement and the Company's rights and obligations hereunder, and
shall assign this Termination Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving
18
<PAGE> 20
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: ---------------------------------------
---------------------------------------
---------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination nor shall the amount of any payment hereunder be
reduced by any compensation earned by the Executive as a result of employment by
another employer; PROVIDED, HOWEVER, that, to the extent Executive receives from
a subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
19
<PAGE> 21
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by the
Company to Executive pursuant to this Termination Agreement shall not be subject
to offset, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others, other than with respect
to any amounts that are owed to the Company by Executive due to his receipt of
Company funds as a result of his fraudulent activity. The foregoing and other
provisions of this Termination Agreement notwithstanding, all payments to be
made to Executive under this Termination Agreement will be subject to required
withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
13. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
CUNO Incorporated
By: /s/ Paul J. Powers
------------------------------
Name: Paul J. Powers
------------------------------
Title: Chairman & CEO
------------------------------
MARK J. KACHUR
/s/ M. Kachur
------------------------------------
20
<PAGE> 22
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application.......................................................... 1
2. Office and Duties............................................................. 2
3. Salary and Annual Incentive Compensation...................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement....................................... 3
5. Termination of Employment..................................................... 3
6. Termination Due to Normal Retirement, Death, or Disability.................... 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability................................................................. 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period............................. 7
9. Definitions Relating to Termination Events.................................... 9
10. Excise Tax Gross-Up........................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation..................... 16
12. Governing Law; Disputes; Arbitration.......................................... 17
13. Miscellaneous................................................................. 18
14. Indemnification............................................................... 20
</TABLE>
21
<PAGE> 1
Exhibit 10.13
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.13
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and MICHAEL H. CROFT ("Executive") is and shall become effective as
of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
After due consideration by the Board of Directors in meetings of the
Board of Directors held on July 15 and 25, 1996, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement
shall commence on the date hereof and shall terminate, except to the extent that
any obligation of the Company under this Termination Agreement remains unpaid as
of such time, on the date five (5) years from the date hereof (subject to
earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that
on or after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of Medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced, eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
1
<PAGE> 3
2. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a violation
of the Employment Agreement or this Termination Agreement for the Executive to
(i) serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(iii) manage personal investments, so long as the activities listed in (i), (ii)
and (iii) do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Termination Agreement, and (iv) serve in any capacity (whether as employee,
officer, director or consultant) with respect to Commercial Intertech Corp. It
is expressly understood and agreed that, to the extent that any activities have
been conducted by the Executive prior to the Extension Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Extension Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to the
Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment Period,
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Extension Date or any office or location
less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended Employment
Period, any annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives, including, without limitation, the
Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
2
<PAGE> 4
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-----------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment
Period, the compensation plans, practices, policies and programs, in the
aggregate, including without limitation the long-term incentive features of the
Company's stock option and award plans, shall provide Executive with benefits,
options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
3
<PAGE> 5
Executive's employment. In such event, the Executive's Date of Termination is
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate payable,
in accordance with Section 3(a) hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at the
Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans,
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programs, and arrangements (and agreements and documents thereunder) pursuant to
which such compensation and benefits were granted, including any supplemental
retirement plan in which the Executive may have participated;
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability, for
the period extending from such Date of Termination until Executive reaches age
65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal
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Retirement Date, death or Disability, the Term will immediately terminate, and
all obligations of the Company under Sections 1 through 4 of this Termination
Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the
provisions of Section 13(c), the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(i) The unpaid portion of Annual Base Salary at the
rate payable, in accordance with Section 4(a)
hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an Executive's
Date of Termination by the Company prior to the Extension Date without Cause,
the Term will terminate and all obligations of the Company and Executive under
Sections 1 through 4 of this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company
shall pay to the Executive (or his or her beneficiaries) and Executive (or his
or her beneficiaries) shall be entitled to receive within, or commencing within,
thirty (30) days after the Date of Termination, the following amounts:
(i) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid;
(ii) twenty-four (24) semi-monthly payments during a
twelve (12) consecutive month period equal to the
Executive's Annual Base Salary divided by
twenty-four (24); provided, however,
notwithstanding anything to the contrary in the
Termination Agreement or in the Employment
Agreement, none of such amounts shall qualify
Executive for any incremental benefit under any
plan or program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such periods, and
otherwise governed, by the plans and programs and
the agreements and other documents
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<PAGE> 8
thereunder pursuant to which such stock options
granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During The Extended Employment Period
----------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in cash
on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and (2) the product of (x) the
higher of (A) the Recent Annual Bonus and (B) the
Executive's Annual Bonus paid or payable for the
Company's fiscal year in which occurs the Date of
Termination, assuming Executive and Company satisfy
all conditions to Executive's receiving the full
Annual Bonus at target (and annualized for any
fiscal year consisting of less than twelve (12)
full months or during which the Executive was
employed for less than twelve (12) full months)
(such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the
current fiscal year through the Date of
Termination, and the denominator of which is 365;
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<PAGE> 9
(ii) the amount equal to three (3) times the sum of (1)
the Executive's Annual Base Salary and (2) the
Highest Annual Bonus. (Payment of any amount under
Section 8(a)(i) shall not constitute a payment or
discharge of the Company's obligation under Section
8(a)(ii) and VICE VERSA);
(iii) in lieu of any payment in respect of performance
shares, or other long term incentive awards granted
prior to the Extension Date or in accordance with
Section 4(a) hereof, for any performance period not
completed at the Executive's Date of Termination,
an amount equal to the cash amount payable plus the
value of any shares, dividends or other property
(valued at the Date of Termination) payable upon
the achievement of the then existing performance in
respect of each tranche of such performance shares
or awards as if the Date of Termination were the
end of the performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any tranche as of
the Date of Termination for which at least fifty
percent (50%) of the performance period has
elapsed, one hundred percent (100%), and (B) with
respect to any tranche as of the Date of
Termination for which less than fifty percent (50%)
of the performance period has elapsed, a fraction,
the numerator of which is the number of days that
have elapsed in the relevant performance period and
the denominator of which is the total number of
days in the relevant performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or
(iv), all vested, nonforfeitable amounts owing or
accrued at the Date of Termination under any other
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated, including any supplemental retirement
plan in which the Executive may have participated,
including any additional accruals provided under
such plan due to the Change of Control, will be
paid under the terms and conditions of the plans,
programs, and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable and
restricted stock held by the Executive will be vested to the extent and for such
periods, and otherwise governed, by the plans and programs (and the agreements
and other documents thereunder) pursuant to which such stock options or
restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other
8
<PAGE> 10
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive is employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For three (3) years after the Executive's Date
of Termination, or such longer period as may be provided by the terms of the
plan, the Company shall continue tax-qualified defined contribution and
supplemental retirement plan accruals for the Executive, including participation
and crediting of service, contributions and compensation at least equal to what
the Executive would have accrued in accordance with such plans of the Company or
affiliated companies if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, provided by the Company at
its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for one (1) year after Executive's Date of Termination, the
provision of reasonable personal tax accounting and financial planning by a firm
chosen by Executive and reasonably acceptable to the Company;
(g) for three (3) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(h) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Group Replacement Insurance Program of
Commercial Intertech Corp., or any successor thereto.
9. Definitions Relating to Termination Events.
-------------------------------------------
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(a) "CAUSE." For purposes of this Termination Agreement, "Cause"
shall mean Executive's gross misconduct (as defined herein). For purposes of
this definition, "gross misconduct" shall mean (A) a felony conviction in a
court of law under applicable federal or state laws which results in material
damage to the Company or any of its subsidiaries or materially impairs the value
of Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which is
demonstrably and materially damaging to the Company or any of its subsidiaries,
including acts and omissions that constitute gross negligence in the performance
of Executive's duties under this Termination Agreement. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by a
majority affirmative vote of the membership of the Board of Directors of the
Company (the "Board") (excluding Executive, if he is then a member) at a meeting
of the Board called and held for such purpose (after giving Executive reasonable
notice specifying the nature of the grounds for such termination and not less
than 30 days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive was guilty of conduct which constitutes Cause as set forth in this
Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty
percent (20%) or more of either (A) the
then-outstanding shares of com mon stock of the
Company (the "Outstanding Company Common Stock") or
(B) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any
acquisition by a lender to the Company pursuant to
a debt restructuring of the Company, or (E) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of
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the directors then comprising the Incumbent Board
shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for
this purpose, any such indi vidual whose initial
assumption of office occurs as a result of an
actual or threatened election contest with respect
to the election or removal of directors or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then-
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan
(or related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such
Business Combination, or the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business Combination
and (C) at least a majority of the members of the
board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or
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disability as determined by a physician or physicians selected by the Company
and reasonably acceptable to Executive, unless, within 30 days after Executive
has received written notice from the Company of a proposed Date of Termination
due to such absence, Executive shall have returned to the full performance of
his duties hereunder and shall have presented to the Company a written
certificate of Executive's good health prepared by a physician selected by
Company and reasonably acceptable to Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing
on the Extension Date and ending on the third anniversary of such date.
(e) "EXTENSION DATE" shall mean the first date during the Term of
this Termination Agreement on which a Change of Control occurs. Anything in this
Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a) of
this Termination Agreement, or any other action by
the Company which results in a diminution in such
position, authority, duties or responsibilities,
excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4 of this Termination
Agreement or the Employment Agreement, other than
an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location other than as provided in
Section 2(b) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required
immediately prior to the Effective Date;
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(iv) any failure by the Company to perform any material
obligation under, or breach by the Company of any
material provision of, this Termination Agreement;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Termination Agreement; or
(vi) any failure by the Company to comply with and
satisfy Section 12(b) of this Termination
Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Gross-Up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
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<PAGE> 15
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and (C)
to have otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to Executive or
otherwise realized as a benefit by Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment and
shall indemnify and hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
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Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross- Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income for employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the
15
<PAGE> 17
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by the Executive of
an amount advanced by the Company pursuant to this Section 10, the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of this Section
10) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
11. Non-competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the Board,
upon the Executive's Date of Termination for any reason, Executive will not, for
a period of eighteen (18) months thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business then
conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to
Commercial Intertech Corp., nor shall service as a member of a board of
directors on which Executive is serving on the Date of Termination (including
any successor board thereto) be deemed, of itself, to be inconsistent with
clause (i) of this paragraph (a). The Executive and the Company agree that the
value to be assigned to the obligations of the Executive under this paragraph
(a) is an amount equal to one hundred percent (100%) of the Executive's Annual
Base Salary and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not
require Executive to return any payment or benefit previously distributed to
Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not
16
<PAGE> 18
otherwise been disclosed or is not otherwise in the public domain, except as
required by law or pursuant to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this Termination
Agreement to the contrary, the provisions of this Section 11 shall survive the
termination or expiration of this Termination Agreement, shall be valid and
enforceable, and shall be a condition precedent to the Executive (or his or her
beneficiaries) receiving any amounts payable hereunder. The obligations of
Executive under this Section 11 and any comparable type of obligation under the
Employment Agreement are expressly conditioned upon Company's satisfaction of
its obligations to Executive under this Termination Agreement and the Employment
Agreement.
12. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by and
is to be construed, administered, and enforced in accordance with the laws of
the State of Connecticut, without regard to Connecticut conflicts of law
principles, except insofar as federal laws and regulations may be applicable. If
under the governing law, any portion of this Termination Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Termination Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
11 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING OF
OBLIGATIONS. On and after the Extension Date, all reasonable costs and expenses
(including
17
<PAGE> 19
fees and disbursements of counsel) incurred by Executive in seeking to enforce
rights pursuant to this Termination Agreement shall be paid on behalf of or
reimbursed to Executive promptly by the Company, whether or not Executive is
successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by independent counsel mutually acceptable to
Executive and the Company and made without reference to or not related to a
Change of Control. Immediately prior to the Extension Date but not less than
five (5) days prior thereto, the Company agrees to maintain a minimum amount in
a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
13. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement nor
the rights or obligations hereunder of the parties hereto shall be transferable
or assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 13(c). The Company may assign this
Termination Agreement and the Company's rights and obligations hereunder, and
shall assign this Termination Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving
18
<PAGE> 20
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: ---------------------------------------
---------------------------------------
---------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination nor shall the amount of any payment hereunder be
reduced by any compensation earned by the Executive as a result of employment by
another employer; PROVIDED, HOWEVER, that, to the extent Executive receives from
a subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
19
<PAGE> 21
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by the
Company to Executive pursuant to this Termination Agreement shall not be subject
to offset, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others, other than with respect
to any amounts that are owed to the Company by Executive due to his receipt of
Company funds as a result of his fraudulent activity. The foregoing and other
provisions of this Termination Agreement notwithstanding, all payments to be
made to Executive under this Termination Agreement will be subject to required
withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
CUNO Incorporated
By: /s/Paul J. Powers
------------------------------
Name: Paul J. Powers
------------------------------
Title: Chairman & Ceo
------------------------------
MICHAEL H. CROFT
/s/ M.H. Croft
-----------------------------------
20
<PAGE> 22
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application.......................................................... 1
2. Office and Duties............................................................. 2
3. Salary and Annual Incentive Compensation...................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement....................................... 3
5. Termination of Employment..................................................... 3
6. Termination Due to Normal Retirement, Death, or Disability.................... 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability................................................................. 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period............................. 7
9. Definitions Relating to Termination Events.................................... 9
10. Excise Tax Gross-Up........................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation..................... 16
12. Governing Law; Disputes; Arbitration.......................................... 17
13. Miscellaneous................................................................. 18
14. Indemnification............................................................... 20
</TABLE>
21
<PAGE> 1
Exhibit 10.14
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.14
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and RONALD C. DRABIK ("Executive") is and shall become effective as
of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
After due consideration by the Board of Directors in meetings of the
Board of Directors held on July 15 and 25, 1996, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of Medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced, eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
1
<PAGE> 3
2. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a violation
of the Employment Agreement or this Termination Agreement for the Executive to
(i) serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(iii) manage personal investments, so long as the activities listed in (i), (ii)
and (iii) do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Termination Agreement, and (iv) serve in any capacity (whether as employee,
officer, director or consultant) with respect to Commercial Intertech Corp. It
is expressly understood and agreed that, to the extent that any activities have
been conducted by the Executive prior to the Extension Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Extension Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to the
Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment Period,
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Extension Date or any office or location
less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended Employment
Period, any annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives, including, without limitation, the
Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
2
<PAGE> 4
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment
Period, the compensation plans, practices, policies and programs, in the
aggregate, including without limitation the long-term incentive features of the
Company's stock option and award plans, shall provide Executive with benefits,
options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
3
<PAGE> 5
Executive's employment. In such event, the Executive's Date of Termination is
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate payable,
in accordance with Section 3(a) hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at the
Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans,
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programs, and arrangements (and agreements and documents thereunder) pursuant to
which such compensation and benefits were granted, including any supplemental
retirement plan in which the Executive may have participated;
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability, for
the period extending from such Date of Termination until Executive reaches age
65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal
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Retirement Date, death or Disability, the Term will immediately terminate, and
all obligations of the Company under Sections 1 through 4 of this Termination
Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the
provisions of Section 13(c), the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(i) The unpaid portion of Annual Base Salary at the
rate payable, in accordance with Section 4(a)
hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an Executive's
Date of Termination by the Company prior to the Extension Date without Cause,
the Term will terminate and all obligations of the Company and Executive under
Sections 1 through 4 of this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company
shall pay to the Executive (or his or her beneficiaries) and Executive (or his
or her beneficiaries) shall be entitled to receive within, or commencing within,
thirty (30) days after the Date of Termination, the following amounts:
(i) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid;
(ii) twenty-four (24) semi-monthly payments during a
twelve (12) consecutive month period equal to the
Executive's Annual Base Salary divided by
twenty-four (24); provided, however,
notwithstanding anything to the contrary in the
Termination Agreement or in the Employment
Agreement, none of such amounts shall qualify
Executive for any incremental benefit under any
plan or program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such periods, and
otherwise governed, by the plans and programs and
the agreements and other documents
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<PAGE> 8
thereunder pursuant to which such stock options
were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period
---------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in cash
on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and (2) the product of (x) the
higher of (A) the Recent Annual Bonus and (B) the
Executive's Annual Bonus paid or payable for the
Company's fiscal year in which occurs the Date of
Termination, assuming Executive and Company satisfy
all conditions to Executive's receiving the full
Annual Bonus at target (and annualized for any
fiscal year consisting of less than twelve (12)
full months or during which the Executive was
employed for less than twelve (12) full months)
(such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the
current fiscal year through the Date of
Termination, and the denominator of which is 365;
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<PAGE> 9
(ii) the amount equal to three (3) times the sum of (1)
the Executive's Annual Base Salary and (2) the
Highest Annual Bonus. (Payment of any amount under
Section 8(a)(i) shall not constitute a payment or
discharge of the Company's obligation under Section
8(a)(ii) and VICE VERSA);
(iii) in lieu of any payment in respect of performance
shares, or other long term incentive awards granted
prior to the Extension Date or in accordance with
Section 4(a) hereof, for any performance period not
completed at the Executive's Date of Termination,
an amount equal to the cash amount payable plus the
value of any shares, dividends or other property
(valued at the Date of Termination) payable upon
the achievement of the then existing performance in
respect of each tranche of such performance shares
or awards as if the Date of Termination were the
end of the performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any tranche as of
the Date of Termination for which at least fifty
percent (50%) of the performance period has
elapsed, one hundred percent (100%), and (B) with
respect to any tranche as of the Date of
Termination for which less than fifty percent (50%)
of the performance period has elapsed, a fraction,
the numerator of which is the number of days that
have elapsed in the relevant performance period and
the denominator of which is the total number of
days in the relevant performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or
(iv), all vested, nonforfeitable amounts owing or
accrued at the Date of Termination under any other
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated, including any supplemental retirement
plan in which the Executive may have participated,
including any additional accruals provided under
such plan due to the Change of Control, will be
paid under the terms and conditions of the plans,
programs, and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable and
restricted stock held by the Executive will be vested to the extent and for such
periods, and otherwise governed, by the plans and programs (and the agreements
and other documents thereunder) pursuant to which such stock options or
restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other
8
<PAGE> 10
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive is employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For three (3) years after the Executive's Date
of Termination, or such longer period as may be provided by the terms of the
plan, the Company shall continue tax-qualified defined contribution and
supplemental retirement plan accruals for the Executive, including participation
and crediting of service, contributions and compensation at least equal to what
the Executive would have accrued in accordance with such plans of the Company or
affiliated companies if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, provided by the Company at
its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for one (1) year after Executive's Date of Termination, the
provision of reasonable personal tax accounting and financial planning by a firm
chosen by Executive and reasonably acceptable to the Company;
(g) for three (3) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(h) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Group Replacement Insurance Program of
Commercial Intertech Corp., or any successor thereto.
9. Definitions Relating to Termination Events.
-------------------------------------------
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(a) "CAUSE." For purposes of this Termination Agreement, "Cause"
shall mean Executive's gross misconduct (as defined herein). For purposes of
this definition, "gross misconduct" shall mean (A) a felony conviction in a
court of law under applicable federal or state laws which results in material
damage to the Company or any of its subsidiaries or materially impairs the value
of Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which is
demonstrably and materially damaging to the Company or any of its subsidiaries,
including acts and omissions that constitute gross negligence in the performance
of Executive's duties under this Termination Agreement. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by a
majority affirmative vote of the membership of the Board of Directors of the
Company (the "Board") (excluding Executive, if he is then a member) at a meeting
of the Board called and held for such purpose (after giving Executive reasonable
notice specifying the nature of the grounds for such termination and not less
than 30 days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive was guilty of conduct which constitutes Cause as set forth in this
Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty
percent (20%) or more of either (A) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(B) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any
acquisition by a lender to the Company pursuant to
a debt restructuring of the Company, or (E) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of
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the directors then comprising the Incumbent Board
shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for
this purpose, any such indi vidual whose initial
assumption of office occurs as a result of an
actual or threatened election contest with respect
to the election or removal of directors or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then-
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan
(or related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such
Business Combination, or the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business Combination
and (C) at least a majority of the members of the
board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or
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disability as determined by a physician or physicians selected by the Company
and reasonably acceptable to Executive, unless, within 30 days after Executive
has received written notice from the Company of a proposed Date of Termination
due to such absence, Executive shall have returned to the full performance of
his duties hereunder and shall have presented to the Company a written
certificate of Executive's good health prepared by a physician selected by
Company and reasonably acceptable to Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing
on the Extension Date and ending on the third anniversary of such date.
(e) "EXTENSION DATE" shall mean the first date during the Term of
this Termination Agreement on which a Change of Control occurs. Anything in this
Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a) of
this Termination Agreement, or any other action by
the Company which results in a diminution in such
position, authority, duties or responsibilities,
excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4 of this Termination
Agreement or the Employment Agreement, other than
an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location other than as provided in
Section 2(b) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required
immediately prior to the Effective Date;
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(iv) any failure by the Company to perform any material
obligation under, or breach by the Company of any
material provision of, this Termination Agreement;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Termination Agreement; or
(vi) any failure by the Company to comply with and
satisfy Section 12(b) of this Termination
Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Gross-Up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
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<PAGE> 15
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and (C)
to have otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to Executive or
otherwise realized as a benefit by Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment and
shall indemnify and hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
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Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross- Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income for employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the
15
<PAGE> 17
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by the Executive of
an amount advanced by the Company pursuant to this Section 10, the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of this Section
10) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
11. Non-Competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the Board,
upon the Executive's Date of Termination for any reason, Executive will not, for
a period of one year thereafter, acting alone or in conjunction with others,
directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business then
conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to
Commercial Intertech Corp., nor shall service as a member of a board of
directors on which Executive is serving on the Date of Termination (including
any successor board thereto) be deemed, of itself, to be inconsistent with
clause (i) of this paragraph (a). The Executive and the Company agree that the
value to be assigned to the obligations of the Executive under this paragraph
(a) is an amount equal to one hundred percent (100%) of the Executive's Annual
Base Salary and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not
require Executive to return any payment or benefit previously distributed to
Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not
16
<PAGE> 18
otherwise been disclosed or is not otherwise in the public domain, except as
required by law or pursuant to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this Termination
Agreement to the contrary, the provisions of this Section 11 shall survive the
termination or expiration of this Termination Agreement, shall be valid and
enforceable, and shall be a condition precedent to the Executive (or his or her
beneficiaries) receiving any amounts payable hereunder. The obligations of
Executive under this Section 11 and any comparable type of obligation under the
Employment Agreement are expressly conditioned upon Company's satisfaction of
its obligations to Executive under this Termination Agreement and the Employment
Agreement.
12. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by and
is to be construed, administered, and enforced in accordance with the laws of
the State of Connecticut, without regard to Connecticut conflicts of law
principles, except insofar as federal laws and regulations may be applicable. If
under the governing law, any portion of this Termination Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Termination Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
11 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING OF
OBLIGATIONS. On and after the Extension Date, all reasonable costs and expenses
(including
17
<PAGE> 19
fees and disbursements of counsel) incurred by Executive in seeking to enforce
rights pursuant to this Termination Agreement shall be paid on behalf of or
reimbursed to Executive promptly by the Company, whether or not Executive is
successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by independent counsel mutually acceptable to
Executive and the Company and made without reference to or not related to a
Change of Control. Immediately prior to the Extension Date but not less than
five (5) days prior thereto, the Company agrees to maintain a minimum amount in
a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
13. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement nor
the rights or obligations hereunder of the parties hereto shall be transferable
or assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 13(c). The Company may assign this
Termination Agreement and the Company's rights and obligations hereunder, and
shall assign this Termination Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving
18
<PAGE> 20
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: ---------------------------------------
---------------------------------------
---------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination nor shall the amount of any payment hereunder be
reduced by any compensation earned by the Executive as a result of employment by
another employer; PROVIDED, HOWEVER, that, to the extent Executive receives from
a subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
19
<PAGE> 21
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by the
Company to Executive pursuant to this Termination Agreement shall not be subject
to offset, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others, other than with respect
to any amounts that are owed to the Company by Executive due to his receipt of
Company funds as a result of his fraudulent activity. The foregoing and other
provisions of this Termination Agreement notwithstanding, all payments to be
made to Executive under this Termination Agreement will be subject to required
withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
CUNO Incorporated
By: /s/Paul J. Powers
----------------------------------
Name: Paul J. Powers
----------------------------------
Title: Chairman & CEO
----------------------------------
RONALD C. DRABIK
/s/Ronald C. Drabik
-----------------------------------------
20
<PAGE> 22
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application........................................................... 1
2. Office and Duties.............................................................. 2
3. Salary and Annual Incentive Compensation....................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement........................................ 3
5. Termination of Employment...................................................... 3
6. Termination Due to Normal Retirement, Death, or Disability..................... 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability.................................................................. 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period.............................. 7
9. Definitions Relating to Termination Events..................................... 9
10. Excise Tax Gross-Up............................................................ 13
11. Non-Competition and Non-Disclosure; Executive Cooperation...................... 16
12. Governing Law; Disputes; Arbitration........................................... 17
13. Miscellaneous.................................................................. 18
14. Indemnification................................................................ 20
</TABLE>
21
<PAGE> 1
Exhibit 10.15
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.15
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and TIMOTHY B. CARNEY ("Executive") is and shall become effective as
of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
After due consideration by the Board of Directors in meetings of the
Board of Directors held on July 15 and 25, 1996, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
<PAGE> 3
2. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to
Commercial Intertech Corp. It is expressly understood and agreed that, to the
extent that any activities have been conducted by the Executive prior to the
Extension Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Extension Date
shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
2
<PAGE> 4
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and
Benefits, Deferred Compensation, and Expense Reimbursement
----------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
3
<PAGE> 5
Executive's employment. In such event, the Executive's Date of Termination is
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans,
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<PAGE> 6
programs, and arrangements (and agreements and documents thereunder) pursuant to
which such compensation and benefits were granted, including any supplemental
retirement plan in which the Executive may have participated;
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal
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<PAGE> 7
Retirement Date, death or Disability, the Term will immediately terminate, and
all obligations of the Company under Sections 1 through 4 of this Termination
Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the
provisions of Section 13(c), the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(i) The unpaid portion of Annual Base Salary at
the rate payable, in accordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not
theretofore paid;
(ii) twenty-four (24) semi-monthly payments
during a twelve (12) consecutive month
period equal to the Executive's Annual Base
Salary divided by twenty-four (24);
provided, however, notwithstanding anything
to the contrary in the Termination Agreement
or in the Employment Agreement, none of such
amounts shall qualify Executive for any
incremental benefit under any plan or
program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the
plans and programs and the agreements and
other documents
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<PAGE> 8
thereunder pursuant to which such stock
options were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's current
Annual Bonus paid or payable for the
Company's fiscal year in which occurs the
Date of Termination, assuming Executive and
Company satisfy all conditions to
Executive's receiving the full Annual Bonus
at target (and annualized for any fiscal
year consisting of less than twelve (12)
full months or during which the Executive
was employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
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<PAGE> 9
(ii) the amount equal to two (2) times the sum of
(1) the Executive's Annual Base Salary and
(2) the Highest Annual Bonus. (Payment of
any amount under Section 8(a)(i) shall not
constitute a payment or discharge of the
Company's obligation under Section
8(a)(ii) and VICE VERSA);
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For two (2) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other
8
<PAGE> 10
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive is employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For two (2) years after the Executive's Date
of Termination, or such longer period as may be provided by the terms of the
plan, the Company shall continue tax-qualified defined contribution and
supplemental retirement plan accruals for the Executive, including participation
and crediting of service, contributions and compensation at least equal to what
the Executive would have accrued in accordance with such plans of the Company or
affiliated companies if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for two (2) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for two (2) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(g) for two (2) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Group Replacement Insurance Program of
Commercial Intertech Corp., or any successor thereto.
9. Definitions Relating to Termination Events.
-------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
9
<PAGE> 11
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A)
the then-outstanding shares of common stock
of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting
power of the then-outstanding voting
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that for purposes of this
subsection (i), the following acquisitions
shall not constitute a Change of Control:
(A) any acquisition directly from the
Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company, (D) any
acquisition by a lender to the Company
pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least
a majority of the Board; provided, however,
that any individual becoming a director
subsequent to the date hereof whose
election, or nomination for election by the
Company's shareholders, was approved by a
vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a
member of the Incumbent Board, but
excluding, for this purpose, any such
individual whose initial assumption of
office occurs as a result of an
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<PAGE> 12
actual or threatened election contest with
respect to the election or removal of
directors or other actual or threatened
solicitation of proxies or consents by or on
behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the Company (a "Business Combination"), in
each case, unless, following such Business
Combination, (A) all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%)
of, respectively, the then-outstanding
shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be,
of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result
of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time of the execution of the
initial agreement, or of the action of the
Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the
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<PAGE> 13
Company a written certificate of Executive's good health prepared by a physician
selected by Company and reasonably acceptable to Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the second anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including status,
offices, titles and reporting requirements),
authority, duties or responsibilities as
contemplated by Section 2(a) of this
Termination Agreement, or any other action
by the Company which results in a diminution
in such position, authority, duties or
responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
action not taken in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4 of this
Termination Agreement or the Employment
Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is remedied
by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than
as provided in Section 2(b) hereof or the
Company's requiring the Executive to travel
on Company business to a substantially
greater extent than required immediately
prior to the Effective Date;
(iv) any failure by the Company to perform any
material obligation under, or breach by the
Company of any material provision of, this
Termination Agreement;
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(v) any purported termination by the Company of
the Executive's employment otherwise than as
expressly permitted by this Termination
Agreement; or
(vi) any failure by the Company to comply with
and satisfy Section 12(b) of this
Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Limit.
-----------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or could become subject to
the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall reduce or eliminate the Total Payments, but only to the
extent necessary, such that no amount of the Total Payments shall be subject to
the Excise Tax.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax:
(a) No part of the Total Payments shall be treated as subject
to the Excise Tax to the extent that, in the written opinion of independent
legal counsel, compensation consultants or auditors of nationally recognized
standing ("Independent Advisors") selected by the Company and reasonably
acceptable to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
The Company agrees to indemnify and hold Executive harmless
from any tax, penalty or other charge or liability imposed upon Executive
resulting directly or indirectly from a Total Payment's (in whole or in part)
being subject to the Excise Tax after giving effect to any reduction directed by
the Company pursuant to the first paragraph of this Section 10, or
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<PAGE> 15
from any tax, penalty or other charge or liability resulting directly or
indirectly from the Company's obligation to indemnify and hold Executive
harmless hereunder, including investigation and attorneys' fees and expenses
("Indemnification Obligation").
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company under its Indemnification Obligation. Such notification shall be
given as soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30-
day period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
(ii) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be
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<PAGE> 16
due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to its
Indemnification Obligation hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority. If, after the receipt by the
Executive of an amount advanced by the Company pursuant to this Section 10, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
this Section 10) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of
Indemnification Obligation payment required to be paid.
11. Non-Competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of six (6) consecutive calendar months thereafter, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor or director (other than as below)) in any business in the continental
United States which is a material business conducted by the Company or any of
its subsidiaries on the date of the consummation of a Change of Control in which
he has been directly engaged, or has supervised as an executive, on the date of
the consummation of the Change of Control and which is directly in competition
with a material business then conducted by the Company or any of its
subsidiaries on the date of the consummation of the Change of Control; (ii)
induce any customers of the Company or any of its subsidiaries with whom
Executive has had contacts or relationships, directly or indirectly, during and
within the scope of his employment with the Company or any of its subsidiaries,
to curtail or cancel their business with such companies or any of them; or (iii)
induce, or attempt to influence, any employee of the Company or any of its
subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii),
and (iii) above are separate and distinct commitments independent of each of the
other subparagraphs. It is agreed that the ownership of not more than one
percent of the equity securities of any company having securities listed on an
exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this paragraph (a), neither
shall service (whether as an employee, officer, director or consultant) with
respect to Commercial Intertech Corp., nor shall service as a member of a board
of directors on which Executive is serving on the Date of Termination (including
any successor board thereto) be deemed, of itself, to be inconsistent with
clause (i) of this paragraph (a). The Executive and the Company agree that the
value to be assigned to the obligations of the Executive under this paragraph
(a) is an amount equal to fifty percent (50%) of the Executive's Annual Base
Salary and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not
require Executive to return any payment or benefit previously distributed to
Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not
15
<PAGE> 17
otherwise been disclosed or is not otherwise in the public domain, except as
required by law or pursuant to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section II and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
12. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Connecticut, without regard to Connecticut conflicts of law
principles, except insofar as federal laws and regulations may be applicable. If
under the governing law, any portion of this Termination Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Termination Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
11 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING
OF OBLIGATIONS. On and after the Extension Date, all reasonable costs and
expenses (including
16
<PAGE> 18
fees and disbursements of counsel) incurred by Executive in seeking to enforce
rights pursuant to this Termination Agreement shall be paid on behalf of or
reimbursed to Executive promptly by the Company, whether or not Executive is
successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by independent counsel mutually acceptable to
Executive and the Company and made without reference to or not related to a
Change of Control. Immediately prior to the Extension Date but not less than
five (5) days prior thereto, the Company agrees to maintain a minimum amount in
a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
13. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving
17
<PAGE> 19
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: -------------------------------------
-------------------------------------
-------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement
are for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages on or
after Executive's Date of Termination nor shall the amount of any payment
hereunder be reduced by any compensation earned by the Executive as a result of
employment by another employer; PROVIDED, HOWEVER, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in this Termination Agreement,
any such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
18
<PAGE> 20
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by
the Company to Executive pursuant to this Termination Agreement shall not be
subject to offset, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against Executive or others, other than with
respect to any amounts that are owed to the Company by Executive due to his
receipt of Company funds as a result of his fraudulent activity. The foregoing
and other provisions of this Termination Agreement notwithstanding, all payments
to be made to Executive under this Termination Agreement will be subject to
required withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and
the Company has caused this instrument to be duly executed as of the day and
year first above written.
CUNO Incorporated
By: /s/Paul J. Powers
-----------------------------------
Name: Paul J. Powers
-----------------------------------
Title: Chairman & CEO
-----------------------------------
TIMOTHY B. CARNEY
/s/ T.B. Carney
----------------------------------------
19
<PAGE> 21
<TABLE>
<CAPTION>
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<C> <C>
1. Term and Application................................................................ 1
2. Office and Duties................................................................... 2
3. Salary and Annual Incentive Compensation............................................ 2
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement............................................. 3
5. Termination of Employment........................................................... 3
6. Termination Due to Normal Retirement, Death, or Disability.......................... 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability....................................................................... 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period................................... 7
9. Definitions Relating to Termination Events.......................................... 9
10. Excise Tax Limit.................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation........................... 15
12. Governing Law; Disputes; Arbitration................................................ 16
13. Miscellaneous....................................................................... 17
14. Indemnification..................................................................... 19
</TABLE>
20
<PAGE> 1
Exhibit 10.16
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.16
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and JOHN A. TOMICH ("Executive") is and shall become effective as of
October 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
After due consideration by the Board of Directors in meetings of the
Board of Directors held on July 15 and 25, 1996, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
1
<PAGE> 3
2. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a violation
of the Employment Agreement or this Termination Agreement for the Executive to
(i) serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(iii) manage personal investments, so long as the activities listed in (i), (ii)
and (iii) do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Termination Agreement, and (iv) serve in any capacity (whether as employee,
officer, director or consultant) with respect to Commercial Intertech Corp. It
is expressly understood and agreed that, to the extent that any activities have
been conducted by the Executive prior to the Extension Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Extension Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to the
Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment Period,
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Extension Date or any office or location
less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended Employment
Period, any annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives, including, without limitation, the
Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
2
<PAGE> 4
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
--------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment
Period, the compensation plans, practices, policies and programs, in the
aggregate, including without limitation the long-term incentive features of the
Company's stock option and award plans, shall provide Executive with benefits,
options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
3
<PAGE> 5
Executive's employment. In such event, the Executive's Date of Termination is
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days after
such receipt, the Executive shall not have returned to full-time performance of
the Executive's duties.
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate payable,
in accordance with Section 3(a) hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at the
Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans,
4
<PAGE> 6
programs, and arrangements (and agreements and documents thereunder) pursuant to
which such compensation and benefits were granted, including any supplemental
retirement plan in which the Executive may have participated;
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability, for
the period extending from such Date of Termination until Executive reaches age
65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal
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Retirement Date, death or Disability, the Term will immediately terminate, and
all obligations of the Company under Sections 1 through 4 of this Termination
Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the
provisions of Section 13(c), the Company shall pay Executive (or his or her
beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to
receive, the following:
(i) The unpaid portion of Annual Base Salary at the
rate payable, in accordance with Section 4(a)
hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an Executive's
Date of Termination by the Company prior to the Extension Date without Cause,
the Term will terminate and all obligations of the Company and Executive under
Sections 1 through 4 of this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company
shall pay to the Executive (or his or her beneficiaries) and Executive (or his
or her beneficiaries) shall be entitled to receive within, or commencing within,
thirty (30) days after the Date of Termination, the following amounts:
(i) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid;
(ii) twenty-four (24) semi-monthly payments during a
twelve (12) consecutive month period equal to the
Executive's Annual Base Salary divided by
twenty-four (24); provided, however,
notwithstanding anything to the contrary in the
Termination Agreement or in the Employment
Agreement, none of such amounts shall qualify
Executive for any incremental benefit under any
plan or program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such periods, and
otherwise governed, by the plans and programs and
the agreements and other documents
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thereunder pursuant to which such stock options
were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant
to which such compensation and benefits were
granted, including any supplemental retirement plan
in which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period
---------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in cash
on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and (2) the product of (x) the
higher of (A) the Recent Annual Bonus and (B) the
Executive's current Annual Bonus paid or payable
for the Company's fiscal year in which occurs the
Date of Termination, assuming Executive and Company
satisfy all conditions to Executive's receiving the
full Annual Bonus at target (and annualized for any
fiscal year consisting of less than twelve (12)
full months or during which the Executive was
employed for less than twelve (12) full months)
(such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the
current fiscal year through the Date of
Termination, and the denominator of which is 365;
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<PAGE> 9
(ii) the amount equal to two (2) times the sum of (1)
the Executive's Annual Base Salary and (2) the
Highest Annual Bonus. (Payment of any amount under
Section 8(a)(i) shall not constitute a payment or
discharge of the Company's obligation under Section
8(a)(ii) and VICE VERSA);
(iii) in lieu of any payment in respect of performance
shares, or other long term incentive awards granted
prior to the Extension Date or in accordance with
Section 4(a) hereof, for any performance period not
completed at the Executive's Date of Termination,
an amount equal to the cash amount payable plus the
value of any shares, dividends or other property
(valued at the Date of Termination) payable upon
the achievement of the then existing performance in
respect of each tranche of such performance shares
or awards as if the Date of Termination were the
end of the performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any tranche as of
the Date of Termination for which at least fifty
percent (50%) of the performance period has
elapsed, one hundred percent (100%), and (B) with
respect to any tranche as of the Date of
Termination for which less than fifty percent (50%)
of the performance period has elapsed, a fraction,
the numerator of which is the number of days that
have elapsed in the relevant performance period and
the denominator of which is the total number of
days in the relevant performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or
(iv), all vested, nonforfeitable amounts owing or
accrued at the Date of Termination under any other
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated, including any supplemental retirement
plan in which the Executive may have participated,
including any additional accruals provided under
such plan due to the Change of Control, will be
paid under the terms and conditions of the plans,
programs, and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable and
restricted stock held by the Executive will be vested to the extent and for such
periods, and otherwise governed, by the plans and programs (and the agreements
and other documents thereunder) pursuant to which such stock options or
restricted stock were granted;
(c) For two (2) years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue welfare plan benefits to
the Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b) of this Termination Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
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<PAGE> 10
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive is employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For two (2) years after the Executive's Date
of Termination, or such longer period as may be provided by the terms of the
plan, the Company shall continue tax-qualified defined contribution and
supplemental retirement plan accruals for the Executive, including participation
and crediting of service, contributions and compensation at least equal to what
the Executive would have accrued in accordance with such plans of the Company or
affiliated companies if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, provided by the Company at
its sole expense as incurred;
(e) for two (2) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for two (2) years after Executive's Date of Termination, the
payment of all regular lunch and country club membership dues or fees in respect
of any lunch or country club of which Executive is a member on Executive's Date
of Termination; and
(g) for two (2) years after Executive's Date of Termination, the
payment of normal insurance premiums with respect to the insurance policies on
the life of Executive under the Group Replacement Insurance Program of
Commercial Intertech Corp., or any successor thereto.
9. Definitions Relating to Termination Events.
-------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement, "Cause"
shall mean Executive's gross misconduct (as defined herein). For purposes of
this definition, "gross misconduct" shall mean (A) a felony conviction in a
court of law under applicable federal or state laws which results in material
damage to the Company or any of its subsidiaries or
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<PAGE> 11
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty
percent (20%) or more of either (A) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(B) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any
acquisition by a lender to the Company pursuant to
a debt restructuring of the Company, or (E) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of the directors then
comprising the Incumbent Board shall be considered
as though such individual were a member of the
Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of
office occurs as a result of an
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actual or threatened election contest with respect
to the election or removal of directors or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then-
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan
(or related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such
Business Combination, or the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business Combination
and (C) at least a majority of the members of the
board of directors of the corporation resulting
from such Business Combination were members of the
Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the
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Company a written certificate of Executive's good health prepared by a physician
selected by Company and reasonably acceptable to Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing
on the Extension Date and ending on the third anniversary of such date.
(e) "EXTENSION DATE" shall mean the first date during the Term of
this Termination Agreement on which a Change of Control occurs. Anything in this
Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the second anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a) of
this Termination Agreement, or any other action by
the Company which results in a diminution in such
position, authority, duties or responsibilities,
excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4 of this Termination
Agreement or the Employment Agreement, other than
an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location other than as provided in
Section 2(b) hereof or the Company's requiring the
Executive to travel on Company business to a
substantially greater extent than required
immediately prior to the Effective Date;
(iv) any failure by the Company to perform any material
obligation under, or breach by the Company of any
material provision of, this Termination Agreement;
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(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Termination Agreement; or
(vi) any failure by the Company to comply with and
satisfy Section 12(b) of this Termination
Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Limit.
-----------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or could become subject to
the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall reduce or eliminate the Total Payments, but only to the
extent necessary, such that no amount of the Total Payments shall be subject to
the Excise Tax.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax:
(a) No part of the Total Payments shall be treated as subject to
the Excise Tax to the extent that, in the written opinion of independent legal
counsel, compensation consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and reasonably acceptable to
Executive, the Total Payments (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the base amount within the meaning
of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
The Company agrees to indemnify and hold Executive harmless from
any tax, penalty or other charge or liability imposed upon Executive resulting
directly or indirectly from a Total Payment's (in whole or in part) being
subject to the Excise Tax after giving effect to any reduction directed by the
Company pursuant to the first paragraph of this Section 10, or
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<PAGE> 15
from any tax, penalty or other charge or liability resulting directly or
indirectly from the Company's obligation to indemnify and hold Executive
harmless hereunder, including investigation and attorneys' fees and expenses
("Indemnification Obligation").
The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company under its Indemnification Obligation. Such notification shall be
given as soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30-
day period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be
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due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to its
Indemnification Obligation hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority. If, after the receipt by the
Executive of an amount advanced by the Company pursuant to this Section 10, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
this Section 10) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of
Indemnification Obligation payment required to be paid.
11. Non-Competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the Board,
upon the Executive's Date of Termination for any reason, Executive will not, for
a period of six (6) consecutive calendar months thereafter, acting alone or in
conjunction with others, directly or indirectly (i) engage (either as owner,
investor, partner, stockholder, employer, employee, consultant, advisor or
director (other than as below)) in any business in the continental United States
which is a material business conducted by the Company or any of its subsidiaries
on the date of the consummation of a Change of Control in which he has been
directly engaged, or has supervised as an executive, on the date of the
consummation of the Change of Control and which is directly in competition with
a material business then conducted by the Company or any of its subsidiaries on
the date of the consummation of the Change of Control; (ii) induce any customers
of the Company or any of its subsidiaries with whom Executive has had contacts
or relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to
Commercial Intertech Corp., nor shall service as a member of a board of
directors on which Executive is serving on the Date of Termination (including
any successor board thereto) be deemed, of itself, to be inconsistent with
clause (i) of this paragraph (a). The Executive and the Company agree that the
value to be assigned to the obligations of the Executive under this paragraph
(a) is an amount equal to fifty percent (50%) of the Executive's Annual Base
Salary and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not
require Executive to return any payment or benefit previously distributed to
Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not
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otherwise been disclosed or is not otherwise in the public domain, except as
required by law or pursuant to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this Termination
Agreement to the contrary, the provisions of this Section 11 shall survive the
termination or expiration of this Termination Agreement, shall be valid and
enforceable, and shall be a condition precedent to the Executive (or his or her
beneficiaries) receiving any amounts payable hereunder. The obligations of
Executive under this Section II and any comparable type of obligation under the
Employment Agreement are expressly conditioned upon Company's satisfaction of
its obligations to Executive under this Termination Agreement and the Employment
Agreement.
12. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by and
is to be construed, administered, and enforced in accordance with the laws of
the State of Connecticut, without regard to Connecticut conflicts of law
principles, except insofar as federal laws and regulations may be applicable. If
under the governing law, any portion of this Termination Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Termination Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
11 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING OF
OBLIGATIONS. On and after the Extension Date, all reasonable costs and expenses
(including
16
<PAGE> 18
fees and disbursements of counsel) incurred by Executive in seeking to enforce
rights pursuant to this Termination Agreement shall be paid on behalf of or
reimbursed to Executive promptly by the Company, whether or not Executive is
successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by independent counsel mutually acceptable to
Executive and the Company and made without reference to or not related to a
Change of Control. Immediately prior to the Extension Date but not less than
five (5) days prior thereto, the Company agrees to maintain a minimum amount in
a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
13. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement nor
the rights or obligations hereunder of the parties hereto shall be transferable
or assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 13(c). The Company may assign this
Termination Agreement and the Company's rights and obligations hereunder, and
shall assign this Termination Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise, continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving
17
<PAGE> 19
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail, return receipt
requested, postage prepaid and addressed to such party at the address set forth
below or at such other address as may be designated by such party by like
notice:
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: ---------------------------------------
---------------------------------------
---------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination nor shall the amount of any payment hereunder be
reduced by any compensation earned by the Executive as a result of employment by
another employer; PROVIDED, HOWEVER, that, to the extent Executive receives from
a subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
18
<PAGE> 20
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by the
Company to Executive pursuant to this Termination Agreement shall not be subject
to offset, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others, other than with respect
to any amounts that are owed to the Company by Executive due to his receipt of
Company funds as a result of his fraudulent activity. The foregoing and other
provisions of this Termination Agreement notwithstanding, all payments to be
made to Executive under this Termination Agreement will be subject to required
withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
CUNO Incorporated
By: /s/Paul J. Powers
-----------------------------
Name: Paul J. Powers
-----------------------------
Title: Chairman & CEO
-----------------------------
John A. Tomich
/s/John A. Tomich
-----------------------------------
19
<PAGE> 21
CUNO INCORPORATED
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application.......................................................... 1
2. Office and Duties............................................................. 2
3. Salary and Annual Incentive Compensation...................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement....................................... 3
5. Termination of Employment..................................................... 3
6. Termination Due to Normal Retirement, Death, or Disability.................... 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability................................................................. 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period............................. 7
9. Definitions Relating to Termination Events.................................... 9
10. Excise Tax Limit.............................................................. 13
11. Non-Competition and Non-Disclosure; Executive Cooperation..................... 15
12. Governing Law; Disputes; Arbitration.......................................... 16
13. Miscellaneous................................................................. 17
14. Indemnification............................................................... 19
</TABLE>
20
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Listed below, as of January 2, 1997, are the significant subsidiaries
of the Company and their jurisdictions of organization. All of such subsidiaries
are either directly or indirectly wholly owned by the Company. Other
subsidiaries of the Company have been omitted because, considered in the
aggregate, they would not constitute a significant subsidiary.
Jurisdiction of
Name of Subsidiary Organization
------------------ ----------------
100% Owned
- ----------
CUNO Europe S.A. France
CUNO Pacific, Pty. Ltd. Australia
CUNO Filtration Asia Pte. Ltd. Singapore
CUNO K.K. Japan
CUNO Latina Ltda Brazil
CUNO SarL Italy
CUNO GmbH Germany
CUNO Ltd. United Kingdom
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 5,244
<SECURITIES> 0
<RECEIVABLES> 38,077
<ALLOWANCES> 1,133
<INVENTORY> 19,149
<CURRENT-ASSETS> 68,154
<PP&E> 96,150
<DEPRECIATION> 47,949
<TOTAL-ASSETS> 138,756
<CURRENT-LIABILITIES> 56,597
<BONDS> 33,772
<COMMON> 14
0
0
<OTHER-SE> 43,134
<TOTAL-LIABILITY-AND-EQUITY> 138,756
<SALES> 179,068
<TOTAL-REVENUES> 179,068
<CGS> 104,848
<TOTAL-COSTS> 104,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 820
<INCOME-PRETAX> 11,011
<INCOME-TAX> 5,418
<INCOME-CONTINUING> 5,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,593
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
