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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, 1997
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 December 31, 1997, 16,129,025 common shares were outstanding, and the
aggregate market value of the common shares (based upon the last price on that
date) was approximately $245,968,000.
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 26, 1998 and Proxy Statement
filed January 23, 1998.
Part III, Items 10-13
Part IV, Item 14
Annual Report to Shareholders, Part IV, Item 14
The exhibit index is located on pages 14-15.
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Part I
ITEM 1. BUSINESS
(a) General development of business:
BACKGROUND
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 Brazil, 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 accounted for as a Dividend to Commercial
Intertech. 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.
BUSINESS
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.
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 $187
million, a 31 percent increase from fiscal year 1994 to fiscal year 1997.
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(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:
Overview
Filtration is the process of separating particles of various sizes from
liquids or gases. The mechanics of filtration range from the removal of coarse
contaminants, most often particulates, as large as 200 microns such as sand and
sediment, to the elimination of bacteria and viruses at less than .01 micron
(human hair is typically 20 microns in diameter). A filtration device consists
of a plastic or metal housing and a filtration medium. Filtration media, which
can be manufactured out of a variety of substances, act as the separator or
barrier in the filtration process.
Filtration media include microporous membranes, glass, synthetic and
cellulosic fibers, porous metals and ceramics. Microporous membranes are thin,
film-like materials with millions of uniform microscopic holes. Membranes are
the most widely used filtration media because they remove specifically-sized
particles and can be configured into a variety of shapes and sizes.
The Company's major markets are healthcare, fluid processing and potable
water.
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 totaled $56,812,000, $47,912,000, and
$39,938,000 in 1997, 1996 and 1995, 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 semi-conductors, and power generation facilities.
As sophisticated manufacturing processes increase and as the adoption of
practices focused on quality increase, the Company believes the demand for
filtration products will also increase. In part, this trend is driven by the
enhanced ability to detect contaminants in process streams. As automation
increases, focus on quality control increases, and as the ability to detect
contaminants progresses, fluid filtration will play a greater role in the
manufacturing process.
A significant segment of the Company's fluid processing market is
electronics manufacturing. Ultra pure water is used to rinse the components
during manufacturing in order to ensure that the product is particle free with
no residual contamination. The industry uses corrosive, high purity chemicals
and gases for the manufacture of
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computer chips, hard disks, video terminals and other components. All of the
chemicals and gases used are processed through very fine filtration systems. The
expanding demand for electronic products and the wider use of computer chips is
fueling industry growth. Sales to the fluid processing market totaled
$80,307,000, $81,839,000 and $77,528,000 in 1997, 1996 and 1995, respectively.
Potable Water
The potable water market includes residential, commercial and food service
customers. According to industry data, it is estimated that 1.0 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 totaled
$50,359,000, $49,317,000 and $45,233,000 in 1997, 1996 and 1995, 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.
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 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 to its distributors. In many cases the customer is unable to define
its filtration needs accurately and seeks outside resources to identify and
choose the best filtration alternative. The Company's S.A.S.S. professionals
meet this need. Management has been training and focusing distributors on
specific market segments
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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.
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.
The Company's products include those sold under the following labels:
Zetapor (R), Microfluor (R), PolyPro(R), ZetaBind(R), Electropor(TM),
BevASSURE(TM), MaxMedia(TM), Synchro(R), Acro(R), and AC/PH Lithowater(R).
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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), Micro-Klean(R) II, Beta-Klean(R),
Betapure(R), PolyPro-Klean(R), BioCap(R), Micro-Wynd(R) II, and Petro-Klean(TM).
Cleanable Filters and Systems
The Company designs and manufactures an extensive range of self-cleaning
disc filters, backwash strainers and recleanable metal filters. The
self-cleaning disc filters and back wash strainers can be electrically or
mechanically operated with automatic controls to provide for specific
requirements in process applications. The recleanable metal filter elements are
constructed of sintered porous stainless steel or metal screens in tubular and
pleated construction. The recleanable elements can be cleaned in place in a
filter housing or removed for mechanical, ultrasonic or chemical cleaning.
The Company's cleanable filters and system products 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 type 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.
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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, 1997 was $13.8 million as compared to
$15.3 million the previous year. Due to the relatively short manufacturing cycle
and 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.
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. Through
its S.A.S.S. teams, the Company has developed many products by collaborating
with its customers throughout the design and development process. The Company
believes that these relationships provide it with a competitive advantage over
other manufacturers.
Research and Development and Product Development
The Company's research and development 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 1997, 1996, and 1995 were approximately $10.5 million, $9.9
million and $8.3 million, respectively, and 5.6 percent, 5.5 percent, and 5.1
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. All of the Company's manufacturing facilities
are ISO 9002 certified.
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.
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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 1997.
The Company believes that no end-user of any of its products accounts for
more than ten percent of sales. As of October 31, 1997, the Company employed
over 270 people as sales people. Of such employees, approximately 180 are
located overseas.
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 at least
40 patent applications 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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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, 1997, the Company employed over 1,300 people worldwide
(exclusive of employees of independent distributors), with over 750 employees in
the United States and approximately 550 employees in other countries.
(d) Financial information about foreign and domestic operations and export
sales.
See Note 9 to the financial statements on page 44 of the 1997 Annual
Report to Stockholders which is incorporated herein by reference.
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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, most 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
Mairinque, Brazil ................................... 65,000
Calais, France ...................................... 50,000
Mazeres, France ..................................... 40,000
Sydney, Australia * ................................. 290,000
Singapore** ......................................... 18,546
</TABLE>
* 40 percent of this facility is sublet to an unrelated third party.
** Leased facility.
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.
There were no matters submitted to a vote of stockholders during the
fourth quarter of fiscal year 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Registrant is presented in
Part III below and incorporated herein by reference.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The portion of the 1997 Annual Report to Stockholders appearing on page 3 under
the heading "Market Price Information" is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The financial data on page 49 of the 1997 Annual Report to Stockholders,
captioned "Summary of Financial Data" is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 1997-1995
The following portions of the 1997 Annual Report to Stockholders are
incorporated herein by reference:
(a) All of the material on pages 23 - 28 under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and report of independent
auditors included on pages 29 - 48 of the Annual Report to Stockholders for the
fiscal year ended October 31, 1997 are incorporated herein by reference.
Quarterly Results of Operations on page 47 of the 1997 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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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 23, 1998, which information is
incorporated by reference herein.
The principal executive officers of the Company and their recent business
experience are as follows:
<TABLE>
<CAPTION>
Name Office Held Age
---- ----------- ---
<S> <C> <C>
Paul J. Powers ............ Chairman of the Board of 62
Directors
Mark G. Kachur ............ President and Chief 54
Executive Officer
Michael H. Croft .......... Senior Vice President 53
and President of the
Consumer Filter Products
Group
Ronald C. Drabik .......... Senior Vice President, 51
Chief Financial Officer,
Assistant Secretary and
Treasurer
Timothy B. Carney ......... Vice President, 45
Controller and Assistant
Secretary
John A. Tomich ............ Counsel and Secretary 40
</TABLE>
None of the officers are related and they are elected from year to year or
until their successors are duly elected and qualified.
Paul J. Powers. Mr. Powers is the Chairman of the Board of Directors.
Since the Spin-off in September 1996 thru November 1997, Mr. Powers was 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, Inc.
Mark G. Kachur. Mr. Kachur is the President and, effective December 1997,
Chief Executive 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 and Chief
Operating Officer 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.
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Michael H. Croft. Mr. Croft is a Senior Vice President of the Company, and
effective December 1997, the President of the Consumer Filter Products Group.
From 1993 through 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, Assistant 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.
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.
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 23, 1998, 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 Management" and "Security Ownership of Certain Beneficial
Owners" in the Company's definitive Proxy Statement filed January 23, 1998,
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 the Board of Directors" in the Company's definitive Proxy
Statement filed January 23, 1998, which information is incorporated herein by
reference.
13
<PAGE> 14
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
included in its 1997 Annual Report to Shareholders are incorporated by
reference in Item 8:
<TABLE>
<CAPTION>
Page Number
In This Report
--------------
<S> <C>
Consolidated Statements of Income -
Years ended October 31, 1997,
1996, and 1995 ................................. 29
Consolidated Balance Sheets as of
October 31, 1997 and 1996 ...................... 30-31
Consolidated Statements of Stockholders'
Equity - Years ended October 31,
1997, 1996, and 1995 ........................... 32
Consolidated Statements of Cash Flows -
Years ended October 31, 1997, 1996, and 1995 ... 33
Notes to Consolidated Financial Statements ....... 34-47
(2) The following financial statement
schedule of CUNO Incorporated
is included in Item 14 (d):
Schedule II Valuation and Qualifying
Accounts ............................... S-1
</TABLE>
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.
(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
14
<PAGE> 15
*10.4 Form of Distribution and Interim Services Agreement by and
between CUNO Incorporated and Commercial Intertech Corp.
*10.5 Form of Tax Sharing Agreement by and between CUNO
Incorporated and Commercial Intertech Corp.
*10.6 Form of Employee Benefits and Compensation Allocation
Agreement by and between CUNO Incorporated and Commercial
Intertech Corp.
10.7 Employment Agreement - Mark G. Kachur dated December 3,
1993*, as amended December 1, 1997.
**10.8 Termination and Change of Control Agreement - Paul J. Powers
dated October 1, 1996
**10.9 Termination and Change of Control Agreement - Mark G. Kachur
dated October 1, 1996
**10.10 Termination and Change of Control Agreement - Michael H.
Croft dated October 1, 1996
**10.11 Termination and Change of Control Agreement - Ronald C.
Drabik dated October 1, 1996
10.12 Termination and Change of Control Agreement - Timothy B.
Carney dated October 1, 1996**, as amended October 31, 1997.
**10.13 Termination and Change of Control Agreement - John A. Tomich
dated October 1, 1996
***10.14 Credit Agreement dated October 1, 1996 between CUNO
Incorporated and Mellon Bank, N.A.
***10.15 CUNO Incorporated Executive Management Incentive Plan
***10.16 CUNO Incorporated Management Incentive Plan
10.17 CUNO Incorporated Savings and Retirement Plan
10.18 Employment Agreement - Paul J. Powers dated December 1, 1997.
13 - Certain sections of the Annual Report to Shareholders for the
year ended October 31, 1997.
21 - Subsidiaries of the registrant
23 - Consent of Independent Auditors
27 - Financial Data Schedule
- ------------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form 10, as amended, filed with the Securities and Exchange Commission on July
29, 1996.
** Incorporated by reference to the registrant's Annual Report on Form
10-K, as amended, filed with the Securities and Exchange Commission on January
23, 1997.
*** Incorporated by reference to the Registrant's Registration Statement
on Form S-1, as amended, filed with the Securities and Exchange Commission on
February 27, 1997.
(b) There were no reports on Form 8-K for the quarter
ended October 31, 1997.
Additional information relating to management contracts and renumerative
plans is contained in Note 10- Stock Options and Awards of the Notes to
Consolidated Financial Statements on pages 45-46.
15
<PAGE> 16
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 28, 1998
/s/ Mark G. Kachur /s/ Ronald C. Drabik
- --------------------------- -----------------------------
Mark G. Kachur Ronald C. Drabik
President and Senior Vice President and
Chief Executive Officer Chief Financial 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.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
Joel B. Alvord* Director January 28, 1998
Charles L. Cooney, Ph.D.* Director January 28, 1998
Norbert A. Florek* Director January 28, 1998
John A. Galvin* Director January 28, 1998
Mark G. Kachur* Director January 28, 1998
Gerald C. McDonough* Director January 28, 1998
C. Edward Midgley* Director January 28, 1998
Paul J. Powers* Chairman January 28, 1998
David L. Swift* Director January 28, 1998
</TABLE>
*By: /s/ Ronald C. Drabik
---------------------------------
Ronald C. Drabik
Attorney-in-Fact, Pursuant to
Power of Attorney
16
<PAGE> 17
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Listed below, as of October 31, 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.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Organization
- ------------------ ------------
100% Owned
- ----------
<S> <C>
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>
17
<PAGE> 18
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
CUNO INCORPORATED
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
==========================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------
DESCRIPTION BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT END
BEGINNING COSTS OTHER ACCOUNTS OF PERIOD
OF PERIOD AND EXPENSES - DESCRIBE
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $1,133,453 $ 692,542 $ 0 $ 405,907(A) $1,420,088
========== ========== ====== ============= ==========
Valuation allowance for deferred
income tax assets $1,061,000 $ 0 $ 0 $ 544,000(C) $ 517,000
========== ========== ====== ============= ==========
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
========== ========== ====== ============= ==========
435,000(B)
Valuation allowance for deferred =============
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
========== ========== ====== ============= ==========
764,000(B)
Valuation allowance for deferred =============
income tax assets $3,279,000 $ 0 $ 0 $ 683,000(C) $1,832,000
========== ========== ====== ============= ==========
</TABLE>
(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.
S-1
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of December 1, 1997, by and
between CUNO INCORPORATED, a Delaware corporation (the "Company"), and MARK G.
KACHUR ("Executive").
RECITALS
WHEREAS, Executive is and has been serving as a member of the Company's
Board of Directors (the "Board") and Chief Operating Officer of the Company and
is an integral part of its management;
WHEREAS, Executive and the company are parties to an employment
agreement dated December 3, 1993 (assigned to the Company by Commercial
Intertech Corp.) which was extended for an additional year until April 10, 1998
by letter dated April 10, 1997;
WHEREAS, Executive and the Company desire to terminate the December 3,
1993 Agreement and Extension and to replace it with this Agreement;
WHEREAS, the Company wishes to ensure that Executive will not compete
with the company for a period of two years after the last date on which he is
either an employee of the Company or a member of the Board; and
WHEREAS, Executive is prepared to enter into this employment agreement
with the Company and to give the Company assurances it desires;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:
1. Employment, Contract Period. During the period specified in this
Section 1, the Company shall employ Executive, and Executive shall serve the
Company, on the term and subject to the conditions set forth herein. The term of
Executive's employment hereunder shall commence as of December 1, 1997 (the
"Effective Date"), and, subject to prior termination as provided in Section 6
hereof, shall continue through November 30, 2000. The term of Executive's
employment hereunder is sometimes hereinafter referred to as the "Contract
Period."
<PAGE> 2
2. Responsibility. At all times during the Contract Period, Executive
shall serve the Company as the Company's President and Chief Executive Officer
and shall (a) devote his full business time and effort exclusively to the
performance of duties as assigned to him by the Board that are normally incident
to the office of Chief Executive Officer, and (b) use his best efforts to
promote the interests of the Company and its affiliates.
3. Remuneration. At all times during the Contract Period, the Company
shall pay to Executive compensation as provided in this Section 3.
(a) Base Salary. The Corporation shall pay Executive a base
salary at an annual rate of not less than $350,000 paid on a monthly
basis. The annual rate of base salary may be increased at the
discretion of the Compensation Committee of the Board (the
"Committee"). If increased, the annual rate of base salary may not
thereafter be decreased during the term of this Agreement.
(b) Annual Incentive Compensation. The Corporation may pay
Executive an annual bonus under the provisions of the Company's Senior
Management Target Incentive Plan and the Salaried Employee Incentive
Plan or any successor plans, but only if and when authorized by the
Committee.
(c) Performance Shares. The Company will grant herewith 25,000
Performance Shares under the Company's Performance Share Plan to
Executive with respect to a three-year performance period ending on
October 31, 2000. If, while Executive remains employed pursuant to this
Agreement, the Company, in its fiscal year ending October 31, 1998,
makes grants of Performance Shares under the Company's Performance
Share Plan (with respect to the three-year performance period ending on
October 31, 2001), the Company shall then grant not fewer than 25,000
of such Performance Shares to Executive. Each grant of Performance
Shares is subject to the terms of the Company's Performance Share Plan,
and will not be distributed until earned according to the performance
requirements for each performance period.
(d) Restricted Shares. The Company shall grant to Executive,
effective as of the Effective Date, 25,000 restricted shares of the
Company's Common Stock pursuant to the Company's 1996 Stock Incentive
Plan (with 5-year vesting).
2
<PAGE> 3
(e) Options. The Company shall grant to the Executive,
effective as of the Effective Date options to purchase 100,000 shares
of the Company's Common Stock in the form of non-qualified stock
options pursuant to the Company's 1996 Stock Incentive Plan.
4. Employee Benefits. Executive shall be included, to the extent
eligible thereunder with respect to the requirements applicable to all employees
eligible thereunder, under any and all existing plans (and any plans that later
may be adopted) providing benefits for the Company's employees. These plans,
include, but are not limited to:
(a) The Company's group life insurance plan, under which
Executive shall be eligible for life insurance equal to four times his
then-current base salary as defined in the Plan or the Group
Replacement Insurance plan, at Executive's option.
(b) The Company's hospitalization and medical plans, as
provided to all Company employees.
(c) The Company's long-term disability plan, as provided to
all Company employees.
(d) Any pension, thrift plans, profit-sharing plans, stock
purchase plans, and any and all other similar or comparable benefits.
(e) The SERP and any other supplemental executive retirement
plan or excess benefit plan.
Executive shall also be provided with a suitable automobile allowance under the
terms of the Company's executive automobile program, automobile insurance, paid
vacation of at least four weeks per year, officers' and directors' liability
insurance coverage in an amount reasonably available, and estate planning
counsel.
5. Supplemental Executive Retirement Plan. Company agrees to grant to
Executive a supplemental executive retirement plan ("SERP") that contains the
following provisions:
(a) a SERP retirement benefit calculated in accordance with
the formula under the Pension Plan for Salaried Employees of CUNO
Incorporated, provided, however that such benefit will be calculated
(i) using base salary plus target award plan bonuses excluding the
stock payout premium, (ii) based upon average compensation of the
highest 3 consecutive years during the 10 year period immediately
preceding separation from service, and (iii) using years of service as
3
<PAGE> 4
follows: (I) upon attainment of age 60, 12 years of service; (II) upon
attainment of age 62, 17 years of service; and (III) upon attainment of
age 65, 25 years of service.
(b) a SERP retirement benefit in the event of a change in
control, calculated in the same manner as a SERP retirement benefit,
provided however, that such benefit will be calculated (i) using 15
years of service, if greater than the service mentioned above; and (ii)
based upon Executive's highest annualized base salary plus the greater
of (I) an amount equal to the highest earned annual target award bonus
excluding the stock payout premium, or (II) an amount equal to the
highest target level bonus excluding the stock payout premium.
6. Termination.
(a) Death or Disability. Executive's employment hereunder will
terminate immediately upon Executive's death. The Company may terminate
Executive's employment hereunder immediately upon giving notice of
termination if Executive is disabled, by reason of physical or mental
impairment, to such an extent that he has been unable to substantially
perform his duties under this Agreement for an aggregate of 180 days
(whether business or non-business days and whether or not consecutive)
during any period of twelve consecutive calendar months.
(b) For "Cause". The Company may terminate Executive's
employment under this Agreement for "Cause" only on the basis of:
(i) Executive's willful failure substantially to
perform his duties with the Company, after a written demand
for substantial performance is delivered to Executive by the
Board, which written demand specifically identifies the manner
in which the Board believes Executive has not substantially
performed his duties, or
(ii) Executive's willful engagement in conduct
materially injurious to the Company.
For purposes of this Agreement, no act or failure to act on Executive's
part shall be considered "willful" unless done, or omitted to be done,
by Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. Executive
shall not be deemed to have been terminated
4
<PAGE> 5
for Cause unless and until there shall have been delivered to Executive
a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds of the entire membership of the Board at a meeting of
the Board called and held for that purpose, finding that in good faith
opinion of the Board, Executive was guilty of conduct set forth in
clause (i) or clause (ii) of this subsection 6(b) and specifying the
particulars thereof in detail. No termination of Executive's employment
by the Company for "Cause" shall be effective unless and until it is
communicated by the Company to Executive by a written notice that
refers to either or both of clause (i) and clause (ii) of this
subsection 6(b) as the specific termination provision or provisions
relied upon by the Company and that sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision or provisions so indicated.
(c) Without "Cause". The Company may terminate Executive's
employment under this Agreement without "Cause" at any time, effective
at such time as the Board may specify in a motion duly adopted by the
affirmative vote of two-thirds of the members of the Board then in
office.
7. Compensation and Benefits Following Termination Without "Cause". If
the Company terminates Executive's employment under this Agreement without
"Cause:"
(a) the Company shall pay to Executive, in immediately
available funds, within 10 days of the date of termination of
Executive's employment, a lump sum amount that is equal to the sum of
(A) 24 months' of base salary at the highest rate paid to Executive
before the termination, plus (B) two times the average of the annual
cash bonuses, if any, received by Executive under the provisions of the
Company's Incentive plans or any successor plan with respect to each of
the two most recent fiscal years of the Company ended before the
termination;
(b) the restrictions on any restricted shares held by
Executive immediately before the termination of his employment shall
expire simultaneously with the termination of his employment;
(c) any options to purchase shares in the Company held by
Executive immediately before the termination of his employment that
were not otherwise exercisable by Executive shall be exercisable by
Executive at any time during the 90-day period beginning immediately
after the date of termination of his employment; and
5
<PAGE> 6
(d) with the exception of health and medical benefits, which
the Company will provide for a period of one year after termination,
the Company shall not be obligated to pay any compensation, benefits,
or perquisites to Executive by reason of this Agreement after the
termination of his employment.
If Executive receives any payments under this Agreement as a result of
termination of his employment following a termination without Cause, those
payments shall be in lieu of any and all other claims or rights that Executive
may have for severance, separation, and/or salary continuation pay upon that
termination of his employment.
8. Compensation and Benefits Following Termination on Account of
Disability. If the Company terminates Executive's employment under subsection
6(a) of this Agreement by reason of Executive's disability:
(a) the Company shall pay and provide to Executive, not later
than 75 days after the end of the fiscal year in which the termination
occurs, that portion of the total bonus, if any, to which he would have
been entitled had he continued to be employed under this Agreement
through the end of the fiscal year in which the termination occurs,
equal to the total bonus multiplied by a fraction, the numerator of
which is the number of days in the fiscal year ending on or before the
date of Executive's termination and the denominator of which is 365;
(b) the restrictions on any restricted shares held by
Executive immediately before the termination of his employment shall
terminate simultaneously with the termination of his employment.
9. Miscellaneous Services following Termination of Employment.
Following termination of his full-time employment under this Agreement,
Executive shall make himself available at all reasonable times for consultation
by and with the Company's officers and directors. If Executive is called upon to
render services of this nature, he shall, in consideration therefor and as a
condition thereto, receive reasonable compensation for the services rendered and
reimbursement for any travel or other out-of-pocket expenses incurred in
connection therewith.
10. Benefit. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributed, devisees, and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid
6
<PAGE> 7
in accordance with the terms of this Agreement to Executive's devisee, legatee,
or other designee or, if there be no such designee, to Executive's estate.
11. Successor to the Company. The Company shall require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
12. Confidential Information and Noncompetition. Executive agrees and
acknowledges that Executive's talents, skills, and experience are unique, and
that Company has invested considerable efforts and money in developing and
compiling customer lists, supplier lists, and trade and market information, in
developing business techniques and practices, and in maintaining valuable market
relationships; that such items and all other information that relates to the
business of the Company, the business of any customer or supplier of the
Company, or the business of any person, firm, or corporation that consults with
or is affiliated with the Company, constitute for purposes hereof the
"Confidential Information" of the Company; and that the Confidential Information
is valuable property of the company and is vital to the operation and
continuation of the Company's business. Confidential Information shall not
include information so generally known as to be part of the public domain.
Executive acknowledges that the Company has and will disclose Confidential
Information to Executive and afford him access to Confidential Information in
connection with his employment with the Company. Executive agrees that he shall
use such Confidential Information solely for the benefit of the Company.
Executive further acknowledges that the grant of 25,000 restricted shares
referred to in section 3(d) is being made by the Company in order to induce
Executive to agree to the restrictions contained in this Section 12 and that
Executive has received valuable consideration commensurate with those
restrictions. Accordingly, Executive agrees and acknowledges that:
(a) Except as required in the performance of his duties as an
employee of the Company, Executive shall not at any time, either
directly or indirectly, use, divulge, disclose, or communicate to any
person, firm, or corporation in any manner whatsoever any Confidential
Information.
7
<PAGE> 8
(b) Executive has been given access to the Company's
Confidential Information solely for purposes relating to his employment
by the Company. Executive shall have no rights in such Confidential
Information or any letters patent, copyrights, or other proprietary
rights relating thereto, and Executive hereby assigns to the Company
any supplemental or additional information relating to the Confidential
Information acquired by Executive, whether solely or in collaboration
with others, that relates in any manner to either the subject of
Executive's work for the Company or any business of the Company during
the Contract Period ("Improvements"). Executive will disclose promptly
in writing to the Company all such Improvements or information
supplemental or related thereto, and such Improvements shall be treated
for all purposes as Confidential Information hereunder.
(c) During the Contract Period and thereafter, at the request
of the Company and without expense to Executive, Executive shall
cooperate in the procurement of any patent, copyright, trademark, or
trade name protection in the Company's name that may be necessary or
desirable to vest, or to perfect the record of, title to the
Confidential Information in the Company. Executive agrees to execute
all documents and do all things necessary or desirable in any
controversy or otherwise to aid Company in obtaining and enforcing
proper protection of its Confidential Information.
(d) During the period commencing on the Effective Date and
ending on the second anniversary of the first date on which Executive
is neither employed by the Company nor a member of the Board (the
"Restriction period"), Executive shall not, directly or indirectly,
own, operate, have any other than a minor financial interest in, be
employed by, or in any other manner take part in or consult with any
business that is the same as, similar to, or competitive with the
business of the Company as such business is conducted during the
Contract Period. During the Restriction period, Executive shall not
solicit (other than for the benefit of the Company during the Contract
period) any sale or purchase to or from any person who is or was a
customer or supplier of the Company during the term of Executive's
employment by the Company, either as an employee, agent, consultant,
licensee, independent contractor, owner, or otherwise.
(e) At any time upon request of the Company and upon
termination of his employment by the Company, Executive shall deliver
to the Company, and shall not retain for his own or another's use, any
and all lists, information, notes, memoranda, documents, devices, and
any other material, and all copies thereof, relating to
8
<PAGE> 9
Executive's work or the products or business of the company of which
Executive had knowledge.
(f) If any provision of this Section 12 is determined by any
court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time or over too great a
geographical area, it shall be interpreted to extend only over the
maximum period of time for which it may be enforceable, or over the
maximum geographical area to which it may be enforceable, or both; and
such partial unenforceability shall not affect any other provision of
this Agreement. Executive acknowledges that, in light of the
proprietary interest of the Company in the Confidential Information,
the restrictions set forth herein are reasonable and that the remedies
at law for the breach of any provision of this Section 12 are
inadequate. Accordingly, in the event of any breach, or reasonable
belief as to the existence or imminence of a breach, of the provisions
hereof, the Company shall be entitled to injunctive relief to enjoin
the breach (in addition to any other legal and equitable remedies that
the Company may have, including an equitable accounting of gain to
Executive resulting from the breach), together with all costs and
expenses, including reasonable attorney's fees, related to the
enforcement by the Company of its rights hereunder.
13. Anti-dilution. If, at any time after the Effective Date and before
the date on which any grant of Performance Shares is to be made to Executive
pursuant to Section 3(c), above, there occurs any stock dividend, stock split,
or share combination of the shares of Common Stock of the Company or any
reclassification, recapitalization, merger, consolidation, other form of
business combination, liquidation, or dissolution involving the Company or any
spin-off or other distribution to shareholders of the Company (other than normal
cash dividends), the number of shares of the Company's Common Stock to be
granted as Performance Shares shall be appropriately adjusted to the extent
necessary in such manner that the benefit to executive of the grant of those
Performance Shares is maintained substantially as before the occurrence of the
event.
14. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9
<PAGE> 10
16. Legal Fees and Expenses. Except for fees and expenses related to
the Company's enforcement of the provisions of Section 12, the Company shall pay
all legal fees and expenses that Executive may incur as a result of the
Company's contesting the validity, enforceability, or Executive's interpretation
of, or determinations under, this Agreement.
17. Notices. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person, or three days after deposit
thereof in the official U.S. mails, postage prepaid, for delivery as registered
or certified mail, addressed as follows:
If to the Company:
CUNO Incorporated
Attention: Corporate Secretary
400 Research Parkway
Meriden, Connecticut 06450
If to the Executive:
Mark G. Kachur
2 White Pine Lane
Guilford, CT 06437
In lieu of personal notice or notice by deposit in the official U.S. mails, a
party may give notice by confirmed telegram or fax. Either party may change the
address to which notice to that party may be mailed by notifying the other party
of the change in the manner contemplated in this section.
18. Effect on Existing Termination and Change of Control Agreement.
Executive and the Company are parties to a Termination and Change of Control
Agreement dated as of December 13, 1996, pursuant to which Executive may become
entitled to severance compensation if Executive's employment is terminated under
certain circumstances following a Change in Control, as defined in that
agreement (the "Change in Control Agreement"). Executive and the Company intend
that if a Change in Control, as defined in the Change in Control Agreement,
occurs and thereafter Executive receives any payments pursuant to Section 7 of
this Agreement (any "Section 7 Payments"), the entire amount of such Section 7
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Payments will be treated as damages paid to the Executive by the Company as a
result of the Company's breach of an employment contract with the Executive with
the result that the payments otherwise due under the Change in Control Agreement
will be reduced by the full amount of the Section 7 Payments. The provisions of
this Section 18 shall prevail over any inconsistent language in the Change in
Control Agreement and, to the extent necessary to be effective shall be deemed
to be an amendment to the Change in Control Agreement.
19. Entire Agreement. This Agreement replaces and supersedes the
Employment Agreement between Executive and the Company dated as of December 3,
1993. This Agreement expresses the entire agreement of the parties with respect
to the subject matter hereof, and all promises, representations, understandings,
arrangements, and prior agreements are merged herein and superseded hereby. No
person, other than pursuant to a resolution of the Board, shall have any
authority on behalf of the Company to agree to modify or change this Agreement
or anything in reference thereto, and any such modification or change must be in
writing and signed by both parties.
20. Governing Law. This Agreement has been entered into in, and is
intended to be performed primarily within, the State of Connecticut and shall be
construed, interpreted, and governed in accordance with the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
EXECUTIVE CUNO INCORPORATED
By:/s/ Mark G. Kachur By: /s/ Paul J. Powers
---------------------------- -----------------------------
MARK G. KACHUR PAUL J. POWERS
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EXHIBIT 10.12
CUNO Incorporated
Termination and Change of Control Agreement for Corporate Officers
<PAGE> 2
CUNO Incorporated
Termination and Change of Control Agreement for
Timothy B. Carney
1. Term and Application ................................................... 1
2. Office and Duties ...................................................... 2
3. Salary and Annual Incentive Compensation ............................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement ....................... 3
5. Termination of Employment .............................................. 4
6. Termination Due to Normal Retirement, Death, or Disability ............. 5
7. Termination of Employment For Reasons Other Than Normal Retirement,
Death or Disability .................................................... 6
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period .........8
9. Definitions Relating to Termination Events .............................11
10. Excise Tax Gross-Up ....................................................14
11. Non-Competition and Non-Disclosure; Executive Cooperation ..............18
12. Governing Law; Disputes; Arbitration ..................................19
13. Miscellaneous ..........................................................20
14. Indemnification ........................................................22
<PAGE> 3
TERMINATION AND CHANGE OF CONTROL AGREEMENT
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").
WITNESSETH
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 and this Termination Agreement. In no
event shall Executive receive any payment, right or
<PAGE> 4
benefit under both this Termination Agreement and the Employment Agreement with
respect to the same Date of Termination (as defined below).
2. Office and Duties.
(a) Generally. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Executive Employment Agreement 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 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.
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
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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
least equal to the highest average of the Executive's annual incentive
compensation for any two full fiscal years in the most recent five 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
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<PAGE> 6
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 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
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<PAGE> 7
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, 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
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<PAGE> 8
(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 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
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(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) bi-monthly payments during a twelve (12)
consecutive month period equal to the Executive's Annual
Base Salary divided by twenty-four (24); provided, however,
notwithstanding anything to the contrary in the Termination
Agreement or in the Employment Agreement, none of such
amounts shall qualify Executive for any incremental benefit
under any plan or program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise
governed, by the plans and programs and the agreements and
other documents thereunder pursuant to which such stock
options were granted; and
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(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
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the current fiscal year through the Date of Termination, and
the denominator of which is 365;
(ii) the amount equal to three (3) times the sum of (1) the
Executive's Annual Base Salary and (2) the Highest Annual
Bonus. (Payment of any amount under Section 8(a)(i) shall not
constitute a payment or discharge of the Company's obligation
under Section 8(a)(ii) and vice versa);
(iii) in lieu of any payment in respect of performance shares, or
other long term incentive awards granted prior to the
Extension Date or in accordance with Section 4(a) hereof, for
any performance period not completed at the 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, 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
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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 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. 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);
(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 the Executive's Date of Termination, the
payment of all regular lunch and country club membership dues or fees in respect
of any lunch or country club of which Executive is a member on Executive'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
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life of Executive under the Company's 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 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
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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 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
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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 "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
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<PAGE> 16
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).
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
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<PAGE> 17
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
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<PAGE> 18
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
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
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<PAGE> 19
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 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
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<PAGE> 20
(subject to the Company's complying with the requirements of this Section 10)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
11. Non-Competition and Non-Disclosure: Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of two years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States 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 a 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 a 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 $ * __________. 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
* An amount equal to one hundred percent (100%) of the Executive's Annual Base
Salary and Recent Annual Bonus.
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long as such information has not otherwise been disclosed or is not otherwise in
the public domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; provided, however, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than 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
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<PAGE> 22
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 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
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otherwise, continues to carry on substantially the business of the Company prior
to the event of succession, and the Company shall, as a condition of the
succession, require such Successor to agree to assume the Company's obligations
and be bound by this Termination Agreement. For purposes of this Termination
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's voting securities or all or substantially all of its
assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
If to the Company: CUNO Incorporated
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.
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(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 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
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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: CEO
-----------------------------------
10/31/97
/s/ Timothy B. Carney
----------------------------------------
Timothy B. Carney
23
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EXHIBIT 10.17
CUNO INCORPORATED SAVINGS AND RETIREMENT PLAN
<PAGE> 2
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 16
2.2 DETERMINATION OF TOP HEAVY STATUS 16
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 20
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 21
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 21
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 21
2.7 RECORDS AND REPORTS 22
2.8 APPOINTMENT OF ADVISERS 23
2.9 INFORMATION FROM EMPLOYER 23
2.10 PAYMENT OF EXPENSES 23
2.11 MAJORITY ACTIONS 23
2.12 CLAIMS PROCEDURE 23
2.13 CLAIMS REVIEW PROCEDURE 24
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 24
3.2 APPLICATION FOR PARTICIPATION 24
3.3 EFFECTIVE DATE OF PARTICIPATION 25
3.4 DETERMINATION OF ELIGIBILITY 25
3.5 TERMINATION OF ELIGIBILITY 25
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1
3.6 OMISSION OF ELIGIBLE EMPLOYEE 26
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 26
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 26
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION 27
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 31
4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS 31
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS 35
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS 38
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS 40
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS 43
4.9 MAXIMUM ANNUAL ADDITIONS 45
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 49
4.11 TRANSFERS FROM QUALIFIED PLANS 50
4.12 VOLUNTARY CONTRIBUTIONS 52
4.13 DIRECTED INVESTMENT ACCOUNT 53
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 53
5.2 METHOD OF VALUATION 54
ARTICLE VI
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2
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 54
6.2 DETERMINATION OF BENEFITS UPON DEATH 54
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY 55
6.4 DETERMINATION OF BENEFITS UPON TERMINATION 56
6.5 DISTRIBUTION OF BENEFITS 59
6.6 DISTRIBUTION OF BENEFITS UPON DEATH 61
6.7 TIME OF SEGREGATION OR DISTRIBUTION 62
6.8 DISTRIBUTION FOR MINOR BENEFICIARY 62
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 62
6.10 PRE-RETIREMENT DISTRIBUTION 62
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP 63
6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION 64
6.13 DIRECT ROLLOVER 65
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT 66
7.2 TERMINATION 66
7.3 MERGER OR CONSOLIDATION 67
7.4 LOANS TO PARTICIPANTS 67
ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS 68
8.2 ALIENATION 69
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3
8.3 CONSTRUCTION OF PLAN 69
8.4 GENDER AND NUMBER 70
8.5 LEGAL ACTION 70
8.6 PROHIBITION AGAINST DIVERSION OF FUNDS 70
8.7 BONDING 70
8.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 71
8.9 INSURER'S PROTECTIVE CLAUSE 71
8.10 RECEIPT AND RELEASE FOR PAYMENTS 71
8.11 ACTION BY THE EMPLOYER 71
8.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 71
8.13 HEADINGS 72
8.14 APPROVAL BY INTERNAL REVENUE SERVICE 72
8.15 UNIFORMITY 73
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CUNO INCORPORATED SAVINGS AND RETIREMENT PLAN
THIS PLAN, hereby adopted this tenth day of September, 1996,
by Cuno Incorporated (herein referred to as the "Employer").
W I T N E S S E T H:
WHEREAS, the Employer desires to recognize the contribution
made to its successful operation by its employees and to reward such
contribution by means of a 401(k) Profit Sharing Plan for those employees who
shall qualify as Participants hereunder;
NOW, THEREFORE, effective September 10, 1996, (hereinafter
called the "Effective Date"), the Employer hereby establishes a Profit Sharing
Plan (the "Plan") for the exclusive benefit of the Participants and their
Beneficiaries, on the following terms:
ARTICLE I
DEFINITIONS
0.1 "Act" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
0.1 "Administrator" means the person or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of the
Employer.
0.1 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
0.1 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 2.2.
0.1 "Anniversary Date" means December 31 and each other date specified
by the Employer.
0.1 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
0.1 "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
0.1 "Compensation" with respect to any Participant means the base wage
rate paid by the Employer to the Participant for the Plan Year, including
non-work vacation payments and holidays, but excluding shift differential,
overtime, commissions, bonuses, and any add-on payments paid by the Employer as
an incentive payment on the Employee's basic wage pay. For purposes of this
Plan, contributions made to an Employee's Aggregate Account shall be limited to
Compensation received on two thousand eighty (2,080) Hours of Service.
For purposes of this Section, the determination of
Compensation shall be made by:
0
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(a) including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which
are not includible in the gross income of the Participant
under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or
457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
For a Participant's initial year of participation,
Compensation shall be recognized as of such Employee's effective date of
participation pursuant to Section 3.3.
Compensation in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning with or within
such calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before the close of
the year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual compensation limit is $150,000,
as adjusted by the Commissioner for increases in the cost of living in
accordance with Code Section 401(a)(17)(B). The cost of living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401(a)(17) shall
mean the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
If, as a result of such rules, the maximum "annual addition"
limit of Section 4.9(a) would be exceeded for one or more of the affected Family
Members, the prorated Compensation of all affected Family Members shall be
adjusted to avoid or reduce any
1
<PAGE> 11
excess. The prorated Compensation of any affected Family Member whose allocation
would exceed the limit shall be adjusted downward to the level needed to provide
an allocation equal to such limit. The prorated Compensation of affected Family
Members not affected by such limit shall then be adjusted upward on a pro rata
basis not to exceed each such affected Family Member's Compensation as
determined prior to application of the Family Member rule. The resulting
allocation shall not exceed such individual's maximum "annual addition" limit.
If, after these adjustments, an "excess amount" still results, such "excess
amount" shall be disposed of in the manner described in Section 4.10(a) pro rata
among all affected Family Members.
0.1 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
0.1 "Deferred Compensation" with respect to any Participant means the
amount of the Participant's total Compensation which has been contributed to the
Plan in accordance with the Participant's deferral election pursuant to Section
4.2 excluding any such amounts distributed as excess "annual additions" pursuant
to Section 4.10(a).
0.1 "Early Retirement Date." This Plan does not provide for a
retirement date prior to Normal Retirement Date.
0.1 "Elective Contribution" means the Employer's contributions to the
Plan of Deferred Compensation excluding any such amounts distributed as excess
"annual additions" pursuant to Section 4.10(a). In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 4.6 shall be
considered an Elective Contribution for purposes of the Plan. Any such
contributions deemed to be Elective Contributions shall be subject to the
requirements of Sections 4.2(b) and 4.2(c) and shall further be required to
satisfy the discrimination requirements of Regulation 1.401(k)-1(b)(5), the
provisions of which are specifically incorporated herein by reference.
0.1 "Eligible Employee" means any Employee.
Employees who are Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) shall not be eligible to participate in this
Plan.
Employees who are nonresident aliens (within the meaning of
Code Section 7701(b)(1)(B)) and who receive no earned income (within the meaning
of Code Section 911(d)(2)) from the Employer which constitutes income from
sources within the United States (within the meaning of Code Section 861(a)(3))
shall not be eligible to participate in this Plan.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
0.1 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
0.1 "Employer" means Cuno Incorporated and any successor which shall
maintain this Plan; and any predecessor which has maintained this Plan. The
Employer is a corporation, with principal offices in the State of Connecticut.
2
<PAGE> 12
0.1 "Excess Aggregate Contributions" means, with respect to any Plan
Year, the excess of the aggregate amount of the Employer matching contributions
made pursuant to Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any qualified non-elective
contributions or elective deferrals taken into account pursuant to Section
4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the
maximum amount of such contributions permitted under the limitations of Section
4.7(a).
0.1 "Excess Contributions" means, with respect to a Plan Year, the
excess of Elective Contributions made on behalf of Highly Compensated
Participants for the Plan Year over the maximum amount of such contributions
permitted under Section 4.5(a). Excess Contributions, including amounts
recharacterized pursuant to Section 4.6(a)(2), shall be treated as an "annual
addition" pursuant to Section 4.9(b).
0.1 "Excess Deferred Compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4.9(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 2.2 and 4.4(g), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
0.1 "Family Member" means, with respect to an affected Participant,
such Participant's spouse and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414(q)(6)(B).
0.1 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
0.1 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on November 1st of each year and ending the following October 31st.
0.1 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Terminated Participant's Account, or
(a) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be
3
<PAGE> 13
deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4(e)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
0.1 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
0.1 "415 Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d) and 6051(a)(3), but excluding
amounts paid or reimbursed by the Employer for moving expenses incurred by the
Employee (to the extent it is reasonable to believe such payments are deductible
by the Employee under Section 217 of the Code).
0.1 "414(s) Compensation" with respect to any Participant means such
Participant's Elective Contributions attributable to Deferred Compensation
recharacterized as voluntary Employee contributions pursuant to Section 4.6(a)
plus "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year, except that "414(s) Compensation" shall only be recognized for
that portion of the Plan Year during which an Employee was a Participant in the
Plan.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be disregarded.
Such amount shall be adjusted at the same time and in such manner as permitted
under Code Section 415(d), except that the dollar increase in effect on January
1 of any calendar year shall be effective for the Plan Year beginning with or
within such calendar year and the first adjustment to the $200,000 limitation
shall be effective on January 1, 1990. For any short Plan Year the "414(s)
Compensation" limit shall be an amount equal to the "414(s) Compensation" limit
for the calendar year in which the Plan Year begins multiplied by the ratio
obtained by dividing the number of full months in the short Plan Year by twelve
(12). In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of Code
Section 414(q)(6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year.
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual
4
<PAGE> 14
compensation limit will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the denominator of which
is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
0.1 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year"
or "look-back year" were "five percent owners" as defined in Section
1.32(c).
(a) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(a) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in the
Top Paid Group of Employees for the Plan Year.
(a) Employees who during the "look-back year" were officers of
the Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415 Compensation"
during the "look-back year" from the Employer greater than 50 percent
of the limit in effect under Code Section 415(b)(1)(A) for any such
Plan Year. The number of officers shall be limited to the lesser of (i)
50 employees; or (ii) the greater of 3 employees or 10 percent of all
employees. For the purpose of determining the number of officers,
Employees described in Section 1.55(a), (b), (c) and (d) shall be
excluded, but such Employees shall still be considered for the purpose
of identifying the particular Employees who are officers. If the
Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will
be treated as a Highly Compensated Employee.
(a) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above
when these paragraphs are modified to substitute "determination year"
for "look-back year."
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period. However, if the Plan Year is a calendar year, or if another
plan of the Employer so provides, and if the Administrator so elects, then the
"look-back year" shall be the calendar year ending with or within the Plan Year
for which testing is being performed, and the "determination year" (if
applicable) shall be the period of time, if any, which extends beyond the
"look-back year" and ends on the last day of the Plan Year for which testing is
being
5
<PAGE> 15
performed (the "lag period"). With respect to any such election, it shall be
applied on a uniform and consistent basis to all plans, entities, and
arrangements of the Employer.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions. Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations. In the case of such
an adjustment, the dollar limits which shall be applied are those for the
calendar year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees
who are non-resident aliens and who received no earned income (within the
meaning of Code Section 911(d)(2)) from the Employer constituting United States
source income within the meaning of Code Section 861(a)(3) shall not be treated
as Employees. Additionally, all Affiliated Employers shall be taken into account
as a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year."
0.1 "Highly Compensated Former Employee" means a former Employee who
had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a "five percent owner."
For purposes of this Section, "determination year," "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.26. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
0.1 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
0.1 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
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Notwithstanding the above, (i) no more than 501 Hours of
Service are required to be credited to an Employee on account of any single
continuous period during which the Employee performs no duties (whether or not
such period occurs in a single computation period); (ii) an hour for which an
Employee is directly or indirectly paid, or entitled to payment, on account of a
period during which no duties are performed is not required to be credited to
the Employee if such payment is made or due under a plan maintained solely for
the purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be
made by or due from the Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust fund, insurer, or
other entity are for the benefit of particular Employees or are on behalf of a
group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for purposes of accrued
benefits, a 1-Year Break in Service, and employment commencement date (or
reemployment commencement date). In addition, Hours of Service will be credited
for employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
0.1 "Income" means the income or losses allocable to "excess amounts"
which shall equal the allocable gain or loss for the "applicable computation
period". The income allocable to "excess amounts" for the "applicable
computation period" is determined by multiplying the income for the "applicable
computation period" by a fraction. The numerator of the fraction is the "excess
amount" for the "applicable computation period." The denominator of the fraction
is the total "account balance" attributable to "Employer contributions" as of
the end of the "applicable computation period", reduced by the gain allocable to
such total amount for the "applicable computation period" and increased by the
loss allocable to such total amount for the "applicable computation period".
This computation is herein referred to as the "fractional method". The
provisions of this Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess amounts";
(1) "taxable year of the Participant" for "applicable
computation period";
(1) "Deferred Compensation" for "Employer contributions";
and
(1) "Participant's Elective Account" for "account
balance."
(a) For purposes of Section 4.6(a), by substituting:
(1) "Excess Contributions" for "excess amounts";
(1) "Plan Year" for "applicable computation period";
(1) "Elective Contributions" for "Employer
contributions"; and
(1) "Participant's Elective Account" for "account
balance."
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<PAGE> 17
(a) For purposes of Section 4.8, by
substituting:
(1) "Excess Aggregate Contributions" for "excess
amounts;"
(1) "Plan Year" for "applicable computation period;"
(1) "Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12 and any qualified non-elective contributions
or elective deferrals taken into account pursuant to Section
4.7(c)" for "Employer contributions;" and
(1) "Participant's Account and Voluntary Contribution
Account" for "account balance."
Income allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the Participant
shall be calculated from the first day of the taxable year of the Participant to
the date on which the distribution is made pursuant to either the "fractional
method" or the "safe harbor method." Under such "safe harbor method," allocable
Income for such period shall be deemed to equal ten percent (10%) of the Income
allocable to such Excess Deferred Compensation multiplied by the number of
calendar months in such period. For purposes of determining the number of
calendar months in such period, a distribution occurring on or before the
fifteenth day of the month shall be treated as having been made on the last day
of the preceding month and a distribution occurring after such fifteenth day
shall be treated as having been made on the first day of the next subsequent
month.
The Income allocable to Excess Aggregate Contributions resulting
from the recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
0.1 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
0.1 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year.
(a) one of the ten employees having annual "415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation in
effect under Code Section 415(c)(1)(A) for the calendar year in which
such Plan Year ends and owning (or considered as owning within the
meaning of Code Section 318) both more than one-half percent interest
and the largest interests in the Employer.
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<PAGE> 18
(a) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than five percent (5%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers.
(a) a "one percent owner" of the Employer having an annual
"415 Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than one percent (1%) of
the outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than one percent (1%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers. However, in determining
whether an individual has "415 Compensation" of more than $150,000,
"415 Compensation" from each employer required to be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
0.1 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
0.1 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension
plan providing:
(1) a non-integrated employer contribution rate of at least
10% of compensation, as defined in Code Section 415(c)(3), but
including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code
Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and
Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
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<PAGE> 19
(1) immediate participation; and
(1) full and immediate vesting; and
(a) if Leased Employees do not constitute more than 20% of the
recipient's non-highly compensated work force.
0.1 "Non-Elective Contribution" means the Employer's contributions to
the Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution.
0.1 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
0.1 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
0.1 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
0.1 "Normal Retirement Date" means the first day of the month
coinciding with or next following the Participant's Normal Retirement Age.
0.1 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
0.1 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
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<PAGE> 20
0.1 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Non-Elective
Contributions.
0.1 "Participant's Combined Account" means the total aggregate amount
of each Participant's Elective Account and Participant's Account.
0.1 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective
Contributions.
0.1 "Plan" means this instrument, including all amendments thereto.
"Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st,
except for the first Plan Year which commenced September 10th.
0.1 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 4.6. Such
contributions shall be considered an Elective Contribution for the purposes of
the Plan and used to satisfy the "Actual Deferral Percentage" tests.
In addition, the Employer's contributions to the Plan that are made
pursuant to Section 4.8(h) which are used to satisfy the "Actual Contribution
Percentage" tests shall be considered Qualified Non-Elective Contributions and
be subject to the provisions of Sections 4.2(b) and 4.2(c).
0.1 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
0.1 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
0.1 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 6.1).
0.1 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
0.1 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
0.1 "Top Heavy Plan" means a plan described in Section 2.2(a).
0.1 "Top Heavy Plan Year" means a Plan Year during which the Plan is a
Top Heavy Plan.
0.1 "Top Paid Group" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (determined for this purpose in accordance
with Section 1.26) received from the Employer during such year. All Affiliated
Employers shall be taken into account as
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<PAGE> 21
a single employer, and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, for the purpose of determining the number of active
Employees in any year, the following additional Employees shall also be
excluded; however, such Employees shall still be considered for the purpose of
identifying the particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(a) Employees who normally work less than 17 1/2 hours per
week;
(a) Employees who normally work less than six (6) months
during a year; and
(a) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the identification of
particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
0.1 "Total and Permanent Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing his usual and customary
employment with the Employer. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator. The
determination shall be applied uniformly to all Participants.
0.1 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
0.1 "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
0.1 "Vested" means the nonforfeitable portion of any account maintained
on behalf of a Participant.
0.1 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) shall remain subject to the limitations of Sections
4.2(b) and 4.2(c). Therefore, a separate accounting shall be maintained with
respect to that portion of the
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<PAGE> 22
Voluntary Contribution Account attributable to voluntary Employee contributions
made pursuant to Section 4.12.
0.1 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An Employee who is credited
with the required Hours of Service in both the initial computation period (or
the computation period beginning after a 1-Year Break in Service) and the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service, shall be credited with two (2) Years of Service
for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan
Year, including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the Plan
Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c).
Years of Service with AMF, Inc. and Commercial Intertech shall be
recognized.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE I
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.4 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in
which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds sixty percent (60%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of
all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year,
such Participant's Present Value of Accrued Benefit and/or
Aggregate Account
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<PAGE> 23
balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy
Plan (or whether any Aggregation Group which includes this Plan
is a Top Heavy Group). In addition, if a Participant or Former
Participant has not performed any services for any Employer
maintaining the Plan at any time during the five year period
ending on the Determination Date, any accrued benefit for such
Participant or Former Participant shall not be taken into account
for the purposes of determining whether this Plan is a Top Heavy
or Super Top Heavy Plan.
(a) This Plan shall be a Super Top Heavy Plan for any Plan
Year in which, as of the Determination Date, (1) the Present
Value of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds ninety percent (90%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of
all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(a) Aggregate Account: A Participant's Aggregate Account as
of the Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the
most recent valuation occurring within a twelve (12) month
period ending on the Determination Date;
(1) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of
any contributions actually made after the valuation date but
due on or before the Determination Date, except for the
first Plan Year when such adjustment shall also reflect the
amount of any contributions made after the Determination
Date that are allocated as of a date in that first Plan
Year.
(1) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of distributions
made after the valuation date and prior to the Determination
Date, such distributions are not included as distributions
for top heavy purposes to the extent that such distributions
are already included in the Participant's Aggregate Account
balance as of the valuation date. Notwithstanding anything
herein to the contrary, all distributions, including
distributions made prior to January 1, 1984, and
distributions under a terminated plan which if it had not
been terminated would have been required to be included in
an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of
life insurance policies) of a Participant's account balance
because of death shall be treated as a distribution for the
purposes of this paragraph.
(1) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate
Account balance.
(1) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and
made from a plan maintained by one employer to a plan
maintained by another
14
<PAGE> 24
employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such
rollovers or plan-to-plan transfers as a distribution for
the purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it shall
not consider such rollovers or plan-to-plan transfers as
part of the Participant's Aggregate Account balance.
(1) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made
to a plan maintained by the same employer), if this Plan
provides the rollover or plan-to-plan transfer, it shall not
be counted as a distribution for purposes of this Section.
If this Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such rollover or
plan-to-plan transfer as part of the Participant's Aggregate
Account balance, irrespective of the date on which such
rollover or plan-to-plan transfer is accepted.
(1) For the purposes of determining whether two employers
are to be treated as the same employer in (5) and (6) above,
all employers aggregated under Code Section 414(b), (c), (m)
and (o) are treated as the same employer.
(a) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter
determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in
which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four
preceding Plan Years, and each other plan of the Employer
which enables any plan in which a Key Employee participates
to meet the requirements of Code Sections 401(a)(4) or 410,
will be required to be aggregated. Such group shall be known
as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in
the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan in
the Required Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top
Heavy Group.
(1) Permissive Aggregation Group: The Employer may also
include any other plan not required to be included in the
Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions
of Code Sections 401(a)(4) and 410. Such group shall be
known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan
that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
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<PAGE> 25
(1) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall
be aggregated in order to determine whether such plans are
Top Heavy Plans.
(1) An Aggregation Group shall include any terminated plan
of the Employer if it was maintained within the last five
(5) years ending on the Determination Date.
(a) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year,
the last day of such Plan Year.
(a) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee, shall be as determined
using the single accrual method used for all plans of the
Employer and Affiliated Employers, or if no such single method
exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code
Section 411(b)(1)(C). The determination of the Present Value of
Accrued Benefit shall be determined as of the most recent
valuation date that falls within or ends with the 12-month period
ending on the Determination Date except as provided in Code
Section 416 and the Regulations thereunder for the first and
second plan years of a defined benefit plan.
(a) "Top Heavy Group" means an Aggregation Group in which,
as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(1) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined
for all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove
the Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure
that the Plan is being operated for the exclusive benefit of the
Participants and their Beneficiaries in accordance with the terms
of the Plan, the Code, and the Act.
(a) The Employer shall establish a "funding policy and
method," i.e., it shall determine whether the Plan has a short
run need for liquidity (e.g., to pay benefits) or whether
liquidity is a long run goal and investment growth (and stability
of same) is a more current need, or shall appoint a qualified
person to do so. The Employer or its delegate shall communicate
such needs and goals to the Trustee, who shall coordinate such
Plan needs with its investment policy. The communication of such
a "funding policy and method" shall not, however, constitute a
directive to the Trustee as to investment of the Trust Funds.
Such "funding policy and method" shall be consistent with the
objectives of this Plan and with the requirements of Title I of
the Act.
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<PAGE> 26
(a) The Employer shall periodically review the performance
of any Fiduciary or other person to whom duties have been
delegated or allocated by it under the provisions of this Plan or
pursuant to procedures established hereunder. This requirement
may be satisfied by formal periodic review by the Employer or by
a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other
appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
In the event that the Employer functions as the Administrator
pursuant to Section 2.4, the Employer or the Trustee may appoint an "Advisory
Committee", which may assist the Administrator with its powers and duties
outlined in Section 2.6 of this Plan.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
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<PAGE> 27
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to
the eligibility of Employees to participate or remain a
Participant hereunder and to receive benefits under the Plan;
(a) to compute, certify, and direct the Trustee with respect
to the amount and the kind of benefits to which any Participant
shall be entitled hereunder;
(a) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the
Trust;
(a) to maintain all necessary records for the administration
of the Plan;
(a) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent
with the terms hereof;
(a) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from
which such Contract shall be purchased;
(a) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or
desirable to be contributed to the Plan;
(a) to consult with the Employer and the Trustee regarding
the short and long-term liquidity needs of the Plan in order that
the Trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives;
(a) to prepare and implement a procedure to notify Eligible
Employees that they may elect to have a portion of their
Compensation deferred or paid to them in cash;
(a) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and
shall keep all other books of account, records, and other data that may be
necessary for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers (including an
"Advisory Committee"), and other persons as the Administrator or the Trustee
deems necessary or desirable in connection with the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
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To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with
the Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed. In the
event the claim is denied, the reasons for the denial shall be specifically set
forth in the notice in language calculated to be understood by the claimant,
pertinent provisions of the Plan shall be cited, and, where appropriate, an
explanation as to how the claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plan's
claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Administrator pursuant to Section
2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which may
be obtained from the Administrator) a request for a hearing. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an
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<PAGE> 29
extension of 60 days due to special circumstances, provided the delay and the
special circumstances occasioning it are communicated to the claimant within the
60 day period). Such communication shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the decision
and specific references to the pertinent Plan provisions on which the decision
is based.
ARTICLE I
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service
and has attained age 18 shall be eligible to participate hereunder as of the
date he has satisfied such requirements. However, any Employee who had satisfied
the eligibility requirements for participation in the Commercial Intertech
Retirement Stock Ownership and Savings Plan on September 10, 1996, shall become
a Participant in this Plan as of the Effective Date of the Plan.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
Any Employee who had satisfied the eligibility requirements for
participation in the Commercial Intertech Retirement Stock Ownership and Savings
Plan will become a Participant as soon as administratively feasible following
receipt of their enrollment elections, if such elections are received during the
period beginning September 10, 1996 and ending December 20, 1996. Any other
Eligible Employee shall become a Participant effective as of the earlier of the
first day of the Plan Year or the first day of the seventh month of such Plan
Year ("Entry Date") coinciding with or next following the date such Employee met
the eligibility requirements of Section 3.1, provided said Employee was still
employed as of such date (or if not employed on such date, as of the date of
rehire if a 1-Year Break in Service has not occurred). A terminated Employee
(who had not become a Participant prior to his termination) who is reemployed by
the Employer after he incurs a 1-Year Break in Service shall become a
Participant on the first Entry Date on or after which he satisfies the Plan's
eligibility requirements of Section 3.1, counting his Years of Service prior to
his reemployment, unless his consecutive 1-Year Breaks in Service equal or
exceed the greater of (A) five (5), or (B) the aggregate number of his pre-break
Years of Service, in which case he shall be treated as a new Employee for
purposes of participation.
Any Eligible Employee who terminates employment with the Employer
prior to satisfying the Plan's eligibility requirements of Section 3.1, shall
become a Participant pursuant to this Section 3.3 only after he has satisfied
the eligibility requirements of Section 3.1 after his date of reemployment with
the Employer.
In the event an Employee who is not a member of an eligible class
of Employees becomes a member of an eligible class, such Employee will
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have otherwise previously become a Participant.
3.4 DETERMINATION OF ELIGIBILITY
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<PAGE> 30
The Administrator shall determine the eligibility of each Employee
for participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee,
such Former Participant shall continue to vest in his interest in
the Plan for each Year of Service completed while a noneligible
Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in
the earnings of the Trust Fund.
(a) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate
but has not incurred a 1-Year Break in Service, such Employee
will participate immediately upon returning to an eligible class
of Employees. If such Participant incurs a 1-Year Break in
Service, eligibility will be determined under the break in
service rules of the Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included
as a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
(except for Deferred Compensation which shall be distributed to the ineligible
person) for the Plan Year in which the discovery is made.
ARTICLE I
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of
all Participants made pursuant to Section 4.2(a), which amount
shall be deemed an Employer's Elective Contribution.
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<PAGE> 31
(a) On behalf of each Participant who is eligible to
share in matching contributions for the Plan Year, a
discretionary matching contribution equal to a percentage of each
such Participant's Deferred Compensation, the exact percentage to
be determined each year by the Employer, which amount shall be
deemed an Employer's Non-Elective Contribution. Such matching
contribution shall be made in the form of "Employer Stock". For
purposes of this Plan, "Employer Stock" shall mean shares of any
class of common stock issued by the Employer.
Except, however, in applying the matching percentage
specified above, only salary reductions up to 6% of Compensation
shall be considered.
Notwithstanding the foregoing, for the Plan Year
beginning September 10, 1996 and ending December 31, 1996, salary
reductions up to 8% of Compensation shall be considered in
applying the matching percentage specified above.
(a) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum
amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the Employer
shall be made in cash or in such property as is acceptable to the
Trustee.
(a) Except, however, to the extent necessary to provide the
top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds the amount which is deductible
under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer from 1% to 15%
(in whole percentages) of his Compensation which would have been
received in the Plan Year, but for the deferral election. A
deferral election (or modification of an earlier election) may
not be made with respect to Compensation which is currently
available on or before the date the Participant executed such
election or, if later, the latest of the date the Employer adopts
this cash or deferred arrangement, or the date such arrangement
first became effective.
The amount by which Compensation is reduced shall be
that Participant's Deferred Compensation and be treated as an
Employer Elective Contribution and allocated to that
Participant's Elective Account.
(a) The balance in each Participant's Elective Account shall
be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(a) Amounts held in the Participant's Elective Account may
not be distributable earlier than:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(1) a Participant's attainment of age 59 1/2;
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<PAGE> 32
(1) the termination of the Plan without the establishment or
existence of a "successor plan," as that term is described
in Regulation 1.401(k)-1(d)(3);
(1) the date of disposition by the Employer to an entity
that is not an Affiliated Employer of substantially all of
the assets (within the meaning of Code Section 409(d)(2))
used in a trade or business of such corporation if such
corporation continues to maintain this Plan after the
disposition with respect to a Participant who continues
employment with the corporation acquiring such assets;
(1) the date of disposition by the Employer or an Affiliated
Employer who maintains the Plan of its interest in a
subsidiary (within the meaning of Code Section 409(d)(3)) to
an entity which is not an Affiliated Employer but only with
respect to a Participant who continues employment with such
subsidiary; or
(1) the proven financial hardship of a Participant, subject
to the limitations of Section 6.11.
(a) For each Plan Year, a Participant's Deferred
Compensation made under this Plan and all other plans, contracts
or arrangements of the Employer maintaining this Plan shall not
exceed, during any taxable year of the Participant, the
limitation imposed by Code Section 402(g), as in effect at the
beginning of such taxable year. If such dollar limitation is
exceeded, a Participant will be deemed to have notified the
Administrator of such excess amount which shall be distributed in
a manner consistent with Section 4.2(f). The dollar limitation
shall be adjusted annually pursuant to the method provided in
Code Section 415(d) in accordance with Regulations.
(a) In the event a Participant has received a hardship
distribution from his Participant's Elective Account pursuant to
Section 6.11 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B)
from any other plan maintained by the Employer, then such
Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period
of twelve (12) months following the receipt of the distribution.
Furthermore, the dollar limitation under Code Section 402(g)
shall be reduced, with respect to the Participant's taxable year
following the taxable year in which the hardship distribution was
made, by the amount of such Participant's Deferred Compensation,
if any, pursuant to this Plan (and any other plan maintained by
the Employer) for the taxable year of the hardship distribution.
(a) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation
1.402(g)-1(b)) under another qualified cash or deferred
arrangement (as defined in Code Section 401(k)), a simplified
employee pension (as defined in Code Section 408(k)), a salary
reduction arrangement (within the meaning of Code Section
3121(a)(5)(D)), a deferred compensation plan under Code Section
457, or a trust described in Code Section 501(c)(18) cumulatively
exceed the limitation imposed by Code Section 402(g) (as adjusted
annually in accordance with the method provided in Code Section
415(d) pursuant to Regulations) for such Participant's taxable
year, the Participant may, not later than March 1 following the
close of the Participant's taxable year, notify the Administrator
in writing of such excess and request that his Deferred
Compensation under this Plan be reduced by an amount specified by
the
23
<PAGE> 33
Participant. In such event, the Administrator may direct the
Trustee to distribute such excess amount (and any Income
allocable to such excess amount) to the Participant not later
than the first April 15th following the close of the
Participant's taxable year. Any distribution of less than the
entire amount of Excess Deferred Compensation and Income shall be
treated as a pro rata distribution of Excess Deferred
Compensation and Income. The amount distributed shall not exceed
the Participant's Deferred Compensation under the Plan for the
taxable year. Any distribution on or before the last day of the
Participant's taxable year must satisfy each of the following
conditions:
(1) the distribution must be made after the date on which
the Plan received the Excess Deferred Compensation;
(1) the Participant shall designate the distribution as
Excess Deferred Compensation; and
(1) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
Any distribution made pursuant to this Section 4.2(f)
shall be made first from unmatched Deferred Compensation and,
thereafter, from Deferred Compensation which is matched. Matching
contributions which relate to such Deferred Compensation shall be
forfeited.
(a) Notwithstanding Section 4.2(f) above, a Participant's
Excess Deferred Compensation shall be reduced, but not below
zero, by any distribution and/or recharacterization of Excess
Contributions pursuant to Section 4.6(a) for the Plan Year
beginning with or within the taxable year of the Participant.
(a) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair
market value of the Participant's Elective Account shall be used
to provide additional benefits to the Participant or his
Beneficiary.
(a) All amounts allocated to a Participant's Elective
Account may be treated as a Directed Investment Account pursuant
to Section 4.13.
(a) Employer Elective Contributions made pursuant to
this Section may be segregated into a separate account for each
Participant in a federally insured savings account, certificate
of deposit in a bank or savings and loan association, money
market mutual fund, or other short-term debt security acceptable
to the Trustee until such time as the allocations pursuant to
Section 4.4 have been made.
(a) The Employer and the Administrator shall implement the
salary reduction elections provided for herein in accordance with
the following:
(1) A Participant may commence making elective deferrals
to the Plan only after first satisfying the eligibility and
participation requirements specified in Article III. However, the
Participant must make his initial salary deferral election within
a reasonable time after entering the Plan pursuant to Section
3.3. If the Participant fails to make an initial salary deferral
election, then such
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<PAGE> 34
Participant may thereafter make an election in accordance with
the rules governing modifications. The Participant shall make
such an election by entering into a written salary reduction
agreement with the Employer and filing such agreement with the
Administrator. Such election shall initially be effective
beginning with the pay period following the acceptance of the
salary reduction agreement by the Administrator, shall not have
retroactive effect and shall remain in force until revoked.
(1) A Participant may modify a prior election during the Plan
Year and concurrently make a new election by filing a written
notice with the Administrator within a reasonable time before the
pay period for which such modification is to be effective.
However, modifications to a salary deferral election shall only
be permitted semi-annually, during election periods established
by the Administrator prior to the first day of a Plan Year and
the first day of the seventh month of a Plan Year. Any
modification shall not have retroactive effect and shall remain
in force until revoked.
(1) A Participant may elect to prospectively revoke his
salary reduction agreement in its entirety at any time during the
Plan Year by providing the Administrator with thirty (30) days
written notice of such revocation (or upon such shorter notice
period as may be acceptable to the Administrator). Such
revocation shall become effective as of the beginning of the
first pay period coincident with or next following the expiration
of the notice period. Furthermore, the termination of the
Participant's employment, or the cessation of participation for
any reason, shall be deemed to revoke any salary reduction
agreement then in effect, effective immediately following the
close of the pay period within which such termination or
cessation occurs. A Participant who revokes his salary reduction
agreement may not elect to make another salary reduction
agreement hereunder until the next Entry Date (as defined in
Section 3.3) following the date of revocation.
In lieu of the above requirements of written salary
reduction agreements, and written modifications and revocations
thereto, the Administrator may authorize use of an "automated response
unit" which generates written acknowledgements of transactions, under
procedures established by the Administrator.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days (effective February 3, 1997, no later
than the fifteenth (15th) business day of the month following the month) from
the date on which such amounts would otherwise have been payable to the
Participant in cash. The provisions of Department of Labor regulations
2510.3-102 are incorporated herein by reference. Furthermore, any additional
Employer contributions which are allocable to the Participant's Elective Account
for a Plan
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<PAGE> 35
Year shall be paid to the Plan no later than the twelve-month period immediately
following the close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS
(a) The Administrator shall establish and maintain an account in
the name of each Participant to which the Administrator shall credit
as of each Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(a) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation
of the Employer's contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the
Administrator of such information, the Administrator shall allocate
such contribution as follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 4.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(1) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 4.1(b), to each Participant's Account in
accordance with Section 4.1(b).
Any Participant actively employed during the Plan Year shall be
eligible to share in the matching contribution for the Plan Year.
(a) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 6.4(e)(2). The
remaining Forfeitures, if any, shall be used to reduce the
contribution of the Employer hereunder for the Plan Year in which such
Forfeitures occur.
(a) For any Top Heavy Plan Year, Employees not otherwise eligible
to share in the allocation of contributions as provided above, shall
receive the minimum allocation provided for in Section 4.4(g) if
eligible pursuant to the provisions of Section 4.4(j).
(a) Notwithstanding the foregoing, Participants who are not
actively employed on the last day of the Plan Year due to Retirement
(Normal or Late), Total and Permanent Disability or death shall share
in the allocation of contributions for that Plan Year.
(a) As of each Anniversary Date or other valuation date, before
the current valuation period allocation of Employer contributions and
after allocation of Forfeitures, any earnings or losses (net
appreciation or net depreciation) of the Trust Fund shall be allocated
in the same proportion that each Participant's and Former
Participant's nonsegregated accounts bear to the total of all
Participants' and Former Participants' nonsegregated accounts as of
such date.
Participants' transfers from other qualified plans and
voluntary contributions deposited in the general Trust Fund shall
share in
26
<PAGE> 36
any earnings and losses (net appreciation or net depreciation) of the
Trust Fund in the same manner provided above.
(a) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer's contributions allocated to the Participant's Combined
Account of each Employee shall be equal to at least three percent (3%)
of such Employee's "415 Compensation" (reduced by contributions and
forfeitures, if any, allocated to each Employee in any defined
contribution plan included with this plan in a Required Aggregation
Group). However, if (1) the sum of the Employer's contributions
allocated to the Participant's Combined Account of each Key Employee
for such Top Heavy Plan Year is less than three percent (3%) of each
Key Employee's "415 Compensation" and (2) this Plan is not required to
be included in an Aggregation Group to enable a defined benefit plan
to meet the requirements of Code Section 401(a)(4) or 410, the sum of
the Employer's contributions allocated to the Participant's Combined
Account of each Employee shall be equal to the largest percentage
allocated to the Participant's Combined Account of any Key Employee.
However, in determining whether a Non-Key Employee has received the
required minimum allocation, such Non-Key Employee's Deferred
Compensation and matching contributions needed to satisfy the "Actual
Contribution Percentage" tests pursuant to Section 4.7(a) shall not be
taken into account.
However, no such minimum allocation shall be required in
this Plan for any Employee who participates in another defined
contribution plan subject to Code Section 412 providing such benefits
included with this Plan in a Required Aggregation Group.
(a) For any Plan Year when (1) the Plan is a Top Heavy Plan but
not a Super Top Heavy Plan and (2) a Key Employee is a Participant in
both this Plan and a defined benefit plan included in a Required
Aggregation Group which is top heavy, the extra minimum allocation
(required by Section 4.9(m) to provide higher limitations) shall be
provided for each Employee who is a Participant only in this Plan by
substituting four percent (4%) for three percent (3%) in the paragraph
above.
(a) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Combined Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's
contributions allocated on behalf of such Key Employee divided by the
"415 Compensation" for such Key Employee.
(a) For any Top Heavy Plan Year, the minimum allocations set
forth above shall be allocated to the Participant's Combined Account
of all Employees who are Participants and who are employed by the
Employer on the last day of the Plan Year, including Employees who
have (1) failed to complete a Year of Service; and (2) declined to
make mandatory contributions (if required) or, in the case of a cash
or deferred arrangement, elective contributions to the Plan.
(a) In lieu of the above, in any Plan Year in which an Employee
is a Participant in both this Plan and a defined benefit pension plan
included in a Required Aggregation Group which is top heavy, the
Employer shall not be required to provide such Employee with both the
full separate defined
27
<PAGE> 37
benefit plan minimum benefit and the full separate defined
contribution plan minimum allocation.
Therefore, for any Plan Year when (1) the
Plan is a Top Heavy Plan but not a Super Top Heavy Plan, and
(2) a Key Employee is a Participant in both this Plan and a
defined benefit plan included in a Required Aggregation Group
which is top heavy, an Employee who is participating in this
Plan and a defined benefit plan maintained by the Employer
shall receive a minimum monthly accrued benefit in the defined
benefit plan equal to the product of (1) one-twelfth (1/12th)
of "415 Compensation" averaged over the five (5) consecutive
"limitation years" (or actual "limitation years," if less)
which produce the highest average and (2) the lesser of (i)
three percent (3%) multiplied by years of service when the
plan is top heavy or (ii) thirty percent (30%). Further, the
extra minimum allocation (required by Section 4.9(m) to
provide higher limitations) shall be provided.
Except, however, in the event this Plan is a
Super Top Heavy Plan, the three percent (3%) minimum accrual
shall be reduced to two percent (2%) and 20% shall be
substituted for 30% in the paragraph above.
(a) For the purposes of this Section, "415
Compensation" shall be limited to $200,000. Such amount shall
be adjusted at the same time and in the same manner as
permitted under Code Section 415(d), except that the dollar
increase in effect on January 1 of any calendar year shall be
effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000
limitation shall be effective on January 1, 1990. For any
short Plan Year the "415 Compensation" limit shall be an
amount equal to the "415 Compensation" limit for the calendar
year in which the Plan Year begins multiplied by the ratio
obtained by dividing the number of full months in the short
Plan Year by twelve (12).
In addition to other applicable limitations
set forth in the Plan, and notwithstanding any other provision
of the Plan to the contrary, for Plan Years beginning on or
after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed
the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment
in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January
1, 1994, any reference in this Plan to the limitation under
Code Section 401(a)(17) shall mean the OBRA '93 annual
compensation limit set forth in this provision.
If Compensation for any prior determination
period is taken into account in determining an Employee's
benefits accruing in the current Plan Year, the Compensation
for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior
determination period. For this purpose, for determination
periods beginning before the first
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<PAGE> 38
day of the first Plan Year beginning on or after January 1,
1994, the OBRA '93 annual compensation limit is $150,000.
(a) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason during
the Plan Year shall share in the salary reduction
contributions made by the Employer for the year of termination
without regard to the Hours of Service credited.
(a) If a Former Participant is reemployed after five
(5) consecutive 1-Year Breaks in Service, then separate
accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(1) one account representing his status in the Plan
attributable to post-break service.
(a) Notwithstanding anything to the contrary, if this
is a Plan that would otherwise fail to meet the requirements
of Code Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and
the Regulations thereunder because Employer contributions
would not be allocated to a sufficient number or percentage of
Participants for a Plan Year, then the following rules shall
apply:
(1) The group of Participants eligible to share in
the Employer's contribution for the Plan Year shall
be expanded to include the minimum number of
Participants who would not otherwise be eligible as
are necessary to satisfy the applicable test
specified above. The specific Participants who shall
become eligible under the terms of this paragraph
shall be those who are actively employed on the last
day of the Plan Year and, when compared to similarly
situated Participants, have completed the greatest
number of Hours of Service in the Plan Year.
(1) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the
group of Participants eligible to share in the
Employer's contribution for the Plan Year shall be
further expanded to include the minimum number of
Participants who are not actively employed on the
last day of the Plan Year as are necessary to satisfy
the applicable test. The specific Participants who
shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants, who have completed the greatest number
of Hours of Service in the Plan Year before
terminating employment.
(1) Nothing in this Section shall permit the
reduction of a Participant's accrued benefit.
Therefore any amounts that have previously been
allocated to Participants may not be reallocated to
satisfy these requirements. In such event, the
Employer shall make an additional contribution equal
to the amount such affected Participants would have
received had they been included in the allocations,
even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to
the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the
last day of the Plan Year.
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<PAGE> 39
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year,
the annual allocation derived from Employer Elective
Contributions to a Participant's Elective Account shall
satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than
the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group multiplied by 1.25, or
(1) The excess of the "Actual Deferral Percentage"
for the Highly Compensated Participant group over the
"Actual Deferral Percentage" for the Non-Highly
Compensated Participant group shall not be more than
two percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual
Deferral Percentage" for the Non-Highly Compensated
Participant group multiplied by 2. The provisions of
Code Section 401(k)(3) and Regulation 1.401(k)-1(b)
are incorporated herein by reference.
However, in order to prevent the multiple use of the
alternative method described in (2) above and in Code
Section 401(m)(9)(A), any Highly Compensated
Participant eligible to make elective deferrals
pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions
under this Plan or under any other plan maintained by
the Employer or an Affiliated Employer shall have his
actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(a) For the purposes of this Section "Actual Deferral
Percentage" means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant group
for a Plan Year, the average of the ratios, calculated
separately for each Participant in such group, of the amount
of Employer Elective Contributions allocated to each
Participant's Elective Account for such Plan Year, to such
Participant's "414(s) Compensation" for such Plan Year. The
actual deferral ratio for each Participant and the "Actual
Deferral Percentage" for each group shall be calculated to the
nearest one-hundredth of one percent. Employer Elective
Contributions allocated to each Non-Highly Compensated
Participant's Elective Account shall be reduced by Excess
Deferred Compensation to the extent such excess amounts are
made under this Plan or any other plan maintained by the
Employer.
(a) For the purpose of determining the actual
deferral ratio of a Highly Compensated Employee who is subject
to the Family Member aggregation rules of Code Section
414(q)(6) because such Participant is either a "five percent
owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for
the family group (which shall be treated as one
Highly Compensated Participant) shall be determined
by aggregating Employer Elective
30
<PAGE> 40
Contributions and "414(s) Compensation" of all
eligible Family Members (including Highly Compensated
Participants). However, in applying the $200,000
limit to "414(s) Compensation," for Plan Years
beginning after December 31, 1988, Family Members
shall include only the affected Employee's spouse and
any lineal descendants who have not attained age 19
before the close of the Plan Year. Notwithstanding
the foregoing, with respect to Plan Years beginning
prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be in
compliance with this paragraph.
(1) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall be
disregarded for purposes of determining the "Actual
Deferral Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into
account in paragraph (1) above.
(1) If a Participant is required to be aggregated as
a member of more than one family group in a plan, all
Participants who are members of those family groups
that include the Participant are aggregated as one
family group in accordance with paragraphs (1) and
(2) above.
(a) For the purposes of Sections 4.5(a) and 4.6, a
Highly Compensated Participant and a Non-Highly Compensated
Participant shall include any Employee eligible to make a
deferral election pursuant to Section 4.2, whether or not such
deferral election was made or suspended pursuant to Section
4.2.
(a) For the purposes of this Section and Code
Sections 401(a)(4), 410(b) and 401(k), if two or more plans
which include cash or deferred arrangements are considered one
plan for the purposes of Code Section 401(a)(4) or 410(b)
(other than Code Section 410(b)(2)(A)(ii)), the cash or
deferred arrangements included in such plans shall be treated
as one arrangement. In addition, two or more cash or deferred
arrangements may be considered as a single arrangement for
purposes of determining whether or not such arrangements
satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a
case, the cash or deferred arrangements included in such plans
and the plans including such arrangements shall be treated as
one arrangement and as one plan for purposes of this Section
and Code Sections 401(a)(4), 410(b) and 401(k). Plans may be
aggregated under this paragraph (e) only if they have the same
plan year.
Notwithstanding the above, an employee stock
ownership plan described in Code Section 4975(e)(7) or 409 may
not be combined with this Plan for purposes of determining
whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and
401(k).
(a) For the purposes of this Section, if a Highly
Compensated Participant is a Participant under two or more
cash or deferred arrangements (other than a cash or deferred
arrangement which is part of an employee stock ownership plan
as defined in Code Section 4975(e)(7) or 409) of the Employer
or an Affiliated Employer, all such cash or deferred
arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the actual deferral
ratio with respect to such Highly Compensated Participant.
However, if the cash or deferred arrangements
31
<PAGE> 41
have different plan years, this paragraph shall be applied by
treating all cash or deferred arrangements ending with or
within the same calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's
Elective Contributions made pursuant to Section 4.4 do not satisfy one of the
tests set forth in Section 4.5(a), the Administrator shall adjust Excess
Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, the Highly Compensated
Participant having the highest actual deferral ratio shall
have his portion of Excess Contributions distributed to him
and/or at his election recharacterized as a voluntary Employee
contribution pursuant to Section 4.12 until one of the tests
set forth in Section 4.5(a) is satisfied, or until his actual
deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the second highest actual
deferral ratio. This process shall continue until one of the
tests set forth in Section 4.5(a) is satisfied. For each
Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions on behalf
of such Highly Compensated Participant (determined prior to
the application of this paragraph) minus the amount determined
by multiplying the Highly Compensated Participant's actual
deferral ratio (determined after application of this
paragraph) by his "414(s) Compensation." However, in
determining the amount of Excess Contributions to be
distributed and/or recharacterized with respect to an affected
Highly Compensated Participant as determined herein, such
amount shall be reduced by any Excess Deferred Compensation
previously distributed to such affected Highly Compensated
Participant for his taxable year ending with or within such
Plan Year.
(1) With respect to the distribution of Excess
Contributions pursuant to (a) above, such
distribution:
(i) may be postponed but not later than the
close of the Plan Year following the Plan
Year to which they are allocable;
(i) shall be made first from unmatched
Deferred Compensation and, thereafter, from
Deferred Compensation which is matched.
Matching contributions which relate to such
Deferred Compensation shall be forfeited;
(i) shall be adjusted for Income; and
(i) shall be designated by the Employer as a
distribution of Excess Contributions (and
Income).
(1) With respect to the recharacterization of Excess
Contributions pursuant to (a) above, such
recharacterized amounts:
(i) shall be deemed to have occurred on the
date on which the last of those Highly
Compensated Participants with Excess
Contributions to be recharacterized is
notified of the recharacterization and the
tax consequences of such recharacterization;
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<PAGE> 42
(i) shall not exceed the amount of Deferred
Compensation on behalf of any Highly
Compensated Participant for any Plan Year;
(i) shall be treated as voluntary Employee
contributions for purposes of Code Section
401(a)(4) and Regulation 1.401(k)-1(b).
However, for purposes of Sections 2.2 and
4.4(g), recharacterized Excess Contributions
continue to be treated as Employer
contributions that are Deferred
Compensation. Excess Contributions
recharacterized as voluntary Employee
contributions shall continue to be
nonforfeitable and subject to the same
distribution rules provided for in Section
4.2(c);
(i) are not permitted if the amount
recharacterized plus voluntary Employee
contributions actually made by such Highly
Compensated Participant, exceed the maximum
amount of voluntary Employee contributions
(determined prior to application of Section
4.7(a)) that such Highly Compensated
Participant is permitted to make under the
Plan in the absence of recharacterization;
and
(i) shall be adjusted for Income.
(1) Any distribution and/or recharacterization of
less than the entire amount of Excess Contributions
shall be treated as a pro rata distribution and/or
recharacterization of Excess Contributions and
Income.
(1) The determination and correction of
Excess Contributions of a Highly Compensated
Participant whose actual deferral ratio is determined
under the family aggregation rules shall be
accomplished by reducing the actual deferral ratio as
required herein, and the Excess Contributions for the
family unit shall then be allocated among the Family
Members in proportion to the Elective Contributions
of each Family Member that were combined to determine
the group actual deferral ratio. Notwithstanding the
foregoing, with respect to Plan Years beginning prior
to January 1, 1990, compliance with the Regulations
then in effect shall be deemed to be in compliance
with this paragraph.
(a) Within twelve (12) months after the end of the
Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the
tests set forth in Section 4.5(a). Such contribution shall be
allocated to the Participant's Elective Account of each
Non-Highly Compensated Participant in the same proportion that
each Non-Highly Compensated Participant's Compensation for the
year bears to the total Compensation of all Non-Highly
Compensated Participants.
(a) If during a Plan Year the projected aggregate
amount of Elective Contributions to be allocated to all Highly
Compensated Participants under this Plan would, by virtue of
the tests set forth in Section 4.5(a), cause the Plan to fail
such tests, then the Administrator may automatically reduce
proportionately or in the order provided in Section
33
<PAGE> 43
4.6(a) each affected Highly Compensated Participant's deferral
election made pursuant to Section 4.2 by an amount necessary
to satisfy one of the tests set forth in Section 4.5(a).
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for the
Highly Compensated Participant group shall not exceed the
greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(1) the lesser of 200 percent of such percentage for
the Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant
group plus 2 percentage points. However, to prevent
the multiple use of the alternative method described
in this paragraph and Code Section 401(m)(9)(A), any
Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 4.2 or any
other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make
Employee contributions or to receive matching
contributions under this Plan or under any other plan
maintained by the Employer or an Affiliated Employer
shall have his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2. The provisions of
Code Section 401(m) and Regulations 1.401(m)-1(b) and
1.401(m)-2 are incorporated herein by reference.
(a) For the purposes of this Section and Section 4.8,
"Actual Contribution Percentage" for a Plan Year means, with
respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group, the average of the
ratios (calculated separately for each Participant in each
group) of:
(1) the sum of Employer matching contributions made
pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12 and
Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) on
behalf of each such Participant for such Plan Year;
to
(1) the Participant's "414(s) Compensation" for such
Plan Year.
(a) For purposes of determining the "Actual
Contribution Percentage" and the amount of Excess Aggregate
Contributions pursuant to Section 4.8(d), only Employer
matching contributions (excluding Employer matching
contributions forfeited pursuant to Sections 4.2(f) and
4.6(a)(1) or forfeited pursuant to Section 4.8(a)) contributed
to the Plan prior to the end of the succeeding Plan Year shall
be considered. In addition, the Administrator may elect to
take into account, with respect to Employees eligible to have
Employer matching contributions pursuant to Section 4.1(b) or
voluntary Employee contributions pursuant to Section 4.12
allocated to their accounts, elective deferrals (as defined in
Regulation 1.402(g)-1(b)) and qualified non-elective
contributions (as defined in Code Section 401(m)(4)(C))
contributed to any plan maintained by the Employer. Such
elective deferrals and qualified non-elective contributions
shall be treated as Employer matching contributions subject to
Regulation 1.401(m)-1(b)(5) which is incorporated herein by
reference. However, the Plan Year must be
34
<PAGE> 44
the same as the plan year of the plan to which the elective
deferrals and the qualified non-elective contributions are
made.
(a) For the purpose of determining the actual
contribution ratio of a Highly Compensated Employee who is
subject to the Family Member aggregation rules of Code Section
414(q)(6) because such Employee is either a "five percent
owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual contribution ratio for the
family group (which shall be treated as one Highly
Compensated Participant) shall be determined by
aggregating Employer matching contributions made
pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and "414(s)
Compensation" of all eligible Family Members
(including Highly Compensated Participants). However,
in applying the $200,000 limit to "414(s)
Compensation", Family Members shall include only the
affected Employee's spouse and any lineal descendants
who have not attained age 19 before the close of the
Plan Year.
(1) The Employer matching contributions made pursuant
to Section 4.1(b), voluntary Employee contributions
made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) and "414(s) Compensation"
of all Family Members shall be disregarded for
purposes of determining the "Actual Contribution
Percentage" of the Non-Highly Compensated Participant
group except to the extent taken into account in
paragraph (1) above.
(1) If a Participant is required to be aggregated as
a member of more than one family group in a plan, all
Participants who are members of those family groups
that include the Participant are aggregated as one
family group in accordance with paragraphs (1) and
(2) above.
(a) For purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(m), if two or more plans of the
Employer to which matching contributions, Employee
contributions, or both, are made are treated as one plan for
purposes of Code Sections 401(a)(4) or 410(b) (other than the
average benefits test under Code Section 410(b)(2)(A)(ii)),
such plans shall be treated as one plan. In addition, two or
more plans of the Employer to which matching contributions,
Employee contributions, or both, are made may be considered as
a single plan for purposes of determining whether or not such
plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In
such a case, the aggregated plans must satisfy this Section
and Code Sections 401(a)(4), 410(b) and 401(m) as though such
aggregated plans were a single plan. Plans may be aggregated
under this paragraph (e) only if they have the same plan year.
Notwithstanding the above, an employee stock
ownership plan described in Code Section 4975(e)(7) or 409 may
not be aggregated with this Plan for purposes of determining
whether the employee stock
35
<PAGE> 45
ownership plan or this Plan satisfies this Section and Code
Sections 401(a)(4), 410(b) and 401(m).
(a) If a Highly Compensated Participant is a
Participant under two or more plans (other than an employee
stock ownership plan as defined in Code Section 4975(e)(7) or
409) which are maintained by the Employer or an Affiliated
Employer to which matching contributions, Employee
contributions, or both, are made, all such contributions on
behalf of such Highly Compensated Participant shall be
aggregated for purposes of determining such Highly Compensated
Participant's actual contribution ratio. However, if the plans
have different plan years, this paragraph shall be applied by
treating all plans ending with or within the same calendar
year as a single plan.
(a) For purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and Non-Highly Compensated Participant
shall include any Employee eligible to have Employer matching
contributions pursuant to Section 4.1(b) (whether or not a
deferral election was made or suspended pursuant to Section
4.2(e)) or voluntary Employee contributions pursuant to
Section 4.12 (whether or not voluntary Employee contributions
are made) allocated to his account for the Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that the "Actual Contribution
Percentage" for the Highly Compensated Participant group
exceeds the "Actual Contribution Percentage" for the
Non-Highly Compensated Participant group pursuant to Section
4.7(a), the Administrator (on or before the fifteenth day of
the third month following the end of the Plan Year, but in no
event later than the close of the following Plan Year) shall
direct the Trustee to distribute to the Highly Compensated
Participant having the highest actual contribution ratio, his
Vested portion of Excess Aggregate Contributions (and Income
allocable to such contributions) and, if forfeitable, forfeit
such non-Vested Excess Aggregate Contributions attributable to
Employer matching contributions (and Income allocable to such
forfeitures) until either one of the tests set forth in
Section 4.7(a) is satisfied, or until his actual contribution
ratio equals the actual contribution ratio of the Highly
Compensated Participant having the second highest actual
contribution ratio. This process shall continue until one of
the tests set forth in Section 4.7(a) is satisfied. The
distribution and/or forfeiture of Excess Aggregate
Contributions shall be made in the following order:
(1) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a)(2);
(1) Employer matching contributions.
(a) Any distribution and/or forfeiture of less than
the entire amount of Excess Aggregate Contributions (and
Income) shall be treated as a pro rata distribution and/or
forfeiture of Excess Aggregate Contributions and Income.
Distribution of Excess Aggregate Contributions shall be
designated by the Employer as a distribution of Excess
Aggregate Contributions (and Income). Forfeitures of Excess
Aggregate Contributions shall be treated in accordance with
Section 4.4.
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<PAGE> 46
(a) Excess Aggregate Contributions attributable to
amounts other than voluntary Employee contributions, including
forfeited matching contributions, shall be treated as Employer
contributions for purposes of Code Sections 404 and 415 even
if distributed from the Plan.
Forfeited matching contributions that are
reallocated to Participants' Accounts for the Plan Year in
which the forfeiture occurs shall be treated as an "annual
addition" pursuant to Section 4.9(b) for the Participants to
whose Accounts they are reallocated and for the Participants
from whose Accounts they are forfeited.
(a) For each Highly Compensated Participant, the
amount of Excess Aggregate Contributions is equal to the
Employer matching contributions made pursuant to Section
4.1(b), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a)
and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c) on
behalf of the Highly Compensated Participant (determined prior
to the application of this paragraph) minus the amount
determined by multiplying the Highly Compensated Participant's
actual contribution ratio (determined after application of
this paragraph) by his "414(s) Compensation." The actual
contribution ratio must be rounded to the nearest
one-hundredth of one percent. In no case shall the amount of
Excess Aggregate Contribution with respect to any Highly
Compensated Participant exceed the amount of Employer matching
contributions made pursuant to Section 4.1(b), voluntary
Employee contributions made pursuant to Section 4.12, Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any qualified
non-elective contributions or elective deferrals taken into
account pursuant to Section 4.7(c) on behalf of such Highly
Compensated Participant for such Plan Year.
(a) The determination of the amount of Excess
Aggregate Contributions with respect to any Plan Year shall be
made after first determining the Excess Contributions, if any,
to be treated as voluntary Employee contributions due to
recharacterization for the plan year of any other qualified
cash or deferred arrangement (as defined in Code Section
401(k)) maintained by the Employer that ends with or within
the Plan Year or which are treated as voluntary Employee
contributions due to recharacterization pursuant to Section
4.6(a).
(a) If the determination and correction of Excess
Aggregate Contributions of a Highly Compensated Participant
whose actual contribution ratio is determined under the family
aggregation rules, then the actual contribution ratio shall be
reduced and the Excess Aggregate Contributions for the family
unit shall be allocated among the Family Members in proportion
to the sum of Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a)
and any qualified non-elective contributions or elective
deferrals taken into account pursuant to Section 4.7(c) of
each Family Member that were combined to determine the group
actual contribution ratio.
(a) If during a Plan Year the projected aggregate
amount of Employer matching contributions, voluntary Employee
contributions and
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<PAGE> 47
Excess Contributions recharacterized as voluntary Employee
contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set
forth in Section 4.7(a), cause the Plan to fail such tests,
then the Administrator may automatically reduce
proportionately or in the order provided in Section 4.8(a)
each affected Highly Compensated Participant's projected share
of such contributions by an amount necessary to satisfy one of
the tests set forth in Section 4.7(a).
(a) Notwithstanding the above, within twelve (12)
months after the end of the Plan Year, the Employer may make a
special Qualified Non-Elective Contribution on behalf of
Non-Highly Compensated Participants in an amount sufficient to
satisfy one of the tests set forth in Section 4.7(a). Such
contribution shall be allocated to the Participant's Elective
Account of each Non-Highly Compensated Participant in the same
proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of
all Non-Highly Compensated Participants. A separate accounting
shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests
pursuant to Section 4.5(a).
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum
"annual additions" credited to a Participant's accounts for
any "limitation year" shall equal the lesser of: (1) $30,000
(or, if greater, one-fourth of the dollar limitation in effect
under Code Section 415(b)(1)(A)) or (2) twenty-five percent
(25%) of the Participant's "415 Compensation" for such
"limitation year." For any short "limitation year," the dollar
limitation in (1) above shall be reduced by a fraction, the
numerator of which is the number of full months in the short
"limitation year" and the denominator of which is twelve (12).
(a) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1)
Employer contributions, (2) Employee contributions, (3)
forfeitures, (4) amounts allocated, after March 31, 1984, to
an individual medical account, as defined in Code Section
415(l)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable
to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code
Section 419(e)) maintained by the Employer. Except, however,
the "415 Compensation" percentage limitation referred to in
paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition," or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(l)(1).
(a) For purposes of applying the limitations of Code
Section 415, the transfer of funds from one qualified plan to
another is not an "annual addition." In addition, the
following are not Employee contributions for the purposes of
Section 4.9(b)(2): (1) rollover contributions (as defined in
Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan;
(3) repayments of distributions
38
<PAGE> 48
received by an Employee pursuant to Code Section 411(a)(7)(B)
(cash-outs); (4) repayments of distributions received by an
Employee pursuant to Code Section 411(a)(3)(D) (mandatory
contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code
Section 408(k)(6).
(a) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
(a) The dollar limitation under Code Section
415(b)(1)(A) stated in paragraph (a)(1) above shall be
adjusted annually as provided in Code Section 415(d) pursuant
to the Regulations. The adjusted limitation is effective as of
January 1st of each calendar year and is applicable to
"limitation years" ending with or within that calendar year.
(a) For the purpose of this Section, all qualified
defined benefit plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
benefit plan, and all qualified defined contribution plans
(whether terminated or not) ever maintained by the Employer
shall be treated as one defined contribution plan.
(a) For the purpose of this Section, if the Employer
is a member of a controlled group of corporations, trades or
businesses under common control (as defined by Code Section
1563(a) or Code Section 414(b) and (c) as modified by Code
Section 415(h)), is a member of an affiliated service group
(as defined by Code Section 414(m)), or is a member of a group
of entities required to be aggregated pursuant to Regulations
under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(a) For the purpose of this Section, if this Plan is
a Code Section 413(c) plan, all Employers of a Participant who
maintain this Plan will be considered to be a single Employer.
(a)(1) If a Participant participates in more than one
defined contribution plan maintained by the Employer which
have different Anniversary Dates, the maximum "annual
additions" under this Plan shall equal the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited to such Participant's accounts
during the "limitation year."
(1) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a
defined contribution plan not subject to Code Section
412 maintained by the Employer which have the same
Anniversary Date, "annual additions" will be credited
to the Participant's accounts under the defined
contribution plan subject to Code Section 412 prior
to crediting "annual additions" to the Participant's
accounts under the defined contribution plan not
subject to Code Section 412.
(1) If a Participant participates in more than one
defined contribution plan not subject to Code Section
412 maintained by the Employer which have the same
Anniversary Date, the maximum "annual additions"
under this Plan shall equal the product of (A) the
maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited
under subparagraphs (1) or (2)
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<PAGE> 49
above, multiplied by (B) a fraction (i) the numerator
of which is the "annual additions" which would be
credited to such Participant's accounts under this
Plan without regard to the limitations of Code
Section 415 and (ii) the denominator of which is such
"annual additions" for all plans described in this
subparagraph.
(a) If an Employee is (or has been) a Participant in
one or more defined benefit plans and one or more defined
contribution plans maintained by the Employer, the sum of the
defined benefit plan fraction and the defined contribution
plan fraction for any "limitation year" may not exceed 1.0.
(a) The defined benefit plan fraction for any
"limitation year" is a fraction, the numerator of which is the
sum of the Participant's projected annual benefits under all
the defined benefit plans (whether or not terminated)
maintained by the Employer, and the denominator of which is
the lesser of 125 percent of the dollar limitation determined
for the "limitation year" under Code Sections 415(b) and (d)
or 140 percent of the highest average compensation, including
any adjustments under Code Section 415(b).
Notwithstanding the above, if the
Participant was a Participant as of the first day of the first
"limitation year" beginning after December 31, 1986, in one or
more defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had
accrued as of the close of the last "limitation year"
beginning before January 1, 1987, disregarding any changes in
the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements
of Code Section 415 for all "limitation years" beginning
before January 1, 1987.
(a) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the
sum of the annual additions to the Participant's Account under
all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior
"limitation years" (including the annual additions
attributable to the Participant's nondeductible Employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual
additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical
accounts, as defined in Code Section 415(l)(2), maintained by
the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior
"limitation years" of service with the Employer (regardless of
whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any "limitation
year" is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under
Code Section 415(c)(1)(A) or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the
end of the first day of the first "limitation year" beginning
after December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence on
May 6, 1986, the numerator of this fraction will be adjusted
if the sum of this fraction and the defined benefit fraction
would otherwise
40
<PAGE> 50
exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the
fractions as they would be computed as of the end of the last
"limitation year" beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the first "limitation year" beginning
on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not
be recomputed to treat all Employee contributions as annual
additions.
(a) Notwithstanding the foregoing, for any
"limitation year" in which the Plan is a Top Heavy Plan, 100
percent shall be substituted for 125 percent in Sections
4.9(k) and 4.9(l) unless the extra minimum allocation is being
provided pursuant to Section 4.4. However, for any "limitation
year" in which the Plan is a Super Top Heavy Plan, 100 percent
shall be substituted for 125 percent in any event.
(a) If the sum of the defined benefit plan fraction
and the defined contribution plan fraction shall exceed 1.0 in
any "limitation year" for any Participant in this Plan, the
Administrator shall limit, to the extent necessary, the
"annual additions" to such Participant's accounts for such
"limitation year." If, after limiting the "annual additions"
to such Participant's accounts for the "limitation year," the
sum of the defined benefit plan fraction and the defined
contribution plan fraction still exceed 1.0, the Administrator
shall then adjust the numerator of the defined contribution
plan fraction so that the sum of both fractions shall not
exceed 1.0 in any "limitation year" for such Participant.
(a) Notwithstanding anything contained in this
Section to the contrary, the limitations, adjustments and
other requirements prescribed in this Section shall at all
times comply with the provisions of Code Section 415 and the
Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in
estimating a Participant's Compensation, a reasonable error in
determining the amount of elective deferrals (within the
meaning of Code Section 402(g)(3)) that may be made with
respect to any Participant under the limits of Section 4.9 or
other facts and circumstances to which Regulation
1.415-6(b)(6) shall be applicable, the "annual additions"
under this Plan would cause the maximum "annual additions" to
be exceeded for any Participant, the Administrator shall (1)
distribute any elective deferrals (within the meaning of Code
Section 402(g)(3)) and gains attributable to those elective
deferrals, or return any voluntary Employee contributions and
gains attributable to those voluntary Employee contributions
credited for the "limitation year" to the extent that the
return of elective deferrals and/or voluntary Employee
contributions would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining
after the return of any elective deferrals or voluntary
Employee contributions in a "Section 415 suspense account" (3)
use the "Section 415 suspense account" in the next "limitation
year" (and succeeding "limitation years" if necessary) to
reduce Employer contributions for that Participant if that
Participant is covered by
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<PAGE> 51
the Plan as of the end of the "limitation year," or if the
Participant is not so covered, allocate and reallocate the
"Section 415 suspense account" in the next "limitation year"
(and succeeding "limitation years" if necessary) to all
Participants in the Plan before any Employer or Employee
contributions which would constitute "annual additions" are
made to the Plan for such "limitation year" (4) reduce
Employer contributions to the Plan for such "limitation year"
by the amount of the "Section 415 suspense account" allocated
and reallocated during such "limitation year."
(a) For purposes of this Article, "excess amount" for
any Participant for a "limitation year" shall mean the excess,
if any, of (1) the "annual additions" which would be credited
to his account under the terms of the Plan without regard to
the limitations of Code Section 415 over (2) the maximum
"annual additions" determined pursuant to Section 4.9.
(a) For purposes of this Section, "Section 415
suspense account" shall mean an unallocated account equal to
the sum of "excess amounts" for all Participants in the Plan
during the "limitation year." The "Section 415 suspense
account" shall not share in any earnings or losses of the
Trust Fund.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator,
amounts may be transferred from other qualified plans by
Employees, provided that the trust from which such funds are
transferred permits the transfer to be made and the transfer
will not jeopardize the tax exempt status of the Plan or Trust
or create adverse tax consequences for the Employer.
In addition, a Participant who was a
participant in the Commercial Intertech Retirement Stock
Ownership and Savings Plan ("Commercial Intertech Plan") prior
to the effective date of this Plan, may, with the consent of
the Administrator, make an in-kind "direct rollover" (as
allowed by Code Section 401(a)(31)) of any of his outstanding
participant loan(s) and/or shares of Commercial Intertech
stock or Cuno Incorporated stock from the Commercial Intertech
Plan to this Plan, provided such direct rollover is requested
by December 31, 1996. Any such transferred loan shall be
subject to the provisions of the Commercial Intertech Plan and
any loan policy thereunder as of the date the loan was
originated.
The amounts transferred shall be set up in a
separate account herein referred to as a "Participant's
Rollover Account." Such account shall be fully Vested at all
times and shall not be subject to Forfeiture for any reason.
(a) Amounts in a Participant's Rollover
Account shall be held by the Trustee pursuant to the
provisions of this Plan and may not be withdrawn by, or
distributed to the Participant, in whole or in part, except as
provided in paragraphs (c) and (d) of this Section and Section
6.10.
(a) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to elective
contributions (as defined in Regulation 1.401(k)-1(g)(3)),
including amounts treated as elective contributions, which are
transferred from another qualified plan in a plan-to-plan
transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
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<PAGE> 52
(a) At Normal Retirement Date, or such other date
when the Participant or his Beneficiary shall be entitled to
receive benefits, the fair market value of the Participant's
Rollover Account shall be used to provide additional benefits
to the Participant or his Beneficiary. Any distributions of
amounts held in a Participant's Rollover Account shall be made
in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11) and
the Regulations thereunder. Furthermore, such amounts shall be
considered as part of a Participant's benefit in determining
whether an involuntary cash-out of benefits without
Participant consent may be made.
(a) The Administrator may direct that employee
transfers made after a valuation date be segregated into a
separate account for each Participant in a federally insured
savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short
term debt security acceptable to the Trustee until such time
as the allocations pursuant to this Plan have been made, at
which time they may remain segregated or be invested as part
of the general Trust Fund, to be determined by the
Administrator.
(a) All amounts allocated to a Participant's Rollover
Account may be treated as a Directed Investment Account
pursuant to Section 4.13.
(a) For purposes of this Section, the term "qualified
plan" shall mean any tax qualified plan under Code Section
401(a). The term "amounts transferred from other qualified
plans" shall mean: (i) amounts transferred to this Plan
directly from another qualified plan; (ii) distributions from
another qualified plan which are eligible rollover
distributions and which are either transferred by the Employee
to this Plan within sixty (60) days following his receipt
thereof or are transferred pursuant to a direct rollover;
(iii) amounts transferred to this Plan from a conduit
individual retirement account provided that the conduit
individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by
another qualified plan as a lump-sum distribution (B) were
eligible for tax-free rollover to a qualified plan and (C)
were deposited in such conduit individual retirement account
within sixty (60) days of receipt thereof and other than
earnings on said assets; and (iv) amounts distributed to the
Employee from a conduit individual retirement account meeting
the requirements of clause (iii) above, and transferred by the
Employee to this Plan within sixty (60) days of his receipt
thereof from such conduit individual retirement account.
(a) Prior to accepting any transfers to which this
Section applies, the Administrator may require the Employee to
establish that the amounts to be transferred to this Plan meet
the requirements of this Section and may also require the
Employee to provide an opinion of counsel satisfactory to the
Employer that the amounts to be transferred meet the
requirements of this Section.
(a) This Plan shall not accept any direct or indirect
transfers (as that term is defined and interpreted under Code
Section 401(a)(11) and the Regulations thereunder) from a
defined benefit plan, money purchase plan (including a target
benefit plan), stock bonus or profit sharing plan which would
otherwise have provided for a life annuity form of payment to
the Participant.
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<PAGE> 53
(a) Notwithstanding anything herein to the contrary,
a transfer directly to this Plan from another qualified plan
(or a transaction having the effect of such a transfer) shall
only be permitted if it will not result in the elimination or
reduction of any "Section 411(d)(6) protected benefit" as
described in Section 7.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) In order to allow Participants the
opportunity to increase their retirement income, each
Participant may, at the discretion of the Administrator, elect
to voluntarily contribute a portion of his compensation (from
1% to 10%, in whole percentages) earned while a Participant
under this Plan. Such contributions shall be paid to the
Trustee within a reasonable period of time but in no event
later than ninety (90) days (effective February 3, 1997, no
later than the fifteenth (15th) business day of the month
following the month) after the receipt of the contribution.
The balance in each Participant's Voluntary Contribution
Account shall be fully Vested at all times and shall not be
subject to Forfeiture for any reason.
(a) A Participant may, at any time, elect to
withdraw his voluntary contributions from his Voluntary
Contribution Account and the actual earnings thereon in a
manner which is consistent with and satisfies the provisions
of Section 6.5, including, but not limited to, all notice and
consent requirements of Code Section 411(a)(11) and the
Regulations thereunder. If the Administrator maintains
sub-accounts with respect to voluntary contributions (and
earnings thereon) which were made on or before a specified
date, a Participant shall be permitted to designate which
sub-account shall be the source for his withdrawal.
In the event such a withdrawal is made, or
in the event a Participant has received a hardship
distribution from his Participant's Elective Account pursuant
to Section 6.11 or pursuant to Regulation
1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the
Employer, then such Participant shall be barred from making
any voluntary contributions to the Trust Fund for a period of
twelve (12) months after receipt of the withdrawal or
distribution.
(a) At Normal Retirement Date, or such other date
when the Participant or his Beneficiary shall be entitled to
receive benefits, the fair market value of the Voluntary
Contribution Account shall be used to provide additional
benefits to the Participant or his Beneficiary.
(a) The Administrator may direct that voluntary
contributions made after a valuation date be segregated into a
separate account for each Participant in a federally insured
savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short
term debt security acceptable to the Trustee until such time
as the allocations pursuant to this Plan have been made, at
which time they may remain segregated or be invested as part
of the general Trust Fund, to be determined by the
Administrator.
(a) All amounts allocated to a Voluntary Contribution
Account may be treated as a Directed Investment Account
pursuant to Section 4.13.
4.13 DIRECTED INVESTMENT ACCOUNT
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<PAGE> 54
(a) The Administrator, in his sole discretion, may
determine that all Participants be permitted to direct the
Trustee as to the investment of all or a portion of the
interest in any one or more of their individual account
balances. If such authorization is given, Participants may,
subject to a procedure established by the Administrator and
applied in a uniform nondiscriminatory manner, direct the
Trustee to invest any portion of their account in specific
assets, specific funds or other investments permitted under
the Plan and the directed investment procedure. As part of the
Directed Investment Account the Administrator may determine
that all Participants be permitted to direct the Trustee to
acquire, hold and dispose of "qualifying Employer securities"
and "qualifying Employer real property," as those terms are
defined in the Act, in amounts that exceed the percentage
limitation on "qualifying Employer securities" in Section 407
of the Act. That portion of the account of any Participant so
directing will thereupon be considered a Directed Investment
Account, which shall not share in Trust Fund earnings.
(a) A separate Directed Investment Account shall be
established for each Participant who has directed an
investment. Transfers between the Participant's regular
account and his Directed Investment Account shall be charged
and credited as the case may be to each account. The Directed
Investment Account shall not share in Trust Fund earnings, but
it shall be charged or credited as appropriate with the net
earnings, gains, losses and expenses as well as any
appreciation or depreciation in market value during each Plan
Year attributable to such account.
ARTICLE I
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed necessary by the
Administrator, herein called "valuation date," to determine the net worth of the
assets comprising the Trust Fund as it exists on the "valuation date." In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the
Trust Fund which are listed on a registered stock exchange, the Administrator
shall direct the Trustee to value the same at the prices they were last traded
on such exchange preceding the close of business on the "valuation date." If
such securities were not traded on the "valuation date," or if the exchange on
which they are traded was not open for business on the "valuation date," then
the securities shall be valued at the prices at which they were last traded
prior to the "valuation date." Any unlisted security held in the Trust Fund
shall be valued at its bid price next preceding the close of business on the
"valuation date," which bid price shall be obtained from a registered broker or
an investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE I
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<PAGE> 55
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the
Employer and retire for the purposes hereof on his Normal Retirement Date.
However, a Participant may postpone the termination of his employment with the
Employer to a later date, in which event the participation of such Participant
in the Plan, including the right to receive allocations pursuant to Section 4.4,
shall continue until his Late Retirement Date. Upon a Participant's Retirement
Date, or as soon thereafter as is practicable, the Trustee shall distribute all
amounts credited to such Participant's Combined Account in accordance with
Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his
Retirement Date or other termination of his employment, all
amounts credited to such Participant's Combined Account shall
become fully Vested. The Administrator shall direct the
Trustee, in accordance with the provisions of Sections 6.6 and
6.7, to distribute the value of the deceased Participant's
accounts to the Participant's Beneficiary.
(a) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute any
remaining Vested amounts credited to the accounts of a
deceased Former Participant to such Former Participant's
Beneficiary.
(a) Any security interest held by the Plan by reason
of an outstanding loan to the Participant or Former
Participant shall be taken into account in determining the
amount of the death benefit.
(a) The Administrator may require such proper proof
of death and such evidence of the right of any person to
receive payment of the value of the account of a deceased
Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death and
of the right of any person to receive payment shall be
conclusive.
(a) The Beneficiary of the death benefit payable
pursuant to this Section shall be the Participant's spouse.
Except, however, the Participant may designate a Beneficiary
other than his spouse if:
(1) the spouse has waived the right to be the
Participant's Beneficiary, or
(1) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the
Participant has a court order to such effect (and
there is no "qualified domestic relations order" as
defined in Code Section 414(p) which provides
otherwise), or
(1) the Participant has no spouse, or
(1) the spouse cannot be located.
In such event, the designation of a
Beneficiary shall be made on a form satisfactory to the
Administrator. A Participant may at any time
46
<PAGE> 56
revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or
change with the Administrator. However, the Participant's
spouse must again consent in writing to any change in
Beneficiary unless the original consent acknowledged that the
spouse had the right to limit consent only to a specific
Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the
death benefit shall be payable to his estate.
(a) Any consent by the Participant's spouse to waive
any rights to the death benefit must be in writing, must
acknowledge the effect of such waiver, and be witnessed by a
Plan representative or a notary public. Further, the spouse's
consent must be irrevocable and must acknowledge the specific
nonspouse Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability
prior to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Combined Account shall become fully Vested. In
the event of a Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's Combined Account as
though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with
or subsequent to the termination of a Participant's employment
for any reason other than death, Total and Permanent
Disability or retirement, the Administrator may direct the
Trustee to segregate the amount of the Vested portion of such
Terminated Participant's Combined Account and invest the
aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit, common or collective
trust fund of a bank or a deferred annuity. In the event the
Vested portion of a Participant's Combined Account is not
segregated, the amount shall remain in a separate account for
the Terminated Participant and share in allocations pursuant
to Section 4.4 until such time as a distribution is made to
the Terminated Participant.
Distribution of the funds due to a
Terminated Participant shall be made on the occurrence of an
event which would result in the distribution had the
Terminated Participant remained in the employ of the Employer
(upon the Participant's death, Total and Permanent Disability
or Normal Retirement). However, at the election of the
Participant, the Administrator shall direct the Trustee to
cause the entire Vested portion of the Terminated
Participant's Combined Account to be payable to such
Terminated Participant. However, distribution of funds due to
a Terminated Participant from the sale of "qualifying Employer
securities" may be made at intervals which correspond to
administratively feasible dates after which the Employer
values the securities pursuant to Section 5.2. Any
distribution under this paragraph shall be made in a manner
which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and
consent requirements of Code Section 411(a)(11) and the
Regulations thereunder.
If the value of a Terminated Participant's
Vested benefit derived from Employer and Employee
contributions does not exceed $3,500
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<PAGE> 57
and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to
cause the entire Vested benefit to be paid to such Participant
in a single lump sum.
(a) The Vested portion of any Participant's Account
shall be a percentage of the total amount credited to his
Participant's Account determined on the basis of the
Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
1 20 %
2 40 %
3 60 %
4 80 %
5 100 %
</TABLE>
(a) Notwithstanding the vesting schedule
above, upon the complete discontinuance of the Employer's
contributions to the Plan or upon any full or partial
termination of the Plan, all amounts credited to the account
of any affected Participant shall become 100% Vested and shall
not thereafter be subject to Forfeiture.
In addition, all amounts credited to the
account of any affected Participant shall become 100% Vested
and shall not thereafter be subject to Forfeiture upon the
occurrence of the following events:
(1) the Participant's termination of employment
solely as a result of a "reduction in force";
provided this provision will be applicable only if
the Administrator determines it to apply and if it is
applicable to each similarly situated Employee in a
uniform and nondiscriminatory manner. For purposes of
this Plan, a "reduction in force" occurs when the
jobs of a class of Employees are eliminated or
consolidated, resulting in an involuntary termination
of employment of those affected Employees, pursuant
to directions from the Chief Executive Officer of the
Employer.
(2) the Participant's termination of employment
solely as a result of a sale of stock or assets of
the Employer to a third person; provided this
paragraph (2) shall be applicable only if the
Administrator determines it to apply and if it is
applicable to each similarly situation Employee in a
uniform and nondiscriminatory manner.
(a) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as
the result of any direct or indirect amendment to this Plan.
For this purpose, the Plan shall be treated as having been
amended if the Plan provides for an automatic change in
vesting due to a change in top heavy status. In the event that
the Plan is amended to change or modify any vesting schedule,
a Participant with at least three (3) Years of Service as of
the expiration date of the election period may elect to have
his nonforfeitable percentage computed under the Plan without
regard to such amendment. If a Participant fails to make such
election, then such Participant shall be subject to the new
vesting schedule.
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<PAGE> 58
The Participant's election period shall commence on the
adoption date of the amendment and shall end 60 days after the
latest of:
(1) the adoption date of the amendment,
(1) the effective date of the amendment, or
(1) the date the Participant receives written notice
of the amendment from the Employer or Administrator.
(a)(1) If any Former Participant shall be reemployed
by the Employer before a 1-Year Break in Service occurs, he
shall continue to participate in the Plan in the same manner
as if such termination had not occurred.
(1) If any Former Participant shall be reemployed by
the Employer before five (5) consecutive 1-Year
Breaks in Service, and such Former Participant had
received a distribution of his entire Vested interest
prior to his reemployment, his forfeited account
shall be reinstated only if he repays the full amount
distributed to him before the earlier of five (5)
years after the first date on which the Participant
is subsequently reemployed by the Employer or the
close of the first period of five (5) consecutive
1-Year Breaks in Service commencing after the
distribution. In the event the Former Participant
does repay the full amount distributed to him, the
undistributed portion of the Participant's Account
must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Anniversary Date
or other valuation date coinciding with or preceding
his termination. The source for such reinstatement
shall first be any Forfeitures occurring during the
year. If such source is insufficient, then the
Employer shall contribute an amount which is
sufficient to restore any such forfeited Accounts.
(1) If any Former Participant is reemployed
after a 1-Year Break in Service has occurred, Years
of Service shall include Years of Service prior to
his 1-Year Break in Service, and he shall again be
able to participate in the Plan upon his date of
reemployment with the Employer, subject to the
following rules:
(i) Any Former Participant who under the Plan
does not have a nonforfeitable right to any
interest in the Plan resulting from Employer
contributions shall lose credit for his
pre-break service for computing Years of Service
for eligibility and for vesting purposes, if his
consecutive 1-Year Breaks in Service equal or
exceed the greater of (A) five (5) or (B) the
aggregate number of his pre-break Years of
Service, and shall be considered a new Employee
for eligibility and for vesting purposes;
(i) After five (5) consecutive 1-Year Breaks
in Service, a Former Participant's Vested
Account balance attributable to pre-break
service shall not be increased as a result of
post-break service;
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the
election of the Participant, shall direct the
Trustee to distribute to a Participant or his
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Beneficiary any amount to which he is entitled under the Plan
in one lump-sum payment in cash; provided, however, that any
amounts invested in Employer Stock shall be distributed only
in shares of Employer Stock.
(a) Any distribution to a Participant who has a
benefit which exceeds, or has ever exceeded, $3,500 at the
time of any prior distribution shall require such
Participant's consent if such distribution occurs prior to the
later of his Normal Retirement Age or age 62. With regard to
this required consent:
(1) The Participant must be informed of his right to
defer receipt of the distribution. If a Participant
fails to consent, it shall be deemed an election to
defer the distribution of any benefit. However, any
election to defer the receipt of benefits shall not
apply with respect to distributions which are
required under Section 6.5(c).
(1) Notice of the rights specified under this
paragraph shall be provided no less than 30 days and
no more than 90 days before the first day on which
all events have occurred which entitle the
Participant to such benefit.
(1) Written consent of the Participant to the
distribution must not be made before the Participant
receives the notice and must not be made more than 90
days before the first day on which all events have
occurred which entitle the Participant to such
benefit.
(1) No consent shall be valid if a significant
detriment is imposed under the Plan on any
Participant who does not consent to the distribution.
If a distribution is one to which Code Sections
401(a)(11) and 417 do not apply, such distribution
may commence less than 30 days after the notice
required under Regulation 1.411(a)-11(c) is given,
provided that: (1) the Administrator clearly informs
the Participant that the Participant has a right to a
period of at least 30 days after receiving the notice
to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular
distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a
distribution.
(a) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits shall
be made in accordance with the following requirements and
shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder (including Regulation 1.401(a)(9)-2),
the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to
him not later than April 1st of the calendar year
following the later of (i) the calendar year in which
the Participant attains age 70 1/2 or (ii) the
calendar year in which the Participant retires,
provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five (5)
percent owner" at any time during the five (5) Plan
Year period ending in the calendar year in which he
attains age 70 1/2 or, in the case of a Participant
who becomes a "five (5) percent owner" during any
subsequent Plan Year, clause (ii) shall no longer
apply and the required beginning date shall be the
April 1st of the calendar
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year following the calendar year in which such
subsequent Plan Year ends. Notwithstanding the
foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age
70 1/2 before January 1, 1988 and was not a "five (5)
percent owner" at any time during the Plan Year
ending with or within the calendar year in which the
Participant attained age 66 1/2 or any subsequent
Plan Year.
(1) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with
the incidental death benefit requirements of Code
Section 401(a)(9)(G) and the Regulations thereunder.
(a) For purposes of this Section, the life expectancy
of a Participant and a Participant's spouse may, at the
election of the Participant or the Participant's spouse, be
redetermined in accordance with Regulations. The election,
once made, shall be irrevocable. If no election is made by the
time distributions must commence, then the life expectancy of
the Participant and the Participant's spouse shall not be
subject to recalculation.
(a) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of
any annuity Contract purchased and distributed to a
Participant or spouse shall comply with all of the
requirements of the Plan.
(a) If a distribution is made at a time when a
Participant is not fully Vested in his Participant's Account
(employment has not terminated) and the Participant may
increase the Vested percentage in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of
the distribution; and
(1) at any relevant time, the Participant's Vested
portion of the separate account shall be equal to an
amount ("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account
balance at the relevant time, D is the amount of
distribution, and R is the ratio of the account
balance at the relevant time to the account balance
after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) The death benefit payable pursuant to
Section 6.2 shall be paid to the Participant's Beneficiary in
one lump-sum payment in cash subject to the rules of Section
6.6(b); provided, however, that any amount invested in
Employer Stock shall be distributed only in shares of Employer
Stock.
(a) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant shall
be made in accordance with the following requirements and
shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder. If it is determined
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pursuant to Regulations that the distribution of a
Participant's interest has begun and the Participant dies
before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at
least as rapidly as under the method of distribution selected
pursuant to Section 6.5 as of his date of death. If a
Participant dies before he has begun to receive any
distributions of his interest under the Plan or before
distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to
his Beneficiaries by December 31st of the calendar year in
which the fifth anniversary of his date of death occurs.
However, the 5-year distribution requirement
of the preceding paragraph shall not apply to any portion of
the deceased Participant's interest which is payable to or for
the benefit of a designated Beneficiary. In such event, such
portion may, at the election of the Participant (or the
Participant's designated Beneficiary), be distributed over a
period not extending beyond the life expectancy of such
designated Beneficiary provided such distribution begins not
later than December 31st of the calendar year immediately
following the calendar year in which the Participant died.
However, in the event the Participant's spouse (determined as
of the date of the Participant's death) is his Beneficiary,
the requirement that distributions commence within one year of
a Participant's death shall not apply. In lieu thereof,
distributions must commence on or before the later of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December
31st of the calendar year in which the Participant would have
attained age 70 1/2. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year
distribution requirement of this Section shall apply as if the
spouse was the Participant.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the
Trustee is to make a distribution on or as of an Anniversary Date, the
distribution may be made on such date or as soon thereafter as is practicable.
However, unless a Former Participant elects in writing to defer the receipt of
benefits (such election may not result in a death benefit that is more than
incidental), the payment of benefits shall occur not later than the 60th day
after the close of the Plan Year in which the latest of the following events
occurs: (a) the date on which the Participant attains the earlier of age 65 or
the Normal Retirement Age specified herein; (b) the 10th anniversary of the year
in which the Participant commenced participation in the Plan; or (c) the date
the Participant terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution
payable to a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of
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age 62 or his Normal Retirement Age, remain unpaid solely by reason of the
inability of the Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent effort,
to ascertain the whereabouts of such Participant or his Beneficiary, the amount
so distributable may be treated as a Forfeiture pursuant to the Plan. In the
event a Participant or Beneficiary is located subsequent to his benefit being
reallocated, such benefit shall be restored.
6.10 PRE-RETIREMENT DISTRIBUTION
The Administrator, at the election of the Participant, shall
direct the Trustee to distribute to such Participant all or part of his Rollover
Account and/or his Voluntary Contribution Account, except as provided in Section
4.11(c). At such time as a Participant shall have attained the age of 59 1/2
years, the Administrator, at the election of the Participant, shall direct the
Trustee to distribute all or a portion of his Participant's Elective Account. In
the event that the Administrator makes such a distribution, the Participant
shall continue to be eligible to participate in the Plan on the same basis as
any other Employee. Any distribution made pursuant to this Section shall be made
in a manner consistent with Section 6.5, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11) and the Regulations
thereunder.
A Participant shall not receive more than one (1)
pre-retirement distribution in any six (6) month period.
Notwithstanding the above, pre-retirement distributions from a
Participant's Elective Account shall not be permitted prior to the Participant
attaining age 59 1/2 except as otherwise permitted under the terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the
Participant, shall direct the Trustee to distribute to any
Participant up to the lesser of 100% of his Participant's
Elective Account valued as of the last Anniversary Date or
other valuation date or the amount necessary to satisfy the
immediate and heavy financial need of the Participant. Any
distribution made pursuant to this Section shall be deemed to
be made as of the first day of the Plan Year or, if later, the
valuation date immediately preceding the date of distribution,
and the Participant's Elective Account shall be reduced
accordingly. Withdrawal under this Section shall be authorized
only if the distribution is on account of:
(1) Expenses for medical care described in Code
Section 213(d) previously incurred by the
Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or necessary for these
persons to obtain medical care;
(1) The costs directly related to the purchase of a
principal residence for the Participant (excluding
mortgage payments);
(1) Payment tuition, room and board expenses
and related educational fees for the next twelve (12)
months of post-secondary education for the
Participant, his spouse, children, or dependents; or
(1) Payments necessary to prevent the eviction of the
Participant from his principal residence or
foreclosure on the mortgage of the Participant's
principal residence.
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(a) No distribution shall be made pursuant to this
Section unless the Administrator, based upon the Participant's
representation and such other facts as are known to the
Administrator, determines that all of the following conditions
are satisfied:
(1) The distribution is not in excess of the amount
of the immediate and heavy financial need of the
Participant. The amount of the immediate and heavy
financial need may include any amounts necessary to
pay any federal, state, or local income taxes or
penalties reasonably anticipated to result from the
distribution;
(1) The Participant has obtained all distributions,
other than hardship distributions, and all nontaxable
(at the time of the loan) loans currently available
under all plans maintained by the Employer;
(1) The Plan, and all other plans maintained
by the Employer, provide that the Participant's
elective deferrals and voluntary Employee
contributions will be suspended until the next Entry
Date (as defined in Section 3.3) following the twelve
(12) month period beginning with the Participant's
receipt of the hardship distribution or, the
Participant, pursuant to a legally enforceable
agreement, will suspend his elective deferrals and
voluntary Employee contributions to the Plan and all
other plans maintained by the Employer until the next
Entry Date following the twelve (12) month period
beginning with the Participant's receipt of the
hardship distribution; and
(1) The Plan, and all other plans maintained by the
Employer, provide that the Participant may not make
elective deferrals for the Participant's taxable year
immediately following the taxable year of the
hardship distribution in excess of the applicable
limit under Code Section 402(g) for such next taxable
year less the amount of such Participant's elective
deferrals for the taxable year of the hardship
distribution.
(a) Notwithstanding the above, distributions from the
Participant's Elective Account pursuant to this Section shall
be limited solely to the Participant's total Deferred
Compensation as of the date of distribution, reduced by the
amount of any previous distributions pursuant to this Section
and Section 6.10.
(a) Any distribution made pursuant to this Section
shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not
limited to, all notice and consent requirements of Code
Section 411(a)(11) and the Regulations thereunder.
6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).
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6.13 DIRECT ROLLOVER
(a) Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and
in the manner prescribed by the Plan Administrator, to have
any portion of an eligible rollover distribution paid directly
to an eligible retirement plan specified by the distributee in
a direct rollover.
(a) For purposes of this Section the following
definitions shall apply:
(1) An eligible rollover distribution is any
distribution of all or any portion of the balance to
the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life
expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more; any
distribution to the extent such distribution is
required under Code Section 401(a)(9); and the
portion of any distribution that is not includible in
gross income (determined without regard to the
exclusion for net unrealized appreciation with
respect to employer securities).
(1) An eligible retirement plan is an individual
retirement account described in Code Section 408(a),
an individual retirement annuity described in Code
Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in
Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(1) A distributee includes an Employee or former
Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
order, as defined in Code Section 414(p), are
distributees with regard to the interest of the
spouse or former spouse.
(1) A direct rollover is a payment by the plan to the
eligible retirement plan specified by the
distributee.
ARTICLE I
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT
(a) The Employer, by resolution of the Board of
Directors, may amend, modify, change, revise or discontinue
this Plan by amendment at any time. The Board of Directors
hereby grants to the chief operating officer and the senior
administrative officer of the Employer the joint right and
authority to amend the Plan 1) to take into account provisions
that are required due to changes in state and federal law
including, but not limited to, statutes, regulations and
administrative orders, and 2) to alter provisions
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that do not have a material financial impact on the Employer,
Plan or Trust. An amendment by the Board of Directors shall be
accomplished by a resolution adopted by the Board of Directors
at a meeting held in accordance with the requirements of the
Employer's code of regulations. An amendment by the
above-mentioned officers of the Employer shall be accomplished
by a jointly signed written document memorializing the
amendment.
(a) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than
such part as is required to pay taxes and administration
expenses) to be used for or diverted to any purpose other than
for the exclusive benefit of the Participants or their
Beneficiaries or estates; or causes any reduction in the
amount credited to the account of any Participant; or causes
or permits any portion of the Trust Fund to revert to or
become property of the Employer.
(a) Except as permitted by Regulations, no Plan
amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall
be effective to the extent it eliminates or reduces any
"Section 411(d)(6) protected benefit" or adds or modifies
conditions relating to "Section 411(d)(6) protected benefits"
the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to
benefits accrued as of the later of the adoption date or
effective date of the amendment. "Section 411(d)(6) protected
benefits" are benefits described in Code Section 411(d)(6)(A),
early retirement benefits and retirement-type subsidies, and
optional forms of benefit.
7.2 TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and
Administrator written notice of such termination. Upon any
full or partial termination, all amounts credited to the
affected Participants' Combined Accounts shall become 100%
Vested as provided in Section 6.4 and shall not thereafter be
subject to forfeiture, and all unallocated amounts shall be
allocated to the accounts of all Participants in accordance
with the provisions hereof.
(a) Upon the full termination of the Plan, the
Employer shall direct the distribution of the assets of the
Trust Fund to Participants in a manner which is consistent
with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash or in
property or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except
as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected
benefits" in accordance with Section 7.1(c).
7.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the
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elimination or reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 7.1(c).
7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's
discretion, make loans to Participants and Beneficiaries who
are "parties-in-interest" as that term is defined under the
Act, under the following circumstances: (1) loans shall be
made available to all Participants and Beneficiaries who are
"parties-in-interest" on a reasonably equivalent basis; (2)
loans shall not be made available to Highly Compensated
Employees in an amount greater than the amount made available
to other Participants and Beneficiaries; (3) loans shall bear
a reasonable rate of interest; (4) loans shall be adequately
secured; and (5) shall provide for repayment over a reasonable
period of time.
(a) Loans made pursuant to this Section (when added
to the outstanding balance of all other loans made by the Plan
to the Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the
highest outstanding balance of loans from the Plan to
the Participant during the one year period ending on
the day before the date on which such loan is made,
over the outstanding balance of loans from the Plan
to the Participant on the date on which such loan was
made, or
(1) one-half (1/2) of the present value of the
non-forfeitable accrued benefit of the Participant
under the Plan.
(a) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over a
period not to exceed five (5) years. However, loans used to
acquire any dwelling unit which, within a reasonable time, is
to be used (determined at the time the loan is made) as a
principal residence of the Participant shall provide for
periodic repayment over a reasonable period of time that may
exceed five (5) years.
(a) Any loans granted or renewed shall be made
pursuant to a Participant loan program. Such loan program
shall be established in writing and must include, but need not
be limited to, the following:
(1) the identity of the person or positions
authorized to administer the Participant loan
program;
(1) a procedure for applying for loans;
(1) the basis on which loans will be approved or
denied;
(1) limitations, if any, on the types and amounts of
loans offered;
(1) the procedure under the program for determining a
reasonable rate of interest;
(1) the types of collateral which may secure a
Participant loan; and
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(1) the events constituting default and the steps
that will be taken to preserve Plan assets.
Such Participant loan program shall be
contained in a separate written document which, when properly
executed, is hereby incorporated by reference and made a part
of the Plan. Furthermore, such Participant loan program may be
modified or amended in writing from time to time without the
necessity of amending this Section.
ARTICLE I
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between
the Employer and any Participant or to be a consideration or an inducement for
the employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
8.2 ALIENATION
(a) Subject to the exceptions provided below, no
benefit which shall be payable out of the Trust Fund to any
person (including a Participant or his Beneficiary) shall be
subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any
attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be void; and no
such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of
any such person, nor shall it be subject to attachment or
legal process for or against such person, and the same shall
not be recognized by the Trustee, except to such extent as may
be required by law.
(a) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, as a
result of a loan from the Plan. At the time a distribution is
to be made to or for a Participant's or Beneficiary's benefit,
such proportion of the amount distributed as shall equal such
loan indebtedness shall be paid by the Trustee to the Trustee
or the Administrator, at the direction of the Administrator,
to apply against or discharge such loan indebtedness. Prior to
making a payment, however, the Participant or Beneficiary must
be given written notice by the Administrator that such loan
indebtedness is to be so paid in whole or part from his
Participant's Combined Account. If the Participant or
Beneficiary does not agree that the loan indebtedness is a
valid claim against his Vested Participant's Combined Account,
he shall be entitled to a review of the validity of the claim
in accordance with procedures provided in Sections 2.12 and
2.13.
(a) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p), and
those other domestic relations orders permitted to be so
treated by the Administrator under the provisions of the
Retirement Equity Act of 1984. The Administrator shall
establish a written procedure to determine the qualified
status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order,"
a former
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spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
8.3 CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to the Act
and the laws of the State of Connecticut, other than its laws respecting choice
of law, to the extent not preempted by the Act.
8.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine
or neuter gender, they shall be construed as though they were also used in
another gender in all cases where they would so apply, and whenever any words
are used herein in the singular or plural form, they shall be construed as
though they were also used in the other form in all cases where they would so
apply.
8.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought
regarding the Trust and/or Plan established hereunder to which the Trustee or
the Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee or Administrator, they shall be entitled to be
reimbursed from the Trust Fund for any and all costs, attorney's fees, and other
expenses pertaining thereto incurred by them for which they shall have become
liable.
8.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise
specifically permitted by law, it shall be impossible by
operation of the Plan or of the Trust, by termination of
either, by power of revocation or amendment, by the happening
of any contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any trust fund
maintained pursuant to the Plan or any funds contributed
thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants, Retired Participants,
or their Beneficiaries.
(a) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such
excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return
such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess contributions
may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
8.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against
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any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
8.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors,
shall be responsible for the validity of any Contract issued hereunder or for
the failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
8.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have
any responsibility for the validity of this Plan or for the tax or legal aspects
of this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
8.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the
Trustee or Employer.
8.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted
or required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
8.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2)
the Administrator and (3) the Trustee. The named Fiduciaries shall have only
those specific powers, duties, responsibilities, and obligations as are
specifically given them under the Plan. In general, the Employer shall have the
sole responsibility for making the contributions provided for under Section 4.1;
and shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that
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<PAGE> 70
any directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
8.13 HEADINGS
The headings and subheadings of this Plan have been inserted
for convenience of reference and are to be ignored in any construction of the
provisions hereof.
8.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to
the Employer within one year after such determination,
provided the application for the determination is made by the
time prescribed by law for filing the Employer's return for
the taxable year in which the Plan was adopted, or such later
date as the Secretary of the Treasury may prescribe.
(a) Notwithstanding any provisions to the contrary,
except Sections 3.6, 3.7, and 4.1(d), any contribution by the
Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the
Code and, to the extent any such deduction is disallowed, the
Employer may, within one (1) year following the disallowance
of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution
within one (1) year following the disallowance. Earnings of
the Plan attributable to the excess contribution may not be
returned to the Employer, but any losses attributable thereto
must reduce the amount so returned.
8.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied
in a uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
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<PAGE> 71
IN WITNESS WHEREOF, this Plan has been executed the day and
year first above written.
CUNO INCORPORATED
By: /s/ Ronald C. Drabik
- ----------------------------------------------------
EMPLOYER
62
<PAGE> 1
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of December 1, 1997, by
and between CUNO INCORPORATED, Delaware corporation (the "Company"), and PAUL J.
POWERS (Executive").
RECITALS
WHEREAS, Executive is and has been serving as Chairman of the
Company's Board of Directors (the "Board") and Chief Executive Officer of the
Company and is an integral part of its management;
WHEREAS, Executive will attain age 65 in February of 2000 and
presently intends to continue in the Company's employ until that time, to retire
from his employment with the Company on February 28, 2000, and the Company
wishes to assure itself of Executive's continued employment through the
Executive's anticipated retirement date;
WHEREAS, the Company wishes to ensure that Executive will not
compete with the Company for a period of two years after the last date on which
he is either an employee of the Company or a member of the Board; and
WHEREAS, Executive is prepared to enter into this employment
agreement with the Company and to give the Company assurances it desires;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:
1. Employment, Contract Period. During the period specified in
this Section 1, the Company shall employ Executive, and Executive shall serve
the Company, on the terms and subject to the
1
<PAGE> 2
conditions set forth herein. The term of Executive's employment hereunder shall
commence as of December 1, 1997 (the "Effective Date"), and, subject to prior
termination as provided in Section 5 hereof, shall continue through February 28,
2000. The term of Executive's employment hereunder is sometimes hereinafter
referred to as the "Contract Period".
2. Responsibility. At all times during the Contract Period,
Executive shall serve the Company as the Company's Chairman of the Board of
Directors and shall (a) devote such time and effort to the performance of duties
as assigned to him by the Board of Directors that are normally incident to the
office of Chairman of the Board of Directors, and (b) use his best efforts to
promote the interests of the Company and its affiliates.
3. Remuneration. At all times during the Contract Period, the
Company shall pay to Executive compensation as provided in this Section 3.
(a) Base Salary. The Corporation shall pay Executive a base
salary at an annual rate of not less than $100,000 paid on a monthly basis. The
annual rate of base salary may be increased at the discretion of the
Compensation Committee of the Board (the "Committee"). If increased, the annual
rate of base salary may not thereafter be decreased during the term of this
Agreement.
(b) Annual Incentive Compensation. The Corporation may
pay Executive an annual cash bonus under the provisions of the Company's
Management Incentive Plan or any successor plans, but only if and when
authorized by the Committee.
(c) Performance Shares. The Company shall grant to Executive,
effective as of the Effective Date, 40,000 Performance Shares of the Company's
Common Stock pursuant to the Company's 1996 Stock Incentive Plan and Performance
Stock Plan with respect to the three (3) year performance period ending on
October 31, 2000, to be distributed to Executive, if earned, no later than
January 31, 2001.
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<PAGE> 3
4. Employee Benefits. Executive shall be included, to the
extent eligible thereunder (at the expense of the Company, if appropriate) under
the following plans ( and any plans that later may be adopted) providing
benefits for the Company's employees:
(a) Any thrift plans, profit-sharing plans, stock purchase
plans, and any and all similar and comparable benefits.
(b) Executive shall also be provided with a suitable
automobile allowance under the terms of the Company's executive automobile
program, and officer's and directors' liability insurance coverage in an amount
reasonably available.
5. Termination.
(a) On February 28, 2000. If not earlier terminated,
Executive's employment hereunder shall terminate a the close of business of
February 28, 2000.
(b) Death or Disability. Executive's employment hereunder will
terminate immediately upon Executive's death. The Company may terminate
Executive's employment hereunder immediately giving notice of termination if
Executive is disabled, by reason of physical or mental impairment, to such an
extent that he has been unable to substantially perform his duties under this
Agreement for an aggregate of 180 days (whether business or non-business days
and whether or not consecutive) during any period of twelve consecutive calendar
months.
(c) For "Cause". The Company may terminate Executive's
employment under this Agreement for "Cause " only on the basis of :
(i) Executive's willful and continued failure substantially to
perform his duties with the Company, after a written demand for substantial
performance is delivered to Executive by the Board, which written demand
specifically identifies the manner in which the Board believes Executive has not
substantially performed his duties, or
(ii) Executive's willful engagement in conduct materially and
demonstrably injurious to the Company.
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<PAGE> 4
For purposes of the Agreement, no act of failure to act on Executive's part
shall be considered "willful" unless done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or omission was
in the best interest of the Company. Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote if not
less than two-thirds of the entire membership of the Board at a meeting of the
Board called and held for that purpose, finding that in the good faith opinion
of the Board, Executive was guilty of conduct set forth in clause (i) or clause
(ii) of this subsection 5(c) and specifying the particulars thereof in detail.
No termination of Executive's employment by the Company for "Cause" shall be
effective unless and until it is communicated by the Company to Executive by a
written notice that refers to either or both of clause (i) or clause (ii) of
this subsection 5(c) as the specific termination provision or provisions relied
upon by the Company and that sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision or provisions so indicated
(d) Without "Cause". The Company may terminate Executive's
employment under this Agreement without "Cause" at anytime, effective at such
time as the Board may specify in a motion duly adopted by the affirmative vote
of two-thirds of the members of the Board then in office.
6. Compensation and Benefits Following Termination Without
"Cause". If the Company terminates Executive's employment under this Agreement
without "Cause:"
(a) the Company shall pay to Executive, in immediately
available funds, within 10 days of the date of termination of Executive's
employment, a lump sum amount that is equal to the sum of (A) 24 months of base
salary at the highest rate paid to Executive before the termination, plus (B)
two times the average of the annual cash bonuses, if any, received by Executive
under the provisions of the Company's Incentive Plans or any successor plan with
respect to each of the two most recent fiscal years of the Company ended before
the termination.
(b) the restrictions on any restricted shares held by
Executive immediately before the termination of his employment shall terminate
simultaneously with the termination of his employment;
(c) any options to purchase shares in the Company held by
Executive immediately before the termination of his employment that
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<PAGE> 5
were not otherwise exercisable by Executive shall be exercisable by Executive at
any time during the 90 day period beginning immediately after the date of
termination of his employment; and
(d) the Company shall not be obligated to pay any
compensation, benefits, or perquisites to Executive by reason of this Agreement
after the termination of his employment.
If Executive receives any payments under this Agreement as a result of
termination of his employment following a termination without Cause, those
payments shall be in lieu of any and all other claims or rights that Executive
may have for severance, separation, and/or salary continuation pay upon that
termination of his employment. Nothing in the Section 6 shall diminish
Executive's right to receive any payment or to enjoy any benefit required to be
paid or provided by the Company to Executive under any plan, practice, or
commitment of the Company that would have continued after the termination of
Executive's employment under this agreement if Executive's employment with the
Company had continued through February 28, 2000 and then terminated.
7. Compensation and Benefits Following Termination on Account
of Disability. If the Company terminates Executive's employment under subsection
5(b) of the Agreement by reason of Executive's disability:
(a) the Company shall pay and provide to Executive, not later
than 75 days after the end of the fiscal year in which the termination occurs,
that portion of the total bonus, if any, to which he would have been entitled
had he continued to be employed under this Agreement through the end of the
fiscal year in which the termination occurs, equal to that total bonus
multiplied by a fraction, the numerator of which is the number of days in the
fiscal year ending on or before the date of Executive's termination and the
denominator of which is 365;
(b) the restrictions on any restricted shares held by
Executive immediately before the termination of his employment shall terminate
simultaneously with the termination of his employment; and
(c) the Company shall not be obligated to pay any
compensation, benefits, or perquisites to Executive by reason of this Agreement
after the termination of his employment.
Nothing in this Section 7 shall diminish Executive's right to receive any
payment or to enjoy any benefit required to be paid or provided by the Company
to Executive under any plan, practice, or commitment of the Company that would
have continued after the termination of Executive's
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<PAGE> 6
employment under the Agreement if Executive's employment with the Company had
continued through February 28, 2000 and then terminated.
8. Miscellaneous Services following Termination of Employment.
Following termination of his employment under this Agreement and for so long as
Executive remains a member of the Board, Executive shall make himself available
at all reasonable times for consultation by and with the Company's officers and
directors.
If Executive is called upon to render services of this nature, he shall, in
consideration therefor and as a condition thereto, receive reasonable
compensation for the services rendered and reimbursement for any travel or other
out-of-pocket expenses incurred in connection therewith.
9. Benefit. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees, legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be no such designee, to Executive's estate.
10. Successor to the Company. The Company shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all the business and/or
assets of the Company, by agreement in form and substance satisfactory to
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place.
11. Confidential Information and Noncompetition. Executive
agrees and acknowledges that Executive's talents, skills, and experience are
unique, and that the Company has invested considerable efforts and money in
developing and compiling customer lists, supplier lists, and trade and market
information, in developing business techniques and practices, and in maintaining
valuable market relationships; that such items and all other information that
relates to the business of the Company, the business of any customer or supplier
of the Company, or the business of any person, firm, or corporation that
consults with or is affiliated with the Company, constitute for purposes hereof
the "Confidential Information" of the Company; and that the Confidential
Information is valuable property of the Company and is vital to the operation
and continuation of the
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<PAGE> 7
Company's business. Confidential Information shall not include information so
generally known as to be part of the public domain.
Executive acknowledges that the Company has and will disclose Confidential
Information to Executive and afford him access to Confidential Information in
connection with his employment with the Company. Executive agrees that he shall
use such Confidential Information solely for the benefit of the Company.
Executive further acknowledges that the grant of 40,000 Performance Shares
referred to in Section 3(c) is being made by the Company in order to induce
Executive to agree to the restrictions contained in this Section 11 and that
Executive has received valuable consideration commensurate with those
restrictions. Accordingly, Executive agrees and acknowledges that:
(a) Except as required in the performance of his duties as an
employee of the Company, Executive shall not at any time, either directly or
indirectly, use, divulge, disclose, or communicate to any person, firm, or
corporation in any manner whatsoever any Confidential Information.
(b) Executive has been given access to the Company's
Confidential Information solely for purposes relating to his employment by the
Company. Executive shall have no rights in such Confidential Information or any
letters patent, copyrights, or other proprietary rights relating thereto, and
Executive hereby assigns to the Company any supplemental or additional
information relating to the Confidential Information acquired by Executive,
whether solely or in collaboration with others, that relates in any manner to
either the subject of Executive's work for the Company or any business of the
Company during the Contract Period ("Improvements"). Executive will disclose
promptly in writing to the Company all such Improvements or information
supplemental or related thereto, and such Improvements shall be treated for all
purposes as Confidential Information hereunder.
(c) During the Contract Period and thereafter, at the request
of the Company and without expense to Executive, Executive shall cooperate in
the procurement of any patent, copyright, trademark, or trade name protection in
the Company's name that may be necessary or desirable to vest, or to perfect the
record of , title of the Confidential Information in the Company. Executive
agrees to execute all documents and do all things necessary or desirable in any
controversy or otherwise to aid Company in obtaining and enforcing proper
protection of its Confidential Information.
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<PAGE> 8
(d) During the period commencing on the Effective Date and
ending on the second anniversary of the first date on which Executive is neither
employed by the Company nor a member of the Board (the "Restriction Period"),
Executive shall not, directly or indirectly, own, operate, have any other than a
minor financial interest in, be employed by, or in any other manner take part in
or consult with any business that is the same as, similar to, or competitive
with the business of the Company as such business is conducted during the
Contract Period. During the Restriction Period, Executive shall not solicit
(other than for the benefit of the Company during the Contract Period) any sale
or purchase to or from any person who is or was a customer or supplier of the
Company during the term of Executive's employment by the Company, either as an
employee, agent, consultant, licensee, independent contractor, owner, or
otherwise.
(e) At any time upon request of the Company and upon
termination of his employment by the Company, Executive shall deliver to the
Company, and shall not retain for his own or another's use, any and all lists,
information, notes, memoranda, documents, devices, and any other material, and
all copies thereof, relating to Executive's work or the products or business of
the Company of which Executive had knowledge.
(f) If any provision of this Section 11 is determined by any
court of competent jurisdiction to be unenforceable by reason of its extending
for too great a period of time or over too great a geographical area, it shall
be interpreted to extend only over the maximum period of time for which it may
be enforceable, or over the maximum geographical area to which it may be
enforceable, or both; and such partial unenforceability shall not affect any
other provision of this Agreement. Executive acknowledges that, in light of the
proprietary interest of the Company in the Confidential Information, the
restrictions set forth herein are reasonable and that the remedies at law for
the breach of any provision of this Section 11 are inadequate. Accordingly, in
the event of any breach, or reasonable belief as to the existence or imminence
of a breach, of the provisions hereof, the Company shall be entitled to
injunctive relief to enjoin the breach (in addition to any other legal and
equitable remedies that the Company may have, including an equitable accounting
of gain to Executive resulting from the breach), together with all costs and
expenses, including reasonable attorneys' fees, related to the enforcement by
the Company of its rights hereunder.
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<PAGE> 9
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force an
effect.
13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all or
which together will constitute one and the same instrument.
14. Legal Fees and Expenses. Except for fees incurred in the
enforcement of Section 11 herein, the Company shall pay all legal fees and
expenses that Executive may incur as a result of the Company's contesting the
validity, enforceability, or Executive's interpretation of, or determinations
under, this Agreement.
15. Notices. All notices under this Agreement shall be in
writing and shall be deemed effective when delivered in person, or three days
after deposit thereof in the official U.S. mails, postage prepaid, for delivery
as registered or certified mail, addressed as follows:
If to the Company:
Cuno Incorporated
President and Chief Executive Officer
400 Research Parkway
Meriden, CONN 06450
If to Executive:
Paul J. Powers
5469 Bay Hill Drive
Canfield, OH 44406
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<PAGE> 10
In lieu of personal notice or notice by deposit in the official U.S. mails, a
party may give notice by confirming telegram or fax. Either party may change the
address to which notice to that party may be mailed by notifying the other party
of the change in the manner contemplated in this section.
16. Effect on Existing Termination and Change of Control.
Executive and the Company are parties to a Termination and Change of Control
Agreement dated as of October 1, 1996, pursuant to which Executive may become
entitled to severance and consulting compensation if Executive's employment is
terminated under certain circumstances following a Change in Control, as defined
in that agreement (the "Change in Control Agreement"). Executive and the Company
intend that if a Change in Control, as defined in the Change in Control
Agreement, occurs and thereafter Executive receives any payments pursuant to
Section 6 of this Agreement (any "Section 6 Payments"), the entire amount of
such Section 6 Payments will be treated as damages paid to the Executive by the
Company as a result of the Company's breach of an employment contract with the
Executive, with the result that the payments otherwise due under the Change in
Control Agreement, will be reduced by the full amount of the Section 6 Payments.
The provisions of this Section 6 shall prevail over any inconsistent language in
the Change in Control Agreement and, to the extent necessary to be effective,
shall be deemed to be an amendment to the Change in Control Agreement.
17. Entire Agreement. This agreement expresses the entire
agreement of the parties with respect to the subject matter hereof, and all
promises, representations, understanding, arrangements, and prior agreements are
merged herein and superseded hereby. No person, other than pursuant to a
resolution of the Board, shall have any authority on behalf of the Company to
agree to modify or change this Agreement or anything in reference thereto, and
any such modification or change must be in writing and signed by both parties.
18. Governing Laws. This Agreement has been entered into in,
and is intended to be performed primarily within, the State of Connecticut and
shall be construed, interpreted, and governed in accordance with the laws of the
State of Connecticut.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
EXECUTIVE: CUNO INCORPORATED
By: /s/ Paul J. Powers By: /s/ John A. Tomich
- ---------------------- -------------------------
Paul J. Powers Counsel and Secretary
11/20/97
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<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEAR 1997 1996(1)
---- -------
(in thousands, except per-share and statistical data)
<S> <C> <C>
Net sales .......................................... $187,478 $179,068
Operating income ................................... 20,231 11,906
Net income ......................................... 12,085 5,593
Working capital .................................... 24,949 13,631
Long-term debt ..................................... 4,779 33,772
Stockholders' equity ............................... 81,890 43,148
Capital expenditures ............................... 7,589 6,472
Research, development and engineering .............. 10,491 9,861
PER SHARE OF COMMON STOCK
Net income ................................ 0.81 0.41
Stockholders' equity ...................... 5.12 3.13
STATISTICAL DATA
Percent to net sales:
Gross profit .............................. 43.4% 41.4%
Operating income .......................... 10.8% 6.6%
Net income ................................ 6.4% 3.1%
Percent to average stockholders' equity:
Net income ................................ 19.3% 7.2%
Ratio of long-term debt to total capitalization .... 5.5% 43.9%
</TABLE>
(1) In the Financial Highlights above, it was assumed that the common shares
issued in conjunction with the reorganization were outstanding for all of 1996.
In addition, 1996 results included certain distribution and other nonrecurring
costs.
MARKET PRICE INFORMATION
The Company's Common Stock is quoted on the NASDAQ market under the
symbol CUNO. The following table shows the high and low prices on NASDAQ for a
share of the Company's Common Stock since the inception of trading:
<TABLE>
<CAPTION>
QUARTER 1997 1996*
---------------- ----------------
High Low High Low
<S> <C> <C> <C> <C>
First ................ $17.63 $13.88
Second ............... 17.13 13.25
Third ................ 17.38 13.25
Fourth ............... 19.13 14.00 $16.00 $14.50
</TABLE>
* Market price information includes the period September 10, 1996 (the
distribution date of CUNO shares) through the quarter ended October 31, 1996.
As of October 31, 1997, there were approximately 3,300 holders of record of the
Company's common stock.
The Company has not paid 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.
Investor Contact: Ronald C. Drabik, Senior Vice President and Chief Financial
Officer (203) 238-8847.
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<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1997-1995
CUNO Incorporated
As part of the spin-off in September 1996, the Company incurred $5.6
million of distribution and other nonrecurring costs. The Company also assumed
$30.0 million of Commercial Intertech's debt, which was accounted for as a
dividend to Commercial Intertech, and declared a dividend of $35.7 million
payable to Commercial Intertech. If the Company had not incurred the
distribution and other nonrecurring costs and if the debt had been outstanding
for the entire year, earnings per share in fiscal year 1996 would have been
$0.70.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
NET SALES
Net sales of $187.5 million in fiscal year 1997 represented a 4.7
percent increase over net sales of $179.1 million in fiscal year 1996. The
effects of foreign currency fluctuations reduced net sales in fiscal year 1997
by $7.3 million as compared to fiscal year 1996. Had currency values remained
unchanged from fiscal year 1996, sales in fiscal year 1997 would have been 8.8
percent greater than fiscal year 1996 sales.
The Company's U.S. operations recorded net sales of $94.3 million in
fiscal year 1997, $8.0 million greater than sales in fiscal year 1996, for a 9.2
percent improvement over the prior year. Sales into both the healthcare and
fluid processing markets increased in fiscal year 1997 as compared to the prior
year. Healthcare market sales in fiscal year 1997 increased sharply over fiscal
year 1996 due principally to higher shipments of new products introduced over
the past three years. A number of those products are based on the Company's
proprietary nylon membrane. The nylon membrane products include both membrane
sheet products and pleated cartridges. Sales into the fluid processing market
increased slightly and were adversely affected by reduced sales into the
microelectronics market. Microelectronics manufacturers have curtailed capital
expansion over the past two years as the result of an oversupply of product.
Additionally, the Company's new generation of ultra-pure water products has
provided users longer life, reducing the number of filter changeouts required in
a year. The Company continued to record higher sales in other parts of the fluid
processing market such as paint, resin and chemical manufacturers and petroleum
processing plants. Much of the expanded business in these industrial markets is
attributable to the Company's new products and continued use of Scientific
Application Support Services ("SASS") professionals in addressing particular
needs of customers. Sales into the U.S. potable water market in fiscal year 1997
were virtually equal to those of fiscal year 1996. Although sales into certain
portions of the market, such as food service establishments and plumbing
wholesalers, increased at double-digit rates, sales of commercial reverse
osmosis products declined sharply, reflecting the Company's strategic decision
to shift resources away from some of the less profitable sectors of the potable
water market.
The Company's overseas sales increased $0.5 million in 1997 as compared
to fiscal year 1996, a 0.5 percent improvement. Operations in Japan, France,
Germany and parts of Asia all suffered declines in the value of their local
currency as measured against the U.S. dollar. Weakened currencies reduced the
sales of these operations when reported in U.S. dollars by $7.3 million. Had the
value of overseas currencies remained unchanged in fiscal 1997 as compared to
fiscal year 1996, sales for these operations would have improved 8.4 percent
overall. Sales in Asia and Japan increased at double-digit rates in fiscal year
1997, reflecting gains in sales into the healthcare and fluid processing
markets. In Europe, sales increased 5.4 percent in local currency, with much
higher sales gains in the Healthcare market.
Overall, sales into the healthcare market increased 18.6 percent in fiscal
year 1997 as compared to fiscal year 1996, to $56.8 million. Sales into the
fluid processing market declined 1.9 percent in fiscal year 1997 to $80.3
million, and potable water market sales increased 2.1 percent to $50.4 million.
Fluctuations in the value of foreign currency had a negative effect on all
market sales
23
<PAGE> 3
in fiscal year 1997 as compared to fiscal year 1996, but the greatest impact was
on sales into the fluid processing market. Had the value of foreign currency
remained unchanged in fiscal year 1997 as compared to 1996, sales into the
healthcare market would have increased 23.9 percent, into the fluid processing
market 3.6 percent, and into the potable water market 2.7 percent.
GROSS PROFIT
The Company's gross profit increased $7.1 million in fiscal year 1997
over fiscal year 1996 to $81.3 million. Gross profit as a percentage of net
sales improved to 43.4 percent from 41.4 percent a year earlier in spite of the
significant unfavorable currency impact on inventory purchases from the U.S.
parent. The Company benefited from a larger portion of sales related to higher
margin products as well as higher volume with little expansion in fixed
manufacturing costs in fiscal 1997. Gross margins in the potable water market
improved sharply in fiscal year 1997, reflecting the continued efforts at cost
containment and management's initiatives to reduce participation in lower-margin
sectors of that market.
OPERATING EXPENSES
Selling, general and administrative expenses increased $4.3 million in
fiscal year 1997 over the previous year, representing a 7.6 percent increase in
these expenses. Selling expenses increased $2.5 million in fiscal year 1997 as
compared to fiscal year 1996, or 8.8 percent. Much of the increase was
associated with the launch of new products. Research, development and
engineering expenses increased 6.4 percent in fiscal year 1997 to 5.6 percent of
sales. Administrative expenses, including certain expenses related to
establishing the Company as a stand-alone public company, increased 6.5 percent
in fiscal year 1997 as compared to the prior year.
OPERATING INCOME
As a result of the above, operating income, after adjusting for
nonrecurring costs of $5.6 million in fiscal year 1996, increased by 15.8
percent to $20.2 million in fiscal year 1997 from $17.5 million (as adjusted) in
fiscal year 1996.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
NET SALES
Net sales of $179.1 million in fiscal year 1996 represented a 10.1
percent increase over net sales of $162.7 million in fiscal year 1995. The
effects of foreign currency fluctuations reduced net sales in fiscal year 1996
by $4.0 million as compared to fiscal year 1995.
Net sales for the Company's U.S. operations increased by $11.5 million
to $86.4 million in fiscal year 1996, a 15.4 percent increase over fiscal year
1995 net sales of $74.9 million. The increase in U.S. net sales was generated
primarily by new product introductions in both the healthcare and fluid
processing markets, including proprietary nylon membrane products. Net sales of
these membrane products increased by more than 100 percent in the U.S. in fiscal
year 1996. General economic conditions combined with the new sales programs
increased the sale of core products. The sale of both new and existing products
also benefited from management initiatives that placed more focus on in-field
customer service and improved customer support. Much of this new customer
support, especially in the healthcare and fluid processing markets, has been
provided through the SASS staff, a program implemented in fiscal year 1995. The
Company continued to increase the SASS staff in fiscal year 1996. Engineering
employment in the Company, including SASS positions, increased by 28 percent
since the beginning of fiscal year 1994.
Net sales for the Company's U.S. operations into the potable water
market increased by 7.6 percent overall in fiscal year 1996, with certain
markets up sharply. Net sales to the food service segment of this market, which
includes restaurants and institutions, increased significantly in fiscal year
1996 due to new products as well as successful collaborative projects with key
customers. The sale of home and commercial water purification products improved
in fiscal year 1996 due to the creation of a dedicated sales force for the
product line and the success of new product sales.
24
<PAGE> 4
Net sales from international operations increased by $4.9 million to
$92.7 million in fiscal year 1996 from $87.8 million in fiscal year 1995. Net
sales improved in all international operations in fiscal year 1996 when compared
in local currencies. Europe's net sales improved as a result of new product
introductions and further penetration of the Eastern European market. Japan's
net sales, when adjusted for the changes in the value of the Yen, increased by
8.4 percent, but in U.S. dollar terms decreased by $1.7 million. Net sales in
other international markets increased by $3.8 million overall in fiscal year
1996, or 12.7 percent, as compared to fiscal year 1995. A portion of the growth
in these other markets was due to product line extensions launched over the past
two years, as well as to the introduction of SASS into these markets during
fiscal year 1995.
GROSS PROFIT
Gross profit increased by $11.3 million to $74.2 million in fiscal 1996
from $62.9 million in fiscal year 1995 and increased as a percentage of net
sales to 41.4 percent from 38.7 percent over the same period. Approximately $6.3
million of this increase was attributable to higher sales volume and $5.0
million to a shift to higher margin new products, improved operating
efficiencies in the U.S. and Europe and the extension of certain product lines
into the Brazilian market. A portion of the intangible assets carried by the
Company became fully amortized, reducing amortization expense by $0.9 million.
OPERATING EXPENSES
Selling, general and administrative expenses, excluding distribution
and other nonrecurring costs, increased by 9.0 percent in fiscal year 1996 as
compared to fiscal year 1995, but decreased by 0.3 percent as a percentage of
net sales. Although all operations reported increased expenses in fiscal year
1996, no one operation increased proportionally more than the others. Generally,
the increase in selling, general and administrative expenses stemmed from sales
and engineering personnel recruitment, increased sales training for both Company
and distributor personnel, and improved sales and marketing promotional support.
OPERATING INCOME
As a result of the above, operating income increased by 9.8 percent to
$11.9 million in fiscal year 1996 from $10.8 million in fiscal year 1995.
OTHER INCOME STATEMENT MATTERS
DISTRIBUTION AND OTHER NONRECURRING COSTS
The Company recorded $5.6 million in distribution and other
nonrecurring costs during fiscal year 1996 ($4.9 million after tax or $0.36 per
share), of which $3.5 million was related directly to the spin-off, $1.6 million
was associated with establishing the Company as a stand-alone entity, and $0.5
million was related to the improvement of certain foreign distribution channels
in conjunction with stand-alone activities.
INFLATION EFFECTS ON OPERATIONS
Inflation had a negligible effect on the Company's operations during
fiscal years 1997 and 1996. The Company estimates that inflationary effects, in
aggregate, were generally recovered or offset through increased pricing or cost
reductions in both fiscal years.
NONOPERATING ACTIVITY
Interest expense increased by $0.8 million to $1.6 million in fiscal
year 1997 from $0.8 million in 1996. The increase reflects the assumption of
debt in September 1996 as part of the spin-off from the Company's former parent.
The Company has significantly paid down its total long-term debt during fiscal
1997, which amounted to $6.4 million and $34.7 million at October 31, 1997 and
1996, respectively. Additionally, foreign exchange activity improved by $0.2
million for a gain of $34,000 in fiscal year 1997 from a loss of $171,000 in
fiscal year 1996.
TAXES
The Company's effective tax rate for fiscal year 1997 was 35.0 percent
as compared to 49.2 percent in fiscal year 1996. The decrease primarily reflects
certain distribution and other nonrecurring costs related to the spin-off
incurred during fiscal year 1996 which were not considered deductible. No such
nonrecurring costs were expensed in 1997.
25
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate
cash to fund operating and investing activities. Of particular importance in the
management of liquidity are cash flows generated from operating activities,
capital expenditure levels and adequate bank financing options.
Set forth below is selected key cash flow data (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
SOURCE / (USE) OF FUNDS 1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by net income plus depreciation,
amortization and noncash compensation ..................... $20,964 $13,068
Inventories .................................................. (3,979) 3,224
Payables to related party (former parent) .................... (10,408) (3,833)
Net cash provided by operating activities .................... 2,709 7,889
INVESTING ACTIVITIES
Capital expenditures ......................................... (7,589) (6,325)
FINANCING ACTIVITIES
Proceeds from issuance of common stock ....................... 28,103 -
Net change in long-term debt ................................. (28,221) 13
Dividends paid to related party .............................. (4,515) (3,534)
</TABLE>
The net cash provided by net income plus depreciation, amortization
and noncash compensation is an important measurement of cash generated from the
earnings process before significant noncash charges, which included in 1997 the
recognition of $1.6 million of noncash compensation associated with various
employee stock plans. No such compensation expense was recognized in fiscal year
1996.
Inventories increased $4.0 million during fiscal year 1997 due to a
general growth in worldwide sales and increases associated with recent new
product introductions. Payables to related parties declined by $10.4 million in
fiscal year 1997 to a year-end balance of zero. Dividends paid to related
parties in 1997 amounted to $4.5 million. Related party activity going forward
is expected to be minimal. The increase in net cash provided by net income
plus depreciation, amortization and noncash compensation of 60 percent for
1997 over 1996 reflects the Company's increased sales volume, improved gross
profit margin, the absence of nonrecurring expenses, and reduced effective
income tax rate.
Capital expenditures amounted to $7.6 million in 1997. They are
primarily comprised of new purchases of machinery and equipment used in
manufacturing. Spending related to certain projects begun in fiscal year 1997
will extend into fiscal year 1998. Overall, capital spending in fiscal year 1998
is expected to surpass fiscal year 1997.
The Company completed an offering of approximately 2.2 million shares
of its Common Stock, which generated net cash proceeds to the Company of $28.1
million. The proceeds were used to pay down long-term debt associated with the
Company's revolving credit facility. In addition, the Company has paid all
dividends owed to Commercial Intertech which arose as part of its recent
spin-off.
26
<PAGE> 6
Other selected financial data is as follows (amounts in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
1997 1996
---- ----
<S> <C> <C>
Long-term debt, less current portion ............... $ 4,779 $ 33,772
Stockholders' equity ............................... 81,890 43,148
Ratio of long-term debt to total capitalization .... 6% 44%
</TABLE>
The Company manages its worldwide cash requirements with consideration
of the cost effectiveness of the available funds from the many subsidiaries
through which it conducts its business. Management believes that its existing
cash position and other available sources of liquidity are sufficient to meet
current and anticipated requirements for the foreseeable future.
OTHER MATTERS
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statements (SFAS No.
128, 130 and 131) related to Earnings per Share, Reporting Comprehensive Income
and Segment Disclosures. The Company will adopt the Earnings per Share Statement
in fiscal 1998 which is not expected to have a material change in the Company's
per share calculation and resultant earnings per share. The Company plans to
adopt the Comprehensive Income and Segment Disclosures statements upon their
applicable effective dates in fiscal 1999.
COMPLIANCE WITH YEAR 2000
Management has initiated an enterprise-wide program to prepare the
Company's computer systems and applications to be Year 2000 compliant. The
Company expects to incur internal staff costs as well as other expenses related
to infrastructure and facilities enhancements necessary to prepare all of its
systems for the Year 2000. The Company expects to both replace some systems and
upgrade others. Maintenance or modification costs will be expensed as incurred.
The costs of new leased software will be expensed over the term of the lease.
The total cost of this effort is still being evaluated, but is not expected to
be material to the Company. This effort will give the Company the added benefit
of new technology and better functionality for many of its operational and
administrative systems.
BUSINESS OUTLOOK
Market conditions in the U.S. are generally encouraging entering fiscal
year 1998. Inflation is relatively low and growth remains steady. The Company
services a wide variety of industries and believes that these industries, when
taken as a whole, are representative of the overall manufacturing sector of the
U.S. The recent formation of a division within the Company to focus on sales
into the potable water market is expected to accelerate sales growth into that
market.
Internationally, recent unsettling events in Asia have given rise to
concern. The Company distributes products in nearly all of Asia, the area most
greatly impacted by recent currency devaluations and stock market declines. The
Company expects some decline in the significant growth rates that countries in
this region have experienced over the past several years. However, the overall
competitiveness of this region compared to world wide markets and the Company's
strong position in many of the countries support an expectation of continued
growth, albeit at a somewhat lower rate. In Europe, economies are expected to
strengthen in 1998 following the robust expansion of the British economy in
1997. The Company is well positioned to benefit from such an expansion in
Europe.
27
<PAGE> 7
FORWARD-LOOKING INFORMATION
Because CUNO wants to provide stockholders with more meaningful and
useful information, this annual report contains statements relating to future
events and the predicted performance of CUNO which may constitute
forward-looking statements, as defined under the Private Securities Litigation
Act. 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: limited history as a stand-alone company;
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; 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;
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. CUNO undertakes no obligation to publicly release revisions to the
forward-looking statements to reflect new events or circumstances.
28
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
CUNO Incorporated
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997 1996 1995
---- ---- ----
(in thousands, except share amounts)
<S> <C> <C> <C>
Net sales ............................................. $ 187,478 $ 179,068 $ 162,699
Less costs and expenses:
Cost of products sold .............................. 106,166 104,848 99,772
Selling, general and administrative expenses ....... 50,590 46,889 43,779
Research, development and engineering .............. 10,491 9,861 8,308
Distribution and other nonrecurring costs .......... -- 5,564 --
------------ ------------ ------------
167,247 167,162 151,859
------------ ------------ ------------
Operating income ...................................... 20,231 11,906 10,840
Nonoperating income (expense):
Interest income .................................... 102 156 145
Interest expense ................................... (1,616) (820) (691)
Exchange gains (losses) ............................ 34 (171) (449)
(Loss) gain on sale of property, plant and equipment (25) 121 --
Other expense ...................................... (133) (181) (282)
------------ ------------ ------------
(1,638) (895) (1,277)
------------ ------------ ------------
Income before income taxes ............................ 18,593 11,011 9,563
Income tax provision (benefit):
Current ....................................... 7,794 5,293 4,697
Deferred ...................................... (1,286) 125 (1,235)
------------ ------------ ------------
6,508 5,418 3,462
------------ ------------ ------------
Net income ............................................ $ 12,085 $ 5,593 $ 6,101
============ ============ ============
Net income per common share ........................... $ 0.81 $ 0.41 $ 0.45
Weighted average common shares outstanding ............ 14,901,933 13,565,922 13,565,922
</TABLE>
See accompanying notes.
29
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
CUNO Incorporated
<TABLE>
<CAPTION>
OCTOBER 31, 1997 1996
- ----------- ---- ----
(in thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ............................. $ 3,416 $ 5,244
Accounts receivable (less allowances for
doubtful accounts of $1,420 and $1,133, respectively) 43,105 36,944
Inventories ........................................... 22,047 19,149
Deferred income taxes ................................. 5,328 5,333
Prepaid expenses and other current assets ............. 2,542 1,965
-------- --------
Total current assets ............................... 76,438 68,635
Noncurrent assets
Deferred income taxes ................................. 1,612 518
Intangible assets, net ................................ 17,923 19,695
Pension assets ........................................ 1,239 1,174
Other noncurrent assets ............................... 584 1,051
Property, plant and equipment, net .................... 48,529 48,201
-------- --------
Total assets ........................................ $146,325 $139,274
======== ========
</TABLE>
30
<PAGE> 10
<TABLE>
<CAPTION>
OCTOBER 31, 1997 1996
---- ----
(in thousands, except share amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loans ................................................. $ 16,998 $ 10,690
Accounts payable ........................................... 14,647 12,719
Accrued payroll and related taxes .......................... 9,801 9,084
Other accrued expenses ..................................... 5,527 5,393
Accrued income taxes ....................................... 2,943 1,360
Current portion of long-term debt .......................... 1,573 962
Dividends payable to related party ......................... -- 4,612
Payable to related party ................................... -- 10,184
--------- ---------
Total current liabilities ................................ 51,489 55,004
Noncurrent liabilities
Long-term debt, less current portion ....................... 4,779 33,772
Deferred income taxes ...................................... 3,990 4,188
Retirement benefits ........................................ 4,177 3,162
--------- ---------
Total noncurrent liabilities ............................. 12,946 41,122
Stockholders' equity
Preferred stock, $.001 par value; 2,000,000 shares
authorized, no shares issued ............................. -- --
Common stock, $.001 par value; 50,000,000 shares authorized,
16,003,694 and 13,774,568 shares issued and outstanding
(excluding 3,377 and 6,854 shares in treasury) ........... 16 14
Additional paid-in-capital ................................. 35,741 6,736
Retained earnings .......................................... 45,721 33,636
Unearned compensation ...................................... (2,646) (3,448)
Minimum pension liability .................................. (1,228) (811)
Foreign currency translation adjustments ................... 4,286 7,021
--------- ---------
Total stockholders' equity ............................... 81,890 43,148
--------- ---------
Total liabilities and stockholders' equity ............... $ 146,325 $ 139,274
========= =========
</TABLE>
See accompanying notes.
31
<PAGE> 11
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
CUNO Incorporated
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL MINIMUM CURRENCY TOTAL
COMMON PAID-IN RETAINED UNEARNED PENSION TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS COMPENSATION LIABILITY ADJUSTMENTS EQUITY
----- ------- -------- ------------ --------- ----------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1994 ............... $14 $ 3,391 $ 97,284 $ -- $ -- $ 5,777 $ 106,466
Net income ................................ -- -- 6,101 -- -- -- 6,101
Divisional equity retained by related party -- -- (1,140) -- -- -- (1,140)
Foreign currency translation adjustments .. -- -- -- -- -- 762 762
--- -------- --------- ------- ------- ------- ---------
BALANCE AT OCTOBER 31, 1995 ............... 14 3,391 102,245 -- -- 6,539 112,189
--- -------- --------- ------- ------- ------- ---------
Net income ................................ -- -- 5,593 -- -- -- 5,593
Performance shares issued ................. -- 3,448 -- (3,448) -- -- --
Shares repurchased ........................ -- (103) -- -- -- -- (103)
Dividends to related party ................ -- -- (36,943) -- -- -- (36,943)
Transfer of related party debt ............ -- -- (30,000) -- -- -- (30,000)
Divisional equity retained by related party -- -- (7,259) -- -- -- (7,259)
Foreign currency translation adjustments .. -- -- -- -- -- 482 482
Other ..................................... -- -- -- -- (811) -- (811)
--- -------- --------- ------- ------- ------- ---------
BALANCE AT OCTOBER 31, 1996 ............... 14 6,736 33,636 (3,448) (811) 7,021 43,148
--- -------- --------- ------- ------- ------- ---------
Net income ................................ -- -- 12,085 -- -- -- 12,085
Amortization of unearned compensation ..... -- 112 -- 1,291 -- -- 1,403
Issuance of common stock .................. 2 28,101 -- -- -- -- 28,103
Stock options exercised ................... -- 34 -- -- -- -- 34
Stock awarded under employee stock plans .. -- 627 -- (489) -- -- 138
Foreign currency translation adjustments .. -- -- -- -- -- (2,735) (2,735)
Other ..................................... -- 131 -- -- (417) -- (286)
--- -------- --------- ------- ------- ------- ---------
BALANCE AT OCTOBER 31, 1997 ............... $16 $ 35,741 $ 45,721 $(2,646) $(1,228) $ 4,286 $ 81,890
=== ======== ========= ======= ======= ======= =========
</TABLE>
See accompanying notes.
32
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUNO Incorporated
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997 1996 1995
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .............................................. $ 12,085 $ 5,593 $ 6,101
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 7,319 7,475 7,929
Compensation recognized under employee stock plans .... 1,560 -- --
Loss on sale of property, plant and equipment ......... 25 -- --
Pension costs in excess of funding .................... 926 692 1,019
Deferred income taxes ................................. (1,470) (239) (1,222)
Changes in operating assets and liabilities:
Accounts receivable ................................... (7,751) (5,050) (3,839)
Inventories ........................................... (3,979) 3,224 (636)
Payables to related party ............................. (10,408) (3,833) (3,128)
Accounts payable and accrued expenses ................. 3,130 2,425 1,477
Accrued income taxes .................................. 1,551 (3,236) 335
Prepaid expenses and other ............................ (279) 838 (292)
-------- -------- -------
Net cash provided by operating activities .................. 2,709 7,889 7,744
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment ..... 148 43 113
Investment in intangibles ............................... -- -- (343)
Capital expenditures .................................... (7,589) (6,325) (5,234)
-------- -------- -------
Net cash used for investing activities ..................... (7,441) (6,282) (5,464)
FINANCING ACTIVITIES
Proceeds from long-term debt ............................ 11,400 61,000 4,012
Principal payments on long-term debt .................... (39,621) (30,987) (4,900)
Net borrowings under bank loan agreements ............... 7,706 1,311 880
Assumed debt paid to related party ...................... -- (30,000) --
Dividends paid to related party ......................... (4,515) (3,534) --
Proceeds from issuance of common stock .................. 28,103 -- --
Proceeds from stock options exercised ................... 34 -- --
Conversion of other assets .............................. -- (701) 1
-------- -------- -------
Net cash provided by (used for) financing activities ....... 3,107 (2,911) (7)
Effect of exchange rate changes on cash and cash equivalents (203) (192) 59
-------- -------- -------
Net change in cash and cash equivalents .................... (1,828) (1,496) 2,332
Cash and cash equivalents at beginning of year ............. 5,244 6,740 4,408
-------- -------- -------
Cash and cash equivalents at end of year ................... $ 3,416 $ 5,244 $ 6,740
======== ======== =======
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest .............................................. $ 1,730 $ 694 $ 716
Income taxes .......................................... 6,211 9,732 4,338
Noncash transactions:
Assumption of debt from related party ................. $ -- $ 30,000 $ --
Receivable from related party offset against dividend
payable to related party ........................... -- 28,797 --
Dividends declared to related party but unpaid ........ -- 4,612 --
</TABLE>
See accompanying notes.
33
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CUNO Incorporated
NOTE 1 - 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 stockholders 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 4).
In conjunction with the reorganization, the Company assumed $30,000,000 of
Commercial Intertech's debt which was accounted for as a dividend to Commercial
Intertech. The dividend was paid out of the proceeds from a credit facility
entered into by the Company shortly after the reorganization (see Note 3). In
addition, the Company declared an additional dividend of $35,675,000 payable to
Commercial Intertech. Of this amount, $28,797,000 was offset against the
Company's receivable from Commercial Intertech which existed prior to the
dividend declaration. Further, CUNO Pacific Pty. Ltd. declared and paid a
$1,268,000 dividend in February 1996. No dividends remained unpaid at October
31, 1997.
The Company designs, manufactures and markets 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 sold in the healthcare, fluid
processing and potable water markets throughout the world.
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 stockholders' equity has been retroactively restated as if
the reorganization had occurred at the beginning of the earliest period
presented. For periods prior to the reorganization, the accompanying
consolidated financial statements represent the financial condition and results
of operations as if the Company were a stand-alone corporation. 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 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 entered into a Distribution and Interim Services Agreement which
provided that certain services which had historically been provided to the
Company by Commercial Intertech would continue to be provided to the Company
following the Distribution Date, at rates specified in such agreement, for a
period of up to 12 months following the Distribution Date, with certain
exceptions. The Tax Allocation Agreement and Distribution and Interim Services
Agreement have not resulted in expenses materially different from those
reflected in the financial statements for periods prior to the reorganization.
The Company also incurs certain additional costs as a stand-alone public company
which it did not as a wholly owned subsidiary.
34
<PAGE> 14
During much of fiscal 1997, Commercial Intertech continued to provide
certain management and administrative services to the Company. Amounts of
Commercial Intertech's general corporate, accounting, legal and other
administrative costs related to such services have been allocated to the Company
based on actual dollars spent or the relative percentage of time each department
spent providing services to the Company. Management believes that this
allocation method provided the Company with a reasonable amount of such
expenses. No significant amount of services have been, or are expected to be,
provided subsequent to October 31, 1997. Amounts related to such previously
provided services have been fully paid.
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.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories in the
United States are primarily valued by the last-in, first-out (LIFO) cost method.
The method used for all other inventories is first-in, first-out (FIFO).
Approximately 48 percent in both 1997 and 1996 of worldwide inventories are
accounted for using the LIFO method. Inventories as of October 31 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Raw materials ............... $ 8,167 $ 7,574
Work in process ............. 3,661 2,279
Finished goods .............. 10,219 9,296
------ -----
$22,047 $19,149
======= =======
</TABLE>
If all inventories were valued by the FIFO method, which approximates
replacement cost, inventories would have been $2,625,000 higher in 1997 and
$2,296,000 higher in 1996.
INTANGIBLES
Intangible assets at October 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Goodwill, less
accumulated amortization
(1997 - $6,142; 1996 - $5,519) $15,541 $16,164
Other intangibles, less accumulated
amortization (1997 - $22,982;
1996 - $21,833) 2,382 3,531
------- -------
$17,923 $19,695
======= =======
</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 periods of up to
40 years.
Other intangibles, including patents, know-how and trademarks, are stated
at their appraised value on the acquisition date less accumulated amortization,
which is provided using the straight-line method over periods ranging from 10 to
25 years.
PROPERTIES AND DEPRECIATION
Property, plant and equipment are recorded at cost. Buildings and
equipment are depreciated principally by the straight-line method over their
useful lives - 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 are
compared to the asset's carrying amount to determine if a write-down is
required. To date, there have been no facts or circumstances indicating any
impairment.
INCOME TAXES
The Company uses the liability method in measuring the provision for
income taxes and recognizing deferred income tax assets and liabilities on the
balance sheet. Deferred income tax assets and liabilities principally arise from
differences between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements. Deferred income tax balances
are determined
35
<PAGE> 15
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. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of any unrecognized
deferred U.S. income tax liability is not practicable because of the
complexities associated with its hypothetical calculation.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign entities are translated in accordance
with Statement of Financial Accounting Standards (SFAS) No. 52. Under this
method, revenue and expense accounts are translated at the average exchange rate
for the year, while all assets and liability accounts are translated into U.S.
dollars at the current exchange rate. Resulting translation adjustments are
recorded as a separate component of stockholders' equity and do not affect
income determination.
The Company's subsidiary in Brazil has been operating in a highly
inflationary country. Accordingly, the U.S. dollar is the functional currency,
and translation adjustments are recorded in income. The Company anticipates it
will cease treating Brazil as a highly inflationary economy during the first
quarter of fiscal 1998, and the Brazilian Real will become the new functional
currency. Management is currently assessing the impact of this change on future
results.
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.
REVENUE RECOGNITION
Revenue is recognized when the earnings 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.
RESEARCH AND DEVELOPMENT
Costs associated with the development of new products and improvements to
existing products are charged to operations as incurred. Research and
development costs were $5,343,000, $4,306,000 and $3,305,000 in 1997, 1996 and
1995, respectively.
ADVERTISING
Advertising costs are expensed as incurred and included in "selling,
general and administrative expenses." Advertising expenses were $3,868,000,
$3,124,000 and $2,906,000 in 1997, 1996 and 1995, respectively.
DISTRIBUTION AND OTHER NONRECURRING COSTS
Distribution and other nonrecurring costs represent incremental costs to
the Company associated with the 1996 reorganization. Such costs are primarily
comprised of professional service fees and costs associated with combining
operations under a unified management.
EMPLOYEE STOCK OPTIONS
The Company accounts for employee stock options under the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. Accounting for the issuance of stock
options under the provisions of APB Opinion No. 25 typically does not result in
compensation expense for the Company since the exercise price of options is
normally established at the market price of the Company's common stock on the
date granted.
EARNINGS PER SHARE
In determining the weighted-average number of common shares outstanding
during 1996 and 1995, it was assumed that the shares issued in conjunction with
the reorganization were outstanding during each of these years. Fully diluted
earnings per share are not presented since the effect of other common stock
equivalents on the earnings per share calculation was not material.
USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions
36
<PAGE> 16
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 February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." The
Company will adopt this standard, as required, in the first quarter of its
fiscal 1998 year. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods presented. Had this standard been adopted in fiscal 1997, the Company
would have reported basic earnings per share of $0.83 and diluted earnings per
share of $0.81.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Comprehensive income is the change in equity of a business during a period from
transactions and other events from nonowner sources (i.e., normal business
transactions - excludes shareholder-related transactions). This statement
requires that all items recognized under accounting standards as comprehensive
income be classified as such by their nature in a financial statement. As
required, the Company expects to adopt this standard in fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires that business
enterprises report in their footnotes certain revenue, expense, profit and asset
information by operating segment and other related disclosures. Operating
segments are components of an enterprise whose performance is regularly reviewed
by management. As required, the Company expects to adopt this standard in fiscal
1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior-year amounts to
conform to the current-year presentation.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Land and land improvements .... $ 6,292 $ 6,495
Buildings ..................... 25,696 26,301
Machinery and equipment ....... 60,731 58,749
Construction in progress ...... 7,353 4,605
------- ------
100,072 96,150
Less depreciation
and amortization .............. 51,543 47,949
------- ------
$ 48,529 $48,201
======== =======
</TABLE>
Depreciation expense was $5,674,000 in 1997, $5,614,000 in 1996 and
$5,330,000 in 1995.
37
<PAGE> 17
NOTE 3 - DEBT
Long-term debt obligations are summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving credit ............... $3,000 $31,000
Mortgages ...................... 2,652 3,675
Other .......................... 700 59
------ -------
6,352 34,734
Less current portion ........... 1,573 962
------ -------
$4,779 $33,772
====== =======
</TABLE>
The Company has a senior unsecured revolving credit facility which matures
in 2001. The Company pays a variable per-annum fee on the unused amount of the
commitment, payable quarterly in arrears. The rate was 0.10 percent at October
31, 1997. The interest rate on outstanding borrowings at October 31, 1997 was
5.875 percent. The facility has interest options determinable by the Company
based upon prime or LIBOR rates, plus an applicable margin. The credit agreement
includes covenants which require the Company to meet certain financial ratios.
The Company was in compliance with these covenants as of and for the year ended
October 31, 1997. The Company is prohibited from declaring dividends during
fiscal 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 Kita-Ibaragi, Japan (net book value at October 31, 1997 -
$5,174,000). 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,
1997 was $3,710,000.
Principal payments due after October 31, 1997 are (in thousands):
<TABLE>
<S> <C>
1998 ..................... $1,573
1999 ..................... 884
2000 ..................... 895
2001 ..................... 3,000
</TABLE>
The Company had available unused short-term lines of credit in various
countries totaling approximately $19.8 million at October 31, 1997. Borrowings
under the unused short-term lines of credit are subject to the lender's
approval.
Outstanding bank loans at October 31, 1997 and 1996 had weighted-average
interest rates of 1.8 percent and 1.4 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.
NOTE 4 - 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 stockholders. 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.
38
<PAGE> 18
PUBLIC OFFERING OF COMMON STOCK
In May 1997, the Company completed an equity offering of 2,165,000 shares
of Common Stock. Proceeds to the Company, net of related costs of the offering,
totaled $28.1 million. The proceeds were used to retire indebtedness and for
working capital and general corporate purposes.
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.
STOCKHOLDER RIGHTS PLAN
Prior to the spin-off, the Company adopted a Stockholder Rights Plan,
pursuant to which a preferred share purchase right (a "Right") is associated
with, and trades with, each share of Common Stock outstanding.
Each Right, when it becomes exercisable, entitles its holder to purchase
from the Company one-hundredth of a share of Series A Junior Participating
Preferred Stock ("Series A Preferred Stock"), par value $.001 per share, of the
Company at a price of $60 per one-hundredth share, subject to adjustment.
The Rights are not exercisable until the earlier of (i) the acquisition of
15 percent or more of the Company's Common Stock by a person or group of
affiliated persons (an "Acquiring Person"); or (ii) 10 days following the
commencement or announcement of an intention to make a tender or exchange offer
which would result in a person or group becoming an Acquiring Person.
Each holder of a Right will have the right to receive, upon exercise, the
number of shares of Common Stock or one-hundredths of a share of Series A
Preferred Stock having a value (immediately prior to such triggering event)
equal to two times the exercise price of such Right.
In the event that the Company is acquired in a merger or acquisition, as
defined, each holder of a Right shall have the right to receive, upon exercise,
common shares of the acquiring company having a value equal to two times the
exercise price of the Right. The Rights expire on August 8, 2006.
NOTE 5 - OPERATING LEASES
The Company has entered into certain lease agreements for various
facilities and equipment. Rent expense under operating leases was approximately
$1,992,000 in 1997, $1,672,000 in 1996 and $1,729,000 in 1995.
Future minimum lease payments under noncancellable operating leases with
an initial term of one year or more at October 31, 1997 were as follows (in
thousands):
<TABLE>
<S> <C>
1998 $1,568
1999 1,185
2000 447
2001 233
2002 62
Thereafter 221
------
Total minimum lease payments $3,716
======
</TABLE>
39
<PAGE> 19
NOTE 6 - BENEFIT PLANS
The Company has 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. Benefits for salaried employees are based upon a percentage
of the employee's average compensation during the preceding 10 years, reduced by
50 percent of the Social Security Retirement Benefit. The Company funds amounts
at least sufficient to exceed the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional amounts as
may be deemed appropriate.
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.
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at October 31, 1997 and 1996 for the Company's
U.S. and foreign defined benefit pension plans. Other foreign pension plans do
not determine net assets or the actuarial present value of accumulated benefits
as calculated and disclosed herein (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------ -----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ..................... $(14,510) $ (5,548) $ (12,401) $(5,145)
======== ========= ========= =======
Accumulated benefit obligation ................ $(16,056) $ (7,666) $ (13,257) $(6,814)
======== ========= ========= =======
Projected benefit obligation .................. $(18,453) $ (9,896) $ (15,335) $(9,232)
======== ========= ========= =======
Market value of plan assets ................... $ 19,417 $ 4,752 $ 14,953 $ 4,679
======== ========= ========= =======
Projected benefit obligation
less than (in excess of ) plan assets ...... 964 (5,144) (382) (4,553)
Unrecognized net (gain) loss .................. (3,826) 2,548 (1,351) 2,170
Unrecognized prior service cost ............... 1,908 - 1,132 -
Unrecognized transition obligation ............ 32 468 - 567
Additional minimum liability .................. (13) (872) - (408)
-------- --------- --------- -------
Net pension liability recognized
in the consolidated balance sheets ......... $ (935) $ (3,000) $ (601) $(2,224)
======== ========= ========= =======
</TABLE>
40
<PAGE> 20
Plan assets at October 31, 1997 are invested in restricted mutual funds,
various corporate and government bonds and listed stocks, including Common Stock
of the Company having a market value of $1,700,000 at that date.
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 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Defined benefit plans:
Service cost ............................................ $1,563 $1,651 $1,337
Interest cost ........................................... 1,503 1,049 1,065
Actual return on plan assets ............................ (1,337) (1,930) (1,785)
Net amortization and deferral ........................... 96 1,369 1,145
------ ------ ------
Net pension expense ................................ 1,825 2,139 1,762
Other plans:
Foreign plans ........................................... 271 273 218
------ ------ ------
Total pension expense ........................... $2,096 $2,412 $1,980
====== ====== ======
</TABLE>
Assumptions used in the accounting for the defined benefit plans as of
October 31 were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
DOMESTIC PLANS
Weighted-average discount rate ............................. 7.25% 7.75% 7.25%
Rates of increase in compensation levels ................... 5.0% 5.0% 4.5%
Expected long-term rate of return on assets ................ 10.0% 10.0% 10.0%
CUNO KK (JAPAN) PLAN
Weighted-average discount rate ............................. 3.5% 4.0% 4.0%
Rates of increase in compensation levels ................... 3.5% 4.0% 5.0%
Expected long-term rate of return on assets ................ 3.5% 4.5% 5.5%
</TABLE>
The Company sponsors a defined contribution plan that provides all
domestic employees of the Company an opportunity to accumulate funds for their
retirement. The Company currently matches 50 percent of employee contributions
up to six percent of qualified wages. Company matching contributions charged to
income amounted to $541,000 and $43,000 in 1997 and 1996, respectively. Company
matching contributions are invested in shares of the Company's common stock.
41
<PAGE> 21
NOTE 7 - INCOME TAXES
The components of income before income taxes and the provision (benefit)
for income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Income before income taxes
Domestic ................................ $ 12,572 $ 3,436 $ 3,652
Foreign ................................. 6,021 7,575 5,911
-------- -------- -------
18,593 11,011 9,563
Provision (benefit) for income taxes
Current
Domestic - Federal ...................... 4,533 1,947 1,466
State and local .............. 737 722 368
Foreign ................................. 3,068 2,960 3,546
Benefit of operating loss carryforwards.. (544) (336) (683)
-------- -------- -------
7,794 5,293 4,697
Deferred
Domestic - Federal ...................... (422) 79 (633)
State and local .............. (8) 4 (95)
Foreign ................................. (856) 42 (507)
-------- -------- -------
(1,286) 125 (1,235)
-------- -------- -------
6,508 5,418 3,462
-------- -------- -------
Net income
Domestic ................................ 7,732 684 2,546
Foreign ................................. 4,353 4,909 3,555
-------- -------- -------
$ 12,085 $ 5,593 $ 6,101
======== ======== =======
</TABLE>
A reconciliation of the effective income tax rate to the statutory U.S.
federal rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate ............ 35.0% 35.0% 35.0%
State and local taxes on income net of
domestic federal income tax benefit ............ 2.6 4.4 1.9
Impact of foreign subsidiaries on effective rate... .6 (2.8) 4.0
Benefit of operating loss carryforwards ........... (2.9) (3.1) (7.1)
Nonrecurring distribution costs ................... - 11.9 -
Goodwill with no U.S. tax benefit ................. 1.6 3.1 4.7
All other ......................................... (1.9) .7 (2.3)
---- -- ----
Effective income tax rate ..................... 35.0% 49.2% 36.2%
==== ==== ====
</TABLE>
42
<PAGE> 22
Significant components of the Company's deferred income tax liabilities
and assets as of October 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Deferred income tax liabilities:
Property, plant and equipment ............................... $4,051 $4,508 $4,925
Other ....................................................... 460 61 87
------ ------ ------
Total deferred income tax liabilities ..................... 4,511 4,569 5,012
Deferred income tax assets:
Pension liability ........................................... 1,542 942 684
Employee benefits ........................................... 2,118 1,919 2,209
Net operating loss carryforwards ............................ 999 1,061 1,832
Inventory valuation allowance ............................... 660 1,001 877
Net operating loss carryback ................................ 287 1,309 1,309
Other ....................................................... 2,372 1,061 1,632
------ ------ ------
Total deferred income tax assets .......................... 7,978 7,293 8,543
Valuation allowance for deferred income tax assets .......... 517 1,061 1,832
------ ------ ------
Deferred income tax assets less allowance ................. 7,461 6,232 6,711
------ ------ ------
Net deferred income tax assets ........................ $2,950 $1,663 $1,699
====== ====== ======
</TABLE>
The decrease in the 1997 valuation allowance is the result of 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
operations in Brazil, Germany and Italy. The net operating loss carryforwards in
Brazil and Germany are available indefinitely and the carryforwards in Italy are
available for five years.
NOTE 8 - RELATED PARTY TRANSACTIONS
Transactions with Commercial Intertech (former parent - see Note 1)
included in the balance sheets as "Dividends payable to related party" and
"Payable to related party" represented a net balance as a result of various
transactions between the Company and Commercial Intertech. These accounts were
short-term and non-interest bearing. Prior to the reorganization, the payable or
receivable 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 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
(Payable) receivable at beginning of year .................. $(10,184) $18,767 $15,104
Net cash remitted to Commercial Intertech .................. 12,806 22,145 15,084
Administrative expenses .................................... (3,052) (11,835) (9,869)
Payment of dividends ....................................... - (31,063) -
Other ...................................................... 430 (8,198) (1,552)
-------- ------- -------
(Payable) receivable at end of year ........................ $ - $(10,184) $18,767
======== ======== =======
</TABLE>
43
<PAGE> 23
NOTE 9 - 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 based in Singapore, Australia and Brazil.
Operating income represents total revenue less total operating expenses.
Identifiable assets are those assets used in the operations of each business or
geographic area or which are allocated when used jointly.
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1997 UNITED STATES EUROPE JAPAN OTHER ELIMINATION CONSOLIDATED
- ---- ------------- ------ ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers ............... $94,347 $28,756 $29,520 $34,855 $ - $187,478
Inter-area sales ................. 20,588 1,695 554 2,987 (25,824) -
------- ------- ------- ------- ------ --------
Total net sales .................. 114,935 30,451 30,074 37,842 (25,824) 187,478
Operating income ................. 11,999 2,304 143 5,785 - 20,231
Identifiable assets .............. 79,380 17,883 28,013 17,633 - 142,909
Corporate assets ................. 3,416
Total assets ..................... 146,325
</TABLE>
<TABLE>
<CAPTION>
1996 UNITED STATES EUROPE JAPAN OTHER ELIMINATION CONSOLIDATED
- ---- ------------- ------ ----- ----- ----------- ------------
<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 24,948 17,085 - 134,030
Corporate assets ................. 5,244
Total assets ..................... 139,274
</TABLE>
<TABLE>
<CAPTION>
1995 UNITED STATES EUROPE JAPAN OTHER ELIMINATION CONSOLIDATED
- ---- ------------- ------ ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
The information presented above may not be indicative of results if the
geographic areas were independent organizations.
Net assets of foreign subsidiaries at October 31, 1997 and 1996 were
$25,672,000 and $24,043,000, respectively, of which net current assets were
$12,022,000 and $9,677,000, respectively.
44
<PAGE> 24
NOTE 10 - 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 rights
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 546,359 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, 1997. Of the 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 11,000 and 215,500 in 1997 and 1996,
respectively. Restricted shares totaling 30,737 were converted at the time of
the reorganization, and awards of restricted shares totaled 17,340 in 1997. When
rights or awards are granted, associated compensation expense is accrued from
the date of the grant to the date such options or awards are exercisable.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION EXERCISE PRICE
<S> <C> <C>
Outstanding at October 31, 1995 ..................... - -
Options granted ..................................... 272,000 $15.13
Related party options exchanged ..................... 81,961 $7.47 - 10.99
------- ------------
Outstanding at October 31, 1996 ..................... 353,961 $7.47 - 15.13
------- ------------
Options granted ..................................... 13,500 $15.25 - 16.63
Options exercised ................................... (5,288) $7.47
Options forfeited ................................... (4,000) $15.13
Related party options exchanged ..................... 19,829 $5.96 - 8.79
------- ------------
Outstanding at October 31, 1997 ..................... 378,002 $5.96 - 16.63
======= =============
</TABLE>
The following table summarizes information concerning currently outstanding
options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$5 - $10 30,404 6.12 $ 8.64 30,404 $ 8.64
$10 - $15 66,098 7.85 $10.82 13,220 $10.99
$15 - $20 281,500 8.93 $15.17 7,000 $15.13
------- ------
378,002 50,624
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, "Accounting
45
<PAGE> 25
for Stock-Based Compensation," which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to October 31, 1995 under the fair-value method of SFAS 123.
The fair value for these options was estimated at the date of grant using the
Black-Scholes pricing model with the following assumptions: Risk-free interest
rates ranging from 5.7 percent to 6.2 percent, no dividend yield, expected
volatility of the market price of Company Common Stock of 31 percent, and an
expected option life of five years.
The risk-free interest rates are based on short-term treasury bill rates.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.
The Company's pro forma information is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Net Income:
As reported ................ $12,085 $5,593
Pro forma .................. 11,618 5,548
Earnings per share:
As reported ................ 0.81 0.41
Pro forma .................. 0.78 0.41
</TABLE>
These pro forma effects may not be representative of the effects on future
years because of the prospective application required by SFAS 123, and the fact
that options vest over several years and new grants generally are made each
year.
NOTE 11 - 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,
1997 1996
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents ......... $ 3,416 $ 3,416 $ 5,244 $ 5,244
Bank loans ........................ 16,998 16,998 10,690 10,690
Long-term debt .................... 6,352 6,343 34,734 34,719
</TABLE>
The carrying amounts of accounts receivable, 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 identified transactions. At
October 31, 1997 and 1996, the Company held contracts for $1,857,000 and
$1,000,000, respectively, with fair values of $1,850,000 and $1,002,000,
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 foreign currency fluctuations impacting the assets,
liabilities or transactions being hedged. Therefore, the contracts have no
income statement impact.
46
<PAGE> 26
NOTE 12 - CONTINGENCIES
The Company is, from time to time, subject to various legal actions,
governmental audits, and proceedings relating to various matters incidental to
its business including product liability and environmental claims. While the
outcome of such matters cannot be predicted with certainty, in the opinion of
management, after reviewing such matters and consulting with the Company's
counsel and considering any applicable insurance or indemnifications, any
liability which may ultimately be incurred is not expected to materially affect
the consolidated financial position, cash flows or results of operations of the
Company.
NOTE 13 - QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
(in thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 44,839 $46,383 $48,135 $48,121 $187,478
Gross profit ............................ 19,201 20,322 20,695 21,094 81,312
Net income .............................. 2,065 3,290 3,503 3,227 12,085
Earnings per common share ............... $ 0.15 $ 0.24 $ 0.22 $ 0.20 $ 0.81
</TABLE>
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
(in thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 41,004 $45,090 $48,542 $44,432 $179,068
Gross profit ............................ 15,748 18,460 20,796 19,216 74,220
Distribution and other
nonrecurring costs ................... - - 2,876 2,688 5,564
Net income (loss) ....................... 1,851 3,251 630 (139) 5,593
Earnings (loss) per common share ........ $ 0.14 $ 0.24 $ 0.05 $(0.01) $ 0.41
</TABLE>
In 1996, the Company incurred $2,876,000 or $0.21 per share during the
third quarter of 1996 and $1,982,000 (net of income taxes of $706,000) or $0.15
per share, during the fourth quarter 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.
47
<PAGE> 27
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Stockholders and Board of Directors
CUNO Incorporated
We have audited the accompanying consolidated balance sheets of CUNO
Incorporated as of October 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 at October 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Hartford, Connecticut
December 11, 1997
48
<PAGE> 28
SUMMARY OF FINANCIAL DATA(1)
CUNO Incorporated
<TABLE>
<CAPTION>
1997 1996 (2) 1995 1994 1993
---- -------- ---- ---- ----
(in thousands, except per-share data and ratios)
<S> <C> <C> <C> <C> <C>
INCOME DATA
Net sales ...................................... $187,478 $179,068 $162,699 $143,111 $130,771
Gross profit ................................... 81,312 74,220 62,927 50,604 40,605
Operating income (loss) ........................ 20,231 11,906 10,840 4,978 (1,678)
Income (loss) before income taxes .............. 18,593 11,011 9,563 2,043 (2,549)
Net income (loss) .............................. 12,085 5,593 6,101 1,807 (701)
Net income (loss) per share .................... 0.81 0.41 0.45 0.13 (0.05)
OTHER FINANCIAL DATA
Total assets ................................... $146,325 $139,274 $162,827 $153,071 $145,952
Working capital ................................ 24,949 13,631 49,174 42,227 36,541
Net plant investment ........................... 48,529 48,201 47,931 48,332 49,555
Gross capital expenditures ..................... 7,589 6,472 5,728 3,816 3,241
Long-term debt ................................. 4,779 33,772 4,060 5,175 5,580
Stockholders' equity ........................... 81,890 43,148 112,189 106,446 103,743
Stockholders' equity per share ................. 5.12 3.13 8.27 7.85 7.65
RATIOS
Gross profit to net sales ...................... 43.4% 41.4% 38.7% 35.4% 31.1%
Net income to net sales ........................ 6.4% 3.1% 3.7% 1.3% (0.5)%
Effective income tax rate ...................... 35.0% 49.2% 36.2% 11.6% 72.5%
Net income to average
stockholders' equity ...................... 19.3% 7.2% 5.6% 1.7% (0.7)%
Ratio of current assets to current liabilities . 1.5:1 1.3:1 2.2:1 2.2:1 2.2:1
Ratio of long-term debt to stockholders' equity
plus long-term debt ....................... 5.5% 43.9% 3.5% 4.6% 5.1%
</TABLE>
(1) In the Summary of Financial Data above, it was assumed that the common
shares issued in conjunction with the reorganization were outstanding for
years 1993 - 1996. 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 and subsequent amounts
only.
(2) Included in 1996 operating income and net income were distribution and
other nonrecurring costs to the Company associated with the
reorganization. These expenses totaled $4,858 (net of income taxes of
$706).
49
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of CUNO Incorporated ("CUNO") of our report dated December 11, 1997,
included in the 1997 Annual Report to Stockholders of CUNO.
Our audits also included the financial statement schedule of CUNO listed in
Item 14(a). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-39763) pertaining to the CUNO Incorporated 1996
Stock Incentive Plan, the CUNO Incorporated Non-Employee Directors' Stock Option
Plan and the CUNO Incorporated Savings and Retirement Plan of our report dated
December 11, 1997, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of CUNO.
/s/ Ernst & Young LLP
Hartford, Connecticut
January 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,416
<SECURITIES> 0
<RECEIVABLES> 44,525
<ALLOWANCES> 1,420
<INVENTORY> 22,047
<CURRENT-ASSETS> 76,438
<PP&E> 100,072
<DEPRECIATION> 51,543
<TOTAL-ASSETS> 146,325
<CURRENT-LIABILITIES> 51,489
<BONDS> 4,779
0
0
<COMMON> 16
<OTHER-SE> 81,874
<TOTAL-LIABILITY-AND-EQUITY> 146,325
<SALES> 187,478
<TOTAL-REVENUES> 187,478
<CGS> 106,166
<TOTAL-COSTS> 106,166
<OTHER-EXPENSES> 61,081
<LOSS-PROVISION> 693
<INTEREST-EXPENSE> 1,616
<INCOME-PRETAX> 18,593
<INCOME-TAX> 6,508
<INCOME-CONTINUING> 12,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,085
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0
</TABLE>
