<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CUNO INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF CUNO INCORPORATED]
Notice of
Annual Meeting
of
Stockholders
March 25, 1999
and
Proxy Statement
CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 25, 1999
To the Stockholders of CUNO Incorporated:
The Annual Meeting of the Stockholders of CUNO Incorporated will be held at
the Radisson Hotel & Conference Center, 100 Berlin Road, Cromwell, Connecticut
on Thursday, March 25, 1999, at 10:00 a.m., for the following purposes:
1. Election of four (4) Class III directors to serve for a term of three
(3) years and until their successors shall have been elected and
qualified;
2. Approval of the 1996 Stock Incentive Plan First Amendment;
3. Approval of the Non-Employee Directors' Stock Option Plan First
Amendment;
4. Ratification of the selection of Ernst & Young LLP as independent
auditors for the fiscal year ending October 31, 1999; and
5. Transaction of such other business as may properly come before the
meeting and any adjournments or postponements thereof;
all in accordance with the accompanying Proxy Statement.
The Board of Directors has fixed the close of business on January 27, 1999, as
the record date for the determination of the stockholders entitled to notice of,
and to vote at, such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
JOHN A. TOMICH
Counsel and Secretary
February 1, 1999
VOTING YOUR PROXY IS IMPORTANT
PROMPT ACTION IN SENDING IN YOUR PROXY WILL ELIMINATE THE EXPENSE OF
FURTHER SOLICITATION. AN ENVELOPE IS PROVIDED FOR YOUR USE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU ARE RECEIVING
A PROXY FOR EACH ACCOUNT IN YOUR HOUSEHOLD. PLEASE VOTE, SIGN AND
MAIL ALL PROXIES YOU RECEIVE.
2
<PAGE>
PROXY STATEMENT
Annual Meeting of Stockholders
March 25, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CUNO Incorporated (the "Company") of proxies to be voted
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Radisson Hotel & Conference Center, 100 Berlin Road, Cromwell, Connecticut, on
Thursday, March 25, 1999, at 10:00 a.m., and at any adjournments or
postponements thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders.
VOTING SHARES
The Board of Directors has fixed the close of business on January 27, 1999, as
the record date for the determination of stockholders entitled to notice of and
to vote at said meeting. Only stockholders of record at the close of business
on that date will be entitled to vote at the meeting or any adjournments or
postponements thereof. The Company's voting securities outstanding on December
31, 1998, consisted of 16,167,984 shares of its $.001 par value common stock
("Common Stock") (exclusive of 4,328 shares of treasury stock). Each share of
Common Stock is entitled to one vote on all matters to come before the Annual
Meeting. A plurality of the votes cast in person or by proxy is required to
elect the nominees for director. The affirmative vote of a majority of the
shares cast in person or by proxy is required to (i) approve the First Amendment
to the Company's 1996 Stock Incentive Plan; (ii) approve the First Amendment to
the Company's Non-Employee Directors' Stock Option Plan; and, (iii) ratify the
selection of Ernst & Young LLP as independent public auditors of the Company's
financial statements for the fiscal year ended October 31, 1999.
Any stockholder giving a proxy will have the right to revoke it at any time
prior to the voting thereof by giving written notice to the Secretary of the
Company. All shares represented by effective proxies will be voted at the
meeting or at any adjournments or postponements thereof. In addition, if you
are present at the meeting, you may revoke your proxy at that time and vote
personally on all matters brought before the meeting. All shares represented by
effective proxies marked "abstain" will be counted as present and entitled to
vote for purposes of reaching a quorum at the meeting or at any adjournments or
postponements thereof and will be counted for purposes of voting on any proposal
presented at the meeting or any adjournments or postponements thereof.
Abstentions will have the same effect as votes cast against a proposal. If a
broker indicates on a proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter and will
have no effect on the vote on such matter. This Proxy Statement and the
accompanying form of proxy were first mailed to stockholders on or about
February 1, 1999.
A list of stockholders entitled to vote at the Annual Meeting, arranged in
alphabetical order, showing the address of and number of shares registered in
the name of each stockholder, will be open to the examination of any
stockholder, for any purpose germane to the Annual Meeting, during ordinary
business hours, commencing March 15, 1999, and continuing through the date of
the Annual Meeting, at the principal offices of the Company, 400 Research
Parkway, Meriden, Connecticut 06450.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation allows for the
Board of Directors to consist of up to twelve directors. In January 1999, in
accordance with the Company's Amended and Restated Certificate of Incorporation,
the Board of Directors approved increasing its size from nine to ten directors,
divided into three classes. At the Annual Meeting, four directors of Class III
will be elected, each for a term of three years expiring at the Annual Meeting
of Stockholders in 2002. Directors of Class III whose terms of office expire at
the Annual Meeting on March 25, 1999, are Mr. Frederick C. Flynn, Jr., Mr. C.
Edward Midgley, Mr. Paul J. Powers, and Mr. David L. Swift, all of whom were
nominated for election by the Board of Directors. It is the intention of the
persons named in the enclosed form of proxy to vote such proxy as specified and,
if no specification is made on a signed and returned proxy, to vote such proxy
for the election as directors the four nominees listed in the table set forth
below to serve for a term of three years and until their successors shall be
elected and qualified. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE IN FAVOR OF THE ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT TO
SERVE AS DIRECTORS OF THE COMPANY.
The Board of Directors has no reason to believe that the persons nominated
will not be available. In the event that a vacancy among such original nominees
occurs prior to the meeting, shares represented by the proxies so appointed will
be voted for a substitute nominee or nominees designated by the Board of
Directors and for the remaining nominees. All of the original nominees have
consented to serve if elected. In any event, the shares represented by the
proxy will be voted for the election of directors unless instructed to the
contrary.
The terms of office of Mr. Joel B. Alvord, Dr. Charles L. Cooney and Mr. John
M. Galvin, all Class I directors, will expire at the annual meeting in 2000 and
the terms of office of Mr. Norbert A. Florek, Mr. Mark G. Kachur, and Mr. Gerald
C. McDonough, all Class II directors, will expire at the annual meeting in 2001.
Each Stockholder will be entitled to vote the number of shares of Common Stock
held as of the record date by such Stockholder for the number of directors to be
elected. Stockholders will not be allowed to cumulate their votes in the
election for directors.
4
<PAGE>
INFORMATION AS TO NOMINEES
The names of the nominees for the office of director to be elected at the
Annual Meeting, together with certain information concerning the nominees, are
set forth below:
Frederick C. Flynn, Jr., age 48
Nominee for Class III Director (present term expires in 1999)
Mr. Flynn was appointed a director of the Company, Senior Vice
President--Finance and Administration, Chief Financial Officer,
Treasurer and Assistant Secretary of the Company in January 1999.
From 1997 through 1998, he served as Senior Vice President--
[PHOTO] Finance and Chief Financial Officer of GE Capital Information
Technology Solutions. In 1996 he was Senior Vice President--
Finance of National Medical Care, Inc. and from 1979 to 1995 he
was with United Technologies Corporation, the last six years as
Vice President--Treasurer. He holds a bachelor of science degree
in Economics from Boston College and a master's degree in
Business Administration from the University of Connecticut.
C. Edward Midgley, age 61 - Director since 1995
Nominee for Class III Director (present term expires in 1999)
Mr. Midgley has been a director of the Company since 1995, when
the Company was a subsidiary of Commercial Intertech Corp. Mr.
Midgley has been associated with PaineWebber Incorporated since
1995 and is currently an Advisory Director. From 1992 until 1995,
[PHOTO] he was Co-Head of Investment Banking, Executive Managing
Director, Head of Mergers and Acquisitions and a Member of the
Board of Directors of Kidder, Peabody & Co. Incorporated. He
holds a bachelor of arts degree in Economics from Princeton
University and a master's degree in Business Administration from
Harvard Business School. Mr. Midgley is also a director of
Commercial Intertech Corp.
Paul J. Powers, age 63 - Director since 1986
Nominee for Class III Director (present term expires in 1999)
Mr. Powers has been a director of the Company since 1986, when
the Company was a subsidiary of Commercial Intertech Corp.,
Chairman of the Board of Directors since June 1987, and Chief
Executive Officer of the Company from July 1996 until December 1,
[PHOTO] 1997. He has also been President and Chief Operating Officer of
Commercial Intertech Corp. since 1984 and Chairman and Chief
Executive Officer since 1987. He holds a bachelor's degree in
Economics from Merrimack College and a master's degree in
Business Administration from George Washington University. Mr.
Powers is also a director of Commercial Intertech Corp., First
Energy Corp., Global Marine, Inc. and Twin Disc, Inc.
5
<PAGE>
David L. Swift, age 62 - Director since 1996
Nominee for Class III Director (present term expires in 1999)
Mr. Swift has been a director of the Company since August 1996.
Mr. Swift retired in 1996 from Acme-Cleveland Corporation, a
manufacturer of communications, motion control and measurement
[PHOTO] products, where he served as Chairman of the Board since 1993 and
Chief Executive Officer and President since 1988. He holds a
bachelor of science degree from Ball State University and a juris
doctorate from the Salmon P. Chase College of Law. Mr. Swift is
also a director of Alltrista Corporation and Twin Disc, Inc.
INFORMATION CONCERNING DIRECTORS WHOSE TERMS
OF OFFICE WILL CONTINUE AFTER THE MEETING
The names of the remaining six directors of the Company, and certain
information with respect to the directors, are as follows:
Joel B. Alvord, age 60 - Director since 1996
Class I Director (present term expires in 2000)
Mr. Alvord has been a director of the Company since August 1996.
He is currently President and Managing Director of Shawmut
Capital Partners. Prior to joining Shawmut, he was Chairman of
Fleet Financial Group for two years, after it was merged with
[PHOTO] Shawmut National Corporation. Mr. Alvord served as Chief
Executive Officer of Shawmut National Corporation from 1987 to
1995. He is a director of HSB Group, Fleet Financial Group and
the American Skiing Company. He has been a member of the Board of
the Federal Reserve Bank of Boston and Swiss Reinsurance Company
of North America. He is a trustee of the Wang Center for the
Performing Arts, the American Repertory Theater and the Harvard
Eating Disorders Center.
Dr. Charles L. Cooney, age 54 - Director since 1996
Class I Director (present term expires in 2000)
Dr. Cooney has been a director of the Company since August 1996.
He has been a Professor of Chemical and Biochemical Engineering
at the Massachusetts Institute of Technology ("MIT") since 1982.
At MIT he is also the executive officer of the Department of
[PHOTO] Chemical Engineering and the co-director of the Program on the
Pharmaceutical Industry. Since 1989, he has served as the
regional editor of Bioseparations, and in 1992, Dr. Cooney became
a founding Fellow for the American Institute for Medical and
Biological Engineering. He holds a bachelor of science degree in
Chemical Engineering from the University of Pennsylvania and a
master's degree and a Ph.D. in Biochemical Engineering from MIT.
Dr. Cooney is also a director of Genzyme Corporation and Astra
AB.
6
<PAGE>
John M. Galvin, age 66 - Director since 1993
Class I Director (present term expires in 2000)
Mr. Galvin has been a director of the Company since 1993,
when the Company was a subsidiary of Commercial Intertech Corp.
Since his retirement in 1992 from The Irvine Company, a major
landowner and developer that also owns a major portfolio of
[PHOTO] income property, Mr. Galvin has been a private investor and
consultant. From 1987 until 1992, he was Vice Chairman and
Director of The Irvine Company. He holds a bachelor's degree in
Business Administration from Indiana University. Mr. Galvin is
also a director of Commercial Intertech Corp. and Global Marine,
Inc.
Norbert A. Florek, age 59 - Director since 1996
Class II (present term expires in 2001)
Mr. Florek has been a director of the Company since August 1996.
Mr. Florek retired from the Allstate Insurance Company in 1995,
[PHOTO] where he served as Chief Financial Officer since 1990 and as a
member of the Board of Directors. Since 1995, he has been a
private financial consultant. He is a CPA and holds a bachelor's
degree in Business Administration from Loyola University.
Mark G. Kachur, age 55 - Director since 1996
Class II (present term expires in 2001)
Mr. Kachur has been a director of the Company since July 1996,
President and Chief Operating Officer of the Company since
September 1996 and President and Chief Executive Officer of the
Company as of December 1, 1997. Since joining the Company in
[PHOTO] 1994, Mr. Kachur has been a Senior Vice President of Commercial
Intertech Corp. and President of the Company. From 1992 until
1994, he was President and CEO of Biotage, Inc., and 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.
Gerald C. McDonough, age 70 - Director since 1992
Class II (present term expires in 2001)
Mr. McDonough has been a director of the Company since 1992, when
the Company was a subsidiary of Commercial Intertech Corp. Mr.
McDonough retired from Leaseway Transportation Corporation, a
trucking company, in 1988, prior to which he had served as
[PHOTO] Chairman of the Board and Chief Executive Officer since 1982. He
holds a bachelor's degree in Business Administration from Case
Western Reserve University. Mr. McDonough is also a director of
Commercial Intertech Corp., York International Corporation,
Associated Estates Realty Corporation and is Chairman of the
Independent Trustees of the Fidelity Funds.
7
<PAGE>
BOARD MEETINGS AND COMMITTEE INFORMATION
The Board of Directors held six meetings during the year and established four
committees to assist in the discharge of its responsibilities. These are the
Executive and Finance, Audit, Pension and Nominating, and Compensation
Committees. During the year, all directors attended 75% or more of the
aggregate meetings of the Board and the Board committees to which they were
assigned. The attendance at the meetings of the Board of Directors and
committee meetings during the year exceeded 94%.
The Executive and Finance Committee, during the intervals between the meetings
of the Board of Directors, possesses and may exercise all the powers of the
Board of Directors in the management of the business and affairs of the Company
in so far as may be permitted by law. The Executive and Finance Committee has
the responsibility of overseeing and ensuring that the Company's financial
resources are managed prudently and cost effectively, with an emphasis on those
issues which are long term in nature, and makes recommendations to the Board as
to: (i) debt and capital stock; (ii) issuance of shares or repurchase of
outstanding shares; (iii) dividend policy and the declaration of dividends; (iv)
acquisitions and divestitures; and (v) any other financial matters deemed
appropriate by the Committee. The Executive and Finance Committee has such
other powers and performs such other duties as shall from time to time be
prescribed by the Board of Directors. During the year, the Committee held six
meetings. The Executive and Finance Committee consists of the following six
members: Messrs. Powers (Chairman), Galvin, Kachur, McDonough, Midgley and
Swift.
The Audit Committee has the responsibility of recommending the selection of
independent auditors to the Board of Directors; reviewing with such auditors,
prior to the commencement of or during such audit for each fiscal year, the
scope of the examination to be made; reviewing with such auditors the certified
financial reports, any changes in accounting policies, the services rendered by
such auditors (including management consulting services) and the effect of such
services on the independence of such auditors; reviewing the Company's internal
audit and control functions; considering such other matters relating to such
audits and to the accounting procedures employed by the Company as the Audit
Committee may deem appropriate; and reporting to the full Board of Directors
regarding all of the foregoing. During the year, the Committee held three
meetings with the auditors. The Audit Committee consists of the following four
members: Messrs. Midgley (Chairman) and Alvord, Dr. Cooney and Mr. Florek.
None of the members of the Audit Committee is an employee or former employee of
the Company.
The Pension and Nominating Committee has the responsibility of identifying,
recruiting and nominating prospective members of the Board of Directors. Any
Stockholder may nominate a person for election to the Board of Directors by
contacting the Chairman of the Pension and Nominating Committee or through the
procedures outlined in Section 2.6 of the Company's By-Laws. The Pension and
Nominating Committee also has the responsibility of overseeing and evaluating
the investments of the Corporation's pension plan trusts, selecting fund
managers and reviewing their performance and designating the proportion of
pension contributions to be assigned to such managers. During the year, the
Committee held one meeting. The Pension and Nominating Committee consists of
the following five members: Mr. Galvin (Chairman), Dr. Cooney, Messrs. Florek,
Powers and Swift.
The Compensation Committee has the authority to determine annual salaries and
bonuses for all elected officers and senior management; has the authority to
approve incentive and deferred compensation plans, and funding arrangements
related thereto, for elected officers and senior management; and administers
such plans. The Compensation Committee recommends to the non-employee members
of the Board of Directors the annual salary, bonus, stock options, performance
shares and restricted shares for the Chairman and Chief Executive Officer.
During the year, the Compensation Committee held two meetings. The Compensation
Committee consists of the following four members: Messrs. McDonough
(Chairman), Alvord, Galvin and Midgley. None of the members of the Compensation
Committee is an employee or former employee of the Company. See "Compensation
Committee Report on Executive Compensation."
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, executive officers, and persons who own more
than ten percent of a registered class of the
8
<PAGE>
Company's equity securities, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten-percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were met.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company for services rendered during the fiscal years
ended October 31, for the years listed below to its Chief Executive Officer
and the other executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during fiscal year 1998 (each, a "Named Executive
Officer"). The salary described in this table for the first three quarters of
1996, prior to the Spin-off of the Company from Commercial Intertech Corp.
("Commercial") in September 1996 ("Spin-off"), for Paul J. Powers, Mark G.
Kachur and Michael H. Croft was paid by Commercial. Salary paid to these
three executive officers for the fourth quarter of 1996 by the Company was
$25,000 for Paul J. Powers, $44,846 for Mark G. Kachur, and $32,695 for
Michael H. Croft.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
---------------------------- ------- -------
Restricted Securities
Other Annual Stock (4) Underlying LTIP All Other
Salary Bonus Compensation Awards Options Payouts Compensation
Year ($) ($) ($) ($) (#) ($)(5) ($)
---- --- --- --- --- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul J. Powers(1) 1998 100,000 40,000 15,180 50,008 -0- -0- 3,000(7)
Chairman and Chief 1997 100,000 225,000 17,882 281,251 -0- -0- 1,846
Executive Officer 1996 397,503 -0- -0- -0- 65,000 846,943 16,023
Mark G. Kachur(2) 1998 344,615 36,250 15,028 482,825 -0- -0- 5,000(8)
President and Chief 1997 280,057 230,000 15,417 25,003 -0- 328,379 4,750
Executive Officer 1996 263,179 152,000 10,883 45,601 74,658(6) -0- 25,627
Michael H. Croft 1998 213,000 42,600 23,760 -0- -0- -0- 5,000(9)
Senior Vice President 1997 205,045 100,000 23,910 -0- -0- 40,307 26,618
1996 194,599 115,000 24,850 -0- 13,000 11,971 36,119
Ronald C. Drabik(3) 1998 180,000 14,400 11,760 -0- -0- -0- 5,000(10)
Senior Vice 1997 175,019 78,000 11,910 -0- -0- -0- 1,817
President, Chief 1996 50,212 30,000 -0- 107,500 13,000 -0- 1,865
Financial Officer,
Assistant Secretary
and Treasurer
John A. Tomich 1998 130,000 6,890 9,660 -0- -0- -0- 3,900(11)
Counsel and Secretary 1997 125,000 13,700 9,784 17,119 -0- -0- 4,750
1996 89,316 12,000 -0- -0- 3,000 -0- 2,867
</TABLE>
(1) On December 1, 1997, Mr. Powers was confirmed as Chairman of the Board of
Directors.
(2) On December 1, 1997, Mr. Kachur was elected President and Chief Executive
Officer of the Company.
(3) Effective January 4, 1999, Mr. Drabik resigned from the Company. Mr.
Frederick C. Flynn, Jr. has replaced him as Senior Vice President--Finance
and Administration, Chief Financial Officer, Treasurer and Assistant
Secretary.
(4) This column shows the market value of restricted share awards on the date
of grant. The aggregate holdings/value of restricted stock held on
October 31, 1998, by the individuals listed in this table, not including
awards which were earned after the end of the fiscal year as part of the
Company's Executive Management Incentive Plan ("EMIP") and were elected to
be taken in the form of restricted stock, as described in the Compensation
Committee Report on Executive Compensation were: Paul J. Powers--59,998
shares/$914,970; Mark G. Kachur--49,909 shares/$753,487;
10
<PAGE>
Michael H. Croft--2,680 shares/$40,870; Ronald C. Drabik--7,146
shares/$108,977; John A. Tomich--1,742 shares/$26,566.
(5) The amounts in this column were paid by Commercial Intertech Corp. The
amounts paid in 1997 include the market value of Commercial common shares
earned and the accrued Commercial cash dividends together with the CUNO
Incorporated common stock issued in connection with the Spin-off from
Commercial. The amounts paid in 1996 include the market value of
Commercial common shares earned and the accrued Commercial cash dividends.
(6) Includes options for 22,500 shares of Commercial common stock granted and
converted to options for 39,658 shares of Company Common Stock in
connection with the Spin-off.
(7) Company matching contributions pursuant to the Company 401(k) Plan.
(8) Company matching contributions pursuant to the Company 401(k) Plan.
(9) Company matching contributions pursuant to the Company 401(k) Plan.
(10) Company matching contributions pursuant to the Company 401(k) Plan.
(11) Company matching contributions pursuant to the Company 401(k) Plan.
The following table sets forth, for each of the Named Executive Officers,
options granted in Common Stock during fiscal year 1998 pursuant to the CUNO
Incorporated 1996 Stock Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rate
of Stock Price
Appreciation for Option
Individual Grants Term
---------------------------------------------------------- -------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise or
Granted In Fiscal Base Price Expiration
(#) Year ($/Share) Date 5% ($) 10% ($)
------------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Powers....... -0- - - - - -
Mark G. Kachur....... 100,000 94.3% 18.0625 11/30/07 1,136,131 2,879,163
Michael H. Croft..... -0- - - - - -
Ronald C. Drabik..... -0- - - - - -
John A. Tomich....... -0- - - - - -
</TABLE>
11
<PAGE>
The following table sets forth, for each of the Named Executive Officers,
information regarding the exercise of options in the Common Stock during fiscal
year 1998 and unexercised options held as of the end of fiscal year 1998
pursuant to the CUNO Incorporated 1996 Stock Incentive Plan.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND
FISCAL YEAR-END 1998 OPTION VALUES
<TABLE>
<CAPTION>
Shares Value Number of Securities Value of Unexercised
Acquired on Realized Underlying Unexercised In-the-Money Options
Name Exercise (#) ($) Options at FY-End (#) at FY-End ($)/1/
---- ------------ -------- ---------------------- --------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
------------- -------------
<S> <C> <C> <C> <C>
Paul J. Powers............... -0- -0- 32,500/32,500 4,063/4,063
Mark G. Kachur............... -0- -0- 70,207/137,329 261,613/92,241
Michael H. Croft............. -0- -0- 6,500/6,500 813/813
Ronald C. Drabik............. -0- -0- 6,500/6,500 813/813
John A. Tomich............... -0- -0- 1,500/1,500 187/187
</TABLE>
/1/ The value per option is calculated by subtracting the exercise price from
the October 31, 1998, closing price of the Company's Common Stock on the
NASDAQ National Market of $15.25.
The following table sets forth, for each of the Named Executive Officers,
long-term incentive awards made during fiscal year 1998 pursuant to the CUNO
Incorporated 1996 Stock Incentive Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE BASED PLANS
--------------------------------
NUMBER OF PERFORMANCE OR OTHER
SHARES, UNITS OR PERIOD UNTIL MATURATION Threshold Target Maximum
NAME OTHER RIGHTS (#) OR PAYOUT/1/ (#) (#) (#)
---- ---------------- ------------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
Paul J. Powers 40,000 10/31/00 10,000 40,000 60,000
Mark G. Kachur 25,000 10/31/00 6,250 25,000 37,500
Michael C. Croft 5,000 10/31/99 1,250 5,000 7,500
Ronald C. Drabik -0- - - - -
John A. Tomich -0- - - - -
</TABLE>
/1/ The date in the column represents the date on which the performance period
ends.
12
<PAGE>
Employees may retire from the Company with unreduced benefits under the
Company's retirement plans at age 65 or later with 25 or more years of service.
The table below shows the estimated annual pension benefits provided under the
Company's defined benefit retirement plans for employees in higher salary
classifications retiring at age 65 or later.
Estimated total annual retirement benefits under the Pension Plan for
Salaried Employees and supplemental executive retirement plans
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000 $ 40,165 $ 53,554 $ 66,942 $ 70,289 $ 73,636
200,000 55,165 73,554 91,942 96,539 101,136
250,000 70,165 93,554 116,942 122,789 128,636
300,000 85,165 113,554 141,942 149,039 156,136
400,000 115,165 153,554 191,942 201,539 211,136
</TABLE>
Benefits under the plans are calculated generally under a formula of 50% of
the participant's final average compensation reduced by 50% of the participant's
estimated social security benefits, reflected in the table in the form of a
straight life annuity. The compensation covered by the pension plan is base
salary as set forth in the Salary column of the Summary Compensation Table
above. The compensation covered by the supplemental executive retirement plan
is also base salary for Mr. Kachur, the only participant in such plan. As of
December 31, 1998, Mr. Kachur had four credited years of service, Mr. Drabik had
two credited years of service and Mr. Tomich had eight credited years of service
with the Company. Michael Croft has elected not to participate in the pension
plan. In addition, Paul J. Powers is not a participant in the pension plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overall Policy and Administration
The Company's executive compensation as developed and administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee")
is designed to preserve and enhance stockholder value in the context of a
progressive, global technology and manufacturing company. The executive
compensation program links executive and stockholder financial interests by:
. Motivating executives toward long term strategic management of assets and
operations through stock programs that focus executive attention on
increasing stockholder value;
. Recognizing and rewarding individual contributions and achievements as
well as overall business performance via annual incentives tied to the
achievement of annual operating, financial and strategic objectives; and
. Providing a competitive salary structure to attract and retain the executive,
research, technical and other management talent necessary to ensure the
Company's continued profitable growth and maintenance of high technological
standards.
13
<PAGE>
The Compensation Committee establishes salaries for corporate officers and
administers the Company's Executive Management Incentive Plan ("EMIP"),
Management Incentive Plan ("MIP") and the 1996 Stock Incentive Plan. In its
decision-making process, the Compensation Committee uses independent
compensation consultants and may periodically seek input from appropriate
Company executives.
Base Salaries
In the aggregate, the Compensation Committee establishes base salaries at or
near the market median (50th percentile) of senior executives and other
corporate officers in comparably sized technology and manufacturing companies.
In addition, other factors may be considered when setting individual salary
levels, which may result in salaries above or below the stated target. These
factors may include:
. Availability of talent.
. The recruiting requirements of the particular situation.
. Specific research and technical backgrounds.
. Experience.
. Anticipated performance.
Adjustments in the base salaries of senior executives and other corporate
officers will normally occur as of January 1 each year and are dependent on such
factors as:
. The executive's current responsibilities, experience, and performance.
Competitive compensation practices at comparably sized technology and
manufacturing companies,
. The Compensation Committee's assessment regarding the executive's overall
contribution.
Annual Incentive Compensation
The Compensation Committee administers two annual incentive plans covering
management participants. The EMIP was approved by stockholders in 1996 and is a
performance-based plan in which payouts are set in accordance with the
requirements of Internal Revenue Code ("IRC") Section 162(m).
In addition, the Compensation Committee also administers the MIP which
provides compensation that is not performance based as defined in Code Section
162(m), but which is based on Company performance as well as objective and
subjective evaluations of individual executive performance.
The Executive Management Incentive Plan
The EMIP provides annual incentive compensation opportunities to the Company's
two most senior executives based solely on the achievement of predetermined
financial performance objectives (i.e., corporate net income). Target awards,
as a percent of salary, range from 52.5 to 60 percent for the two executive
participants.
The Management Incentive Plan
The MIP provides opportunities for the executives to earn annual incentives
based on the achievement of a combination of important financial goals (such as
operating and net income, earnings per share, return on sales, return on assets
and/or cash flow) for the Company as well as individual objectives. A threshold
net income level must be achieved before any payments are made.
Participants for fiscal 1998 included 54 individuals with target incentive
award opportunities primarily based on:
. Individual responsibility levels.
. Market median data for comparably sized technology and manufacturing
companies.
14
<PAGE>
To enhance the Company's objectives of encouraging additional stock
ownership and increasing Company cash flow, certain participants in the EMIP and
MIP may elect to receive up to 100% of their award in restricted stock. If the
participant elects to receive restricted stock, the Company increases the award
by 25%. The vesting period associated with the stock award is four years and
the shares are forfeited in the event a participant voluntarily leaves the
Company or is terminated "for cause."
The Stock Incentive Plan of 1996
The 1996 Stock Incentive Plan allows for the grant of a variety of stock
incentive instruments, including non-qualified and incentive stock options,
stock appreciation rights, restricted stock and performance shares. At the time
of the Spin-off, the Compensation Committee made a single multi-year grant of
stock options to the Company's key executives to create a direct link between
stockholder and executive interests, specifically by focusing executive
attention on increasing stockholder value. The only grant made to an executive
officer in fiscal 1998, other than the CEO grants discussed below, was 5,000
performance shares to Mr. Croft in recognition of his assumption of additional
responsibilities.
Also, at the time of the Spin-off, grants of performance shares were made by
the Compensation Committee to selected participants for the performance period
of fiscal 1997-1999. The performance share program is a longer-term incentive
program designed to motivate key executives to achieve sustained financial
performance creating increased stockholder value.
Depending on the responsibilities within the Company, performance shares will
be earned based on operating or net income over a three-year performance period.
In future years, the Committee may consider the other measures of stockholder
value and performance periods, as appropriate, in light of the Company's
strategic objectives. Threshold levels of net income or operating income must
be achieved before any distributions are made. There were no performance share
grants made to senior executives in fiscal 1998 other than those amounts
associated with employment agreements and promotions for Mr. Croft, Mr. Powers,
and Mr. Kachur.
In determining stock option and performance share awards, the Committee
considers such factors as:
. Median competitive award levels for comparable companies.
. The need to attract, motivate, and retain managers, technical, and research
and development talent as well as other professionals.
. Company and individual performance.
The Company awards time-lapse restricted stock only in special
circumstances, such as to attract and retain newly hired executives and in other
similar non-recurring circumstances.
Chief Executive Officer Compensation
Mr. Powers was Chairman and CEO from November 1, 1997, to December 1, 1997,
with an annual base salary for fiscal 1998 of $100,000. Mr. Kachur was elected
President and CEO as of December 1, 1997, and received an annual base salary of
$350,000 in fiscal 1998.
For performance in fiscal 1998, Mr. Kachur and Mr. Powers received payments
under the EMIP of $39,375 and $60,000 respectively. These payments were
calculated from a predetermined formula based on corporate net income set by the
Compensation Committee and certified by the Compensation Committee in accordance
with the provisions of the Code Section 162(m). In addition, Mr. Kachur and Mr.
Powers received payments from the MIP of $21,875 and $20,000, respectively,
based on the Compensation Committee's judgment on their achievement of
individual goals and objectives during 1998.
15
<PAGE>
Mr. Powers and Mr. Kachur signed new employment agreements during fiscal 1998.
The employment agreement for Mr. Powers specified that he would receive 40,000
performance shares, which were granted in December 1997. Mr. Kachur's
employment agreement specified the following grants, which were also made in
December 1997:
. 100,000 stock options
. 25,000 performance shares
. 25,000 restricted shares
In determining these grants, the Compensation Committee wanted to ensure
that a majority of Mr. Powers' and Mr. Kachur's long-term incentive compensation
was delivered through stock price appreciation in order to establish a strong
financial link between Messrs. Powers and Kachur and the Company's shareholders.
Internal Revenue Code Section 162(m)
A 1993 IRC amendment caps the allowable federal income tax deduction for
compensation paid to each of the proxy-reported officers of a public company.
The deduction limit, effective since 1994, does not apply to compensation paid
under a plan that meets certain requirements for performance-based compensation.
These requirements include:
. Compensation payable based upon the attainment of one or more pre-established
objective performance goals;
. Performance goals established by a Compensation Committee of the Board of
Directors that is comprised solely of two or more "outside directors;"
. The terms of the compensation and the performance criteria disclosed to and
approved by stockholders before payment;
. The Compensation Committee certifies in writing that the performance goals
have been satisfied before payment.
It is the Compensation Committee's general policy to structure the major
components of the Company's incentive compensation programs to satisfy the
requirements of performance-based compensation and preserve the deductibility of
compensation paid to executive officers on an ongoing basis.
To implement the above policy, the Company sought and received stockholder
approval of the 1996 Stock Incentive Plan. Such approval preserved the tax
deductibility of stock options, performance shares and annual incentive awards
awarded to the Company's executive officers under the EMIP. The 1996 Stock
Incentive Plan links compensation to the achievement of key financial objectives
to motivate employees and increase stockholder value.
By: The Compensation Committee
Gerald C. McDonough, Chairman John M. Galvin
Joel B. Alvord C. Edward Midgley
Compensation of the Board of Directors
Directors who are not employees or officers of the Company receive an annual
retainer fee in the amount of $15,000, plus $1,000 for attending each meeting of
the Board of Directors and $600 for attending each respective committee meeting.
Non-employee directors have the option to make an election to receive the
retainer and Board meeting fees in deferred stock units instead of cash. Those
directors who opt for the stock unit alternative receive a 20 percent premium in
stock units versus the cash option. Directors who are employees or officers of
the Company do not receive compensation for serving as directors. Directors are
also reimbursed for reasonable travel and other expenses related to meetings of
the Board and committees. Non-employee directors receive non-qualified stock
options to purchase 1,000 shares of Common Stock
16
<PAGE>
annually and biannually receive 1,000 performance shares. The performance shares
are earned based upon the achievement of certain Company financial targets
during a three-year cycle. Each non-employee director received an award of 6,000
annually and biannually receive 1,000 performance shares. The performance shares
are earned based upon the achievement of certain Company financial targets
during a three-year cycle. Each non-employee director received an award of 6,000
additional performance shares and stock options to purchase 1,000 shares of
Common Stock at the time of the Spin-off. Mr. Powers and Mr. Kachur, as officers
of the Company, are not compensated for serving as directors of the Company.
Mr. John M. Galvin provided consulting services to the Company. Fees paid for
those services during fiscal year 1998 were $6,200.
Employment Agreements
On December 1, 1997, the Company entered into a written agreement to employ
Paul J. Powers as Chairman of the Board of Directors. Mr. Powers' Employment
Agreement expires on February 28, 2000. The Employment Agreement provides for
the payment of a base salary of $100,000 which can be increased at the
discretion of the Company. Additionally, Mr. Powers will be eligible to (1)
receive cash bonuses as part of the Company's EMIP and MIP; and (2) participate
in other incentive, stock option, profit sharing and similar plans maintained by
the Company for the benefit of its executives. In addition, the Employment
Agreement with Mr. Powers provides that in the event of his termination without
cause (as defined in his Employment Agreement), Mr. Powers will receive a lump
sum payment equal to two times his recent annual cash compensation. Finally,
Mr. Powers will be included in all other employee benefit plans to the extent
that he is eligible. Such plans include, but are not limited to, thrift plans,
profit sharing plans and stock purchase plans.
On December 1, 1997, the Company entered into a written agreement to employ
Mark G. Kachur as President and Chief Executive Officer. Mr. Kachur's
Employment Agreement expires on November 30, 2000. The Employment Agreement
provides for the payment of a base salary of $350,000, which can be increased at
the discretion of the Company. Additionally, Mr. Kachur will be eligible to (1)
receive bonuses as part of the Company's EMIP and MIP; and (2) participate in
other incentive, stock option, profit sharing and similar plans maintained by
the Company for the benefit of its executives. In addition, the Employment
Agreement with Mr. Kachur provides that in the event of his termination without
cause (as defined in his Employment Agreement), Mr. Kachur will receive a lump
sum payment equal to two times his recent annual cash compensation. Finally,
Mr. Kachur will be included in all other employee benefit plans to the extent
that he is eligible. Such plans include, but are not limited to, group life
insurance plans, hospitalization and medical plans and long-term disability
plans.
Change of Control Agreements
The Company has entered into change in control agreements ("Agreements") with
Messrs. Croft, Drabik, Kachur, Powers, and Tomich (the "Executives"). Under the
Agreements, following a "Change in Control" (as defined in the Agreements), if
the Executives are terminated without cause or if the Executives terminate their
own employment for certain reasons, the Executives could receive (in addition to
certain other benefits described below) (i) accrued and unpaid base salary and a
pro rata portion of their highest recent bonus; (ii) two or three times the sum
of their base salary and highest recent annual bonus during the three preceding
years; (iii) the value of any shares, dividends or other property payable
assuming maximum performance with respect to any performance shares held by the
Executives; (iv) the actuarial value of accrued benefits under the Executives'
supplemental retirement plan; (v) all vested nonforfeitable amounts owing under
any comprehensive benefit plans; (vi) continuation of certain benefits for two
or three years, such as medical benefits; and (vii) certain other benefits and
payments. If a change in control occurs, the Company is obligated to set aside,
in trust, sufficient assets to fund all obligations under the Agreements. In
addition, payment received by the Executives in connection with a change in
control could be "grossed up" for any excise taxes imposed by the "parachute
payment" provisions of the IRC. Under the Agreements, each of the Executives
has agreed not to compete with the Company for a stated period of time.
17
<PAGE>
Performance Graph
The following graph shows a comparison of cumulative total returns during the
period commencing on September 10, 1996, the date of the Spin-off, and ending on
October 31, 1998, for the Company, the Standard & Poor's Composite 500 (S&P 500)
Index (the broad market index) and the Standard and Poor's Manufacturing
Diversified Industries (S&P MFG) Index (the industry index). The comparison
assumes $100 was invested on September 10, 1996, in the Common Stock, the S&P
500 and the S&P MFG, and assumes the reinvestment of all dividends, if any.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
September 10, 1996 October 31, 1996 October 31, 1997 October 31, 1998
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CUNO 100.00 105.82 112.43 100.86
S&P 500 100.00 108.54 143.26 174.93
S&P MFG 100.00 107.98 134.87 148.65
</TABLE>
18
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The directors, nominees for the office of director, the Chief Executive
Officer, the four other Named Executive Officers, and all directors and
executive officers as a group were the beneficial owners of the Company's voting
shares, as of December 31, 1998, as set forth below:
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Voting
Ownership Shares
----------- ----------
<S> <C> <C>
Joel B. Alvord............................................................. 27,580 (2) *
Charles L. Cooney.......................................................... 11,052 (2) *
Michael H. Croft........................................................... 37,349 (1) (2) *
Ronald C. Drabik........................................................... 23,911 (1) (2) *
Frederick C. Flynn, Jr..................................................... -0-(4) *
Norbert A. Florek.......................................................... 14,056 (2) *
John M. Galvin............................................................. 25,897 (2) *
Mark G. Kachur............................................................. 237,675 (1)(2) 1.47%
Gerald C. McDonough........................................................ 17,640 (2) *
C. Edward Midgley.......................................................... 41,196 (2)(3) *
Paul J. Powers............................................................. 353,021 (1) (2) 2.18%
David L. Swift............................................................. 15,119 (2) *
John A. Tomich............................................................. 9,589 (1) (2) *
All Directors and Executive Officers as a group (17 people)................ 842,146 5.21%
</TABLE>
__________________
* Less than 1%.
(1) Includes the following number of Common Shares (fractional shares not shown)
credited to the accounts of the above-mentioned beneficial owners by the
trustee acting under the provisions of the Company 401(k) Plan: Mr. Croft
2,582 shares; Mr. Powers 729 shares; Mr. Kachur 334 shares; Mr. Drabik 265
shares, and Mr. Tomich 560 shares.
(2) Includes shares of Common Stock acquirable within 60 days of December 31,
1998, upon exercise of options issued under the Company's Stock Incentive
Plan as follows: Mr. Alvord 2,000 shares; Dr. Cooney 2,000 shares; Mr.
Croft 6,500 shares; Mr. Drabik 6,500 shares; Mr. Florek 2,000 shares; Mr.
Galvin 2,000 shares; Mr. Kachur 110,036 shares; Mr. McDonough 2,000 shares;
Mr. Midgley 2,000 shares; Mr. Powers 32,500 shares; Mr. Swift 2,000 shares;
and Mr. Tomich 1,500 shares.
(3) Does not include 10,000 shares of Common Stock owned by Mr. Midgley's wife.
(4) On January 20, 1999, Mr. Flynn was awarded 20,000 Restricted Shares and
10,000 Performance Shares of Common Stock under the CUNO Incorporated 1996
Stock Incentive Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
No person or "group" (as that term is used in the Exchange Act) is known by
the Company to be the beneficial owner of more than five percent (5%) of any
class of the Company's voting securities as of December 31, 1998.
19
<PAGE>
PROPOSAL 2
APPROVAL OF THE 1996 STOCK INCENTIVE PLAN
FIRST AMENDMENT
Background
Effective September 10, 1996, the Board of Directors adopted the CUNO
Incorporated 1996 Stock Incentive Plan (the "Stock Plan") pursuant to which
options to acquire up to 1,000,000 shares of Common Stock may be issued (plus
any unused shares under the CUNO Incorporated Non-Employee Directors' Stock
Plan) pursuant to the grant or exercise of stock options, stock appreciation
rights, restricted stock, performance shares, annual incentive bonuses or
deferred stock (collectively referred to as "Awards") on the terms described
below.
On November 17, 1998, the Board of Directors agreed to present the First
Amendment to the Stock Plan (the "Stock Plan Amendment") in the form attached
hereto as Exhibit A, for stockholder approval at the Annual Meeting. The Stock
Plan Amendment authorizes and reserves an additional 700,000 shares for the
Stock Plan, all of which are reserved for officers, key employees and
consultants ("Participants"). Assuming the adoption of Proposal 2, if options
for 1,700,000 shares of Common Stock available under the Stock Plan were issued,
such shares would constitute approximately 10.5% of the issued and outstanding
Common Stock as of October 31, 1998. The Stock Plan Amendment will not be
implemented if it is not approved by a majority of the votes cast, in person or
by proxy, at the Annual Meeting. The Board believes that the size of the Stock
Plan, as amended, is appropriate.
The Board of Directors believes that the well-recognized benefits of stock
incentive plans outweigh any burden on or dilution of the Common Stock as a
result of the award of stock options, including: (i) the encouragement of the
acquisition by key employees of a proprietary interest in the Company; (ii) the
ability to fashion attractive incentive awards based upon the performance of the
Company and the price for Common Stock; and (iii) better alignment of the
interests of officers, employees and consultants with the interests of the
Company's stockholders. In adopting the Stock Plan Amendment, the Board of
Directors noted that many other companies have adopted equity plans to
compensate their officers, employees and consultants with grants comparable in
size to that to be effected by the Stock Plan Amendment. The affirmative vote
of a majority of the shares cast in person or by proxy is required for
stockholder approval of the Stock Plan Amendment. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE STOCK PLAN AMENDMENT, AND
BELIEVES THAT THE STOCK PLAN AMENDMENT IS APPROPRIATE TO COMPENSATE OFFICERS,
KEY EMPLOYEES AND CONSULTANTS.
The following brief summary of certain features of the Stock Plan is qualified
in its entirety by reference to the full text of the Stock Plan, which is
attached as Exhibit B.
20
<PAGE>
Summary of Provisions
Stock Options may be either "incentive stock options" (within the meaning of
Section 422 of the Code) or nonstatutory options (collectively, "Stock
Options"). The exercise price per share purchasable under an option shall be
determined at the time of grant by the Compensation Committee. Generally,
Participants will be given ten years in which to exercise a Stock Option or a
shorter period for vested options once a Participant terminates employment.
Payment may be made in cash or in the form of unrestricted shares the
Participant already owns or by other means. At the Company's option it may
provide a Participant with a loan or guarantee of a loan for the exercise price
of an option. The right to exercise an option may be conditioned upon the
completion of a period of service or other conditions. No more than half the
shares of Common Stock reserved under the Stock Plan may be granted to any
Participant during a three-calendar year period.
Stock Appreciation Rights ("SARs") entitle a Participant to receive an amount
in cash, shares or both, equal to (i) the excess of the fair market value of one
share over the exercise price per share specified in the related Stock Option
multiplied by (ii) the number of shares to which the SAR relates. The right to
exercise an SAR may be conditioned upon the completion of a period of service or
other conditions. Generally, Participants will be given ten years in which to
exercise an SAR or a shorter period once a Participant terminates employment.
Shares of Restricted Stock ("Restricted Stock") may also be awarded under the
Stock Plan, which is the grant of shares of Common Stock that requires the
completion of a period of service or the attainment of specified performance
goals by the Participant or the Company or a subsidiary, division or department
of the Company or such other criteria as the Compensation Committee may
determine in order to retain the shares. Upon a Participant's Termination of
Employment (as defined in the Stock Plan), the Restricted Stock still subject to
restriction generally will be forfeited by the Participant. The Compensation
Committee may waive these restrictions in the event of hardship or other special
circumstances.
Performance Share Awards ("Performance Shares") are grants of shares of Common
Stock or the right to receive shares in the future that are subject to
restrictions on transfer and retention based on satisfaction of certain
performance criteria by the Company, the Participant or both. If the specified
performance objectives established by the Committee are attained during the time
period specified by the Committee (which will generally be at least a two-year
period), and if the Participant continues in employment through the performance
period, the restrictions on transfer and retention will be removed.
Depending on a Participant's responsibilities, the performance criteria will
be based on any of the following, either alone or in any combination, and either
on a consolidated or business unit level, as the Committee may determine: sales,
net asset turnover, earnings per share, cashflow, cashflow from operations,
operating profits or income, operating margin, net-income margin, return on net
assets, return on total assets, return on common equity, return on total capital
and total stockholder return. The Committee will specifically determine these
criteria, and may include or exclude any or all of the following items:
extraordinary, unusual or nonrecurring items; effects of accounting changes;
effects of financing activities; expenses for restructuring or productivity
initiatives; non-operating items; spending for acquisitions; effects of
divestitures; and effects of litigation or settlements. Capital gains may be
included or excluded. The maximum number of Performance Shares that may be
awarded to any Participant under the Stock Plan for any year is one half of the
Shares of Common Stock reserved under
21
<PAGE>
the Stock Plan. Performance Shares in respect of which the Company's deduction
is subject to Section 162(m) of the Code, may only be paid if the performance
objectives are achieved, except where the Participant's employment is terminated
for an extraordinary reason, in which case the Participant may receive a
proportionate award.
Deferred Stock ("Deferred Stock") is stock that can be awarded to a
Participant delivered in the future, at a specified time and under specified
conditions. The Compensation Committee will determine the Participants to whom,
and the time or times at which, any Deferred Stock shall be awarded, the number
of shares of Deferred Stock to be awarded to any Participant, the duration of
the period during which and the conditions under which receipt of the shares
will be deferred and any other terms and conditions of the Deferred Stock.
Annual Incentive Awards ("Annual Incentives") are awards each fiscal year
granted by the Committee and based on the satisfaction of specified bonus
targets. The targets are based on Company performance measurements (on either a
consolidated or business unit level), as determined by the Committee, and may
include the following either alone or in any combination: sales, net asset
turnover, earnings per share, cashflow, cashflow from operations, operating
profits or income, net income, operating margin, net income margin, return on
total assets, return on common equity, return on total capital and total
stockholder return. The Committee will specifically determine these criteria
and may include or exclude any or all of the following items: extraordinary,
unusual or nonrecurring items; effects of accounting changes; effects of
financing activities; expenses for restructuring or productivity initiatives;
non-operating items; spending for acquisitions; effects of divestitures; and
effects of litigation or settlements. Capital gains may be included or
excluded. The Committee will determine each year whether the objectives have
been satisfied and awards will be paid only if the deduction is subject to
Section 162(m) of the Code, except for an extraordinary reason for a termination
of employment.
Payment of the Annual Incentive Award may be made in cash or at the election
of the Participant in the form of Restricted Stock. If Restricted Stock is
chosen, it will be subject to limitation on transfer and risk of forfeiture for
a designated period (generally, four years), and may have a value of as much as
130% of the cash value of the Annual Incentive Award had it been paid in cash.
The maximum compensation that any Participant may receive in connection with an
Annual Incentive Award, including Restricted Stock or Deferred Stock worth 130%
of the cash value, is $1.5 million.
Amendments and Modifications. The Stock Plan, as adopted, is not limited as
to its duration. The Board may amend, alter, or discontinue the Stock Plan,
subject to certain limits.
Change in Control. In the event of a Change in Control of the Company (as
defined in the Stock Plan):
(1) any SAR and Stock Options outstanding as of the date of such Change in
Control which are not then exercisable and vested will become fully
exercisable and vested to the full extent of the original grant; and
(2) the restrictions and deferred limitations applicable to any shares of
Restricted Stock and Deferred Stock will lapse, and such shares of
Restricted Stock and Deferred Stock will become free of all restrictions
and become fully vested and transferable to the full extent of the original
grant. Also, the performance goals and other restrictions with respect to
any outstanding
22
<PAGE>
award of Performance Shares or Annual Incentives may be
deemed to be satisfied in full and fully distributable.
A Change in Control includes any transaction which would result in any person
owning, directly or indirectly, 20% or more of the outstanding Common Stock of
the Company or the voting power of the Company; certain changes in the members
of the board of directors; certain corporate transactions (such as a merger);
and the sale of substantially all of the Company's assets.
As of October 31, 1998, employees of the Company were granted an aggregate of
471,002 Stock Options at a price equal to the fair market value of the Common
Stock on the date of the grant, an aggregate of 251,500 Performance Shares, and
an aggregate of 115,423 Deferred and Restricted Shares.
NEW PLAN BENEFITS
1996 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
Number of
Name Dollar Value ($)(1) Units(*)
- ------------------------------------------------------------------------- ------------------------- ----------------
<S> <C> <C>
Paul J. Powers, Chairman................................................. ---- 170,411
Mark G. Kachur, President and Chief Executive Officer.................... ---- 334,248
Michael H. Croft, Senior Vice President.................................. ---- 30,680
Ronald C. Drabik, Senior Vice President, Chief Financial
Officer, Assistant Secretary and Treasurer............................. ---- 30,146
John A. Tomich, Counsel and Secretary.................................... ---- 6,742
Executive Group**........................................................ ---- 604,374
Nonemployee Director Group............................................... ---- -0-
Non-Executive Officer Employee Group..................................... ---- 233,551
</TABLE>
______________________________
(1) The dollar value of the stock option grants is indeterminate at this time
as these grants are subject to a vesting schedule and the value of the
grants are dependent on the price of the Common Stock achieving levels
above the grant price. All of the grants were granted at the fair market
value of the Common Stock on the date of grant. In addition, the dollar
value of the performance shares is indeterminate at this time as the value
of the performance shares is dependent upon achievement of the performance
objectives.
(*) Non-Qualified stock options were granted to the Named Executive Officers
as follows: Mr. Powers - 65,000; Mr. Kachur - 227,536; Mr. Croft - 13,000;
Mr. Drabik - 13,000; and Mr. Tomich - 3,000: Performance shares were
granted to the Named Executive Officers as follows: Mr. Powers - 90,000;
Mr. Kachur - 55,000; Mr. Croft - 15,000; Mr. Drabik - 10,000; and Mr.
Tomich - 2,000.
(**) Includes Anthony C. Doina and Thomas J. Hamlin, who became executive
officers on November 17, 1998.
23
<PAGE>
Effect of Federal Income Taxation
The following summary of tax consequences with respect to the awards granted
under the Stock Plan is not comprehensive and is based upon laws and regulations
in effect on November 1, 1998. Such laws and regulations are subject to change.
The summary is intended for the information of stockholders considering how to
vote and not as tax guidance to Participants in the Stock Plan. Participants in
the Stock Plan should consult their own tax advisors as to the tax consequences
of participation.
Stock options granted under the Stock Plan may be either incentive stock
options qualified under Section 422 of the Code ("ISO's") or options that are
not ISO's, referred to herein as "NQSOs". There are generally no Federal income
tax consequences either to the option holder or to the Company upon the grant of
a stock option. On exercise of an ISO, the option holder will not recognize any
income and the Company will not be entitled to a deduction for tax purposes,
although such exercise may give rise to liability for the option holder under
the alternative minimum tax provisions of the Code. Generally, if the option
holder disposes of shares acquired upon exercise of an ISO within two years of
the date of grant or one year of the date of exercise, the option holder will
recognize compensation income and the Company will be entitled to a deduction
for tax purposes in the amount of the excess of the fair market value of the
shares on the date of exercise over the option exercise price (or the gain on
sale, if less). Otherwise, the Company will not be entitled to any deduction
for tax purposes upon disposition of such shares, and the entire gain for the
option holder will be treated as a capital gain. On exercise of an NQSO, the
amount by which the fair market value of the shares on the date of exercise
exceeds the option exercise price will generally be taxable to the option holder
as compensation subject to income and payroll taxes, and will generally be
deductible for tax purposes by the Company. The dispositions of shares acquired
upon exercise of an NQSO will generally result in a capital gain or loss for the
option holder with the holding period commencing on the date of the exercise,
but will have no consequences for the Company.
Stock Appreciation Rights - Upon the grant of an SAR, the Participant will not
recognize any taxable income and the Company will not be entitled to a
deduction. Upon the exercise of an SAR, the consideration paid to the
Participant upon exercise of the SAR will constitute compensation taxable to the
Participant as ordinary income. In determining the amount of the consideration
paid to the Participant upon the exercise of an SAR for the Company Common
Stock, the fair market value of the shares on the date of exercise is used. The
Company, in computing its Federal income tax, generally will be entitled to a
deduction in an amount equal to the compensation taxable to the Participant
(including payroll taxes thereon).
Other Awards - With respect to awards granted under the Stock Plan that result
in the payment or issuance of cash or shares of the Common Stock or other
property that is either not restricted as to transferability or not subject to a
substantial risk of forfeiture, the Participant must generally recognize
ordinary income equal to the cash or the fair market value of shares or other
property received on the date any such restrictions lapse. Thus, deferral of
the time of payment or issuance will generally result in the deferral of the
time the Participant will be liable for income taxes with respect to such
payment or issuance. The Company generally will be entitled to a deduction in an
amount equal to the ordinary income received by the Participant. With respect
to awards involving the issuance of shares of the Company Common Stock or other
property that is restricted as to transferability and subject to a substantial
risk of forfeiture, the Participant must generally recognize ordinary income
equal to the fair market value of the shares or other property received as of
the first time the shares or other property becomes transferable or not subject
to a substantial risk of forfeiture, whichever occurs earlier. The Company will
be entitled to a deduction in an amount equal to ordinary income received by the
Participant. A Participant may elect to be taxed at the
24
<PAGE>
time of receipt of shares or other property rather than upon lapse of
restrictions on transferability or the substantial risk of forfeiture, but if
the Participant subsequently forfeits such shares or property he would not be
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he previously paid tax. The Participant must file
such election with the Internal Revenue Service within 30 days of the receipt of
the shares or other restricted property.
Section 162(m) of the Code - Section 162(m) of the Code generally disallows a
public company's tax deduction for compensation to the Named Executive Officers
in excess of $1,000,000 in any tax year. Compensation that qualifies as
"performance-based compensation" is excluded from the $1,000,000 deductibility
cap, and therefore remains fully deductible by the Company that pays it.
The Company intends that options, SARs granted with an exercise price or grant
price equal to at least 100% of fair market value of the underlying shares at
the date of grant, and Annual Incentives and Performance Share Awards granted to
employees whom the Committee expects to be Named Executive Officers at the time
a deduction arises in connection with such Awards, qualify as "performance-based
compensation." Accordingly, such awards will not be subject to the Section
162(m) deductibility cap of $1,000,000 upon receipt of stockholder approval of
the Stock Plan Amendment. Other Awards may be granted under the Stock Plan
which will not so qualify, so that compensation paid to persons who are Named
Executive Officers in connection with such awards will, to the extent such
compensation and other compensation subject to the Section 162(m) deductibility
cap in a given year exceeds $1,000,000, be subject to the Section 162(m)
deductibility cap. A principal objective of the Board of Directors of the
Company in recommending the Stock Plan for stockholder approval is to secure
corporate tax deductions under Section 162(m) while preserving the flexibility
to approve, when appropriate, compensation arrangements which the Committee
deems in the best interests of the Company and its stockholders, but which may
not always qualify for tax deductibility under Section 162(m) or other sections
of the Code.
Parachute Payments - In the event any payments or rights accruing to a
Participant upon a Change in Control, or any other payments awarded under the
Stock Plan, constitute "parachute payments" under Section 280G of the Code,
depending upon the amount of such payments accruing and the other income of the
Participant from the Company, the Participant may be subject to an excise tax
(in addition to ordinary income tax) and the Company may be disallowed a
deduction for the amount of the actual payment.
25
<PAGE>
PROPOSAL 3
APPROVAL OF THE CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
FIRST AMENDMENT
Background
Effective September 10, 1996, the Board of Directors adopted the CUNO
Incorporated Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
pursuant to which options to acquire up to 200,000 shares of Common Stock may be
issued on the terms described below.
On November 17, 1998, the Board of Directors agreed to present the First
Amendment to the Directors' Plan (the "Directors' Amendment") in the form
attached hereto as Exhibit C, for stockholder approval at the Annual Meeting.
The Directors' Amendment provides for an additional 100,000 shares to the
Directors' Plan, all of which are reserved for non-employee directors
("Participants"). Assuming the adoption of Proposal 3, if options for 300,000
shares of Common Stock available under the Directors' Plan were issued, such
shares would constitute approximately 1.9% of the issued and outstanding Common
Stock as of October 31, 1998. The Directors' Amendment will not be implemented
if it is not approved by a majority of the votes cast, in person or by proxy, at
the Annual Meeting. The Board believes that the size of the Directors'
Amendment is appropriate.
The Board of Directors believes that the well recognized benefits of stock
option plans outweigh any burden to the stockholders attendant to the award of
stock options, and include: (i) the encouragement of the acquisition of non-
employee directors of a proprietary interest in the Company; and (ii) better
alignment of the interests of non-employee directors with the interests of the
Company's stockholders. In adopting the Directors' Amendment, the Board of
Directors noted that many other companies have adopted equity plans to
compensate their non-employee directors with grants comparable in size to that
to be effected by the Directors' Amendment. The affirmative vote of a majority
of the shares cast in person or by proxy is required for stockholder approval of
the Directors' Amendment. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE IN FAVOR OF THE DIRECTORS' AMENDMENT, AND BELIEVES THAT THE
DIRECTORS' AMENDMENT IS APPROPRIATE TO COMPENSATE NON-EMPLOYEE DIRECTORS.
The following brief summary of certain features of the Directors' Plan is
qualified in its entirety by reference to the full text of the Directors' Plan,
which is set forth in Exhibit D.
Summary of Provisions
The Board of Directors approved the adoption of the Directors' Plan
effective as of September 10, 1996, subject to stockholder approval. At the
time of approval, Commercial Intertech Corp. was the sole stockholder of the
Company.
The purpose of the Directors' Plan is to promote the overall financial
objectives of the Company and its stockholders by motivating directors to
achieve long-term growth in stockholder equity in the Company, to further align
the interest of such directors with those of the Company's stockholders and to
26
<PAGE>
retain the association of these directors. The Directors' Plan is currently
administered by the Compensation Committee.
The Directors' Plan, if amended, provides for the award of up to 300,000
shares of Common Stock. The Directors' Plan's major provisions include:
Stock Options are limited to nonstatutory options ("Stock Options" or
"NQSOs"). The exercise price per share purchasable under an option shall be
determined at the time of grant by the Compensation Committee but shall
generally be the fair market value on the grant date. Generally, Participants
will be given ten years in which to exercise a Stock Option, or a shorter period
for vested options once a Participant ceases to be a director. Payment may be
made in cash or, if approved by the Compensation Committee, in the form of
unrestricted shares the Participant already owns or by other means. At the
Company's option it may provide a Participant with a loan or guarantee of a loan
for the exercise price of an option. The right to exercise an option shall be
conditioned upon the completion of one year of service after the grant or other
conditions as specified by the Compensation Committee in the grant.
Performance Share Awards ("Performance Shares") are grants of shares of
Common Stock or the right to receive shares in the future that are subject to
restrictions on transfer and retention based on satisfaction of certain
performance criteria by the Company or an operating group. If the specified
performance objectives established by the Compensation Committee are attained
during the time period specified by the Compensation Committee (which will
generally be at least a two-year period), and if the Participant continues as a
director through the performance period, the restrictions on transfer and
retention will be removed.
The performance criteria will be based on any of the following, either
alone or in any combination, and either on a consolidated or business unit
level, as the Compensation Committee may determine: sales, net asset turnover,
earnings per share, cashflow, cashflow from operations, operating profits or
income, operating margin, net-income margin, return on net assets, return on
total assets, return on common equity, return on total capital and total
stockholder return. The Compensation Committee will specifically determine
these criteria, and may include or exclude any or all of the following items:
extraordinary, unusual or nonrecurring items; effects of accounting changes;
effects of financing activities; expenses for restructuring or productivity
initiatives; non-operating items; spending for acquisitions; effects of
divestitures; and effects of litigation or settlements. Capital gains may be
included or excluded. The maximum number of Performance Shares that may be
awarded to any Participant under the Directors' Plan for any year is one half of
the Shares of Common Stock reserved under the Directors' Plan.
Deferred Stock ("Deferred Stock") is stock that can be awarded to a
Participant delivered in the future, at a specified time and under specified
conditions. The Compensation Committee will determine the Participants to whom,
and the time or times at which, any Deferred Stock shall be awarded, the number
of shares of Deferred Stock to be awarded to any Participant, the duration of
the period during which and the conditions under which receipt of the shares
will be deferred and any other terms and conditions of the Deferred Stock. A
Participant may elect to receive his retainer (and other cash compensation) for
services as a director in the form of Deferred Stock.
Amendments and Modifications. The Directors' Plan, as adopted, is not
limited as to its duration. The Board may amend, alter, or discontinue the
Directors' Plan, subject to certain limits.
27
<PAGE>
Change in Control. In the event of a Change in Control of the Company (as
defined in the Directors' Plan):
(1) any Stock Options outstanding as of the date of such Change in
Control which are not then exercisable and vested will become fully
exercisable and vested to the full extent of the original grant; and
(2) the restrictions and deferred limitations applicable to any shares
of Deferred Stock will lapse, and such shares of Deferred Stock will become
free of all restrictions and become fully vested and transferable to the
full extent of the original grant. Also, the performance goals and other
restrictions with respect to any outstanding award of Performance Shares
may be deemed to be satisfied in full and fully distributable.
A Change in Control includes any transaction which would result in any
person owning, directly or indirectly, 20% or more of the outstanding Common
Stock of the Company or the voting power of the Company; certain changes in the
members of the board of directors; certain corporate transactions (such as a
merger); and the sale of substantially all of the Company's assets.
As of October 31, 1998, directors of the Company were granted an aggregate
of 21,000 Stock Options at a price equal to the fair market value of the Common
Stock on the date of the grant, an aggregate of 42,000 Performance Shares and an
aggregate of 18,951 shares of Deferred Stock.
NEW PLAN BENEFITS
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<TABLE>
<CAPTION>
Number of
Name Dollar Value ($)(1) Units
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joel B. Alvord........................................ - 11,895
Charles L. Cooney..................................... - 11,967
Norbert A. Florek..................................... - 10,556
John M. Galvin........................................ - 11,333
Gerald C. McDonough................................... - 12,055
C. Edward Midgley..................................... - 12,111
David L. Swift........................................ 12,034
Executive Group.......................................
Nonemployee Director Group............................ - 81,951
Non-Executive Officer Employee Group.................. -
</TABLE>
28
<PAGE>
- ----------------------
(1) The dollar value of the stock option grants is indeterminate at this time
as these grants are subject to a vesting schedule and the value of the
grants are dependent on the price of the Common Stock achieving levels
above the grant price. All of the grants will be granted at the fair
market value of the Common Stock on the date of grant. In addition, the
dollar value of the performance shares is indeterminate at this time as the
value of the performance shares are dependent upon achievement of the
performance objectives.
Effect of Federal Income Taxation
The following summary of tax consequences with respect to the awards
granted under the Directors Plan is not comprehensive and is based upon laws and
regulations in effect on November 1, 1998. Such laws and regulations are
subject to change. The summary is intended for the information of stockholders
considering how to vote and not as tax guidance to Participants in the
Directors' Plan. Participants in the Directors' Plan should consult their own
tax advisors as to the tax consequences of participation.
Stock options granted under the Directors' Plan are nonstatutory options,
referred to herein as "NQSOs". There are generally no Federal income tax
consequences either to the option holder or to the Company upon the grant of a
stock option. On exercise of an NQSO, the amount by which the fair market value
of the shares on the date of exercise exceeds the option exercise price will
generally be taxable to the option holder as compensation, subject to income and
payroll taxes, and will generally be deductible for tax purposes by the Company.
The dispositions of shares acquired upon exercise of an NQSO will generally
result in a capital gain or loss for the option holder with the holding period
commencing on the date of exercise, but will have no consequences for the
Company.
Other Awards - With respect to awards granted under the Directors' Plan
that result in the payment or issuance of cash or shares of the Common Stock or
other property that is either not restricted as to transferability or not
subject to a substantial risk of forfeiture, the Participant must generally
recognize ordinary income equal to the cash or the fair market value of shares
or other property received on the date any such restrictions lapse. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the Participant will be liable for income taxes with
respect to such payment or issuance. The Company generally will be entitled to
a deduction in an amount equal to the ordinary income received by the
Participant. With respect to awards involving the issuance of shares of the
Company Common Stock or other property that is restricted as to transferability
and subject to a substantial risk of forfeiture, the Participant must generally
recognize ordinary income equal to the fair market value of the shares or other
property received as of the first time the shares or other property becomes
transferable or not subject to a substantial risk of forfeiture, whichever
occurs earlier. The Company will be entitled to a deduction in an amount equal
to ordinary income received by the Participant. A Participant may elect to be
taxed at the time of receipt of shares or other property rather than upon lapse
of restrictions on transferability or the substantial risk of forfeiture, but if
the Participant subsequently forfeits such shares or property he would not be
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he previously paid tax. The Participant must file
such election with the Internal Revenue Service within 30 days of the receipt of
the shares or other restricted property.
29
<PAGE>
PROPOSAL 4
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP to audit the financial
statements of the Company and its consolidated subsidiaries for the fiscal year
ending October 31, 1999. A representative of Ernst & Young LLP is expected to
be present at the Annual Meeting with the opportunity to make a statement if
such representative so desires and will also be available to respond to
appropriate questions from stockholders.
Unless contrary instructions are noted on the proxy, it will be voted to
ratify the selection by the Board of Directors of Ernst & Young LLP as
independent public auditors for the fiscal year ending October 31, 1999. The
affirmative vote of the holders of a majority of the voting shares represented
at the meeting is required for such ratification. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF RATIFICATION OF THE SELECTION
OF AUDITORS.
ANNUAL REPORT TO STOCKHOLDERS
The annual report of the Company and its subsidiaries for the fiscal year
ended October 31, 1998, including financial statements reflecting the financial
position and operations of the Company and its subsidiaries for that year, is
being mailed to stockholders simultaneously with this Proxy Statement. The
annual report is not deemed to have been filed with the Securities and Exchange
Commission and is not part of this proxy.
2000 ANNUAL MEETING OF STOCKHOLDERS
The deadline for receipt by the Company of stockholders' proposals for
including in the Company's proxy statement and form of proxy for its 2000 annual
meeting of stockholders (the "2000 Meeting") is October 4, 1999. No stockholder
proposal will be considered at the 2000 Meeting unless proper notice is received
by the Company between December 3, 1999, and December 18, 1999. The Company
form of proxy for the 2000 Meeting will confer discretionary authority upon the
persons named as proxies to vote on any untimely stockholder proposals.
FORM 10-K
A COPY OF THE COMPANY'S ANNUAL REPORT AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998, MAY
BE OBTAINED BY STOCKHOLDERS AFTER JANUARY 31, 1999, WITHOUT CHARGE, ON WRITTEN
REQUEST DIRECTED TO THE SECRETARY, CUNO INCORPORATED, 400 RESEARCH PARKWAY,
MERIDEN, CONNECTICUT 06450.
OTHER MATTERS
The Board of Directors does not know of any matters of business to be
presented for action at the meeting other than as set forth above. The enclosed
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, to take action with respect to any other matters
that may properly be brought before the meeting.
30
<PAGE>
SOLICITATION OF PROXIES
The enclosed form of proxy is solicited by the Board of Directors. Shares
represented by the proxy will be voted at the meeting and such shares will be
voted in accordance with the shareholder's written instructions. The cost of
preparing, printing, assembling and mailing will be paid by the Company.
Officers, directors or other employees of the Company, without additional
remuneration, may solicit proxies personally or by other appropriate means, if
deemed advisable. The Company will also request brokers, banks and other
nominees to send proxy material to and obtain proxies from their principals, and
it will reimburse such persons for their expenses in so doing. In addition, the
Company has retained Morrow & Co., Inc. to assist in the solicitation of
proxies. Morrow & Co., Inc. will request brokerage houses and other nominees,
fiduciaries and custodians nominally holding shares of the Company's Common
Stock of record to forward proxy solicitation material to the beneficial owners
of such shares. For these services, the Company will pay Morrow & Co., Inc. a
fee estimated not to exceed $5,000 plus reimbursement of expenses.
Please complete, sign, date and return your proxy promptly to ensure that your
shares will be voted at the meeting. We hope that you will attend the meeting.
For your convenience, a self-addressed envelope, which requires no additional
postage if mailed in the United States, is enclosed.
BY THE ORDER OF THE BOARD OF DIRECTORS
JOHN A. TOMICH
Counsel and Secretary
Meriden, Connecticut
February 1, 1999
31
<PAGE>
EXHIBIT A
FIRST AMENDMENT TO CUNO INCORPORATED
1996 STOCK INCENTIVE PLAN
-------------------------
The CUNO Incorporated 1996 Stock Incentive Plan (the "Plan"), having an
Effective Date of August 28, 1996, is hereby amended, subject to the approval of
its stockholders and the satisfaction of the other requirements for amending the
Plan described in Section 14.1 of the Plan, effective as of the date of
completion of such required approvals, as follows:
I
Section 4.1 of the Plan hereby is amended to read in its entirety:
"4.1 Number of Shares. Subject to the adjustment under Section 4.6,
-----------------
the total number of shares of Common Stock reserved and available for
distribution pursuant to Awards under the Plan shall be 1,700,000 shares of
Common Stock authorized for issuance on the Effective Date, plus any unused
shares under, or shares allocated by the Committee from, the Company's Non-
Employee Directors' Stock Option Plan. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares."
II
In all other respects, the Plan shall continue in full force and effect.
<PAGE>
EXHIBIT B
CUNO INCORPORATED
1996 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
-----------------
ARTICLE I
---------
ESTABLISHMENT
1.1 Purpose................................... B-1
ARTICLE II
----------
DEFINITIONS
2.1 Affiliate................................ B-1
2.2 Agreement or Award Agreement............. B-1
2.3 Annual Incentive Award................... B-1
2.4 Award.................................... B-1
2.5 Beneficiary.............................. B-1
2.6 Board of Directors or Board.............. B-2
2.7 Cause.................................... B-2
2.8 Change in Control........................ B-2
2.9 Code or Internal Revenue Code............ B-2
2.10 Commission............................... B-2
2.11 Committee................................ B-2
2.12 Common Stock............................. B-2
2.13 Company.................................. B-2
2.14 Covered Employee......................... B-2
2.15 Deferred Stock........................... B-2
2.16 Disability............................... B-3
2.17 Effective Date........................... B-3
2.18 Exchange Act............................. B-3
2.19 Extraordinary Termination of Employment.. B-3
2.20 Fair Market Value........................ B-3
2.21 Grant Date............................... B-3
2.22 Incentive Stock Option................... B-3
2.23 Non-Qualified Stock Option............... B-3
2.24 Option Period............................ B-3
2.25 Option Price............................. B-3
2.26 Participant.............................. B-4
2.27 Performance Shares....................... B-4
2.28 Plan..................................... B-4
i
<PAGE>
2.29 Representative........................... B-4
2.30 Restricted Stock......................... B-4
2.31 Retirement............................... B-4
2.32 Rule 16b-3 and Rule 16a-1(c)(3).......... B-4
2.33 Stock Appreciation Right................. B-4
2.34 Stock Option............................. B-5
2.35 Termination of Employment................ B-5
ARTICLE III
-----------
ADMINISTRATION
3.1 Committee Structure and Authority......... B-5
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
4.1 Number of Shares......................... B-8
4.2 Release of Shares........................ B-8
4.3 Restrictions on Shares................... B-8
4.4 Stockholder Rights....................... B-8
4.5 Best Efforts to Register................. B-9
4.6 Anti-Dilution............................ B-9
ARTICLE V
---------
ELIGIBILITY
5.1 Eligibility.............................. B-10
ARTICLE VI
----------
STOCK OPTIONS
6.1 General.................................. B-10
6.2 Grant and Exercise....................... B-10
6.3 Terms and Conditions..................... B-11
6.4 Termination by Reason of Death........... B-13
6.5 Termination by Reason of Disability...... B-13
6.6 Other Termination........................ B-14
6.7 Cashing Out of Option.................... B-14
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
7.1 General................................ B-14
7.2 Grant.................................. B-14
7.3 Terms and Conditions................... B-15
ii
<PAGE>
ARTICLE VIII
------------
RESTRICTED STOCK
8.1 General................................. B-16
8.2 Awards and Certificates................. B-16
8.3 Terms and Conditions.................... B-17
ARTICLE IX
----------
DEFERRED STOCK
9.1 General................................. B-18
9.2 Terms and Conditions.................... B-19
ARTICLE X
---------
PERFORMANCE SHARES
10.1 General.................................. B-20
10.2 Price.................................... B-20
10.3 Performance Share Agreement.............. B-20
10.4 Performance Period....................... B-20
10.5 Performance Goals........................ B-20
10.6 Earning of Performance Shares............ B-21
10.7 Termination of Employment Due to Death,.. B-21
Disability, or Retirement or at the
Request of the Company Without Cause
10.8 Termination of Employment for Other...... B-22
Reasons
10.9 Non-transferability...................... B-22
ARTICLE XI
----------
ANNUAL INCENTIVE AWARDS
11.1 Eligibility............................. B-22
11.2 Earning of Annual Incentive Awards...... B-23
11.3 Payments and Election................... B-23
11.4 Amendment of Awards..................... B-24
11.5 Performance Threshold................... B-24
11.6 Maximum Awards.......................... B-24
ARTICLE XII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN
12.1 Limited Transfer During Offering......... B-24
12.2 No Company Obligation.................... B-25
iii
<PAGE>
ARTICLE XIII
------------
CHANGE IN CONTROL PROVISIONS
13.1 Impact of Event............................ B-25
13.2 Definition of Change in Control............ B-26
13.3 Change in Control Price.................... B-27
ARTICLE XIV
-----------
MISCELLANEOUS
14.1 Amendments and Termination................... B-28
14.2 Unfunded Status of Plan...................... B-28
14.3 Status of Awards Under Code Section 162(m)... B-28
14.4 General Provisions........................... B-28
14.5 Mitigation of Excise Tax..................... B-30
14.6 Rights with Respect to Continuance of........ B-31
Employment
14.7 Awards in Substitution for Awards Granted.... B-31
by Other Corporations
14.8 Procedure for Adoption....................... B-31
14.9 Procedure for Withdrawal..................... B-31
14.10 Delay........................................ B-31
14.11 Headings..................................... B-32
14.12 Severability................................. B-32
14.13 Successors and Assigns....................... B-32
14.14 Entire Agreement............................. B-32
iv
<PAGE>
ARTICLE I
---------
ESTABLISHMENT
1.1 Purpose. The CUNO Incorporated 1996 Stock Incentive Plan ("Plan") is
-------
hereby established by CUNO Incorporated ("Company"). The purpose of this Plan is
to promote the overall financial objectives of the Company and its stockholders
by motivating those persons selected to participate in this Plan to achieve
long-term growth in stockholder equity in the Company and by retaining the
association of those individuals who are instrumental in achieving this growth.
ARTICLE II
----------
DEFINITIONS
For purposes of this Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
----------
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means any agreement entered into
----------- -----------------
pursuant to this Plan pursuant to which an Award is granted to a Participant.
2.3 "Annual Incentive Award" means an award granted pursuant to Article XI.
------------------------
2.4 "Award" means any Stock Option, Stock Appreciation Right, Restricted
-------
Stock, Deferred Stock, Performance Share or Annual Incentive Award granted to a
Participant under the Plan.
2.5 "Beneficiary" means the person, persons, trust or trusts which have
-------------
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated beneficiary, then the
term means the person or persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
2.6 "Board of Directors" or "Board" means the Board of Directors of the
-------------------- -------
Company.
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<PAGE>
2.7 "Cause" shall mean, for purposes of whether and when a Participant has
-------
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean (a) any act or failure to act deemed to constitute cause
under the Company's established practices, policies or guidelines applicable to
the Participant or (b) the Participant's act or omission constituting gross
misconduct with respect to the Company or an Affiliate in any material respect.
2.8 "Change in Control" and "Change in Control Price" have the meanings set
------------------- ------------------------
forth in Sections 13.2 and 13.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
------ -----------------------
1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
------------
successor agency.
2.11 "Committee" means the person or persons appointed by the Board of
-----------
Directors to administer this Plan, as further described herein; provided,
however, the Committee shall consist of directors who are "disinterested"
persons or "non-employees" within the meaning of Rule 16b-3 and each of whom is
an "outside" director under Section 162(m) of the Code.
2.12 "Common Stock" means the shares of the regular voting Common Stock,
-------------
$.001 par value per share, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of this Plan.
2.13 "Company" means CUNO Incorporated, a Delaware corporation, and
---------
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
------------------
within the meaning of Section 162(m) of the Code.
2.15 "Deferred Stock" means an award made pursuant to Article IX to receive
----------------
Common Stock at the end of a specified period.
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<PAGE>
2.16 "Disability" means a mental or physical illness that entitles the
------------
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability shall be made by the Committee. The determination of Disability for
purposes of this Plan shall not be construed to be an admission of disability
for any other purpose.
2.17 "Effective Date" means August 28, 1996.
----------------
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
--------------
and the rules and regulations promulgated thereunder.
2.19 "Extraordinary Termination of Employment" means the Termination of
-----------------------------------------
Employment of the Participant due to death, Disability or Retirement.
2.20 "Fair Market Value" means the fair market value of Common Stock,
-------------------
Awards or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value per share by Common Stock as of any date shall be the closing
sale price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which the Common Stock is traded on the
date as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.
2.21 "Grant Date" means the date that as of which an Award is granted
------------
pursuant to this Plan.
2.22 "Incentive Stock Option" means any Stock Option intended to be and
------------------------
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.23 "Non-Qualified Stock Option" means an Option to purchase Common Stock
----------------------------
in the Company granted under this Plan the taxation of which is pursuant to
Section 83 of the Code.
2.24 "Option Period" means the period during which the Option shall be
---------------
exercisable in accordance with the Agreement and Article VI.
2.25 "Option Price" means the price at which the Common Stock may be
--------------
purchased under an Option as provided in Section 6.3.
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<PAGE>
2.26 "Participant" means a person who satisfies the eligibility conditions
-------------
of Article V and to whom an Award has been granted by the Committee under this
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is by or for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee and not
inconsistent with the Rule 16b-3 or the status of the Option as an Incentive
Stock Option to the extent intended. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
employee.
2.27 "Performance Shares" means a right, granted under Article X, to
--------------------
receive Awards based upon criteria specified by the Committee.
2.28 "Plan" means this CUNO Incorporated 1996 Stock Incentive Plan, as the
------
same may be amended from time to time.
2.29 "Representative" means (a) a person or entity acting as the executor
----------------
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.30 "Restricted Stock" means an award of Common Stock under Article VIII
------------------
that is subject to certain restrictions and a risk of forfeiture.
2.31 "Retirement" means the Participant's Termination of Employment after
------------
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.32 "Rule 16b-3 and Rule 16a-1(c)(3)" means Rule 16b-3 and Rule 16a-
--------------------------------
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.33 "Stock Appreciation Right" means a right granted under Article VII.
--------------------------
B-4
<PAGE>
2.34 "Stock Option" or "Option" means a right to purchase stock on
-------------- --------
specified conditions granted under Article VI.
2.35 "Termination of Employment" means the occurrence of any act or event
---------------------------
whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee with respect to the Company or an Affiliate, the
Agreement shall establish what act or event shall constitute a Termination of
Employment for purposes of this Plan. A transfer of employment from the Company
to an Affiliate, or from an Affiliate to the Company, shall not be a Termination
of Employment, unless expressly determined by the Committee. A Termination of
Employment shall occur to an employee who is employed by an Affiliate if the
Affiliate shall cease to be an Affiliate and the Participant shall not
immediately thereafter become an employee of the Company or an Affiliate.
Employment shall occur to an employee who is employed by an Affiliate if the
Affiliate shall cease to be an Affiliate and the Participant shall not
immediately thereafter become an employee of the Company or an Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
3.1 Committee Structure and Authority. This Plan shall be administered by
---------------------------------
the Committee which shall be comprised of one or more persons. The Committee
shall be the Compensation Committee of the Board of Directors, unless such
committee does not exist or the Board establishes a committee whose purpose is
the administration of this Plan. In the absence of an appointment, the Board or
the portion that qualifies as the Committee shall be the Committee. A majority
of the Committee shall constitute a quorum at any meeting thereof (including
telephone conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee without a meeting,
shall be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Committee. A member of the Committee
shall not exercise any discretion respecting himself or herself under this Plan.
The Board shall have the authority to remove, replace or fill any vacancy of any
member of the Committee upon notice to the Committee and the affected member.
Any member of the Committee may resign upon notice to the Board. The Committee
may allocate among one or more of it members, or may delegate to one or more of
its agents, such duties and responsibilities as it determines.
B-5
<PAGE>
Among other things, the Committee shall have the authority, subject to
the terms of this Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered
by each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation; any exercise acceleration
or forfeiture waiver or any performance criteria regarding any Award and
the shares of Common Stock relating thereto);
(e) to adjust the terms and conditions, at any time or from
time to time, of any Award, subject to the limitations of Section 14.1;
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall
be deferred;
(g) to determine under what circumstances an Award may be
settled in cash or Common Stock;
(h) to provide for the forms of Agreement to be utilized in
connection with this Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
this Plan, Awards, and the issuance of shares of Common Stock and to
require of a Participant that appropriate action be taken with respect to
such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in this Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under this Plan;
B-6
<PAGE>
(m) to require as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred at Termination of Employment;
(o) to determine whether the Company or any other person has a right or
obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under this Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and payment,
including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it shall,
from time to time, deem advisable to interpret the terms and provisions of this
Plan and any Award issued under this Plan (and any Agreement) and to otherwise
supervise the administration of this Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of this
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express terms of this Plan or Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of this Plan shall be final and binding on all persons, including the Company
and Participants. Any determination shall not be subject to de novo review if
challenged in court.
B-7
<PAGE>
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
----------------
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under this Plan shall be 1,000,000 shares of Common Stock
authorized for issuance on the Effective Date, plus any unused shares under, or
shares allocated by the Committee from, the Company's Non-Employee Directors'
Stock Option Plan. Such shares may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to determine
-----------------
the number of shares of Common Stock available for Award, and in its discretion
may include (without limitation) as available for distribution any shares of
Common Stock that have ceased to be subject to an Award, any shares of Common
Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Awards to a
particular Participant under any applicable law, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise of
----------------------
an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Award Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Award. The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person exercising
an Award to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder as
------------------
to shares of Common Stock subject to an Award until, after proper exercise of
the Award or
B-8
<PAGE>
other action required, such shares shall have been recorded on the Company's
official stockholder records as having been issued and transferred. Upon
exercise of the Award or any portion thereof, the Company will have a reasonable
time in which to issue the shares, and the Participant will not be treated as a
stockholder for any purpose whatsoever prior to such issuance. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date such shares are recorded as issued and transferred in the
Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts to Register. If there has been a Public Offering, the
------------------------
Company will register under the Securities Act the Common Stock delivered or
deliverable pursuant to Awards on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The Company will use its best efforts to cause the registration
statement to become effective as soon as possible and will file such supplements
and amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the last relevant period of the last Award outstanding, (b)
the date the Company is no longer a reporting company under the Exchange Act and
(c) the date all Participants have disposed of all shares of Common Stock
delivered pursuant to any Award. The Company may delay the foregoing obligation
if the Committee reasonably determines that any such registration would
materially and adversely affect the Company's interests or if there is no
material benefit to Participants.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock split,
-------------
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee may adjust or substitute, as the case may be,
the number of shares of Common Stock available for Awards under this Plan, the
number of shares of Common Stock covered by outstanding Awards, the exercise
price per share of outstanding Awards, and any other characteristics or terms of
the Awards as the Committee shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that the Committee may limit any such adjustment so as to maintain the
deductibility of the Awards under Section 162(m) of the Code, and that any
fractional shares resulting from such adjustment shall be eliminated by rounding
to the next lower whole number of shares with appropriate payment for such
fractional share as shall reasonably be determined by the Committee.
B-9
<PAGE>
ARTICLE V
---------
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
-----------
eligible to participate in this Plan and be granted Awards shall be those
persons who are officers, employees or consultants of the Company or any
subsidiary, who shall be in a position, in the opinion of the Committee, to make
contributions to the growth, management, protection and success of the Company
and its subsidiaries. Of those persons described in the preceding sentence, the
Committee may, from time to time, select persons to be granted Awards and shall
determine the terms and conditions with respect thereto. In making any such
selection and in determining the form of the Award, the Committee may give
consideration to the functions and responsibilities of the person's
contributions to the Company and its subsidiaries, the value of the individual's
service to the Company and its subsidiaries and such other factors deemed
relevant by the Committee. The Committee may designate any person who is not
eligible to participate in this Plan if such person would otherwise be eligible
to participate in this Plan (and members of the Committee are expressly excluded
from participation to the extent necessary for purposes of Rule 16b-3, Section
162(m) of the Code or any other legal reason).
ARTICLE VI
----------
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Options under this
-------
Plan at any time or from time to time. Stock Options may be granted alone or in
addition to other Awards and may be either Incentive Stock Options or Non-
Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price. During any three-calendar-year period,
Options for no more than one-half of all shares of Common Stock available for
grant under the Plan shall be granted to any Participant.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
-----------------
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in the form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in this Plan. Such Agreement shall become
effective upon execution by the Participant. Only a person who is a common-law
employee of the Company, any parent corporation of the Company or a subsidiary
(as such terms are defined in Section 424 of the Code) on the Grant date shall
be eligible to be granted an Option which is intended to be and is an Incentive
Stock Option. To the extent that any Stock Option is not
B-10
<PAGE>
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
6.3 Terms and Conditions. Stock Options shall be subject to such terms and
--------------------
conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option
--------------
shall be fixed by the Committee; provided that no Non-Qualified Stock
Option shall be exercisable more than fifteen (15) years after the date
the Stock Option is granted. In the case of an Incentive Stock Option,
the Option Period shall not exceed ten (10) years from the date of
grant or five (5) years in the case of an individual who owns more than
ten percent (10%) of the combined voting power of all classes of stock
of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section
424 of the Code). No Option which is intended to be an Incentive Stock
Option shall be granted more than ten (10) years from the date of this
Plan is adopted by the Company or the date this Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) Option Price. The Option Price per share of the Common
------------
Stock purchasable under an Option shall be determined by the Committee.
If such Option is intended to qualify as an Incentive Stock Option, the
Option Price per share shall not be less than the Fair Market Value per
share on the date the Option is granted, or where granted to an
individual who owns or who is deemed to own stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock
of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section
424 of the Code), not less than one hundred ten percent (110%) of such
Fair Market Value per share.
(c) Exercisability. Subject to Section 13.1, Stock Options
--------------
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee. If the
Committee provides that any Stock Option is exercisable only in
installments, the Committee may at any time waive such installment
exercise provisions, in whole or in part. In addition, the Committee
may at any time accelerate the exercisability of any Stock Option. If
the Committee intends that an Option be an Incentive Stock Option, the
Committee shall, in its discretion, provide that the aggregate Fair
Market Value (determined at the Grant Date) of Incentive Stock Option
which is exercisable for the first time during the calendar year shall
not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this
------------------
Article VI, a Participant may exercise Stock Options, in whole or in
part, at any time during the Option Period by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the number of shares of Common
Stock subject to the Stock Option to be purchased. Such
B-11
<PAGE>
notice shall be accompanied by payment in full of the purchase price by
cash or check or such other form of payment as the Company may accept.
If approved by the Committee (including approval at the time of
exercise), payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant having a total
Fair Market Value on the date of such delivery equal to the Option
Price; (ii) by the execution and delivery of a note or other evidence
of indebtedness (and any security agreement thereunder) satisfactory to
the Committee and permitted in accordance with Section 6.3(e); (iii) by
authorizing the Company to retain shares of Common Stock which would
otherwise be issuable upon exercise of the Option having a total Fair
Market Value on the date of delivery equal to the Option Price; (iv) by
the delivery of cash or the extension of credit by a broker-dealer to
whom the Participant has submitted a notice of exercise or otherwise
indicated an intent to exercise an Option (in accordance with Part 220,
Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); (v) by certifying ownership of shares of Common
Stock owned by the Participant to the satisfaction of the Committee for
later delivery to the Company as specified by the Company; or (vi) by
any combination of the foregoing. If payment of the Option Price of a
Non-Qualified Stock Option is made in whole or in part in the form of
Restricted Stock or Deferred Stock, the number of shares of Common
Stock to be received upon such exercise equal to the number of shares
of Restricted Stock or Deferred Stock used for payment of the Option
Price shall be subject to the same forfeiture restrictions or deferral
limitations to which such Restricted Stock or Deferred Stock was
subject, unless otherwise determined by the Committee. In the case of
an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common
Stock subject to the Stock Option may be authorized only at the time
the Stock Option is granted. No shares of Common Stock shall be issued
until full payment therefor, as determined by the Committee, has been
made. Subject to any forfeiture restrictions or deferral limitations
that may apply if a Stock Option is exercised using Restricted Stock or
Deferred Stock, a Participant shall have all of the rights of a
stockholder of the Company holding the class of Common Stock that is
subject to such Stock Option (including, if applicable, the right to
vote the shares and the right to receive dividends), when the
Participant has given written notice of exercise, has paid in full for
such shares and such shares have been recorded on the Company's
official stockholder records as having been issued and transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option
-------------------------
and subject to pertinent Agreement and the discretion of the Committee,
the Company may at the request of the Participant:
(i) lend to the Participant, an amount equal to such
portion of the Option Price as the Committee may
determine; or
(ii) guarantee a loan obtained by the Participant from a
third party for the purpose of tendering the Option
Price.
B-12
<PAGE>
The terms and conditions of any loan or guarantee, including the term,
interest rate, whether the loan is with recourse against the
Participant and any security interest thereunder, shall be determined
by the Committee, except that no extension of credit or guarantee shall
obligate the Company for an amount to exceed the lesser of the
aggregate Fair Market Value per share of the Common Stock on the date
of exercise, less the par value of the shares of Common Stock to be
purchased upon the exercise of the Award, or the amount permitted under
applicable laws or the regulations and rules of the Federal Reserve
Board and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as provided herein
------------------------------
or in an Agreement and then only consistent with the intent that the
Option be an Incentive Stock Option, no Stock Option or interest
therein shall be transferable by the Participant other than by will or
by the laws of descent and distribution or by a designation of
beneficiary effective upon the death of the Participant, and all Stock
Options shall be exercisable during the Participant's lifetime only by
the Participant. If and to the extent transferability is permitted by
Rule 16b-3 and except as otherwise provided herein or by an Agreement,
every Option granted hereunder shall be freely transferable, but only
if such transfer does not result in liability under Section 16 of the
Exchange Act to the Participant or other Participants and is consistent
with registration of the Option and sale of Common Stock on Form S-8
(or a successor form) or the Committee's waiver of such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of one (1)
year (or such other period or no period as the Committee may specify)
immediately following the date of such death or until the expiration of the
Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
-----------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of one (1) year (or such other period or no period as
the Committee may specify) immediately following the date of such Termination of
Employment or until the expiration of the Option Period, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability shall not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
B-13
<PAGE>
6.6 Other Termination. Unless otherwise provided in an Agreement or
-----------------
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death, Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the three-month period commencing with the date of such Termination of
Employment or until the expiration of the Option Period. Unless otherwise
provided in an Agreement or determined by the Committee, if the Participant
incurs a Termination of Employment which is either (a) voluntary on the part of
the Participant (and is not due to Retirement) or (b) with Cause, the Option
shall terminate immediately. Unless otherwise provided in an Agreement or
determined by the Committee, the death or Disability of a Participant after a
Termination of Employment otherwise provided herein shall not extend the
exercisability of the time permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
---------------------
Committee may elect to cash out all or part of the portion of any Stock Option
by paying the Participant an amount, in cash or Common Stock, equal to the
excess of the Fair Market Value of the Common Stock that is subject to the
Option over the Option Price times the number of shares of Common Stock subject
to the Option on the effective date of such cash out.
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
7.1 General. The Committee shall have authority to grant Stock Appreciation
-------
Rights under this Plan at any time or from time to time. Subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with all
-----
or part of any Stock Option granted under this Plan in which case the exercise
of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of the Stock Option
will result in cancellation of a corresponding portion of the Stock Appreciation
Right. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right may also be granted on a stand-
alone basis. The grant of a Stock Appreciation Right shall occur as of the date
the Committee determines. Each Stock Appreciation Right granted under this Plan
shall be evidenced by an Agreement, which shall embody the terms and conditions
of such Stock Appreciation Right and which shall be subject to the terms and
conditions set forth
B-14
<PAGE>
in this Plan. During any three-calendar-year period, no more Stock Appreciation
Rights shall be granted to any Participant than the number of Options that may
be granted to any Participant under Section 6.1.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
--------------------
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation
-------------------
Right shall be established by the Committee. If granted in conjunction
with a Stock Option, the Stock Appreciation Right shall have a term
which is the same as the Option Period and shall be exercisable only at
such time or times and to the extent the related Stock Options would be
exercisable in accordance with the provisions of Article VI. A Stock
Appreciation Right which is granted on a stand alone basis shall be for
such period and shall be exercisable at such times and to the extent
provided in an Agreement. Stock Appreciation Rights shall be exercised
by the Participant's giving written notice of exercise on a form
provided by the Committee (if available) to the Company specifying the
portion of the Stock Appreciation Right to be exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right, a
------
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Committee or as otherwise
permitted in an Agreement equal in value to the excess of the Fair
Market Value per share of Common Stock over the Option Price per share
of Common Stock specified in the related Agreement multiplied by the
number of shares in respect of which the Stock Appreciation Right is
exercised. In the case of a Stock Appreciation Right granted on a
stand-alone basis, the Agreement shall specify the value to be used in
lieu of the Option Price per share of Common Stock. The aggregate Fair
Market Value per share of the Common Stock shall be determined as of
the date of the exercise of such Stock Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights
-------------
relating to Stock Options held by Participants who are actually or
potentially subject to Section 16(b) of the Exchange Act to the extent
required by Rule 16b-3:
(i) The Committee may require that such Stock
Appreciation Rights be exercised only in accordance
with the provisions of Rule 16b-3; and
(ii) The Committee may provide that the amount to be
paid upon exercise of such Stock Appreciation
Rights (other than those relating to Incentive
Stock Options) shall be based on the highest mean
sales price of the Common Stock on the principal
exchange on which the Common Stock is traded,
NASDAQ or other relevant market for determining
value; and
B-15
<PAGE>
(d) Non-transferability of Stock Appreciation Rights. Stock
------------------------------------------------
Appreciation Rights shall be transferable only when and to the extent that a
Stock Option would be transferable under this Plan unless otherwise provided in
an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at
-----------
such time as a Stock Option would terminate under this Plan, unless otherwise
provided in an Agreement.
(f) Effect on Shares Under this Plan. To the extent required
--------------------------------
by Rule 16b-3, upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth in
Section 4.2 on the number of shares of Common Stock to be issued under this
Plan, but only to the extent of the number of shares of Common Stock covered by
the Stock Appreciation Right at the time of exercise based on the value of the
Stock Appreciation Right at such time.
(g) Incentive Stock Option. A Stock Appreciation Right granted
----------------------
in tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds the Option
Price. In no event shall any amount paid pursuant to the Stock Appreciation
Right exceed the difference between the Fair Market Value on the date of
exercise and the Option Price.
ARTICLE VIII
------------
RESTRICTED STOCK
8.1 General. The Committee shall have authority to grant Restricted Stock
-------
under this Plan at any time or from time to time. Shares of Restricted Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares of Restricted
Shares to be awarded to any Participant, the time or times within which such
Awards may be subject to forfeiture and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate (including a division or department of the Company or an
Affiliate) for or within which the Participant is primarily employed or upon
such other factors or criteria as the Committee shall determine. The provisions
of Restricted Stock Awards need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance of
-----------------------
shares of Common Stock otherwise provided in this Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of
B-16
<PAGE>
Restricted Stock. Such certificate shall be registered in the name of such
Participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award as determined by the
Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
--------------------
the following terms and conditions:
(a) Limitations on Transferability. The purchase
------------------------------
price for shares of Restricted Stock shall be set by the
Committee and may be zero. Subject to the provisions of this
Plan and the Agreement, during a period set by the Committee,
commencing with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted to sell,
assign, transfer, pledge or otherwise encumber any interest in
shares of Restricted Stock. Unless otherwise determined by the
Committee, awards of Restricted Stock must be accepted by a
Participant within a period of 60 days (or such shorter
periods as the Committee may specify at grant) after the Grant
Date, by executing a Restricted Stock Agreement and paying
whatever price, if any, is required. The Participant shall not
have any rights with respect to such Award, unless and until
such Participant has executed an agreement evidencing the
Award and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms
and conditions of such award.
(b) Rights. Except as provided in Section 8.3(a), the
------
Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a stockholder of the
Company holding the class of Common Stock that is the subject
of the Restricted Stock, including, if applicable, the right
to vote the shares and the right to receive any cash
dividends. Unless otherwise determined by the Committee and
subject to this Plan, cash dividends on the class of Common
Stock that is the subject of the Restricted Stock shall be
automatically deferred and reinvested in additional Restricted
Stock, and dividends on the class of Common Stock that is the
subject of the Restricted Stock payable in Common Stock shall
be paid in the form of Restricted Stock of the same class as
the Common Stock on which such dividend was paid.
(c) Criteria. Based on service, performance by the
--------
Participant or by the Company or the Affiliate, including any
division or department for which the Participant is employed
or such other factors or criteria as the Committee may
determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of
all or any
B-17
<PAGE>
part of any Award and waive the restrictions for all or any
part of such Award.
(d) Forfeiture. Unless otherwise provided in an
----------
Agreement or determined by the Committee, if the Participant
incurs a Termination of Employment during the Restriction
Period due to death or Disability, the restrictions shall
lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in
the applicable Agreement and this Plan, upon a Participant's
Termination of Employment for any reason during the
Restriction Period other than death or Disability, all shares
of Restricted Stock still subject to restriction shall be
forfeited by the Participant, except the Committee shall have
the discretion to waive in whole or in part any or all
remaining restrictions with respect to any or all of such
Participant's shares of Restricted Stock.
(e) Delivery. If and when the Restriction Period
--------
expires without a prior forfeiture of the Restricted Stock
subject to such Restriction Period, unlegended certificates
for such shares shall be delivered to the Participant.
(f) Election. A Participant may elect to further
--------
defer receipt of the Restricted Stock for a specified period
or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by
the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one (1) year prior to
completion of the Restriction Period.
ARTICLE IX
----------
DEFERRED STOCK
9.1 General. The Committee shall have authority to grant Deferred Stock
-------
under this Plan at any time or from time to time. Shares of Deferred Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
B-18
<PAGE>
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
--------------------
following terms and conditions.
(a) Limitations on Transferability. Subject to the provisions
------------------------------
of this Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period. At the
expiration of the Deferral Period (or Elective Deferral Period as defined in
Section 9.2(e), where applicable), the Committee may elect to deliver Common
Stock, cash equal to the Fair Market Value of such Common Stock or a combination
of cash and Common Stock, to the Participant for the shares covered by the
Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and
------
subject to this Plan, cash dividends on the Common Stock that is the subject of
the Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the subject
of the Deferred Stock Award payable in Common Stock shall be paid in the form of
Deferred Stock of the same class as the Common Stock on which such dividend was
paid.
(c) Criteria. Based on service, performance by the Participant
--------
or by the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of deferral
limitations in installments and may accelerate the vesting of all or any part of
any Award and waive the deferral limitations for all or any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by the
Committee, upon a Participant's Termination of Employment for any reason during
the Deferral Period other than death or Disability, the rights to the shares
still covered by the Award shall be forfeited by the Participant, except the
Committee shall have the discretion to waive in whole or in part any or all
remaining deferral limitations with respect to any or all of such Participant's
Deferred Stock.
(e) Election. A Participant may elect to further defer receipt
--------
of the Deferred Stock payable under an Award (or an installment of an Award) for
a specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be made
at one (1) year prior to completion of the Deferral Period for the Award.
B-19
<PAGE>
ARTICLE X
---------
PERFORMANCE SHARES
10.1 General. Subject to the terms and conditions described below,
-------
Performance Shares may be granted to any Participant at any time and from time
to time as determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Shares granted to each
Participant; provided, however, that no Participant who is a Covered Employee
may earn more than one half the number of shares of Common Stock reserved under
the Plan as Performance Shares with respect to any Performance Period (as
defined below).
10.2 Price. The purchase price for Performance Shares shall be zero unless
-----
otherwise specified by the Committee.
10.3 Performance Share Agreement. Subject to the provisions of this Plan,
---------------------------
all the terms and conditions of an Award of Performance Shares shall be
determined by the Committee in its discretion and shall be confirmed by a
Performance Share Award Agreement which shall be executed by the Company and the
Participant. Not later than the date required or permitted for "qualified
performance-based compensation" under Code Section 162(m), the Committee shall
determine the Participants who are Covered Employees who will potentially
receive individual Performance Share Awards for the Performance Period and the
amount or method for determining the amount of such Participant's number of
Performance Shares.
10.4 Performance Periods. Any time period (the "Performance Period")
-------------------
relating to a Performance Share Award (commencing with the Grant Date) shall be
at least two calendar or Company fiscal years in length unless otherwise
provided by the Committee.
10.5 Performance Goals. Not later than the date required or permitted for
-----------------
"qualified performance-based compensation" under Section 162(m), the Committee
shall establish in writing the performance goals ("Performance Goals") for such
Performance Period, which shall be based on any of the following performance
criteria, either alone or in any combination, and on either a consolidated or
business unit level, as the Committee may determine: sales, net asset turnover,
earnings per share, cash flow, cash flow from operations, operating profit or
income, net income, operating margin, net income margin, return on net assets,
return on total assets, return on common equity, return on total capital, and
total shareholder return. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items as the Committee may specify; extraordinary, unusual
or nonrecurring items; effects of accounting changes; effects of financing
activities (e.g., effect on earnings per share of issuance of convertible debt
securities); expenses for restructuring or productivity initiates; other non-
operating items; spending for acquisitions; effects of divestitures; and effects
of litigation activities and settlements.
B-20
<PAGE>
Any such performance criterion or combination of such criteria may apply to the
Participant's Award opportunity in its entirety or to any designated portion or
portions of the Award opportunity, as the Committee may specify. Unless the
Committee determines otherwise for any Performance Period, extraordinary items,
such as capital gains and losses, which affect any performance criterion
applicable to the Award (including but not limited to the criterion of net
income) shall be excluded or included in determining the extent to which the
correspondence performance goal has been achieved, whichever will produce the
higher Award. The Committee may, in its discretion, vary the terms and
conditions of any Performance Share Award, including, without limitation, the
Performance Period and Performance Goals, without shareholder approval, as
applied to any recipient who is not a Covered Employee with respect to the
Company. In the event applicable tax or securities laws change to permit the
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval.
10.6 Earning of Performance Shares. After the applicable Performance Period
-----------------------------
shall have ended, the Committee shall certify the extent to which the
established Performance Goals have been achieved. The retention of Performance
Shares shall be a direct function of the extent to which the Company's
Performance Goals have been achieved. A Participant may earn more or less than
the number of Performance Shares originally awarded, or no Performance Shares at
all. Performance Shares shall be paid in the form of Company Stock. Unrestricted
certificates representing such number of shares of Common Stock as equals the
number of Performance Shares earned under the Award shall be delivered to the
Participant as soon as practicable after the end of the applicable Performance
Period. Participants shall also be entitled to any dividends or other
distributions that have been or would have been paid or earned in respect of
such shares of Common Stock during the period from the initial award date to the
final payout on the Performance Shares, and may be paid in the form of Common
Stock. Unless otherwise provided, in its discretion, by the Committee, any such
dividends or other distributions shall not bear interest. All determinations by
the Committee as to the establishment of Performance Goals and potential Awards
related to such Performance Goals and as to the achievement of Performance Goals
relating to such Awards, and the number of any Performance Shares shall be made
in writing in the case of any Award intended to qualify under Code Section
162(m). The Committee may not delegate any responsibility relating to such
Awards.
10.7 Termination of Employment Due to Death, Disability or Retirement or at
----------------------------------------------------------------------
the Request of the Company Without Cause. In the event of an Extraordinary
- ----------------------------------------
Termination of Employment or a Termination of Employment by the Company without
Cause during a Performance Period, the Participant shall receive a prorated
payout with respect to the Performance Shares relating to such Performance
Period. The prorated payout shall be determined by the Committee, in its sole
discretion, and shall be based upon the length of time that the Participant held
the Performance Shares during the Performance Period and based upon the
achievement of the established Performance Goals. Distribution of earned
Performance Shares shall be made at the same time
B-21
<PAGE>
payments are made to Participants who did not incur a Termination of Employment
during the applicable Performance Period.
10.8 Termination of Employment for Other Reasons. In the event that a
-------------------------------------------
Participant's employment terminates for any reason other than those reasons set
forth in Section 10.7, all Performance Shares shall be forfeited by the
Participant to the Company.
10.9 Non-transferability. Unless otherwise provided in an Agreement,
-------------------
Performance Shares may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or a
Representative.
ARTICLE XI
----------
ANNUAL INCENTIVE AWARDS
11.1 Eligibility. Participants designated by the Committee shall be
-----------
eligible for an Annual Incentive Award, the amount of which will be based on the
satisfaction of specified bonus targets ("Award Targets"). Not later than the
date required as permitted for "qualified performance-based compensation" under
Code, Section 162(m), the Committee shall establish in writing (i) the Award
Targets and (ii) the Annual Incentive Awards which may be earned by
Participants, based upon the extent to which the Award Targets are achieved
("Award Opportunities"). The Award Targets and Award Opportunities shall be
confirmed in Agreements between the Company and the Participants. The Award
Targets shall be based on any of the following performance criteria, either
alone or in any combination, and on either a consolidated or business unit
level, as the Committee may determine: sales, net asset turnover, earnings per
share, cash flow, cash flow from operations, operating profit or income, net
income, operating margin, net income margin, return on net assets, return on
total assets, return on common equity, return on total capital, and total
shareholder return. The foregoing criteria shall have any reasonable definitions
that the Committee may specify, which may include or exclude any or all of the
following items; effects of accounting changes; effects of financing activities
(e.g., effect on earnings per share of issuance of convertible debt securities);
expenses for restructuring or productivity initiates; other non-operating items;
spending for acquisitions; effects of divestitures; and effects of litigation
activities and settlements. Any such performance criterion or combination of
such criteria may apply to the Participant's Award opportunity in its entirety
or to any designated portion or portions of the Award opportunity, as the
Committee may specify. Unless the Committee determines otherwise for any
Performance Period, extraordinary items, such as capital gains and losses, which
affect any performance criterion applicable to the Award (including but not
limited to the criterion of net income) shall be excluded or included in
determining the extent to which the corresponding performance goal has been
achieved, whichever will produce the higher Award. The Committee may specify the
amount of the individual Award as a percentage of such business criteria, a
percentage thereof in excess of a threshold amount, or another amount which need
not bear a strictly
B-22
<PAGE>
mathematical relationship to such relationship criteria. With respect to any
Performance Period, the Committee may establish an aggregate limit or individual
with respect to the value of the Awards.
11.2 Earning of Annual Incentive Awards. After the applicable fiscal year
----------------------------------
shall have ended, the Committee shall certify in writing, the extent to which
the established Award Targets have been achieved. The Committee may, in its
discretion, determine that the amount payable to any Participant as a final
Annual Incentive Award shall be increased or reduced from the amount of his or
her potential Bonus Award, including a determination to make no final Award
whatsoever, but the Committee may not exercise discretion to increase any such
amount in the case of an individual Award with respect to a Covered Employee
intended to qualify under Code Section 162(m). Unless otherwise determined by
the Committee, during a Performance Period, an Award shall be payable under this
Plan to the Participant who incurs an Extraordinary Termination of Employment or
a Termination of Employment by the Company without cause, which shall be
adjusted, pro rata, for the period of time during the year the Participant
actually worked. Unless otherwise provided by the Committee, a Participant who
incurs a Termination of Employment other than an Extraordinary Termination of
employment or a Termination of Employment by the Company with Cause prior to the
end of the Performance Period shall not be entitled to any Award under the
Performance Period. Subsequently, the Committee shall calculate the Annual
Incentive Award (if any) for each Participant, based upon the Award
Opportunities established by the Committee prior to the beginning of the
applicable year. Each Annual Incentive Award shall be solely a function of the
degree to which the established Award Targets have been achieved.
11.3 Payments and Election. Participants may elect to receive Annual
---------------------
Incentive payouts in cash, Common Stock, Deferred Stock, Restricted Stock or a
combination of the foregoing, provided that any election for payment in Common
Stock is subject to the approval of the Committee. Payouts with respect to a
fiscal year will be made within seventy-five (75) days of the end of such year.
To elect the payout of a portion of an Annual Incentive Award in Common Stock, a
Participant must inform the Committee in writing prior to the start of the
fiscal year with respect to which payout would be made or at such other time as
the Committee may permit. Unless modified by the Committee before the beginning
of a fiscal year of the Company, terms and conditions of Deferred or Restricted
Stock payouts shall include the following:
(a) Any portion of an Annual Incentive Award can be elected
for payout in Deferred or Restricted Stock, either in a dollar amount
or as a percentage of the total Annual Incentive Award.
(b) Deferred or Restricted Stock will be issued on the same
date that cash payouts would be made, based on the closing price of the
Common Stock as of the date of the award ("Closing Price") on the
principal exchange on which the Common Stock shall then be listed or
quoted.
B-23
<PAGE>
(c) Deferred or Restricted Stock will be issued pursuant to,
and shall be subject to, the terms and conditions contained in this
Plan. Unless otherwise agreed, the Deferral Period or Restriction
Period, respectively, will be for a period determined by the Committee
of at least three (3) years in duration, after which time the Common
Stock will be distributed or released to the Participant.
(d) The number of shares of Deferred Stock or Restricted Stock
granted to a Participant will equal the product of (A) such number of
shares of Common Stock as have an aggregate closing price equal to the
dollar amount of the Annual Incentive Award elected to be received in
the form of Deferred Stock or Restricted Stock, multiplied by (B) a
factor greater than 1.00 but less than or equal to 1.30, as determined
by the Committee prior to the beginning of the Company's applicable
fiscal year.
(e) If the Participant incurs a Termination of Employment by
reason of death, Disability, or Retirement or by the Company without
Cause, the Committee, at its discretion, may provide for waiver of all,
or a portion of the deferrals or restrictions applicable to such
Awards. If the Participant incurs a Termination of Employment for any
other reason, the shares of Deferred or Restricted Stock may be
forfeited.
11.4 Amendment of Awards. The Committee has discretion, subject to the
-------------------
Plan's constituting a plan of performance-based compensation under Code Section
162(m), to vary the terms and conditions of any Annual Incentive Award,
including, without limitation, the Award Targets, without shareholder approval,
as applied to any Participant who is not a "covered employee" with respect to
the Company as defined in Section 162(m) of the Code.
11.5 Performance Threshold. The Committee may establish minimum levels of
---------------------
Company performance which must be achieved during a fiscal year before any
Annual Incentive Awards shall be paid to Participants.
11.6 Maximum Awards. The Committee may establish guidelines governing the
--------------
maximum Annual Incentive Awards that may be earned by Participants (either in
the aggregate, by employee class or among individual Participants), provided
that no Participant may receive an Annual Incentive Award in an amount
(including the value of any Common Stock constituting any portion of such Annual
Incentive Awards) of greater than $1,500,000 with respect to any fiscal year of
the Company.
ARTICLE XII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN
12.1 Limited Transfer During Offering. In the event there is an effective
--------------------------------
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during
B-24
<PAGE>
the period requested by the underwriters managing the registered public
offering, effect any public sale or distribution of shares received directly or
indirectly pursuant to an exercise of an Award.
12.2 No Company Obligation. None of the Company, an Affiliate or the
---------------------
Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of any material information regarding the Company or
any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XIII
------------
CHANGE IN CONTROL PROVISIONS
13.1 Impact of Event. Notwithstanding any other provision of this Plan to
---------------
the contrary, in the event of a Change in Control (as defined in Section 13.2),
the Committee shall have full discretion, notwithstanding anything herein or in
an Agreement to the contrary, to do any or all of the following with respect to
an outstanding Award:
(a) to provide that the Stock Options and Stock Appreciation
Rights outstanding as of the date of the Change in Control which are
not then exercisable shall become fully exercisable to the full extent
of the original grant;
(b) to provide that the restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock or other Award shall
lapse, and such Restricted Stock, Deferred Stock or other Award shall
become free of all restrictions and become fully vested and
transferable to the full extent of the original grant;
(c) to deem any performance goal or other condition with
respect to any Performance Shares or Annual Incentive Award to have
been satisfied in full, and such Award shall be fully distributable;
(d) to cause any Award to be cancelled, provided notice of at
least 15 days thereof is provided before the date of cancellation;
(e) to provide that the securities of another entity be
substituted hereunder for the Common Stock and to make equitable
adjustment with respect thereto;
(f) to grant the Participant the right to elect by giving
notice during a set period of time from and after a Change in Control
to surrender all or part of a stock-based Award to the Company and to
receive cash in an amount equal to the
B-25
<PAGE>
amount by the "Change in Control Price" (as defined in Section 13.3)
per share of the Common Stock on the date of the election exceeds the
amount the Participant must pay to exercise the Award per share of
Common Stock under the Award (the "Spread") multiplied by the number of
shares of Common Stock granted under the Award; and
(g) to take any other action the Committee determines to take.
13.2 Definition of Change in Control. For purposes of this Plan, a "Change
-------------------------------
in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
either (i) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of
this subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company, (ii)
any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (iv) any acquisition by a
lender to the Company pursuant to a debt restructuring of the Company,
or (v) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 13.2;
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board.
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
B-26
<PAGE>
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, (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, twenty percent
(20%) or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination, or
the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior
to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
13.3 Change in Control Price. For purposes of this Plan, "Change in Control
-----------------------
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change in Control or (b) if the Change in Control is the result of
a tender or exchange offer or a Corporate Transaction, the highest price per
share of Common Stock paid in such tender or exchange offer or a Corporate
Transaction, except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
B-27
<PAGE>
ARTICLE XIV
-----------
MISCELLANEOUS
14.1 Amendments and Termination. The Board may amend, alter or discontinue
--------------------------
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3, or (c) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement. The Committee may
amend, alter or discontinue the terms of any Award theretofore granted,
prospectively or retroactively, on the same conditions and limitations (and
exceptions to limitations) as the Board and further subject to any approval or
limitations the Board may impose.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Common Stock having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.
14.2 Unfunded Status of Plan. It is intended that this Plan be an
-----------------------
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under this Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of this
Plan.
14.3 Status of Awards Under Code Section 162(m). It is the intent of the
------------------------------------------
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
14.4 General Provisions.
------------------
(a) Representation. The Committee may require each person
--------------
purchasing or receiving shares pursuant to an Award to represent to and
agree
B-28
<PAGE>
with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in this Plan
------------------------
shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount
-----------
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to any Award, the Participant
shall pay to the Company (or other entity identified by the Committee),
or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any federal,
state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company
or an Affiliate to obtain a current deduction. To the extent permitted
by the Committee, withholding obligations may be settled with Common
Stock, including Common Stock that is part of the Award that gives rise
to the withholding requirement provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under this Plan shall be conditional on such
payment or arrangements, and the Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Participant. If the Participant
disposes of shares of Common Stock acquired pursuant to an Incentive
Stock Option in any transaction considered to be a disqualifying
transaction under the Code, the Participant must give written notice of
such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to
the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
------------
Deferred or Restricted Stock at the time of any dividend payment shall
only be permissible if sufficient shares of Common Stock are available
for such reinvestment (taking into account then outstanding Options and
other Awards).
(e) Representation. The Committee shall establish such
--------------
procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
(f) Controlling Law. This Plan and all Awards made and actions
---------------
taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware (other than its law respecting choice
of law). This Plan shall be construed to comply with all applicable
law, and to avoid liability to the Company, an Affiliate or a
Participant, including, without limitation, liability under Section
16(b) of the Exchange Act.
B-29
<PAGE>
(g) Offset. Any amounts owed to the Company or an Affiliate by
------
the Participant of whatever nature may be offset by the Company from
the value of any shares of Common Stock, cash or other thing of value
under this Plan or an Agreement to be transferred to the Participant,
and no shares of Common Stock, cash or other thing of value under this
Plan or an Agreement shall be transferred unless and until all disputes
between the Company and the Participant have been fully and finally
resolved and the Participant has waived all claims to such against the
Company or an Affiliate.
(h) Fail-Safe. With respect to persons subject to Section 16
---------
of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or Rule 16a-
1(c)(3), as applicable. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee. Moreover, in the event the Plan does not include a provision
required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated herein, such
provision (other than one relating to eligibility requirements or the
price and amount of Awards) shall be deemed to be incorporated by
reference into the Plan with respect to Participants subject to Section
16.
(i) Right to Capitalize. The grant of an Award shall in no way
-------------------
affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge,
consolidation, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
14.5 Mitigation of Excise Tax. Subject to any other agreement between the
------------------------
Participant and the Company or an Affiliate, if any payment or right accruing to
a Participant under this Plan (without the application of this Section 14.5),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 280G of the Code and regulations
thereunder), such payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount payable or right
accruing under this Plan being subject to an excise tax under Section 4999 of
the Code or being disallowed as a deduction under Section 280G of the Code. The
determination of whether any reduction in the rights or payments under this Plan
is to apply shall be made by the Committee in good faith after consultation with
the Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee in
making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 14.5 shall apply with respect
to any person only if after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of this
Plan and after reduction for only federal income taxes.
B-30
<PAGE>
14.6 Rights with Respect to Continuance of Employment. Nothing contained
------------------------------------------------
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual becoming a Participant in this Plan.
14.7 Awards in Substitution for Awards Granted by Other Corporations.
---------------------------------------------------------------
Awards may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Awards so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
14.8 Procedure for Adoption. Any Affiliate of the Company may by resolution
----------------------
of such Affiliate's board of directors, with the consent of the Board of
Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt this Plan for the benefit of its employees as of the date
specified in the board resolution.
14.9 Procedure for Withdrawal. Any Affiliate which has adopted this Plan
------------------------
may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of this Plan.
14.10 Delay. If at the time a Participant incurs a termination of
-----
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under this Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in this Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee shall have the discretion to suspend
the application of the provisions of this
B-31
<PAGE>
Plan required solely to comply with Rule 16b-3 if the Committee shall determine
that Rule 16b-3 does not apply to this Plan.
14.11 Headings. The headings contained in this Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of this Plan.
14.12 Severability. If any provision of this Plan shall for any reason be
------------
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
14.13 Successors and Assigns. This Plan shall inure to the benefit of and
----------------------
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
14.14 Entire Agreement. This Plan and the Agreement constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between this Plan and the Agreement, the terms
and conditions of the Agreement shall control.
Effective as of August 28, 1996.
CUNO INCORPORATED
By: /s/ Paul J. Powers
--------------------------------
B-32
<PAGE>
EXHIBIT C
FIRST AMENDMENT TO CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
-----------------------------------------
The CUNO Incorporated Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"), having an Effective Date of August 28, 1996, is hereby
amended, subject to the approval of its stockholders and the satisfaction of the
other requirements for amending the Directors' Plan described in Section 9.1 of
the Directors' Plan, effective as of the date of completion of such required
approvals, as follows:
I
Section 4.1 of the Plan hereby is amended to read in its entirety:
"4.1 Number of Shares. Subject to the adjustment under Section 4.6,
-----------------
the total number of shares of Common Stock reserved and available for
issuance pursuant to Awards under the Plan shall be 300,000 shares of
Common Stock authorized for issuance on the Effective Date, plus any unused
shares under, or shares allocated by the Committee from, the Company's Non-
Employee Directors' Stock Option Plan. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares."
II
In all other respects, the Directors' Plan shall continue in full force and
effect.
<PAGE>
EXHIBIT D
CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
EFFECTIVE AUGUST 28, 1996
TABLE OF CONTENTS
ARTICLE I
ESTABLISHMENT..................................................... D-1
- -------------
1.1 Purpose............................................. D-1
ARTICLE II
DEFINITIONS....................................................... D-1
- ------------
2.1 "Affiliate"......................................... D-1
2.2 "Agreement" or "Award Agreement".................... D-1
2.3 "Award"............................................. D-1
2.4 "Beneficiary"....................................... D-1
2.5 "Board of Directors" or "Board"..................... D-1
2.6 "Change of Control"................................. D-2
2.7 "Code" or "Internal Revenue Code"................... D-3
2.8 "Commission"........................................ D-3
2.9 "Committee"......................................... D-3
2.10 "Common Stock"...................................... D-3
2.11 "Company"........................................... D-3
2.12 "Conversion Election" or "Election"................. D-3
2.13 "Deferred Stock".................................... D-4
2.14 "Director".......................................... D-4
2.15 "Disability"........................................ D-4
2.16 "Effective Date".................................... D-4
2.17 "Exchange Act"...................................... D-4
2.18 "Fair Market Value"................................. D-4
2.19 "Grant Date"........................................ D-5
2.20 "NASDAQ"............................................ D-5
2.21 "Notice Date"....................................... D-5
2.22 "Option" or "Stock Option".......................... D-5
2.23 "Option Period"..................................... D-5
2.24 "Option Price"...................................... D-5
2.25 "Participant"....................................... D-5
2.26 "Performance Shares"................................ D-5
2.27 "Plan" D-5
2.28 "Representative".................................... D-5
i
<PAGE>
2.29 "Retainer".......................................... D-6
2.30 "Rule 16b-3" or "Rule 16a-1(c)(c)................... D-6
2.31 "Securities Act".................................... D-6
2.32 "Valuation Date".................................... D-6
ARTICLE III
ADMINISTRATION.................................................... D-6
- --------------
3.1 Committee Structure and Authority................... D-6
ARTICLE IV
STOCK SUBJECT TO PLAN............................................. D-7
- ---------------------
4.1 Number of Shares.................................... D-7
4.2 Release of Shares................................... D-7
4.3 Restrictions on Shares.............................. D-7
4.4 Stockholders Rights................................. D-8
4.5 Reasonable Efforts to Register...................... D-8
4.6 Adjustments......................................... D-8
4.7 Limited Transfer During Offering.................... D-9
ARTICLE V
OPTIONS........................................................... D-9
- -------
5.1 Eligibility......................................... D-9
5.2 Grant and Exercise.................................. D-9
5.3 Terms and Conditions................................ D-10
5.4 Termination......................................... D-11
ARTICLE VI
RETAINER ELECTION................................................. D-11
- -----------------
6.1 Right to Elect...................................... D-11
6.2 Election Procedures................................. D-12
ARTICLE VII
PERFORMANCE SHARES................................................ D-12
- ------------------
7.1 General............................................. D-12
7.2 Price............................................... D-12
7.3 Performance Share Agreement......................... D-12
7.4 Performance Periods................................. D-12
7.5 Performance Goals................................... D-13
7.6 Earning of Performance Shares....................... D-13
7.7 Termination or Service as a Director................ D-14
7.8 Non-Transferability................................. D-14
ii
<PAGE>
ARTICLE VIII
DEFERRED STOCK.................................................... D-14
- --------------
8.1 General............................................. D-14
8.2 Terms and Conditions................................ D-15
ARTICLE IX
MISCELLANEOUS..................................................... D-16
- -------------
9.1 Amendments and Termination.......................... D-16
9.2 General Provisions.................................. D-16
9.3 Special Provisions Regarding a Change in Control.... D-17
9.4 "Change in Control Price" definition................ D-18
9.5 Awards in Substitution for Awards Granted by Other
Corporations........................................ D-19
9.6 Delay............................................... D-19
9.7 Headings............................................ D-19
9.8 Severability........................................ D-19
9.9 Successors and Assigns.............................. D-19
9.10 Entire Agreement.................................... D-19
iii
<PAGE>
CUNO INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose. The CUNO Incorporated Non-Employee Directors' Stock Option
-------
Plan ("Plan") is hereby established by CUNO Incorporated ("Company"). The
purpose of this Plan is to promote the overall financial objectives of the
Company and its stockholders by motivating directors of the Company who are not
employees, to further align the interests of such directors with those of the
stockholders of the Company and to achieve long-term growth and performance of
the Company. The Plan is adopted effective as of August 28, 1996 ("Effective
Date").
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of this Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership, limited
-----------
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company including, without limitation, any member
of an affiliated group of which the Company is a common parent corporation as
provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means, individually or collectively,
----------- -----------------
any agreement entered into pursuant to this Plan pursuant to which an Award is
granted to a Participant.
2.3 "Award" means any Stock Option, Performance Share or Deferred Stock
-------
granted pursuant to the Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
-------------
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated beneficiary, then the
term means the person or persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
-------------------- -------
Company.
D-1
<PAGE>
2.6 "Change in Control" means
-------------------
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of twenty percent (20%) or more of either (i) the then-
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company,
(iv) any acquisition by a lender to the Company pursuant to a debt
restructuring of the Company, or (v) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (c) of this Section 2.6;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board.
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than twenty percent (20%) of, respectively, the then-
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership,
D-2
<PAGE>
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, twenty percent (20%) or more of,
respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined
voting power of the then-outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.7 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
----- -----------------------
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.8 "Commission" means the Securities and Exchange Commission or any
------------
successor agency.
2.9 "Committee" means the person or persons appointed by the Board of
-----------
Directors to administer this Plan, as further described in the Plan.
2.10 "Common Stock" means the shares of the Common Stock, par value $.001
--------------
per share, of the Company, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of this Plan.
2.11 "Company" means CUNO Incorporated, a Delaware corporation, and
---------
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.12 "Conversion Election" or "Election" means an election by a Director
--------------------- ----------
to (a) either receive all of his or her Retainer on a current basis or (b) to
reduce his or her Retainer by an amount or percentage specified in the Election
and to receive a right to Deferred Stock. The Committee may require that an
Election shall be effective only with respect to a Notice Date that is at least
six months prior to the transaction to which the Election relates and is
irrevocable for such period as the Committee may determine.
D-3
<PAGE>
2.13 "Deferred Stock" means an award to receive Common Stock at the end of
----------------
a specified period in exchange for a Participant's reduction of the Retainer
otherwise payable to the Participant.
2.14 "Director" means each and any director who serves on the Board and
----------
who is not an officer or employee of the Company or any of its Affiliates.
2.15 "Disability" means a mental or physical illness that renders a
------------
Participant totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred, while participating in a
criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of the Plan shall not
be construed to be an admission of disability for any other purpose.
2.16 "Effective Date" means August 28, 1996.
----------------
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
--------------
and the rules and regulations promulgated thereunder.
2.18 "Fair Market Value" means the value determined on the basis of the
-------------------
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
(a) if the Common Stock is listed on a national securities exchange
or quoted on NASDAQ, the closing price of the Common Stock on the relevant
date (or, if such date is not a business day or a day on which quotations
are reported, then on the immediately preceding date on which quotations
were reported), as reported by the principal national exchange on which
such shares are traded (in the case of an exchange) or by NASDAQ, as the
case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on NASDAQ, but is actively traded in the over-the-
counter market, the average of the closing bid and asked prices for the
Common Stock on the relevant date (or, if such date is not a business day
or a day on which quotations are reported, then on the immediately
preceding date on which quotations were reported), or the most recent
preceding date for which such quotations are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith
by the Committee.
D-4
<PAGE>
2.19 "Grant Date" means the date that as of which an Award is granted
------------
pursuant to this Plan.
2.20 "NASDAQ" means The NASDAQ Stock Market, including the NASDAQ National
--------
Market.
2.21 "Notice Date" means the date established by the Committee as the
-------------
deadline for it to receive an Election or any other notification with respect to
an administrative matter in order to be effective under this Plan.
2.22 "Option" or "Stock Option" means the right to purchase the number of
-------- --------------
shares of Common Stock specified by the Plan at a price and for a term fixed by
the Plan, and subject to such other limitations and restrictions as the Plan and
the Committee imposes.
2.23 "Option Period" means the period during which the Option shall be
---------------
exercisable in accordance with the Agreement and Article V.
2.24 "Option Price" means the price at which the Common Stock may be
--------------
purchased under an Option as provided in Section 5.3.
2.25 "Participant" means a Director to whom an Award has been granted
-------------
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such appointed Representative. The term shall also include a trust for the
benefit of the Participant, the Participant's parents, spouse or descendants, a
partnership the interests of which are for the benefit of the Participant, the
Participant's parents, spouse or descendants; or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee and not inconsistent with
an application of Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Directorship" shall mean the Termination of Directorship of the
Director.
2.26 "Performance Shares" means an Award granted under Article VII.
--------------------
2.27 "Plan" means CUNO Incorporated Non-Employee Directors' Stock
------
Incentive Plan, as herein set forth and as may be amended from time to time.
2.28 "Representative" means (a) a person or entity acting as the executor
----------------
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred by the Committee
or by operation of law; provided that only one of the foregoing shall be the
D-5
<PAGE>
Representative at any point in time as determined under applicable law and
recognized by the Committee.
2.29 "Retainer" means the retainer provided to the Participant for
----------
services rendered as a Director, including service on a committee or attendance
at meetings, but not the reimbursement of expenses, in his or her capacity as a
Director.
2.30 "Rule 16b-3" or "Rule 16a-1(c)(3)" means Rule 16b-3 and
------------ ------------------
Rule 16a-1(c)(3), as promulgated under the Exchange Act, as amended from time to
time, or any successor thereto, in effect and applicable to the Plan and
Participants.
2.31 "Securities Act" means the Securities Act of 1933, as amended, and
----------------
the rules and regulations promulgated thereunder.
2.32 "Valuation Date" means the date or dates designated by the Committee
----------------
for converting the Retainer to Deferred Stock pursuant to an Election.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. This Plan shall be administered by
---------------------------------
the Committee which, except as provided herein, shall be comprised of one or
more persons. The Committee shall be the Compensation Committee of the Board of
Directors, unless such committee does not exist or the Board establishes another
committee whose purpose is the administration of this Plan. In the absence of an
appointment, the Board shall be the Committee; provided that only those members
of the Compensation Committee of the Board who participate in the decision
relative to Options under the Plan shall be deemed to be part of the "Committee"
for purposes of the Plan. A majority of the Committee shall constitute a quorum
at any meetings thereof (including telephone conference) and the acts of a
majority of the members present, or acts approved in writing by a majority of
the entire Committee without a meeting, shall be the acts of the Committee for
purposes of this Plan. The Committee may authorize any one or more of its
members or an officer of the Company to execute and deliver documents on behalf
of the Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the authority
to remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee may
resign upon notice to the Board. The Committee may allocate among one or more of
it members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
D-6
<PAGE>
The Committee shall have the authority, subject to (i) the terms of the
Plan and (ii) the limitations of Rule 16b-3(c)(2)(ii), to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Option issued under the Plan and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants. Any determination shall not be
subject to de novo review if challenged in court.
-- ----
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
----------------
total number of shares of Common Stock reserved and available for issuance
pursuant to Awards under the Plan shall be 200,000 shares of Common Stock
authorized for issuance on the Effective Date, plus any unused shares under, or
shares allocated by the Committee from, the Company's 1996 Stock Incentive Plan.
Such shares may consist, in whole or in part, of authorized and unissued shares
or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
-----------------
determine the number of shares of Common Stock available for Awards, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to Awards, any shares of
Common Stock subject to any Awards that are forfeited, any Awards that otherwise
terminate without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Awards to a
particular Participant under applicable law, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
----------------------
of an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Agreement. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock, cash or other
property prior to (i) the listing of such shares on any stock exchange, NASDAQ
or other public market on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or
D-7
<PAGE>
advisable, and (iii) the satisfaction of any applicable withholding obligation
in order for the Company or an Affiliate to obtain a deduction with respect to
an Award. The Company may cause any certificate for any share of Common Stock to
be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in the Plan or as
the Committee may otherwise require. The Committee may require any person
receiving Common Stock to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
------------------
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued and transferred.
Upon exercise of the Award or any portion thereof, the Company will have a
reasonable time in which to issue the shares, and the Participant will not be
treated as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued and transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Reasonable Efforts to Register. The Company will register under the
------------------------------
Securities Act the Common Stock delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as such forms are available for
registration to the Company for this purpose. The Company will use its
reasonable efforts to cause the registration statement to become effective as
soon as possible and will file such supplements and amendments to the
registration statement as may be necessary to keep the registration statement in
effect until the earliest of (a) one year following the expiration of the
relevant period of the last Award outstanding, (b) the date the Company is no
longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Award. The
Company may delay the foregoing obligation if the Committee reasonably
determines that any such registration would materially and adversely affect the
Company's interests or if there is no material benefit to Participants.
4.6 Adjustments. In the event of a stock dividend, stock split,
-----------
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the
D-8
<PAGE>
Committee may adjust or substitute, as the case may be, the number of shares of
Common Stock available for Awards under this Plan, the number of shares of
Common Stock covered by outstanding Awards, the exercise price per share of
Common Stock covered by outstanding Awards, the exercise price per share of
outstanding Options, and any other characteristics or terms of the Awards as the
Committee shall deem necessary or appropriate to reflect equitably the effects
of such changes to the Participants; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated by rounding to the
next lower whole number of shares with appropriate payment for such fractional
share as shall reasonably be determined by the Committee.
4.7 Limited Transfer During Offering. In the event there is an effective
---------------------------------
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an Award.
ARTICLE V
---------
OPTIONS
-------
5.1 Eligibility. Each Director shall be granted Options to purchase
-----------
shares of Common Stock as provided herein.
5.2 Grant and Exercise. Each person who is a Director shall become a
------------------
Participant and shall, on the date Commercial Intertech Corp. distributes the
common stock of the Company to the holders of Commercial Intertech Corp. (if he
or she is a Director on such date) and on each annual stockholders' meeting (or
such other annual date as selected by the Committee) thereafter (if he or she is
a Director on such date) beginning in calendar year 1997 for as long as such
person is a Director, without further action by the Board or the Committee, be
granted an Option to purchase 1,000 shares of Common Stock. If any Director is
required to retire pursuant to the policies of the Board during the 12-month
period beginning on any Grant Date, or if the Director has notified the Board
that he or she intends to resign for any reason during the 12-month period
beginning on any Grant Date, said Director shall instead be granted on the
relevant Grant Date an Option to purchase the number of shares of Common Stock
equal to (i) 1,000 multiplied by (ii) a fraction, the numerator of which is the
number of full calendar months the Director will serve during the period
beginning on the Grant Date and ending on the Director's last date of service
and the denominator of which is 12. If after 1996, a Director is appointed to
the Board effective on any date other than the date of the annual stockholders'
meeting, said Director shall automatically be granted on the Grant Date he or
she joined the Board an Option to purchase the number of shares of Common Stock
equal to (i) 1,000 multiplied by (ii) a fraction, the numerator of which is the
number of full months such Director will serve on the Board during the period
beginning on the date he or she joins the Board and ending on the date of the
next following annual
D-9
<PAGE>
stockholders' meeting and the denominator of which is 12. If the number of
shares of Common Stock available to grant under the Plan on a scheduled date of
grant is insufficient to make all automatic grants required to be made pursuant
to the Plan on such date, then each eligible Director shall receive an Option to
purchase a pro rata number of the remaining shares of Common Stock available
under the Plan; provided further, however, that if such proration results in
fractional shares of Common Stock, then such Option shall be rounded down to the
nearest number of whole shares of Common Stock. If there is no whole number of
shares remaining to be granted, then no grants shall be made under the Plan.
Each Option granted under the Plan shall be evidenced by an Agreement, in a form
approved by the Committee, which shall embody the terms and conditions of such
Option and which shall be subject to the express terms and conditions set forth
in the Plan. Such Agreement shall become effective upon execution by the
Participant.
5.3 Terms and Conditions. Options shall be subject to such terms and
--------------------
conditions as shall be determined by the Committee, including in each case the
following:
(a) Option Period. The Option Period of each Option shall be ten (10)
-------------
years unless otherwise provided by the Committee.
(b) Option Price. The Option Price per share of the Common Stock
-------------
purchasable under an Option shall be the Fair Market Value as of the Grant
Date unless otherwise provided by the Committee.
(c) Exercisability. Unless otherwise specified in an Agreement, and
--------------
subject to the provisions of Section 9.3, Options granted thereafter shall
become exercisable on the first anniversary of the Grant Date. An Option
only shall be exercisable during the Option Period.
(d) Method of Exercise. Subject to the provisions of this Article V,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Except when waived by the Committee, such notice shall be
accompanied by payment in full of the purchase price by cash or check or
such other form of payment as the Company may accept. If approved by the
Committee (including approval at the time of exercise), payment in full or
in part may also be made (i) by delivering Common Stock already owned by
the Participant having a total Fair Market Value on the date of such
delivery equal to the Option Price; (ii) by the execution and delivery of a
note or other evidence of indebtedness (and any security agreement
thereunder) satisfactory to the Committee; (iii) by authorizing the Company
to retain shares of Common Stock which would otherwise be issuable upon
exercise of the Option having a total Fair Market Value on the date of
delivery equal to the Option Price; (iv) by the delivery of cash or the
extension of credit by a broker-dealer to whom the Participant has
submitted a notice of exercise or otherwise
D-10
<PAGE>
indicated an intent to exercise an Option (in accordance with Part 220,
Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); (v) by certifying ownership of shares of Common Stock
owned by the Participant to the satisfaction of the Committee for later
delivery to the Company as specified by the Committee; or (vi) by any
combination of the foregoing or by any other method permitted by the
Committee.
(e) Non-transferability of Options. Except as provided herein or in
------------------------------
an Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution,
and all Options shall be exercisable during the Participant's lifetime only
by the Participant. If and to the extent transferability is permitted by
Rule 16b-3 and except as otherwise provided herein or by an Agreement,
every Option granted hereunder shall be freely transferable, but only if
such transfer does not result in liability under Section 16 of the Exchange
Act to the Participant or other Participants and is consistent with
registration of the Option and sale of Common Stock on Form S-8 (or a
successor form) or the Committee's waiver of such condition.
5.4 Termination. Unless otherwise provided in an Agreement or determined
-----------
by the Committee, if a Participant ceases to be a Director due to death, any
unexpired and unexercised Stock Option held by such Participant shall thereafter
be fully exercisable for a period of one (1) year following the date of the
appointment of a Representative (or such other period or no period as the
Committee may specify) or until the expiration of the Option Period, whichever
period is the shorter. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant ceases to be a Director for any reason other
than death, any unexpired and unexercised Stock Option held by such Participant
shall thereafter be fully exercisable by the Participant for the period of one
(1) year (or such other period or no period as the Committee may specify)
immediately following the date the Participant ceases to be a Director or until
the expiration of the Option Period, whichever period is shorter, and the
Participant's death at any time following the date the Participant ceases to be
a Director shall not affect the foregoing.
ARTICLE VI
----------
RETAINER ELECTION
-----------------
6.1 Right to Elect
--------------
(a) A Director may have all or a portion of his or her Retainer
credited as Deferred Stock on his or her behalf. A Director who desires to
receive all or a portion of his or her Retainer in the form of Deferred
Stock shall file an Election by the relevant Notice Date pursuant to the
procedures of the Committee authorizing his or her Retainer otherwise
payable to be reduced and to be distributed in the form of Deferred Stock.
D-11
<PAGE>
(b) As of the relevant Valuation Date determined by the Committee,
the number of shares of Deferred Stock shall equal (1) the value of
Retainer subject to the Conversion Election multiplied by 1.20, divided by
(2) the Fair Market Value per share of the Common Stock on the effective
date of the Conversion Election.
6.2 Election Procedures. If properly executed and received by the
-------------------
Committee, an Election shall be effective only with respect to a Retainer paid
in the period to which the Election applies and only with respect to a Retainer
paid after the Notice Date for the Election. The Election shall be effective
only if received on or prior to the Notice Date to which the Election relates
and, shall only be revocable to the extent determined by the Committee. An
Election may be deemed to be continuing and applicable to calendar years after
the year in which the Election is filed, and may be continuing for such period
of time as determined by the Committee. The Committee may establish rules and
procedures governing when an Election will be effective and what Retainer will
be subject to the Election.
ARTICLE VII
-----------
PERFORMANCE SHARES
------------------
7.1 General. Subject to the terms and conditions described below,
-------
Performance Shares may be granted to Participants at any time and from time to
time as determined by the Committee. Each Director on the date of the Company's
initial public offering shall receive an Award for 5000 Performance Shares; and
each Director shall thereafter receive an Award for 1000 Performance Shares on
the date of every other (i.e., biannual) annual stockholders' meeting (or such
other annual date selected by the Committee) beginning with calendar year 1997
(or such later year as determined by the Committee).
7.2 Price. The purchase price for Performance Shares shall be zero unless
-----
otherwise specified by the Committee.
7.3 Performance Share Agreement. Prior to the beginning of the applicable
---------------------------
Performance Period (as defined below), subject to the provisions of this Plan,
all the terms and conditions of an award of Performance Shares shall be
determined by the Committee in its discretion and shall be confirmed by a
Performance Share Award Agreement which shall be executed by the Company and the
Participant.
7.4 Performance Periods. Unless otherwise determined by the Committee,
-------------------
any time period (the "Performance Period") relating to a Performance Share award
shall be at least two years in length.
D-12
<PAGE>
7.5 Performance Goals. Performance Shares shall be earned based upon the
-----------------
financial performance of the Company or an operating group of the Company during
a Performance Period. Prior to the beginning of the applicable Performance
Period, the Committee will establish in writing targets for the Company (and/or
an operating group of the Company, if applicable) over the Performance Period
("Performance Goals"), which shall be based on any of the following performance
criteria, either alone or in any combination, and on either a consolidated or
business unit level, as the Committee may determine: sales, net asset turnover,
earnings per share, cash flow, cash flow from operations, operating profit or
income, net income, operating margin, net income margin, return on net assets,
return on total assets, return on common equity, return on total capital, and
total shareholder return. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items as the Committee may specify; extraordinary, unusual
or nonrecurring items; effects of accounting changes; effects of financing
activities (e.g., effect on earnings per share of issuance of convertible debt
securities); expenses for restructuring or productivity initiatives; other non-
operating items; spending for acquisitions; effects of divestitures; and effects
of litigation activities and settlements. Any such performance criterion or
combination of such criteria may apply to the Participant'' Award opportunity in
its entirety or to any designated portion or portions of the Award opportunity,
as the Committee may specify. Unless the Committee determines otherwise for any
Performance Period, extraordinary items, such as capital gains and losses, which
affect any performance criterion applicable to the Award (including but not
limited to the criterion of net income) shall be excluded or included in
determining the extent to which the corresponding performance goal has been
achieved, whichever will produce the greater Award. The Performance Goals may
vary for different Performance Periods and need not be the same for each
Participant receiving an Award for a Performance Period. The Committee may, in
its discretion, vary the terms and conditions of any Performance Share Award,
including, without limitation, the Performance Period and Performance Goals.
7.6 Earning of Performance Shares. After the applicable Performance
-----------------------------
Period shall have ended, the Committee shall determine the extent to which the
established Performance Goals have been achieved. Subsequently, each recipient
of Performance Shares shall be entitled to receive or retain the number of
Performance Shares under the Award, if any, earned by the Participant over the
Performance Period. A Participant may earn more or less than the number of
Performance Shares originally awarded, or no Performance Shares at all.
Performance Shares shall be paid in the form of Company Stock. Unrestricted
certificates representing such number of shares of Stock as equals the number of
Performance Shares earned under the Award shall be delivered to the Participant
as soon as practicable after the end of the applicable Performance Period.
Participants shall also be entitled to any dividends or other distributions that
have been or would have been paid or earned in respect of such shares of Common
Stock had such shares been outstanding during the period from the initial Award
date to the final payout on the Performance Shares, and may be paid in the form
of Common Stock. Unless
D-13
<PAGE>
otherwise provided, in its discretion, by the Committee, any such dividends or
other distributions shall not bear interest.
7.7 Termination of Service as a Director. Unless otherwise determined by
------------------------------------
the Committee, in the event the status of a Participant as a Director is
terminated by reason of death or Disability during a Performance Period, the
Participant shall receive a prorated payout with respect to the Performance
Shares relating to such Performance Period. The prorated payout shall be
determined by the Committee, in its sole discretion, and shall be based upon the
length of time that the Participant held the Performance Shares during the
Performance Period and based upon the achievement of the established Performance
Goals. Distribution of earned Performance Shares shall be made at the same time
payments are made to Participants whose service as a Director does not terminate
during the applicable Performance Period. In the event that a Participant ceases
to be a Director for any reason other than death or Disability, all Performance
Shares shall be forfeited by the Participant to the Company, unless otherwise
determined by the Committee.
7.8 Non-Transferability. Except as provided in an Agreement, Performance
-------------------
Shares may not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, a Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant, the Participant's legal
Representative.
ARTICLE VIII
------------
DEFERRED STOCK
--------------
8.1 General. The Committee shall have authority to grant Deferred Stock
-------
under this Plan at any time or from time to time, including in connection with a
Conversion Election. Shares of Deferred Stock may be awarded either alone or in
addition to other Awards granted under this Plan. The Committee shall determine
the persons to whom and the time or times at which Deferred Stock will be
awarded, the number of shares of Deferred Stock to be awarded to any
Participant, the duration of the period (the "Deferral Period") prior to which
the Common Stock will be delivered, and the conditions under which receipt of
the Common Stock will be deferred and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Deferred Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate, including a division or department of the Company or an
Affiliate, for or within which the Participant is primarily employed or upon
such other factors or criteria as the Committee shall determine. The provisions
of Deferred Stock Awards need not be the same with respect to any Participant.
D-14
<PAGE>
8.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
--------------------
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
------------------------------
Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
margined, transferred, pledged or otherwise encumbered during the Deferral
Period. At the expiration of the Deferral Period (or Elective Deferral
Period as defined in Section 8.2(e), where applicable), the Committee shall
deliver Common Stock to the Participant for the shares covered by the
Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
------
to this Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
--------
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant ceases to be a Director
during the Deferral Period due to death or Disability, the restrictions
shall lapse and the Participant shall be fully vested in the Deferred Stock
and shares of Common Stock shall be delivered to the Participant. Unless
otherwise provided in an Agreement or determined by the Committee, upon a
Participant's ceasing to be a Director for any reason during the Deferral
Period other than death or Disability, the rights to the shares still
covered by the Award shall be forfeited by the Participant, except the
Committee shall have the discretion to waive in whole or in part any or all
remaining deferral limitations with respect to any or all of such
Participant's Deferred Stock.
(e) Election. A Participant may elect to further defer receipt of the
--------
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at one (1) year prior to completion of the Deferral Period for the
Award.
D-15
<PAGE>
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 Amendments and Termination. The Board may amend, alter or discontinue
--------------------------
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3, or (c) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement. To the extent required
by law and notwithstanding the foregoing, the Plan may not be amended more than
once every six (6) months to change the Plan provisions listed in section
(c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in the Code or
Rule 16b-3.
The Committee may amend, alter or discontinue the Plan or an Award at any
time on the same conditions and limitations (and exceptions to limitations) as
applies to the Board's authority to amend the Plan and further subject to any
approval or limitations the Board may impose.
The Board shall have authority to amend the Plan to take into account
changes in law and tax and accounting rules, as well as other developments, and
to grant Awards which qualify for beneficial treatment under such rules without
stockholder approval. Notwithstanding anything in the Plan or an Agreement to
the contrary, if any right under this Plan or an Agreement would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the Board or
the Committee may modify or adjust the right so that pooling of interest
accounting is available.
9.2 General Provisions.
------------------
(a) Representation. The Committee may require each person purchasing
---------------
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof in violation of the Securities Act. The
certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
(b) Withholding. If determined to be required to protect the Company,
-----------
no later than the date as of which an amount first becomes includable in
the gross income of the Participant for Federal income tax purposes with
respect to any Option, the Participant shall pay to the Company (or other
entity identified by the Committee), or make arrangements satisfactory to
the Company or other entity
D-16
<PAGE>
identified by the Committee regarding the payment of, any Federal, state,
local or foreign taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common
Stock that is part of the Option that gives rise to the withholding
requirement, provided that any applicable requirements under Section 16 of
the Exchange Act are satisfied. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.
(c) Controlling Law. The Plan and all Awards made and actions taken
---------------
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law). The
Plan shall be construed to comply with all applicable law, and to avoid
liability to the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(d) Offset. Any amounts owed to the Company or an Affiliate by the
------
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under the Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under the Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(e) Fail-Safe. With respect to persons subject to Section 16 of the
---------
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3). To the extent any
provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not
include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated
therein, such provision shall be deemed to be incorporated by reference
into the Plan with respect to Participants subject to Section 16.
(f) Right to Capitalize. The grant of an Award shall in no way affect
-------------------
the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidation,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
9.3 Special Provisions Regarding a Change in Control. Notwithstanding any
------------------------------------------------
other provision of the Plan to the contrary, unless otherwise provided in an
Agreement, in the event of a Change in Control:
D-17
<PAGE>
(a) Any Stock Options outstanding as of the date of such Change in
Control and not then exercisable shall become fully exercisable to the full
extent of the original grant;
(b) Any restrictions or deferrals applicable to Deferred Stock shall
lapse, and such Award shall become free of all restrictions and become
fully vested and transferable to the full extent of the original grant;
(c) Any Performance Goal or other condition with respect to any
Performance Shares shall be deemed to have been satisfied in full, and the
Award shall be fully distributable;
(d) The Committee shall have full discretion, notwithstanding
anything herein or in an Agreement to the contrary, to do any or all of the
following with respect to an outstanding Award:
(1) To cause any Award to be cancelled, provided notice of at
least 15 days thereof is provided before the date of
cancellation;
(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to make
equitable adjustment with respect thereto;
(3) To grant the Participant by giving notice during a pre-set
period to surrender all or part of an Award to the Company
and to receive cash in an amount equal to the amount by which
the "Change of Control Price" (as defined in Section 9.4(c)
per share of Common Stock on the date of such election shall
exceed the amount which the Participant must pay to exercise
the Award per share of Common Stock under the Award (the
"Spread") multiplied by the number of shares of Common Stock
granted under the Award;
(4) To require the assumption of the obligation of the Company
under the Plan subject to appropriate adjustment; and
(5) To take any other action the Committee determines to take.
9.4 For purposes of this Section, "Change in Control Price" means the
higher of (i) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on NASDAQ during the sixty (60) day period prior to and including the date of
a Change of Control, or (ii) if the Change in Control is the result of a
corporate transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a corporate transaction.
D-18
<PAGE>
To the extent that the consideration paid in any such transaction described
above consists all or in part of securities or other non-cash consideration, the
value of such securities or other non-cash consideration shall be determined in
the sole discretion of the Committee.
9.5 Awards in Substitution for Awards Granted by Other Corporations.
---------------------------------------------------------------
Awards may be granted under this Plan from time to time in substitution for
awards held by Directors in respect of other plans of other entities. The terms
and conditions of the Awards so granted may vary from the terms and conditions
set forth in this Plan at the time of such grant as the majority of the members
of the Committee may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.
9.6 Delay. If at the time, the Participant is subject to "short-swing"
-----
liability under Section 16 of the Exchange Act, any time period provided for
under the Plan, to the extent necessary to avoid the imposition of liability,
shall be suspended and delayed during the period the Participant would be
subject to such liability.
9.7 Headings. The headings contained in the Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of the Plan.
9.8 Severability. If any provision of the Plan shall for any reason be
------------
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and the Plan shall be construed as if
such invalid or unenforceable provision were omitted.
9.9 Successors and Assigns. The Plan shall inure to the benefit of and be
----------------------
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
9.10 Entire Agreement. The Plan and the Agreement constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of the Plan shall control.
Executed as of August 28, 1996.
CUNO INCORPORATED
By: /s/ Paul J. Powers
--------------------------
D-19
<PAGE>
CUNO INCORPORATED
400 Research Parkway
Meriden, Connecticut 06450
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS, MARCH 25, 1999
The undersigned hereby appoints Paul J. Powers, Mark G. Kachur, and Frederick
C. Flynn, Jr., and each or any of them, attorneys and proxies with full power of
substitution, to represent the undersigned and to vote all shares of stock of
CUNO Incorporated which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of CUNO Incorporated to be held at the Radisson Hotel &
Conference Center, 100 Berlin Road, Cromwell, Connecticut on Thursday, March 25,
1999, at 10:00 a.m., or any adjournments or postponements thereof, upon all
matters as set forth in the Notice of Annual Meeting and Proxy Statement,
receipt of which is hereby acknowledged.
(Continued and to be signed and dated on other side)
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
Directions to the Radisson
Traveling North: Interstate 91N to exit 21. Turn left.
Traveling South: Interstate 91S to exit 21. Turn left.
Or (Map is inserted here)
Traveling East: I-84 to Exit 27 to Route 691E
(Meriden/Middletown) to I-91N. Take exit 21. Turn left.
Traveling West: I-84 to Hartford Interchange to I-91S
to exit 21. Turn left.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED BELOW, OR IF RETURNED EXECUTED WITH NO
DIRECTION GIVEN, WILL BE VOTED FOR THE ELECTION OF ALL OF THE NOMINEES AS
DIRECTORS, AND FOR RATIFICATION OF ERNST & YOUNG LLP AS AUDITORS.
Please mark [X]
your votes as
indicated in
this example
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS Nominees: Frederick C. Flynn, Jr., The Board of Directors recommends a vote FOR
C. Edward Midgley, approval of the amendment.
Paul J. Powers, and
David L. Swift
</TABLE>
<TABLE>
<S> <C> <C> <C>
FOR all nominees WITHHOLD The Board of Directors recommends a vote 2. APPROVE CUNO INCORPORATED 1998 STOCK INCEN-
listed to the right AUTHORITY FOR the election of all the nominees as TIVE PLAN-FIRST AMENDMENT
except as marked to vote for all directors. If you wish to withhold authority
(to the contrary) nominees listed to vote for any individual nominee, write that
to the right nominee's name in the space provided below.
FOR AGAINST ABSTAIN
[ ] [ ] ----------------------------------------- [ ] [ ] [ ]
The Board of Directors recommends a The Board of Directors recommends a vote FOR 5. IN THEIR DISCRETION, THE PROXIES ARE AUTHO-
vote FOR approval of the amendment. the approval of the auditors. RIZED TO VOTE UPON SUCH OTHER BUSINESS AS
3. APPROVE NON-EMPLOYEE DIRECTORS' 4. RATIFY SELECTION OF ERNST & YOUNG LLP AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
STOCK OPTION PLAN-FIRST AMENDMENT INDEPENDENT AUDITORS ADJOURNMENTS OR POSTPONEMENTS THEREOF.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE
Dated: , 1999
-------------------------------
-------------------------------
-------------------------------
Signature of Stockholder(s)
THIS PROXY SHOULD BE SIGNED EXACTLY AS NAME
APPEARS HEREON. Executors, administrators,
trustees, attorneys, etc., should give full
title as such. If the signer is a
corporation or partnership, please sign
full corporate or partnership name by duly
authorized officer.
</TABLE>
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
Annual Meeting
of
Shareholders
of
CUNO INCORPORATED
March 25, 1999
at
Radisson Hotel & Conference Center
100 Berlin Road, Cromwell, Connecticut
beginning at 10:00 a.m.
