<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999 Commission file number 000-21109
</TABLE>
CUNO INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-1159240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 Research Parkway, Meriden, Connecticut 06450
(Address of principal executive offices) (Zip Code)
</TABLE>
(203) 237-5541
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, .001 Par Value -- 16,164,745 shares as of January 31, 1999.
<PAGE> 2
CUNO INCORPORATED
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income -- Three months ended January 31, 1999 and 1998 1
Consolidated Balance Sheets - January 31, 1999 and October 31, 1998 2
Consolidated Statements of Cash Flows - Three months ended January 31, 1999 and 1998 3
Notes to Unaudited Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 6
Part II. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE> 3
CUNO INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 50,626 $ 44,020
Less costs and expenses:
Cost of products sold 30,760 25,057
Selling, general and administrative expenses 14,320 12,346
Research, development and engineering 2,852 2,815
------------ ------------
47,932 40,218
------------ ------------
Operating income 2,694 3,802
Nonoperating income (expense):
Interest expense (358) (213)
Other income, net 169 306
------------ ------------
(189) 93
------------ ------------
Income before income taxes 2,505 3,895
Provision for income taxes 917 1,362
------------ ------------
Net income $ 1,588 $ 2,533
============ ============
Basic earnings per common share $ 0.10 $ 0.16
Diluted earnings per common share $ 0.10 $ 0.16
Basic shares outstanding 16,034,555 15,850,480
Diluted shares outstanding 16,199,556 16,109,631
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-1-
<PAGE> 4
CUNO INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,041 $ 4,433
Accounts receivable, less allowances for
doubtful accounts of $1,017 and $1,179, respectively 42,176 45,963
Inventories 25,876 27,646
Deferred income taxes 6,843 7,420
Prepaid expenses and other current assets 3,283 2,550
--------- ---------
Total current assets 81,219 88,012
Noncurrent assets
Deferred income taxes 2,016 2,016
Intangible assets, net 22,043 22,715
Pension intangible asset 615 467
Other noncurrent assets 2,087 2,284
Property, plant and equipment, net 56,783 56,072
--------- ---------
Total assets $ 164,763 $ 171,566
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loans $ 17,429 $ 16,955
Accounts payable 15,034 15,655
Accrued payroll and related taxes 7,113 8,476
Other accrued expenses 7,618 9,032
Accrued income taxes -- 293
Current portion of long-term debt 3,229 6,437
--------- ---------
Total current liabilities 50,423 56,848
Noncurrent liabilities
Long-term debt, less current portion 14,838 15,437
Deferred income taxes 3,679 3,671
Retirement benefits 5,817 5,309
--------- ---------
Total noncurrent liabilities 24,334 24,417
Stockholders' equity
Preferred stock, $.001 par value; 2,000,000 shares
authorized, no shares issued -- --
Common Stock, $.001 par value; 50,000,000 shares authorized,
16,164,745 and 16,162,661 shares issued and outstanding
(excluding 4,328 and 4,328 shares in treasury) 16 16
Additional paid-in-capital 37,801 37,780
Unearned compensation (2,429) (2,742)
Accumulated other comprehensive income 954 3,171
Retained earnings 53,664 52,076
--------- ---------
Total stockholders' equity 90,006 90,301
--------- ---------
Total liabilities and stockholders' equity $ 164,763 $ 171,566
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-2-
<PAGE> 5
CUNO INCORPORATED
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,588 $ 2,533
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,054 1,822
Noncash compensation recognized under employee stock plans 240 452
Gain on sale of property, plant and equipment (1) (303)
Pension costs in excess of funding 427 321
Deferred income taxes 520 229
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 2,660 121
Inventories 792 (872)
Prepaid expenses and other current assets (561) (1,086)
Accounts payable and accrued expenses (2,485) (3,274)
Accrued income taxes (510) 302
------- -------
Net cash provided by operating activities 4,724 245
INVESTING ACTIVITIES
Proceeds from sales of property, plant and equipment -- 481
Acquisition of companies, net of cash acquired -- (2,209)
Capital expenditures (3,085) (1,777)
------- -------
Net cash used for investing activities (3,085) (3,505)
FINANCING ACTIVITIES
Proceeds from long-term debt 1,600 3,892
Principal payments on long-term debt (5,347) (754)
Net borrowings under bank loans 658 1,078
------- -------
Net cash (used for) provided by financing activities (3,089) 4,216
Effect of exchange rate changes on cash and cash equivalents 58 (164)
------- -------
Net change in cash and cash equivalents (1,392) 792
Cash and cash equivalents -- beginning of period 4,433 3,416
------- -------
Cash and cash equivalents -- end of period $ 3,041 $ 4,208
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
-3-
<PAGE> 6
CUNO INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
CUNO Incorporated (the "Company" or "CUNO") designs, manufactures and
markets a comprehensive line of filtration products for the separation,
clarification and purification of liquids and gases. The Company's products,
which include proprietary depth filters and semi-permeable membrane filters, are
sold in the healthcare, fluid processing and potable water markets throughout
the world.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended January 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending October 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended October 31, 1998.
In connection with the adoption of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", certain reclassifications
have been made to the prior year amounts to conform with the current
presentation.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
NUMERATOR:
Net income $ 1,588,000 $ 2,533,000
============ ============
DENOMINATORS:
Weighted average shares outstanding 16,168,961 16,057,216
Issued but unearned performance shares (91,553) (180,155)
Issued but unearned restricted shares (42,853) (26,581)
------------ ------------
DENOMINATOR FOR BASIC EARNINGS PER SHARE 16,034,555 15,850,480
============ ============
Weighted average shares outstanding 16,168,961 16,057,216
Effect of dilutive employee stock options 30,595 52,415
------------ ------------
DENOMINATOR FOR DILUTED EARNINGS PER SHARE 16,199,556 16,109,631
============ ============
Basic earnings per share $ 0.10 $ 0.16
Diluted earnings per share $ 0.10 $ 0.16
</TABLE>
-4-
<PAGE> 7
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 9,809 11,139
Work-in-process 3,152 3,703
Finished goods 12,915 12,804
------- -------
$25,876 $27,646
======= =======
</TABLE>
Inventories are stated at the lower of cost or market. Inventories in
the United States are primarily valued by the last-in, first-out (LIFO) cost
method. The method used for all other inventories is first-in, first-out (FIFO).
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many factors beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
NOTE 4 - NEW ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" effective November 1, 1998. This Statement
requires that all components of comprehensive income and total comprehensive
income be reported and that changes be shown in a financial statement displayed
with the same prominence as other financial statements. The Company has elected
to disclose this information in its Statement of Stockholders' Equity. Total
comprehensive income (loss) was comprised of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 1,588 $ 2,533
Foreign currency translation adjustments (2,217) (1,110)
------- -------
Total comprehensive (loss) income $ (629) $ 1,423
======= =======
</TABLE>
-5-
<PAGE> 8
NOTE 5 - OTHER INCOME, NET
Other income, net as reported in the accompanying Consolidated
Statements of Income consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Interest income $ 45 $ 33
Exchange gains 213 94
Gain on sale of property, plant and equipment 1 303
Other expenses (90) (124)
----- -----
$ 169 $ 306
===== =====
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTH PERIOD ENDED JANUARY 31, 1999 VS. THREE MONTH PERIOD ENDED JANUARY
31, 1998
NET SALES
The Company had net sales of $50.6 million in the first quarter of
fiscal 1999 representing a 15.0 percent increase over 1998's first quarter sales
of $44.0 million. Currency values had an immaterial effect on overseas net sales
(quarter over quarter) when translated from local currency into US dollars.
Sales from US operations increased $5.9 million or 26.6 percent led by
a strong performance in the Water Group. The Water Group's recently introduced
range of new appliance filters designed to target the OEM market, as well as the
purchase of Chemical Engineering Corporation, a manufacturer of water treatment
equipment in March 1998, are primarily responsible for the increase. Sales from
overseas operations increased $0.7 million or 3.1 percent. Local currency sales
in Europe, Australia and Brazil increased 4.6 percent, 16.9 percent and 12.0
percent, respectively. The continuing depressed economies in the Asian region
have reduced sales in Japan and Singapore as compared to the same period in the
prior year.
GROSS PROFIT
The Company's gross profit increased $0.9 million to $19.9 million in
the first quarter of 1999 from $19.0 million in the first quarter of 1998. Gross
profit as a percentage of net sales decreased to 39.2 percent from 43.1 percent.
This decrease is attributable to a higher mix of Water Group sales that
generally carry a lower gross margin than sales to either the healthcare or
fluid processing markets; start-up costs primarily associated with a new product
in the Water Group; and, higher manufacturing costs in the US membrane operation
associated with the introduction of new manufacturing processes. Additionally,
pricing pressure on certain products sold in Japan also contributed to the
decline in gross margin.
-6-
<PAGE> 9
OPERATING EXPENSES
Selling, general, and administrative expenses increased by $2.0 million
in the first quarter of 1999 over the fist quarter of 1998, representing a 16.0
percent increase. Approximately $1.0 million of the increase relates to normal
operating expenses attributed to companies acquired subsequent to the first
quarter of 1998, but prior to the first quarter of 1999. Results of operations
for acquired companies are included in the accompanying financial statements
from the date of acquisition. Research, development and engineering expenses
were relatively flat quarter over quarter.
OPERATING INCOME
As a result of the above, operating income decreased $1.1 million, or
29.1 percent, to $2.7 million or 5.3 percent of sales in the first quarter of
1999 as compared to $3.8 million or 8.6 percent of sales in the first quarter of
1998.
NONOPERATING ACTIVITY
Interest expense increased to $0.4 million in the first quarter of 1999
from $0.2 million in the first quarter of fiscal 1998. The increase in interest
expense primarily results from an increase in debt associated with acquisitions
and the expansion of the Company's manufacturing capabilities throughout fiscal
year 1998. As detailed in Note 5 to the condensed financial statements, other
income in the first quarter of 1998 benefited from the sale of a tract of land
in Australia, which was unrelated to the business, resulting in a gain of $0.3
million.
INCOME TAXES
The Company's effective income tax rate for the first quarter of 1999
was 36.6% compared to 35.0% in the first quarter of 1998. The increase reflects
a change in the mix of income attributed to various countries and their taxing
authorities in which the Company does business.
FINANCIAL POSITION AND LIQUIDITY
The Company assesses its liquidity in terms of its ability to generate
cash to fund operating and investing activities. Of particular importance in the
management of liquidity are cash flows generated by operating activities,
capital expenditure levels and adequate bank financing alternatives.
The Company manages its worldwide cash requirements with consideration
of the cost effectiveness of the available funds from the many subsidiaries
through which it conducts its business. Management believes that its existing
cash position and available sources of liquidity are sufficient to meet current
and anticipated requirements for the foreseeable future.
-7-
<PAGE> 10
Set forth below is selected key cash flow data (in thousands of
dollars):
Source/(Use) of Cash
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by net income plus depreciation,
amortization and non-cash compensation $ 3,882 $ 4,807
Accounts receivable 2,660 121
Inventories 792 (872)
Net cash provided by operating activities 4,724 245
INVESTING ACTIVITIES:
Capital expenditures (3,085) (1,777)
Acquisition of companies, net of cash acquired -- (2,209)
FINANCING ACTIVITIES:
Net change in total debt (3,089) 4,216
</TABLE>
The net cash provided by net income plus depreciation, amortization and
non-cash compensation is an important measurement of cash generated from the
earnings process before significant non-cash charges. The decrease in net income
plus depreciation, amortization and non-cash compensation of $0.9 million
reflects the Company's reduced gross profit margin and increased selling,
general and administrative expenses as discussed previously above. Accounts
receivable were reduced $2.7 million during the first quarter of 1999 due
largely to a concentrated effort by management to improve collections worldwide.
Inventories were reduced $0.8 million in the first quarter of 1999 (vs. an
increase of $0.9 million in the first quarter of 1998) due to a reduction of
inventory in the Water Group which was built-up during the fourth quarter of
1998 to support the first quarter launch of new products.
Capital expenditures amounted to $3.1 million in the first quarter of
1999 which were primarily comprised of purchases of machinery and equipment.
During the first quarter of fiscal 1998, the Company completed two overseas
acquisitions -- a distribution business in Europe and a product line in
Australia which were comprised primarily of working capital -- for an aggregate
purchase price of $2.2 million. These acquisitions have been accounted for as
purchases and, accordingly, the results of their operations are included in the
Company's consolidated statements of operations from the date of acquisition.
Due largely to the Company's strong cash flows from operating
activities ($4.7 million) in the first quarter of 1999, the Company was able to
reduce its long-term debt, on a net basis, by $3.1 million.
OTHER MATTERS
BRAZILIAN REAL DEVALUATION
A significant devaluation in the Brazilian real took place late in the
Company's first quarter. The Company has a subsidiary located in Brazil which
accounted for approximately 7% of consolidated net sales in 1998. Although this
event had a minimal impact on this subsidiary's results of operations in the
-8-
<PAGE> 11
first quarter, any future effects on the business climate in the region are yet
to be determined. A significant portion of the products sold by the subsidiary
in Brazil are manufactured locally - this should help to minimize the impact of
the devaluation on future earnings. See "Market Risk Disclosures" below.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement requires that business
enterprises report in their footnotes certain revenue, expense, profit and asset
information by operating segment and other related disclosures. Operating
segments are components of an enterprise whose performance is regularly reviewed
by management. As required, the Company expects to adopt this standard in its
1999 fourth quarter reporting cycle.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". This statement does not change the measurement or recognition of
pension and other postretirement benefit plans, but it does revise the
disclosure requirements. The adoption of this statement will have no impact on
the Company's consolidated results of operations, financial position or cash
flows. As required, the Company plans to adopt this statement in its 1999 fourth
quarter reporting cycle.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement requires all derivatives to be recorded on the balance sheet at fair
value and provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. The Company is studying
the application of this new statement. The adoption of this statement is not
expected to have a material impact on the consolidated results of operations,
financial position or cash flows. As required, the Company plans to adopt this
statement upon its applicable effective date in fiscal 2000.
COMPLIANCE WITH YEAR 2000
The Company has substantially completed its internal program to
remediate its Year 2000 requirements. It has completed the remediation of its
information technology systems and has made substantial progress in remediating
its non-information technology. All non-information technology remediation is
expected to be completed in the third quarter of 1999. The Company continues to
communicate with its suppliers, customers and other service providers to
determine the extent of the Company's exposure to the failure of third parties
to remediate their own Year 2000 needs.
The most likely worst case scenario would be that a failure by the
Company or one or more of its vendors or suppliers to adequately and timely
address the Year 2000 issue could interrupt manufacturing of the Company's
products for an indeterminable period of time. The Company is identifying
alternative vendors should a vendor's ability to meet the Company's raw material
and supply requirements be impacted by the Year 2000 issue. In conjunction with
this effort, the Company continuously monitors its action plans to address its
Year 2000 requirements, including contingencies to address unforeseen problems.
This is potentially a significant issue for most, if not all, companies, with
implications which can not be anticipated or predicted with any degree of
certainty.
The risk to CUNO resulting from the failure of the Company's own
information systems or third parties to attain Year 2000 readiness is similar to
other manufacturing firms and business enterprises. These risks include (1)
disruptions in information systems used for transaction processing, (2)
disruptions in factories and facilities used in the manufacturing process, (3)
disruptions in the supply of raw materials
-9-
<PAGE> 12
and other components from major vendors, and (4) disruptions in the shipment of
manufactured goods to major customers due to their Year 2000 noncompliance.
The Company is expensing software maintenance or modification costs as
incurred. The costs of new leased software is being expensed over the term of
the lease while items of a capital nature are being depreciated over their
estimated useful lives. For expenditures related to Year 2000 to date, the
Company has expensed approximately $50,000 in maintenance or modification costs
(excluding operating lease payments for new systems implemented as part of the
spin-off) and capitalized approximately $100,000. Based on information currently
available, the total remaining maintenance or modification costs are not
expected to be material, while future purchases of a capital nature are expected
to be approximately $300,000.
The costs of this project and its completion date are based on
management's best estimates, which were derived from numerous assumptions about
future events, including the availability of certain resources, third party
remediation plans, and other factors. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
plans.
EUROPEAN ECONOMIC AND MONETARY UNION
On January 1, 1999, the Euro became the official currency of the
European Economic and Monetary Union (the "Union"). Companies in the Union may
begin conducting their business operations in the new currency, however the
previous local currencies in those countries may continue to be used as legal
tender through January 1, 2002.
The Company has completed its plans and implemented its program to
accommodate the new currency. Software used by the Company at its European
facilities, as well as new software being implemented, is capable of handling
multi-currencies, including the Euro. As such, the Company is able to accept
customer or supplier orders in either the new Euro or the previous local
currency. The Company is addressing the Euro's impact on its operations (e.g.
banking, payroll processing, pricing, currency hedging requirements, etc.) The
estimated costs of required system modifications and other operational changes
are not expected to be material to the Company.
MARKET RISK DISCLOSURES
Other than the "Brazilian Real Devaluation" discussed previously above,
there have been no material changes in the information reported in the Company's
Form 10-K for the year ended October 31, 1998 under the "Market Risk
Disclosures" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
FORWARD LOOKING INFORMATION
The Company wants to provide stockholders and investors with more
meaningful and useful information and therefore, this quarterly report describes
the Company's belief regarding business conditions and the outlook for the
Company, which reflects currently available information. These forward looking
statements are subject to risks and uncertainties which, as described in
Management's Discussion and Analysis in the Company's Annual Report on Form 10-K
for the year ended October 31, 1998, could cause the Company's actual results or
performance to differ materially from those expressed herein. The Company
assumes no obligation to update the information contained in this quarterly
report.
-10-
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Documents filed as part of this report.
Exhibit 10 - Material Contracts
10.21 Termination and Change of Control Agreement - Frederick C.
Flynn, Jr. dated January 21, 1999
10.22 Ronald C. Drabik - Agreement and General Release
Exhibit 27. Financial Data Schedule (submitted electronically herewith)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter for which this 10-Q is
filed.
-11-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CUNO INCORPORATED
Date March 4, 1999
----------------------
By /s/ Frederick C. Flynn, Jr.
---------------------------
Frederick C. Flynn, Jr.
Senior Vice President -
Finance and Administration,
Chief Financial Officer,
Treasurer and Assistant Secretary
By /s/ Timothy B. Carney
---------------------------
Timothy B. Carney
Vice President, Controller,
and Assistant Secretary
-12-
<PAGE> 1
EXHIBIT 10.21
CUNO INCORPORATED
Termination and Change of Control Agreement for Corporate Officers
<PAGE> 2
CUNO INCORPORATED
1. Term and Application.......................................................1
2. Office and Duties..........................................................2
3. Salary and Annual Incentive Compensation...................................2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement...........................4
5. Termination of Employment..................................................5
6. Termination Due to Normal Retirement, Death, or Disability.................6
7. Termination of Employment for Reasons Other Than Normal
Retirement, Death, or Disability...........................................7
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period............9
9. Definitions Relating to Termination Events................................12
10. Excise Tax Gross-Up.......................................................16
11. Non-Competition and Non-Disclosure; Executive Cooperation.................19
12. Governing Law; Disputes; Arbitration......................................20
13. Miscellaneous.............................................................21
14. Indemnification...........................................................24
ii
<PAGE> 3
TERMINATION AND CHANGE OF CONTROL AGREEMENT
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between CUNO Incorporated, a Delaware corporation (the
"Company"), and Frederick C. Flynn, Jr. ("Executive") is and shall become
effective as of January 5, 1999 the ("Effective Date").
W I T N E S S E T H
After due consideration by the Board of Directors in meetings of the
Board of Directors held on January 21, 1999, the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control, and to provide the Executive with compensation and
benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Term and Application. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); provided, however, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than one
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no
1
<PAGE> 4
event shall any payment, right or benefit under the Employment Agreement be
reduced, eliminated or otherwise adversely affected by this Termination
Agreement. In no event shall Executive receive any payment, right or benefit
under both this Termination Agreement and the Employment Agreement with respect
to the same Date of Termination (as defined below).
2. Office and Duties.
(a) Generally. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period, it shall not be a violation
of the Employment Agreement or this Termination Agreement for the Executive to
(i) serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(iii) manage personal investments, so long as the activities listed in (i), (ii)
and (iii) do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Termination Agreement. It is expressly understood and agreed that, to the extent
that any activities have been conducted by the Executive prior to the Extension
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Extension Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Place of Employment. During the Extended Employment Period, the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Extension Date or any office or location less
than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
(a) Base Salary. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
2
<PAGE> 5
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) Annual Incentive Compensation. During the Extended Employment
Period, any annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives, including, without limitation, the
Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
least equal to the highest average of the Executive's annual incentive
compensation for any two (2) full fiscal years in the most recent five (5) full
fiscal years (annualized in the event that the Executive was not employed by the
Company for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) the ("Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
(a) Executive Compensation Plans. During the Extended Employment
Period, the compensation plans, practices, policies and programs, in the
aggregate, including without limitation the long-term incentive features of the
Company's stock option and award plans, shall provide Executive with benefits,
options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) Employee and Executive Benefit Plans. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate,
3
<PAGE> 6
shall provide Executive with benefits substantially no less favorable than those
provided by the Company to senior executives in similar capacities. During the
Extended Employment Period, in no event shall such plans, practices, policies
and programs provide the Executive with benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Extension Date or, if more favorable to the Executive,
those provided generally at any time after the Extension Date to other peer
executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Term of this Termination
Agreement. If the Company determines in good faith that the Disability of the
Executive has occurred during the Term of this Termination Agreement, it may
give to the Executive written notice in accordance with Section 13(d) of this
Termination Agreement of its intention to terminate the Executive's employment.
In such event, the Executive's Date of Termination is effective on the 30th day
after receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the thirty (30) days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
(b) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or disability, or due to his
4
<PAGE> 7
voluntary decision to retire on or after his Normal Retirement Date other than
for Good Reason, the Date of Termination shall be the date of death of the
Executive, the Disability Effective Date, or the date the Executive notifies the
Company that the Executive's employment will terminate, as the case may be.
Notwithstanding the foregoing, solely the transfer of an Executive to employment
with an affiliated company shall not constitute a termination of employment with
the Company.
6. Termination Due to Normal Retirement, Death, or Disability
Upon an Executive's Date of Termination due to his voluntary decision
to retire on or after his Normal Retirement Date (other than for Good Reason
during the Extended Employment Period), death or Disability, the Term of this
Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
provided, however, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive the following:
(a) The unpaid portion of Annual Base Salary at the rate payable, in
accordance with section 3(a) hereof, at the Date of Termination, pro rated
through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at the Date
of Termination under any compensation and benefits plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, programs, and arrangements (and agreements
and documents thereunder) pursuant to which such compensation and benefits were
granted, including any supplemental retirement plan in which the Executive may
have participated;
(c) In lieu of any annual incentive compensation under Section 3(b)
for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans and programs
and the agreements and other documents thereunder pursuant to which such stock
options were granted; and
5
<PAGE> 8
(e) If Executive's Date of Termination is due to Disability, for the
period extending from such Date of Termination until Executive reaches age 65,
Executive shall continue to participate in all employee benefit plans, programs,
and arrangements providing health, medical, and life insurance in which
Executive was participating immediately prior to the Date of Termination, the
terms of which allow Executive's continued participation, as if Executive had
continued in employment with the Company during such period or, if such plans,
programs, or arrangements do not allow Executive's continued participation, a
cash payment equivalent on an after-tax basis to the value of the additional
benefits Executive would have received under such employee benefit plans,
programs, and arrangements in which Executive was participating immediately
prior to the Date of Termination, as if Executive had received credit under such
plans, programs, and arrangements for service and age with the Company during
such period following Executive's Date of Termination, with such benefits
payable by the Company at the same times and in the same manner as such benefits
would have been received by Executive under such plans (it being understood that
the value of any insurance-provided benefits will be based on the premium cost
to Executive, which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; provided, however, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment for Reasons Other than Normal Retirement,
Death or Disability
(a) Termination by the Company for Cause and Termination by
Executive. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal Retirement Date, death or Disability, the Term will
immediately terminate, and all obligations of the Company under Sections 1
through 4 of this Termination Agreement will immediately cease; provided,
however, that subject to the provisions of Section 13(c), the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive the following:
(i) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 4(a) hereof, at
the Date of Termination, pro rated through such Date
of Termination, will be paid; and
6
<PAGE> 9
(ii) All vested, nonforfeitable amounts owing and accrued
at the Date of Termination under any compensation and
benefit plans, programs, and arrangements in which
Executive theretofore participated will be paid under
the terms and conditions of the plans, programs, and
arrangements (and agreements and documents
thereunder) pursuant to which such compensation and
benefits were granted, including any supplemental
retirement plan in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; provided, however, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) Termination by the Company Without Cause. Upon an Executive's Date
of termination by the Company prior to the Extension Date without Cause, the
Term will terminate and all obligations of the Company and Executive under
Sections 1 through 4 of this Termination Agreement will immediately cease;
provided, however, that subject to the provisions of Section 13(c) the Company
shall pay to the Executive (or his or her beneficiaries) and Executive (or his
or her beneficiaries) shall be entitled to receive within, or commencing within,
thirty (30) days after the Date of Termination, the following amounts:
(i) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid;
(ii) twenty-four (24) semi-monthly payments during a twelve
(12) consecutive month period equal to the Executive's
Annual Base Salary divided by twenty-four (24);
provided, however, notwithstanding anything to the
contrary in the Termination Agreement or in the
Employment Agreement, none of such amounts shall qualify
Executive for any incremental benefit under any plan or
program in which he has participated or continues to
participate;
(iii) stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise
governed, by the plans and programs and the agreements
and other documents thereunder pursuant to which such
stock options were granted; and
7
<PAGE> 10
(iv) all vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and
benefit plans, programs, and arrangements in which
Executive theretofore participated will be paid under
the terms and conditions of the plans, programs, and
arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were
granted, including any supplemental retirement plan in
which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; provided, however, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; provided,
however, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive the following:
(a) the Company shall pay to the Executive a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's Annual
Bonus paid or payable for the Company's
fiscal year in which occurs the Date of
Termination, assuming Executive and Company
satisfy all conditions to Executive's
receiving the full Annual Bonus at target
(and annualized for any fiscal year
consisting of less than twelve (12) full
months or during which the Executive was
employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
8
<PAGE> 11
(ii) the amount equal to three (3) times the sum
of (1) the Executive's Annual Base Salary
and (2) the Highest Annual Bonus. (Payment
of any amount under Section 8(a)(i) shall
not constitute a payment or discharge of the
Company's obligation under Section 8(a)(ii)
and vice versa);
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods,
9
<PAGE> 12
and otherwise governed, by the plans and programs (and the agreements and other
documents thereunder) pursuant to which such stock options or restricted stock
were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive is employed with another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For three
(3) years after the Executive's Date of Termination, or such longer period as
may be provided by the terms of the plan, the Company shall continue
tax-qualified defined contribution and supplemental retirement plan accruals for
the Executive, including participation and crediting of service, contributions
and compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated, or if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination,
a continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
10
<PAGE> 13
(f) for one (1) year after Executive's Date of Termination,
the provision of reasonable personal tax accounting and financial planning by a
firm chosen by Executive and reasonably acceptable to the Company;
(g) for three (3) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(h) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive.
9. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Termination Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein). For purposes of this
definition, "gross misconduct" shall mean (A) a felony conviction in a court of
law under applicable federal or state laws which results in material damage to
the Company or any of its subsidiaries or materially impairs the value of
Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which is
demonstrably and materially damaging to the Company or any of its subsidiaries,
including acts and omissions that constitute gross negligence in the performance
of Executive's duties under this Termination Agreement. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by a
majority affirmative vote of the membership of the Board of Directors of the
Company (the "Board") (excluding Executive, if he is then a member) at a meeting
of the Board called and held for such purpose (after giving Executive reasonable
notice specifying the nature of the grounds for such termination and not less
than 30 days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive was guilty of conduct which constitutes Cause as set forth in this
Section 9(a).
(b) "Change of Control." For the purpose of this Termination Agreement,
a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty percent
(20%) or more of either (A) the then-outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (B)
11
<PAGE> 14
the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly
from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a lender to
the Company pursuant to a debt restructuring of the Company,
or (E) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 9.
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each
case, unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than fifty
percent (50%) of, respectively, the then-outstanding shares
of common stock and the combined voting power of the 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
12
<PAGE> 15
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, twenty
percent (20%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) "Disability" means the failure of Executive to render and perform
the services required of him under this Termination Agreement, for a total of
180 days or more during any consecutive 12 month period, because of any physical
or mental incapacity or disability as determined by a physician or physicians
selected by the Company and reasonably acceptable to Executive, unless, within
30 days after Executive has received written notice from the Company of a
proposed Date of Termination due to such absence, Executive shall have returned
to the full performance of his duties hereunder and shall have presented to the
Company a written certificate of Executive's good health prepared by a physician
selected by Company and reasonably acceptable to Executive.
(d) "Extended Employment Period" shall mean the period commencing on
the Extension Date and ending on the third anniversary of such date.
(e) "Extension Date" shall mean the first date during the Term of this
Termination Agreement on which a Change of Control occurs. Anything in this
Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control, or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
13
<PAGE> 16
(f) "Good Reason." For purposes of this Termination Agreement, "Good
Reason" shall mean the occurrence of a Change of Control and following which but
not later than the third anniversary of the date of the Change of Control there
occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 2(a) of
this Termination Agreement, or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4 of this Termination Agreement or the
Employment Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 2(b)
hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any failure by the Company to perform any material obligation
under, or breach by the Company of any material provision of,
this Termination Agreement;
(v) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Termination Agreement; or
(vi) any failure by the Company to comply with and satisfy Section
12(b) of this Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "Normal Retirement Date." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or
her attainment of age sixty-five (65).
14
<PAGE> 17
10. Excise Tax Gross-Up.
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or could become subject to
the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-Up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
15
<PAGE> 18
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and (C)
to have otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to Executive or
otherwise realized as a benefit by Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment and
shall indemnify and hold Executive harmless in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment.
16
<PAGE> 19
The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings, and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of
17
<PAGE> 20
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by the Executive of
an amount advanced by the Company pursuant to this Section 10, the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of this Section
10) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to the
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-up Payment
required to be paid.
11. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the Board,
upon the Executive's Date of Termination for any reason, Executive will not, for
a period of one (1) year thereafter, acting alone or in conjunction with others,
directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business then
conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a). The Executive and the
Company agree that the value to be assigned to the obligations of the Executive
under this paragraph (a) is an amount equal to one hundred percent (100%) of the
Executive's Annual Base Salary and Recent Annual Bonus. Violation of Section
11(a) or (b) shall not require Executive to return any payment or benefit
previously distributed to Executive.
18
<PAGE> 21
(b) Non-Disclosure. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives of counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested: provided, however, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a condition
to receipt of the termination payments and benefits provided hereunder, that he
will execute a release agreement, in a form satisfactory to the Company,
releasing any and all claims arising out of Executive's employment (other than
claims made pursuant to any indemnities provided under the articles or by-laws
of the Company, under any directors or officers liability insurance policies
maintained by the Company or enforcement of this Termination Agreement).
(e) Survival. Notwithstanding any provision of this Termination
Agreement to the contrary, the provisions of this Section 11 shall survive the
termination or expiration of this Termination Agreement, shall be valid and
enforceable, and shall be a condition precedent to the Executive (or his or her
beneficiaries) receiving any amounts payable hereunder. The obligations of
Executive under this Section 11 and any comparable type of obligation under the
Employment Agreement are expressly conditioned upon Company's satisfaction of
its obligations to Executive under this Termination Agreement and the Employment
Agreement.
12. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Termination Agreement is governed by and is
to be construed, administered, and enforced in accordance with the laws of the
State of Connecticut, without regard to Connecticut conflicts of law principles,
except insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any
19
<PAGE> 22
applicable statute, rule, regulation, ordinance, or other principle of law, such
portion shall be deemed to be modified or altered to the extent necessary to
conform thereto or, if that is not possible, to be omitted from this Termination
Agreement. The invalidity of any such portion shall not affect the force,
effect, and validity of the remaining portion hereof. If any court determines
that any provision of Section 11 is unenforceable because of the duration or
geographic scope of such provision, it is the parties' intent that such court
shall have the power to modify the duration or geographic scope of such
provision, as the case may be, to the extent necessary to render the provision
enforceable and, in its modified form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights and Funding of
Obligations. On and after the Extension Date, all reasonable costs and expenses
(including fees and disbursements of counsel) incurred by Executive in seeking
to enforce rights pursuant to this Termination Agreement shall be paid on behalf
of or reimbursed to Executive promptly by the Company, whether or not Executive
is successful in asserting such rights; provided, however, that no reimbursement
shall be made of such expenses relating to any unsuccessful assertion of rights
if and to the extent that Executive's assertion of such rights was in bad faith
or frivolous, as determined by independent counsel mutually acceptable to
Executive and the Company and made without reference to or not related to a
Change of Control. Immediately prior to the Extension Date but not less than
five (5) days prior thereto, the Company agrees to maintain a minimum amount in
a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
13. Miscellaneous.
(a) Integration. This Termination Agreement modifies and supersedes
any and all prior agreements and understandings between the parties hereto with
respect to the employment of Executive by the Company and its subsidiaries,
except for the Employment Agreement and contracts relating to compensation under
executive compensation and employee benefit plans of the Company and only to the
extent enforceable. Subject to the rights, benefits and obligations provided for
in such executive compensation contracts and employee benefit plans of the
Company, this Termination Agreement and the Employment Agreement together
constitute the entire agreement among the parties with respect to the matters
herein provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
not be entitled to any payment, right or benefit under this Termination
Agreement which duplicates a payment, right or benefit received or receivable by
Executive under such prior agreements and understandings with the Company or
under any benefit or compensation plan of the Company.
20
<PAGE> 23
(b) Non-Transferability. Neither this Termination Agreement nor the
rights or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 13(c). The Company may assign this
Termination Agreement and the Company's rights and obligations hereunder, and
shall assign this Termination Agreement, to any Successor (as hereinafter
defined) which, by operation of law or otherwise continues to carry on
substantially the business of the Company prior to the event of succession, and
the Company shall, as a condition of the succession, require such Successor to
agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate (and
change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Termination Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
If to the Company: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: Secretary
With copies to: CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Attention: General Counsel
If to Executive: Mr. Frederick C. Flynn, Jr.
c/o CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under
21
<PAGE> 24
this Termination Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this Termination
Agreement shall not be deemed to render the remainder of this Termination
Agreement invalid.
(f) Headings. The headings of this Termination Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time to
require performance by any other party of any provision hereof or to resort to
any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation to Mitigate. Executive shall not be required to
seek other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination nor shall the amount of any payment hereunder be
reduced by any compensation earned by the Executive as a result of employment by
another employer; provided, however, that, to the extent Executive receives from
a subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by the
Company to Executive pursuant to this Termination Agreement shall not be subject
to offset, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others, other than with respect
to any amounts that are owed to the Company by Executive due to his receipt of
Company funds as a result of his fraudulent activity. The foregoing and other
provisions of this Termination Agreement notwithstanding, all payments to be
made to Executive under this Termination Agreement will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Termination Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
22
<PAGE> 25
14. Indemnification.
All rights to indemnification by the Company now existing in favor
of Executive as provided in the Company's Articles of Incorporation or Code of
Regulations or pursuant to other agreements in effect on or immediately prior to
the Extension Date shall continue in full force and effect from the Extension
Date (including all periods after the expiration of the Term), and the Company
shall also advance expenses for which indemnification may be ultimately claimed
as such expenses are incurred to the fullest extent permitted under applicable
law, subject to any requirement that Executive provide an undertaking to repay
such advances if it is ultimately determined that Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether Executive's conduct complies with the standards required
to be met as a condition of indemnification or advancement of expenses under
applicable law and the Company's Articles of Incorporation, Code of Regulations,
or other agreement shall be made by independent counsel mutually acceptable to
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Articles of Incorporation
or Code of Regulations or any agreement in any manner which adversely affects
the rights of Executive to indemnification thereunder. Any provision contained
herein notwithstanding, this Termination Agreement shall not limit or reduce any
rights of Executive to indemnification pursuant to applicable law. In addition,
the Company will maintain directors' and officers' liability insurance in effect
and covering acts and omissions of Executive, during the Term and for a period
of six years thereafter, on terms substantially no less favorable as those in
effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
CUNO Incorporated
By: /s/ John A. Tomich
Name: John A. Tomich
Title: Counsel and Secretary
FREDERICK C. FLYNN, JR.
/s/ Frederick C. Flynn
23
<PAGE> 1
Exhibit 10.22
January 4, 1999
Mr. Ronald C. Drabik
CUNO Incorporated
400 Research Parkway
Meriden, Connecticut 06450
Re: Agreement and General Release
Dear Ron:
This Agreement and General Release (the "Release") is made and entered
into by and between Ronald C. Drabik ("Executive") and CUNO Incorporated (the
"Company") as of January 4, 1999.
WHEREAS, the Executive and the Company desire to avoid litigation and
controversy and fully resolve and compromise any and all claims, charges,
actions, causes of action and disputed issues of law and fact that Executive
has, had, or may have against the Company, as of the date of this Release;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements set forth below, we agree as follows:
1. Separation Date. The Company accepts your resignation terminating
your employment with the Company effective January 4, 1999 (the "Separation
Date").
2. Payment of Earned Wages and Vacation Pay. No later than the next
regularly scheduled payday on or after the Separation Date, the Company will pay
you all wages earned through the Separation Date as well as for all unused
vacation days that accrued as of that date.
3. Consideration from the Company. In consideration for your releases
and covenants set forth in this Release, the Company agrees that upon the
expiration of the revocation period described in Paragraph 18 below and with no
revocation on your part of this Release, the Company will provide you with the
following, which you acknowledge is more than you would receive if you chose not
to sign this Release:
a. Severance pay at your current regular rate of pay, paid at
regular payroll intervals and subject to normal tax withholding
through January 4, 2000; provided, however, that you will not
earn or accrue any bonus, vacation pay, sick pay, pension or
retirement credit, or any other benefits during the period in
which you are receiving severance pay;
<PAGE> 2
b. Pursuant to the terms of Consolidated Omnibus Budget
Reconciliation Act (COBRA), you are eligible for and may elect
to continue health care coverage under the Company's group
health plan, payments for such health care coverage to be
provided at the Company's expense until January 4, 2000, and
thereafter at your expense;
c. Outplacement assistance with an acceptable executive
outplacement firm for twelve (12) months after the Separation
Date, or until you obtain other employment deemed comparable by
the Company, whichever occurs first, with the total cost to the
Company not to exceed $25,000.
d. 4,000 of your restricted shares of CUNO common stock will be
held by the Company until their vesting on July 8, 2001, at
which time, so long as you have not breached any term of this
Release, such shares will be distributed to you; the remaining
3,146 of your restricted shares of CUNO common stock will be
forfeited.
e. Your 10,000 Performance Shares granted on September 26, 1996,
shall be prorated based upon the financial performance of the
Company as of October 31, 1998, (two of the three-year
performance cycle), and the prorated earned Performance Shares
shall be held by the Company until a distribution is made to the
other 1996 grant participants who did not terminate prior to the
end of the three-year-performance period, with such Performance
Shares distributed to you so long as you are not in breach of
any term of this Release.
f. Your 6,500 vested Non-Qualified Stock Options, awarded under the
CUNO Incorporated 1996 Stock Incentive Plan, in which you were a
participant, shall remain exercisable pursuant to the terms of
the Plan until April 4, 1999, at which time any options not
exercised shall be forfeited irrevocably by you.
g. Car allowance payments of $980 per month, continuing until
January 4, 2000.
h. Reimbursement for reasonable expenses incurred for your
relocation, if necessary, from Southington, Connecticut to the
locale of your subsequent employment, up to a maximum of
eighteen thousand dollars ($18,000). Such relocation expenses
shall be limited to those normally incurred in moving household
belongings and possessions and will include real estate losses
and transaction costs, as well as real estate broker
commissions. The Company's obligation with respect to relocation
expenses will be limited to the difference between the amount
your subsequent employer agrees to reimburse and your actual out
of pocket costs, up to a maximum
2
<PAGE> 3
of $18,000. However, the Company agrees to pay you one-half
(1/2) of any unused portion of the $18,000 amount after
relocation. If your subsequent employment does not require you
to relocate, this provision is void.
i. For one (1) year following the Separation Date, Company will
continue to pay its portion of the premium to maintain your GRIP
life insurance at the current rate, and you will continue to be
responsible for your portion.
4. Return of Company Property. You agree to return to the Company, no
later than the Separation Date, all property of the Company that is in your
possession including, without limitation, all keys, computer hardware,
materials, papers, books, files, documents, records, policies, client and
customer information and lists, marketing information, data base information and
lists, mailing lists, notes, computer software and programs, data, and any other
property or information that you may have relating to the Company and its
customers, clients, employees, policies, or practices (whether those materials
are in paper or computer-stored form). You agree not to retain any such property
or information in any form, and not to give copies of such property or
information or disclose their contents to any other person.
5. Potential Change of Control. Executive acknowledges that: (a) he is
aware that, from time to time, the Company has been engaged in discussions with
third parties regarding a possible acquisition of the Company; (b) these
discussions are continuing; and (c) he is aware under his Termination and Change
of Control Agreement dated October 1, 1996 (the "Termination Agreement"), he is
entitled to certain benefits upon a change of control of the Company. Executive
acknowledges that the Company has made no representations in this Release,
orally, or otherwise, about whether or not a change of control will take place.
Executive has determined through his own evaluation (and upon any advice of
Executive's counsel) that the consummation of the release is in his best
interests though discussions have taken place regarding the acquisition of the
Company. Executive is not relying on the presence or absence of any information
regarding a potential change of control of the Company in making his decision
and acknowledges and represents that any further information or disclosure is
immaterial in evaluating and agreeing to the benefits, terms, and conditions of
this Release.
6. Released Parties. "Released Parties," as used in this Release, shall
mean the Company and all of its past and present officers, directors,
shareholders, agents, employees, partners, officials, divisions, subsidiaries,
parents, successors, affiliates, employee benefit plans (and their sponsors,
fiduciaries and administrators), insurers, and attorneys.
7. Release by Executive. In consideration for the promises and payments
described in Paragraph 3 above, you, on behalf of yourself and your agents,
representatives, attorneys, assigns, heirs, executors, and administrators, fully
releases each of the Released Parties from any and all liability, claims,
demands, actions, causes of action, suits, grievances, debts, sums of money,
agreements, promises, damages, back and front pay, costs, expenses, attorneys'
fees, and remedies of any type, regarding any act or failure to act that
occurred up to and including the date on which you sign this Release, including
but not limited to any claims directly or indirectly
3
<PAGE> 4
relating to your employment or separation of employment from the Company, and
including but not limited to all claims, actions or liability under: (1) Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil
Rights Act of 1866 (42 U.S.C. Section 1981), the Age Discrimination in
Employment Act, the Americans With Disabilities Act, the Fair Labor Standards
Act, the Equal Pay Act, the National Labor Relations Act, the Employee
Retirement Income Security Act, the Family and Medical Leave Act, the
Connecticut Human Rights and Opportunities Act, and Connecticut General Statutes
Section 31-290a; (2) any other federal, state or local statute, ordinance,
regulation, or constitutional provision regarding employment, payment of wages,
compensation, employee benefits, termination of employment, or discrimination in
employment; and (3) the common law of the United States or any state relating to
contracts, wrongful discharge, opportunistic discharge, fraud, defamation, or
any other matter; provided, however, that you are not releasing your rights, if
any, to any vested benefits you may have under any employee benefit program or
plan of the Company.
8. Covenant Not To Sue. Except for an action arising out of a breach
of this Release, you agree, on behalf of yourself and your agents,
representatives, attorneys, assigns, heirs, executors, and administrators, never
to bring (or cause to be brought) any claim, action or proceeding against any of
the Released Parties regarding any act or failure to act that occurred up to and
including the date on which you sign this Release, including but not limited to
any claim, action or proceeding directly or indirectly relating to your
employment or separation of employment from the Company. If any such claim has
been brought before you sign this Release, you must and will take all steps
necessary to cause that claim to be withdrawn and dismissed with prejudice. If
any such action is brought after you sign this Release, you will immediately
become ineligible for any further consideration from the Company under this
Release and must return to the Company all consideration that you have already
received from the Company under this Release.
9. The Company's Response to Requests for Information About You. In
response to any written inquiries from third parties, including but not limited
to, your prospective employers regarding your employment or separation of
employment with the Company, the Company will provide, in writing, only the
dates of your employment, positions held with the Company and a mutually
agreeable positive reference that will include an agreed upon reason for your
leaving the Company.
10. No Attempt at Reemployment. You agree not to apply for employment
or otherwise seek to be hired, rehired, employed, reemployed, or reinstated by
the Company or any of its affiliated companies or corporations.
11. Non-admission. This Release does not constitute an admission by any
of the Released Parties, and the Company specifically denies that any action of
the Released Parties taken or has failed to take with respect to you was
wrongful, unlawful, in violation of any local, state, or federal act, statute,
or constitution, or susceptible of inflicting any damages or injury to you.
12. Release Inadmissible as Evidence. This Release, its execution, and
4
<PAGE> 5
implementation may not be used as evidence, and shall not be admissible, in a
subsequent proceeding of any kind, except one which either party institutes
alleging a breach of this Release.
13. Confidentiality. Except as may be specifically required by law, you
will not (without the prior written consent of the President of the Company)
directly or indirectly disclose, publish, indicate, or in any manner communicate
the terms and provisions of this Release to any other person or entity except to
your accountant and/or financial advisor to the limited extent necessary to
prepare your tax returns, your attorney, or your spouse. Prior to any such
authorized disclosure, you will, in writing, inform each such person to whom
disclosure is to be made that the terms of this Release are confidential and
secure the written agreement of each such person to maintain the confidentiality
of the terms of this Release. If you are specifically required by law to
disclose any of the terms or provisions of this Release, you will, before making
any such disclosure, provide prompt written notice to the President of the
Company in which you shall describe the reason for, and the scope, nature, and
timing of, any such legally required disclosure.
14. Entire Release. This Release contains the entire release and
understanding between the parties concerning the matters described herein. It
supersedes all prior agreements, discussions, oral or otherwise, negotiations,
understandings, and proposals of the parties. The terms of this Release cannot
be changed except in a subsequent document signed by the Executive and an
authorized representative of the Company. The parties specifically acknowledge
that Executive's Termination and Change of Control Agreement, dated as of
October 1, 1996, by and between the Company and Executive (the "Termination
Agreement") shall terminate and have no continuing legal effect except for
Section 11 of such agreement relating to "Non-Competition and Non-Disclosure;
Executive Cooperation." The parties incorporate herein as part of this Release
the terms, provisions and conditions set forth under Section 11 of the
Termination Agreement, a copy of such section is attached hereto as Appendix A.
15. Costs and Attorney's Fees. If either party to this Release
institutes a legal action to enforce its rights under any provision of this
Release, the non-prevailing party in such action shall be liable to the
prevailing party for the costs and reasonable attorneys' fees incurred by the
prevailing party in connection with the action.
16. Severability. The provisions of this Release shall be severable,
and the invalidity of any provision shall not affect the validity of the other
provisions; provided, however, that if you bring a lawsuit, claim, charge, or
complaint against any of the Released Parties, and a court of competent
jurisdiction finds that a release or waiver of claims or rights by you in
Paragraph 7 above, or a covenant by you in Paragraph 8 above, is illegal, void
or unenforceable, you agree, at the Company's option, either to execute promptly
a release, waiver and/or covenant that is legal and enforceable or to return
promptly to the Company the full value of the consideration provided to you
under Paragraph 3 above.
17. Applicable Law and Venue. This Release shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and
5
<PAGE> 6
performance of this Release shall be governed by, the laws of the State of
Connecticut without giving effect to that state's principles regarding conflict
of laws.
18. Revocation Period. You have the right to revoke this Release during
a period of seven days after you sign it. In order to revoke this Release, you
must sign and send a written notice of the decision to revoke this Release,
addressed to Mark Kachur, CUNO Incorporated, 400 Research Parkway, Meriden, CT
06450, and that written notice must be received by the Company no later than
seven days after you signed this Release. If you exercise your right to revoke
this Release, you will not be entitled to any of the money, benefits, and other
consideration from the Company described in Paragraph 3 of this Release, and
must immediately repay to the Company any money, benefits, and other
consideration that you have already received from the Company under that
paragraph.
19. Knowing and Voluntary Waiver. You acknowledge that:
a. You have carefully read this Release and fully understand its
meaning;
b. You had 21 days to review this Release before signing it;
c. You are hereby advised in writing by the Company to consult with
an attorney before deciding whether to sign this Release;
d. You were not coerced into signing this Release;
e. You agree to all the terms of this Release and are entering into
it knowingly, voluntarily, and with full knowledge of its significance; and
f. The only consideration you are receiving for signing this
Release is described herein, and no other promises or representations of any
kind have been made by any person or entity to cause you to sign this Release.
20. Counterparts. This Release may be executed in counterparts and will
be as fully binding as if signed in one entire document.
CUNO INCORPORATED EXECUTIVE
By: /s/ John A. Tomich /s/ Ronald C. Drabik
------------------- --------------------
John A. Tomich Ronald C. Drabik
Counsel & Secretary
Date: January 4, 1999 Date: January 13, 1999
-------------------- --------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001019779
<NAME> CUNO, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,041
<SECURITIES> 0
<RECEIVABLES> 43,193
<ALLOWANCES> 1,017
<INVENTORY> 25,876
<CURRENT-ASSETS> 81,219
<PP&E> 109,680
<DEPRECIATION> 52,897
<TOTAL-ASSETS> 164,763
<CURRENT-LIABILITIES> 50,423
<BONDS> 14,838
0
0
<COMMON> 16
<OTHER-SE> 89,990
<TOTAL-LIABILITY-AND-EQUITY> 164,763
<SALES> 50,626
<TOTAL-REVENUES> 50,626
<CGS> 30,760
<TOTAL-COSTS> 30,760
<OTHER-EXPENSES> 17,172
<LOSS-PROVISION> (124)
<INTEREST-EXPENSE> 358
<INCOME-PRETAX> 2,505
<INCOME-TAX> 917
<INCOME-CONTINUING> 1,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,588
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
