<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended October 31, 1996
COMMISSION FILE NUMBER 0-588
COMMERCIAL INTERTECH CORP.
(Exact name of registrant as specified in its charter)
Ohio 34-0159880
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1775 Logan Avenue, Youngstown, Ohio 44501
(Address of principal executive offices) (Zip Code)
(216) 746-8011
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $1 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of January 2, 1997, 13,596,108 common shares were outstanding, and the
aggregate market value of the common shares (based upon the last price on that
date) was approximately $186,946,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents of the Registrant listed below have been
incorporated by reference into the indicated parts of this Annual Report on Form
10-K.
Notice of Annual Meeting of Shareholders March 26, 1997 and
Proxy Statement filed January 21, 1997. . . Part III, Items 10-13
Part IV, Item 14
The exhibit index is located on page 61.
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Part I
ITEM I. BUSINESS
(a) General development of business:
Commercial Intertech Corp. (formerly Commercial Shearing, Inc.) was
incorporated in Ohio in 1920. The Company is engaged in the design, manufacture
and sale of products in two business groups: hydraulic systems and building
systems and metal products. In 1986, the Company acquired Cuno, Incorporated
("Cuno"), a manufacturer of fluid purification products. The Company made a 100%
spin-off of the common stock of the Cuno business in 1996. Therefore, the
hydraulic systems and building systems and metal products account for all of the
Company's business. Unless otherwise noted, all references in this report of the
Registrant relate to the continuing businesses.
(b) Financial information about industry segments:
See Note I - Segment Reporting - to the Notes to Consolidated Financial
Statements on pages 49 and 50.
(c) Narrative description of business:
HYDRAULIC SYSTEMS
Hydraulic systems consist primarily of gear pumps and motors, control
valves and telescopic cylinders for use generally on heavy-duty mobile equipment
such as dump trucks, cranes, refuse vehicles, front-end loaders, backhoes and
mining machines. Other products manufactured by the Company include hydraulic
test equipment for military and industrial applications, hydraulic steer
transmissions for military vehicles, mobile electrical power generators,
hydraulic tilt and trim mechanisms for recreational boating and axial piston
pumps and motors for industrial and marine applications. The Company's gear
pumps and motors, control valves and telescopic cylinders are sold primarily to
original equipment manufacturers by the Company's hydraulic sales organization
consisting of approximately 76 persons in the United States and Canada and
approximately 75 persons outside North America. A portion of the Company's sales
is made to independent distributors for resale primarily to the replacement
market.
In June 1996, the Company acquired the assets of Component Engineering
Company, a manufacturer of cartridge valves and integrated circuits. The Company
continues to operate the business from its location in Chanhassen, Minn.
The Company acquired the stock of ORSTA Hydraulik in May 1994. ORSTA
Hydraulik, a former East German state-owned enterprise, is a manufacturer of
hydraulic cylinders, piston and gear pumps, power packs, and hydraulic testing
equipment.
The Company acquired the assets of Kenart EMC, Inc., formerly doing
business as Teknar EMC, Inc. in February, 1991. Teknar manufactures a line of
electronic motion control products. The Company relocated operations to an
existing production facility in Minneapolis, Minnesota.
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ITEM I. BUSINESS (Continued)
The Company acquired Cylinder City, Inc., a manufacturer and marketer
of hydraulic cylinders located in Minneapolis, Minnesota in June, 1990.
The Company believes that it is the largest supplier of gear pumps and
is among the leading single-source suppliers of hydraulic systems for mobile
equipment in the United States. The market for hydraulic components is highly
competitive.
BUILDING SYSTEMS AND METAL PRODUCTS
The building systems and metal products operations consist of two
units: metal stampings and Astron (custom-engineered metal buildings). The
Company produces custom and standard metal stampings, including tank ends and a
wide variety of other stamped steel products, such as wheels for tracked
vehicles, components for railcar brake activators, couplings and covers for
mechanical power transmission applications, large circuit breaker covers, and
circular closures for a broad variety of vessels and containers produced in
sized from 4 inches to 24 feet. Also known as tank ends or tank heads, this
product line is the most comprehensive and extensive in the U.S., serving
thousands of customers from three manufacturing locations and seven
strategically located Distribution Centers.
The Domestic Metals' Distribution Center concept is unique to the
industry, and has successfully served both large and small vessel fabricators
for over 35 years providing 48 hour delivery service. The Distribution Center
concept remains a major contributor to the success of Domestic Metals
operations. The sales and marketing activities for metal stampings are conducted
in North America with exports to Pacific Rim and South America by a sales
organization of approximately 23 persons. The metal stamping unit competes
successfully for specialty custom designed and formed products in a variety of
shapes and sizes with regional domestic companies that often have lower freight
producing costs. Additionally, standard products are offered for sale from seven
fast service distribution centers in Saginaw, Texas; Atlanta, Georgia; Chicago,
Illinois; Hagerstown, Maryland; Seattle, Washington; Middleboro, Massachusetts
and Orange, California.
Domestic Metals purchased the former Hall F&D Head Company in Saginaw,
Texas, in 1995 now known as the Southern Metals Division. This Division along
with the Orange County facility produces specialty medium and large diameter
products in a broad variety of circular shapes for the storage tank and pressure
vessel industries.
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ITEM I. BUSINESS (Continued)
Astron, the European market leader in metal building systems, produces
single and multi story buildings that serve as aircraft hangars, indoor athletic
facilities, automobile showrooms, offices, supermarkets, factories and
warehouses. Astron buildings are sold throughout the twelve countries of the
European Economic Community, in Scandinavia and in Eastern Europe, as well as in
China and South Korea. This division developed its own computerized building
pricing and proposal system, known as Cyprion, that tailors buildings to
customers' precise dimension and design requirements. Through Cyprion, Astron's
nearly 400 qualified builder/dealers can provide pricing and building plans in a
fraction of traditional architectural time. The builder/dealers are supported by
Astron's sales force of nearly 91 persons. Additionally, Astron has developed
state of the art work stations utilizing computer design technology which
automatically configures optimum parameters for more efficient use of material
maximizing manufacturing technology.
Four years ago Astron entered into a joint venture with Arbed, Europe's
fifth largest steel producer, and is now producing multistory steel buildings
for European markets. Commercial acquired the remaining interest from Arbed
effective November 1, 1995. In addition, in 1992 the Astron Division licensed
Geoyang Development Co., Ltd. of South Korea, to manufacture, sell and erect
Astron buildings in Korea. Geoyang now know as POSEC, is also cooperating with
the Company's Luxembourg location for marketing and manufacturing throughout the
Pacific Rim. POSEC is a Division of Posco Steel, the world's second largest
steel producer.
MANUFACTURING
The Company manufactures hydraulic systems in 16 plants and building
systems and metal products in five plants worldwide. The Company's hydraulic
manufacturing operation is highly integrated and the Company purchases few
components from independent suppliers. The Company has developed tooling for a
substantial number of its fabricated metal products, which enables a reduction
in the costs and time of manufacturing.
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ITEM I. BUSINESS (Continued)
RESEARCH AND PRODUCT DEVELOPMENT
The Company conducts research and development primarily for its
hydraulics systems products. In fiscal 1996 the Company expended $5,897,000 for
research and development of various hydraulic products as compared to $5,966,000
and $5,409,000 in 1995 and 1994, respectively. The Company intends to continue
substantial expenditures on research and development in this area in order to
bring developmental products to market.
PATENTS AND TRADEMARKS
The Company currently holds registered trademarks and patents
associated with certain existing products and has filed applications for
additional patents covering certain of its newer products. Although the Company
considers patents and trademarks significant factors in all of its businesses,
it does not consider the ownership of patents essential to the operation of its
hydraulic systems and building systems and metal products groups. The Company
relies on product quality and features, the strength of its marketing and
distribution network and on new product introductions rather than on its
existing patents to protect and improve its market position in the hydraulic
systems and building systems and metal products groups.
SEASONALITY
Because sales of certain hydraulic systems and custom-engineered metal
buildings are related to the construction industry, this portion of the
Company's business is affected by the seasonality of that industry.
EMPLOYEES
The Company employs approximately 3,340 full-time employees worldwide.
The Company believes that its labor relations are generally satisfactory.
BACKLOG
The backlog of orders believed to be firm at the end of fiscal 1996 was
approximately $142,000,000. Backlogs at the end of fiscal years 1995 and 1994
were $155,000,000 and $142,000,000, respectively. Registrant expects a
substantial portion of its order backlog at the end of 1996 will be shipped
during fiscal 1997.
(d) Financial information about foreign and domestic
operations and export sales.
See Note I - Segment Reporting - to the Notes to Consolidated Financial
Statements on pages 49 and 50.
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ITEM 2. PROPERTIES
The principal plants of the Registrant and its subsidiaries by industry
segments are located in:
Owned:
Building Systems and
Hydraulic Systems Metal Products
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Youngstown, Ohio Youngstown, Ohio
Hicksville, Ohio Diekirch, Luxembourg
Kings Mountain, N. Carolina Orange, California
Benton, Arkansas Saginaw, Texas
Mairinque, Brazil Sternbeck, Czech Republic
Grantham, England
Minneapolis, Minnesota
Chanhassen, Minnesota
Port Melbourne, Australia
Warwick, England
Chemnitz, Germany
Geringswalde, Germany
LEASED:
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Building Systems and
Metal Products
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Hagerstown, Maryland
Chicago, Illinois
Atlanta, Georgia
Seattle, Washington
Middleboro, Massachusetts
Properties of Registrant and its subsidiaries are suitably constructed
and maintained for their respective uses.
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ITEM 3. LEGAL PROCEEDINGS
As of the date hereof there is no pending litigation of a material
nature, other than ordinary routine litigation incidental to the business, to
which the Registrant or any of its subsidiaries is a party or which may affect
the income from, title to, or possession of, any of their respective properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Registrant is presented
in Part III below and incorporated herein by reference.
Part II
ITEM 5. COMPANY COMMON STOCK
The Company's common stock is traded on the New York Stock Exchange
under the ticker symbol TEC. The following is the range of high and low sales
prices and cash dividends paid per share for fiscal 1996 and 1995 by quarters.
<TABLE>
<CAPTION>
RANGE OF SALES
PRICES
-------------- DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
1996:
First quarter. . . $19 3/8 $16 1/2 $.135
Second quarter . . 20 18 .135
Third quarter. . . 30 18 .135
Fourth quarter . . 26 3/4 10 11/16 .135
-----
$.540
=====
1995:
First quarter . . .$19 5/8 $15 3/4 $.125
Second quarter. . . 22 3/8 18 3/4 .125
Third quarter . . . 22 3/4 15 7/8 .125
Fourth quarter* . . 20 3/4 16 7/8 .135
-----
$.510
=====
<FN>
* Shares prices include periods before and after the 100% spin-off of
Cuno Incorporated on September 10, 1996 which had a market value of $15 per
share.
</TABLE>
As of October 31, 1996, there were 3,718 shareholders of record of
Common Stock.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
SUMMARY OF FINANCIAL DATA, 1986 - 1996
Commercial Intertech Corp. and Subsidiaries
(in thousands, except per-share data and ratios) 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME DATA - Note A
Net sales. . . . . . . . . . . . . . . . . $465,209 $459,137 $373,820 $317,806 $322,413 $305,942
Gross profit . . . . . . . . . . . . . . . 124,216 122,015 106,832 88,243 94,550 90,801
Interest expense . . . . . . . . . . . . . 7,083 6,238 4,262 5,472 4,650 4,549
Income from continuing operations before
income taxes and extraordinary items. . 23,738 30,379 25,760 23,151 28,163 32,150
Income taxes . . . . . . . . . . . . . . . 8,382 6,097 7,948 8,435 9,402 13,242
Income from continuing operations before
extraordinary items . . . . . . . . . . 15,356 24,282 17,812 14,716 18,761 18,908
Discontinued operations - CUNO 6,083 6,101 7,269 (701) (4,300) 1,209
Net income . . . . . . . . . . . . . . . . 17,395 30,383 25,081 14,015 17,436 11,103
Earnings per share - Note B
Primary:
Income from continuing operations
before extraordinary items. . . . . .87 1.42 1.03 .84 .97 .85
Net income. . . . . . . . . . . . . . 1.01 1.82 1.50 .79 .88 .32
Fully diluted:
Income from continuing operations
before extraordinary items. . . . . .83 1.35 .98 .80 .92 .80
Net income . . . . . . . . . . . . . .95 1.72 1.41 .76 .84 .32
Dividends per share of common stock:
Cash. . . . . . . . . . . . . . . . . . .54 .51 .48 .45 .45 .45
Stock . . . . . . . . . . . . . . . . . -- -- 50% -- -- --
OTHER FINANCIAL DATA - Note A
Total assets . . . . . . . . . . . . . . . $337,116 $402,679 $370,595 $302,295 $301,734 $289,712
Current assets . . . . . . . . . . . . . . 190,403 182,859 172,760 114,082 113,209 102,330
Less current liabilities - . . . . . . . . 116,223 117,420 99,482 78,934 76,040 62,383
Net working capital - . . . . . . . . . 74,180 65,439 73,278 35,148 37,169 39,947
Net plant investment . . . . . . . . . . . 96,620 94,795 77,105 65,426 70,586 71,753
Gross capital expenditures . . . . . . . . 17,712 31,709 19,236 6,194 7,387 11,543
Long-term debt . . . . . . . . . . . . . . 93,415 69,869 71,846 72,479 79,974 48,268
Redeemable preferred stock . . . . . . . . 0 0 0 0 0 38,491
Shareholders' equity . . . . . . . . . . . 87,161 176,593 147,982 120,106 117,405 112,608
Shareholders' equity per share - Note C. . 5.94 11.07 9.44 7.74 7.74 7.59
Actual number of shares outstanding
at year-end . . . . . . . . . . . . . . 13,560 15,440 15,199 15,056 14,864 14,686
Average number of shares outstanding
during the year . . . . . . . . . . . . 15,256 15,582 15,327 15,096 14,863 14,888
RATIOS - Note A
Gross profit to net sales. . . . . . . . . 26.7% 26.6% 28.6% 27.8% 29.3% 29.7%
Income from continuing operations before
extraordinary items to net sales. . . . 3.3% 5.3% 4.8% 4.6% 5.8% 6.2%
Effective income tax rate. . . . . . . . . 35.3% 20.1% 30.9% 36.4% 33.4% 41.2%
Income from continuing operations before
extraordinary items to average
shareholders' equity. . . . . . . . . . 11.6% 15.0% 13.3% 12.4% 16.3% 15.9%
Ratio of current assets to
current liabilities . . . . . . . . . . 1.64:1 1.56:1 1.74:1 1.45:1 1.49:1 1.60:1
Ratio of long-term debt to
shareholders' equity plus
long-term debt. . . . . . . . . . . . . 51.7% 28.3% 32.7% 37.6% 40.5% 30.0%
<FN>
Note A - All years have been restated to reflect the 100% spin-off of CUNO
Incorporated as of September 10, 1996. Fiscal years 1991-1996 have been
computed in accordance with Employers' Accounting for Postretirement
Benefits Other Than Pensions, SFAS No. 106. Fiscal years 1992-1996 have
been computed in accordance with Accounting for Income Taxes, SFAS No.
109. Prior years have not been restated.
Note B - Based on weighted average number of shares outstanding adjusted for
all subsequent share dividends.
Note C - Based on actual number of shares outstanding at end of period
adjusted for all subsequent share dividends.
</TABLE>
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<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF FINANCIAL DATA, 1986 - 1996
Commercial Intertech Corp. and Subsidiaries
(in thousands, except per-share data and ratios) 1990 1989 1988 1987 1986
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME DATA - Note A
Net sales. . . . . . . . . . . . . . . . . . $322,167 $300,640 $279,369 $227,185 $207,394
Gross profit . . . . . . . . . . . . . . . . 101,061 96,180 83,072 66,352 60,890
Interest expense . . . . . . . . . . . . . . 4,592 6,168 7,576 7,713 7,417
Income from continuing operations before
income taxes and extraordinary items. . . 41,636 42,085 27,944 15,623 15,474
Income taxes . . . . . . . . . . . . . . . . 17,809 16,251 11,552 6,193 6,399
Income from continuing operations before
extraordinary items . . . . . . . . . . . 23,827 25,834 16,392 9,430 9,075
Discontinued operations - CUNO . . . . . . . 3,780 (1,715) 372 1,794 1,542
Net income . . . . . . . . . . . . . . . . . 27,607 6,730 16,564 11,224 10,616
Earnings per share - Note B
Primary:
Income from continuing operations
before extraordinary items . . . . . 1.14 1.45 .98 .57 .55
Net income . . . . . . . . . . . . . . 1.36 .38 .99 .68 .64
Fully diluted:
Income from continuing operations
before extraordinary items . . . . . 1.10 1.39 .94 .57 .55
Net income. . . . . . . . . . . . . . . 1.31 .38 .95 .67 .64
Dividends per share of common stock:
Cash . . . . . . . . . . . . . . . . . . . .44 .40 .38 .37 .37
Stock. . . . . . . . . . . . . . . . . . . -- -- -- -- --
OTHER FINANCIAL DATA - Note A
Total assets . . . . . . . . . . . . $315,617 $298,252 $279,073 $255,773 $249,678
Current assets. . . . . . . . . . . . . . . . 124,936 109,474 100,129 85,773 79,955
Less current liabilities -. . . . . . . . . . 70,775 74,423 61,981 43,253 36,943
Net working capital -. . . . . . . . . . . 54,161 35,051 38,148 42,520 43,012
Net plant investment. . . . . . . . . . . . . 71,376 58,166 51,628 52,509 52,618
Gross capital expenditures. . . . . . . . . . 16,432 12,056 7,145 5,408 10,810
Long-term debt. . . . . . . . . . . . . . . . 64,871 39,175 57,429 69,910 80,910
Redeemable preferred stock. . . . . . . . . . 37,594 0 0 0 0
Shareholders' equity. . . . . . . . . . . . . 124,891 170,463 146,828 131,664 121,626
Shareholders' equity per share - Note C . . . 8.45 8.96 8.85 7.99 7.39
Actual number of shares outstanding
at year-end. . . . . . . . . . . . . . . . 14,781 19,030 16,585 16,487 16,456
Average number of shares outstanding
during the year. . . . . . . . . . . . . . 16,994 17,852 16,664 16,565 16,493
RATIOS - Note A
Gross profit to net sales . . . . . . . . . . 31.4% 32.0% 29.7% 29.2% 29.4%
Income from continuing operations before
extraordinary items to net sales . . . . . 7.4% 8.6% 5.9% 4.2% 4.4%
Effective income tax rate . . . . . . . . . . 42.8% 38.6% 41.3% 39.6% 41.4%
Income from continuing operations before
extraordinary items to average
shareholders' equity . . . . . . . . . . . 16.1% 16.3% 11.8% 7.4% 7.7%
Ratio of current assets to
current liabilities. . . . . . . . . . . . 1.77:1 1.47:1 1.62:1 1.98:1 2.16:1
Ratio of long-term debt to
shareholders' equity plus
long-term debt . . . . . . . . . . . . . . 34.2% 18.7% 28.1% 34.7% 39.9%
<FN>
Note A - All years have been restated to reflect the 100% spin-off of CUNO
Incorporated as of September 10, 1996. Fiscal years 1991-1996 have been
computed in accordance with Employers' Accounting for Postretirement
Benefits Other Than Pensions, SFAS No. 106. Fiscal years 1992-1996 have
been computed in accordance with Accounting for Income Taxes, SFAS No.
109. Prior years have not been restated.
Note B - Based on weighted average number of shares outstanding adjusted for
all subsequent share dividends.
Note C - Based on actual number of shares outstanding at end of period adjusted
for all subsequent share dividends.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 1994-1996
RESULTS OF OPERATIONS
- ---------------------
CONSOLIDATED RESULTS
On July 29, 1996, the Company announced that the Board of Directors had
voted to declare a dividend to Commercial Intertech Corp.'s common shareholders
of 100 percent of the common stock of CUNO Incorporated ("CUNO"), the fluid
purification segment of the business. New shares of CUNO Incorporated were
issued on the basis of one common share for each Commercial Intertech common
share outstanding, payable to holders of record as of the close of business on
August 9, 1996. Each holder of record of Commercial Intertech common shares at
the close of business on September 10, 1996, the payable date for the
Distribution, received one share of CUNO Common Stock for every one share of
Commercial Intertech common share. The financial results and net assets of CUNO
have been restated and presented as a discontinued operation in the accompanying
consolidated financial statements for all periods presented.
CUNO and Commercial Intertech entered into a Distribution and Interim
Services Agreement (the "Services Agreement") providing for, among other things,
the principal corporate transactions required to effect the separation of CUNO
from Commercial Intertech, the distribution, and certain other arrangements
governing the relationship between CUNO and Commercial Intertech with respect to
or in consequence of the Distribution. Subject to certain exceptions, the
Services Agreement provides for cross-indemnities to place financial
responsibility for the liabilities of the CUNO business with CUNO, and financial
responsibility for the liabilities of the Commercial Intertech remaining
businesses with Commercial Intertech.
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ITEM 7. (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
- --------------------------------
The Services Agreement provides for the allocation of benefits between
the companies under existing insurance policies after the distribution date and
sets forth procedures for the administration of insured claims. The Services
Agreement provides that, in general, all costs and expenses related to the
distribution will be paid by CUNO. The Services Agreement also provides that
certain services, including tax, accounting, payroll, employee benefit and legal
services, which had historically been provided to CUNO by the Company would
continue to be provided following the distribution date, at rates specified in
such agreement for a period up to twelve months.
Through the distribution date, the results of the operations of CUNO
have been and will be included in Commercial Intertech's domestic and foreign
income tax returns. As part of the distribution, CUNO and the Company entered
into a Tax Allocation Agreement ("Tax Agreement") which provided, among other
things, for the allocation between the parties thereto of federal, state, local
and foreign tax liabilities for all periods through the distribution date. The
Tax Agreement also allocates between CUNO and Commercial Intertech any liability
for taxes which arise in the event the distribution does not qualify as tax-free
under Section 355 of the Internal Revenue Code. Under the Tax Allocation
Agreement, if the Distribution is determined to be taxable because a change of
control of Commercial Intertech occurs, then the resulting tax liability shall
be borne solely by Commercial Intertech. If the Distribution is determined to be
taxable because of a change of control of CUNO, then the resulting tax liability
shall be borne solely by CUNO. If a tax liability arises in connection with the
Distribution for any reason not set forth above, then such liability shall be
borne equally by Commercial Intertech and CUNO. For purposes of the Tax
Allocation Agreement "a change of control" means a greater than 50% change in
stock ownership, measured by vote and value of either company.
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ITEM 7. (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
- --------------------------------
The spin-off of CUNO has been reflected as a discontinued operation by
the Company. Continuing operations include the Company's remaining Hydraulics
Systems and Building Systems and Metal Products segments. The remaining
discussion relates to the Company's continuing operations and excludes CUNO's
historical
results.
During the third quarter of 1996, the Company received an unsolicited
tender offer from United Dominion Industries, Ltd., which the Board of Directors
voted unanimously as inadequate and confirmed the Company's strategic plan to
spin-off to shareholders 100 percent of its wholly-owned CUNO Incorporated
filtration subsidiary. In addition, the Board of Directors approved a program to
repurchase up to 2.5 million common shares. The cost of $8.2 million associated
with the successful defense against the hostile takeover attempt and the cost to
further reorganize the remaining core businesses of the Company are recorded as
nonrecurring defense and reorganization costs.
Softness in the U.S. economy offset with improved business conditions
in Europe and the United Kingdom resulted in improved sales and earnings after
adjusting for nonrecurring defense and reorganization costs. Income from
continuing operations before extraordinary items of $15.4 million was nearly
identical to last year's income of $24.3 million and 33 percent higher than 1994
after adjusting for the $7.1 million (net of income taxes) nonrecurring charges.
Results in 1994 included an after-tax charge of $3.8 million to close and
consolidate certain operations in Europe. Net income of $25.1 million in 1994
includes a $5.5 million noncash gain from the reversal of tax accruals no longer
required in connection with a discontinued operation.
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ITEM 7. (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
- --------------------------------
Consolidated sales of $465.2 million were higher than those in 1995 and
1994 by 2 percent and 20 percent, respectively, after adjusting for the effects
of exchange rate differences on foreign sales reported in U.S. dollars. Most of
the three year improvement resulted from increased volume as price increases
have been relatively modest during the period. Revenues of the Corporation's
U.S. operations decreased slightly as the economy softened during the latter
half of fiscal 1996 following an all-time high of $254.5 million in 1995, but
surpassed those in 1994 by 16 percent.
Domestic operations accounted for 54 percent of the Company's total
sales in 1996 versus 55 percent in 1995 and 58 percent in 1994. Revenues for the
Company's overseas operations increased by 3 percent over those in 1995 on a
parity-adjusted basis. Most of the year-over-year gain occurred in the United
Kingdom reflecting increased demand for the Company's products serving that
region. Sales were generally higher in Europe and Australia but lower in Brazil
as business conditions were flat in these regions.
Operating income of $27.2 million was lower than 1995 and 1994 by 21
percent and 9 percent, respectively, before adjusting for the $8.2 million
nonrecurring defense and reorganization costs incurred in 1996. Operating income
before the nonrecurring charges was $35.4 million compared to $34.3 million in
1995 and $29.8 million in 1994. Operating income decreased by 19 percent for the
Hydraulic Systems Group following four consecutive years of advances, while
increasing by 57 percent in the Building Systems and Metal Products Group.
Domestic metal stamping divisions improved for the second consecutive year and
the Astron Division in Europe also reported significant improvements over 1995
and 1994.
-13-
<PAGE> 14
ITEM 7. (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
- --------------------------------
Included in operating income for the three years are the financial
results of the ORSTA Hydraulik operations which were acquired in 1994. Shares of
ORSTA Hydraulik were acquired from the former Treuhandanstalt ("THA"), the
regulatory agency of the Federal Republic of Germany responsible for the
privatization of former East German state-owned enterprises. Under terms of the
Purchase Agreement, Commercial Intertech tendered no financial consideration to
acquire the shares received. In addition to the net assets of the companies,
cash contributions were received from the THA to fund pre-existing capital
investment programs and cover estimated operating losses over a period of two
years. The loss indemnification was recorded as a deferred credit (negative
goodwill) and was amortized to income through cost of products sold in
accordance with a predetermined schedule of projected losses in each fiscal
quarter over the two-year period. The combined German operations represented by
this acquisition incurred operating losses of $7.8 million in 1996, after
amortization of the deferred credit, on sales of $38.2 million and losses of
$2.2 million after amortization of the deferred credit in 1995 on sales of $35.8
million. The impact on operating income in 1994 was negligible (see Note K for
further details).
Following the acquisition of ORSTA Hydraulik during the latter half of
1994, the Company announced strategic plans to close certain Hydraulic
facilities in Europe, phase out some nonperforming products manufactured at
those facilities, and consolidate the remaining core businesses with the ORSTA
operation in Germany and other existing operations located in the United
Kingdom. Included in cost of products sold for 1994 were charges of $4.2 million
for the separation of employees, closure of facilities, writedown of
unrecoverable fixed assets, and other incremental costs necessary to complete
this consolidation effort. The program was executed in phases with two out of
three segments being completed during 1995 and the final phase completed in
1996. This program will improve the Corporation's operating results over time
through reduced employment costs, more effective utilization of plant and
equipment, and lower depreciation expense.
-14-
<PAGE> 15
ITEM 7. (CONTINUED)
INDUSTRY SEGMENTS
- - HYDRAULIC SYSTEMS
The Hydraulic Systems segment accounted for 63 percent of the Company's
total sales and 55 percent of total operating income (excluding the nonrecurring
charges) in 1996. Revenues in this segment increased by $8.7 million or 3
percent over last year, while operating income as reported was lower by $4.7
million. Most of the erosion occurred in the domestic units as the prolonged
softness in demand from key industry segments lasted almost the entire fiscal
year. Revenues remained flat during the year, however income suffered from
higher material costs, expenses to re-engineer manufacturing processes and
administrative systems, and the costs incurred to develop and launch a range of
fluid power components for the automotive industry. The U.S. Cylinder Division
and Oildyne, a manufacturer of miniature hydraulic systems, reported significant
increases during the fourth quarter of 1996 in revenues and operating income
compared with the corresponding period last year. Financial performance was
favorable in the foreign segment during 1996 while results were flat except in
the United Kingdom which reported strong demand for their products. The
operations in Germany reported improved revenue in 1996 compared to 1995 but
reported a combined operating loss of $7.8 million for the year. Improvements in
efficiencies and productivity has been slower than expected, and operating
results were further reduced by the start-up costs incurred in moving into the
new cylinder facility and the sluggish economy in Europe.
-15-
<PAGE> 16
ITEM 7. (CONTINUED)
INDUSTRY SEGMENTS (CONTINUED)
- -----------------------------
In June of 1996, the Hydraulics Systems Group reported it acquired the
assets of Component Engineering Company, a manufacturer of cartridge type
hydraulic valves which are manifold mounted for both mobile and industrial
applications. The manifold style valves complement the Company's existing lines
of stack type valves. Subsequent to the year end, the Hydraulic Group also
announced the stock purchase of Ultra Hydraulics Limited located near
Gloucester, England, by its wholly-owned subsidiary in the United Kingdom. Ultra
Hydraulics serves the mobile equipment market in the United Kingdom, Europe, the
United States and the Far East. Major customers include manufacturers of
material handling, turf care, construction, transportation and compaction
equipment. Ultra's products complement and extend the range of pumps, motors and
valves now offered by the Company.
Capital expenditures amounted to $13.9 million for this segment in 1996
versus expenditures of $28.1 million in 1995 and $16.5 million in 1994. Included
in the total for the current year are expenditures of $1.8 million for
completion of a new cylinder facility in the United States as well as $1.3
million for part of the plant expansion for the valve facility in Hicksville,
Ohio, and expenditures of $4.5 million for the continuing upgrades at our
facilities located in Germany. Funding for most of these German projects was
provided by the THA in accordance with the terms of the purchase. The majority
of the remaining expenditures in 1996 pertain to ongoing equipment purchases in
the U.S. to upgrade manufacturing performance and to outfit specialized
machining cells for the manufacture of new products.
Incoming orders for the Hydraulic Systems Group ended the year even
with 1995. The backlog of unfilled orders to start the new fiscal year was about
the same as last year, after adjusting for currency differences.
-16-
<PAGE> 17
ITEM 7. (CONTINUED)
- - BUILDING SYSTEMS AND METAL PRODUCTS
The revenues were down slightly for this group in 1996 compared to
1995, but 28 percent higher than 1994. Operating income improved by 57 percent
over 1995 and by 56 percent over 1994 as the overseas rebounded near the end of
1996. Sales for the Astron Division were higher than last year by 2 percent on a
parity-adjusted basis, but earnings improved significantly following three years
of continued decline. Increased pricing of products, lower operating costs at
the satellite manufacturing operation in the Czech Republic and increased demand
for our products were the main reason for the improvement. Sales were 3 percent
lower than 1995 but 17 percent higher than 1994 for the Metal Stamping Division
in the U.S. However, results remained at the same level as 1995. The continued
strong demand comes from the transportation and home building industries. Sales
were enhanced in 1996 and 1995 by the acquisition of a small manufacturer of
large diameter steel heads located in Saginaw, Texas. The division's
distribution center program, which has six locations in the U.S. continued
strong performance in 1996. Operating income for the combined metal stamping
operations in the U.S. was higher than 1995 and 1994 by 14 percent and 69
percent, respectively.
Capital expenditures for this segment amounted to $3.9 million in 1996
versus $3.6 million in 1995 and $2.7 million in 1994. Nearly two-thirds of the
1996 expenditures pertained to upgrade production equipment, equipment for the
satellite facility in the Czech Republic, and other office automation for the
Astron Division. The balance of the spending in 1996 related to upgrades and
replacement of production equipment in the U.S. General upgrades of Astron's
facilities and production capabilities accounted for the majority of the capital
expenditures in 1995 and 1994.
-17-
<PAGE> 18
ITEM 7. (CONTINUED)
INDUSTRY SEGMENTS (CONTINUED)
- -----------------------------
Incoming orders for domestic operations were higher in the fourth
quarter of 1996 compared to last year reflecting a somewhat stronger economy.
The Astron Division also reported good bookings in the fourth quarter, but
somewhat lower than in 1995 which included one large order shipped in early
1996. The backlog of unfilled orders to start the new year is lower by 18
percent from a year ago in the U.S., while the Astron backlog is off 14 percent
after adjusting for foreign currency differences.
NONOPERATING INCOME AND EXPENSE
Interest received from investments decreased from $1.8 million in 1995
to $1.0 million in 1996, due primarily, to available funds used to support the
repurchase of common stock and to successfully defend against a hostile takeover
attempt. Investment yields were marginally higher than those in previous
periods.
Approximately 90 percent of total interest expense incurred on borrowed
funds in 1996 resulted from long-term obligations. Most of the long-term
interest expense derived from the 1992 issuance of $45.0 million of 8.2 percent
senior notes as part of a capital restructuring program. The senior notes were
refinanced during the fourth quarter of 1996 with a bridge facility that also
funded the Company's program to repurchase 2.0 million common shares. The
interest on this new bridge financing was 8.5 percent. Remaining interest
expense primarily pertains to long-term debt to fund major construction
projects, equipment leases, and short-term borrowings to support current
operations. Recorded as a credit to interest expense in 1994 is a $1.3 million
reversal of an unrealized interest obligation accrued in prior years. Effective
interest rates paid by the Company on long-term debt have increased slightly
over the three-year period, primarily due to the bridge financing incurred
during the fourth quarter of 1996. Short-term rates have fluctuated on an
interim basis.
-18-
<PAGE> 19
ITEM 7. (CONTINUED)
NONOPERATING INCOME AND EXPENSE (CONTINUED)
Foreign currency exchange and translation gains and losses are included
in other nonoperating expense. These amounts totaled $0.3 million gain in 1996,
and losses of $0.3 million in 1995 and $1.8 million in 1994. The Company
utilizes foreign currency forward contracts to hedge the principal and interest
due on loans which are periodically made with foreign subsidiaries. Deferred
gains and losses from such hedging activities were negligible at the end of the
current fiscal year (see Note J).
Other nonoperating income for 1996 includes $1.6 million gain on the
sale of fixed assets. The unused assets were principally located in the United
Kingdom and Germany.
TAXES
The Company's effective tax rate increased to 35 percent in 1996
compared to 20 percent in 1995 primarily as the result of nonrecurring defense
costs in 1996 and reduced utilization of tax loss carryforwards acquired with
the ORSTA business in 1994 to shelter earnings of the Company's other German
operations, including those of an Astron subsidiary. Remaining ORSTA net
operating losses of approximately $120.2 million, may be carried forward
indefinitely and are expected to provide tax relief on income earned by all
operations in Germany for a number of years. Effective rates are also reduced by
the favorable tax impact of reserve contracts and the exercise of stock options.
Partially offsetting these benefits were the tax consequences of repatriating
foreign earnings and state and local taxes levied on domestic income.
EXTRAORDINARY ITEMS
The Company recorded an extraordinary charge of $4.0 million during the
fourth quarter of 1996 for losses associated with early retirements of debt.
-19-
<PAGE> 20
ITEM 7. (CONTINUED)
ACCOUNTING STANDARDS
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities." The SOP does not make
changes to existing accounting rules, but it clarifies how existing
authoritative guidance on loss contingencies should be applied in determining
environmental liabilities. The Company does not believe the SOP will have any
material impact on future operations. The Company will be required to report
under the SOP in financial statements for 1998.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123, "Accounting for Stock-Based Compensation" governing
financial accounting and reporting standards for compensation plans which award
employees in the form of stock options, restricted stock, performance shares,
etc. As permitted by this Statement, the Company intends to continue to account
for such compensation using the intrinsic value method in accordance with APB
No. 25. Adoption of the new standard in this form will have no impact of
reported income in future years. Pro forma disclosures as required by this
pronouncement will apply to stock-based awards on or after November 1, 1995 and
will first be disclosed in financial statements for 1997.
-20-
<PAGE> 21
ITEM 7. (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is generally defined as the ability to generate cash, by
whatever means available, to satisfy the short- and long-term needs of the
Company. With respect to cash flow in 1996, the balance of cash and cash
equivalents decreased from $32.9 million at the end of 1995 to $27.6 million at
the end of 1996, after adjusting for the 100 percent spin-off of CUNO
Incorporated as a discontinued operation. The ORSTA acquisition made in 1994
continues to be a consumer of Company funds. Under terms of the ORSTA Purchase
Agreement, Commercial Intertech received cash contributions from the THA and
other German regulatory agencies to cover operating losses for a period of two
years and fund pre-existing capital expenditures programs of the acquired
businesses (see Note K). Contributions received since the acquisition date in
accordance with the Agreement have aggregated to $47.1 million in 1995 and 1994,
while cash consumed for operating requirements (inclusive of working capital
needs) and capital investments has amounted to $28.2 million and $19.0 million,
respectively. The ORSTA operations generated a net cash flow of $14.3 million in
1994 but consumed $5.2 million in 1996 and $9.3 million in 1995.
Cash generated from Commercial Intertech's total continuing operations
amounted to $45.6 million in 1996, representing an increase of $36.1 million
from the previous year. A decrease in accounts receivable and a reduced amount
of deferred credit amortization were the principal factors in the year-over-year
increase. Income from discontinued operations and amortization of deferred
credit are noncash in nature and therefore had no effect on cash flow in these
periods.
-21-
<PAGE> 22
ITEM 7. (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Cash used in investing activities amounted to $25.8 million in 1996.
Capital expenditures totaled $18.0 million for the year versus $31.8 million in
1995 and $19.4 million in 1994 (see Note I). More than 50 percent of the current
year spending pertained to expansion of production capacity, equipment upgrades
to improve manufacturing performance, machine tools for the manufacture of new
product introductions, construction of a new manufacturing facility, and
purchase of advanced computer systems to support manufacturing processes and
administrative functions. Completion of a new manufacturing facility,
investments in technologically advanced production equipment, and other
operating improvements for the ORSTA units accounted for most of the capital
spending overseas during 1996 and 1995. Production equipment for the new Astron
satellite facility in the Czech Republic accounted for part of the overseas
expenditures. Construction of a new manufacturing facility, capacity expansion,
equipment upgrades, and office automation in the U.S. accounted for the majority
of the capital expenditures in the two preceding years. Authorized but unspent
capital expenditure programs totaled $8.6 million at October 31, 1996. Major
projects include the completion of the new valve plant expansion, on-going
state-of-the-art production equipment for the Hydraulic Group, upgraded
production equipment to improve efficiency and increase capacity for the Metal
Products Group. Proceeds were received during 1996 from the sale of idle
property and equipment located in the United Kingdom and Germany.
Cash used in financing activities totaled $32.3 million. Principal
activities included the refinancing of the Company's debt during the hostile
takeover attempt by obtaining bridge financing to fund the repurchase of 2.0
million common shares, to purchase the ESOP senior notes, and to retire the
$45.0 million senior notes that were outstanding. The bridge financing was
replaced with a new $125.0 million senior revolving credit and $60.0 million
term loan facilities. Other activities include the payment of reserve contract
premiums, losses on early retirements of debt, dividend from CUNO Incorporated
in connection with the spin-off, and the distribution of dividends to
shareholders. Dividends totaled $10.2 million in 1996, of which $8.1 million
were paid to shareholders of common stock.
-22-
<PAGE> 23
ITEM 7. (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
As part of a restructuring program completed in 1990, the Company
established two leveraged employee stock ownership plans (the ESOPs) and sold
Series B cumulative preferred shares to the plans for approximately $25.0
million. The ESOPs borrowed funds to purchase the Series B shares. During 1993,
the ESOPs completed a refinancing program whereby a floating rate loan was
replaced with a $23.4 million, 7.8 percent, 17-year term loan privately placed
with a group of insurance companies. During 1996, the Company purchased the
outstanding loan from the group. This program provides permanent financing for
the remaining life of the benefit plan.
In November 1996, the Company reported it acquired all of the
outstanding common stock of Ultra Hydraulics Limited through its wholly-owned
subsidiary, Commercial Intertech Limited, located in the United Kingdom. Ultra
Hydraulics is headquartered near Gloucester, England and employs more than 300
men and women in the United Kingdom and the United States. Commercial Intertech
will account for the stock acquisition of Ultra as a purchase. The initial
purchase price of Ultra is approximately $43.0 million and is subject to
adjustments based upon audit. The funds were provided as part of the new senior
revolving credit and term loan agreement entered into at the end of October,
1996.
Internal cash flows are expected to be sufficient to provide the
capital resources necessary to support operating needs and finance capital
expenditure programs in the coming year. The Company has a $51.0 million
(excluding the funds related to the purchase of Ultra Hydraulics Limited) credit
facility available which expires in 2001. The funds available to the Company
under this agreement may be used for any general corporate purpose. Including
this facility, total credit lines of $91.1 million, denominated in both domestic
and foreign currencies, were available to the Company at fiscal year-end.
Borrowing rates to start the new year were generally lower than the same period
a year ago, reflecting prevailing market conditions.
-23-
<PAGE> 24
ITEM 7. (CONTINUED)
IMPACT OF INFLATION AND CHANGING PRICES
Rates of inflation were approximately the same as the previous year,
ranging from 2 to 4 percent in most instances. Manufacturing and operating costs
generally advanced in line with inflation, but the continuing trend of
competitive pressures and price resistance in the marketplace limited the extent
to which cost increases could be passed along to customers in 1996. Selling
price increases were implemented to cover rising costs for wages, benefits, raw
materials, purchased components and other manufacturing costs. Consequently, the
Corporation relied upon volumetric efficiencies, productivity improvements and
cost saving measures to offset the shortfall in pricing and successfully
maintain or improve profit margins in most business units. Margins improved for
the Astron Division where weak industry prices and price discounting in certain
market segments have adversely affected profitability over the previous two
years.
The ability to recover cost increases and maintain margins continues to
be a major challenge for most operating units, and the Company relies upon cost
containment, aggressive purchasing, quality initiatives and cost-saving capital
investments to combat profit erosion and remain competitive.
BUSINESS OUTLOOK
The consolidated backlog of unfilled orders amounted to $142.0 million
at the end of the year which, after adjusting for the effects of exchange rate
differences on foreign segments, represents a decrease of 6 percent over the
previous fiscal year-end. Substantially all of the consolidated backlog is
deliverable in 1997.
-24-
<PAGE> 25
ITEM 7. (CONTINUED)
BUSINESS OUTLOOK (CONTINUED)
Business conditions to start the new fiscal year for the Company's
domestic operations are uneven but early signs indicate that demand will
increase in most of our core product lines for 1997. Recent reports suggest that
economic growth in the U.S. will continue as consumer confidences are high and
interest rates remain low. First quarter earnings for the Company's domestic
operations are expected to be seasonally lower, but profit improvements are
anticipated for the entire year. The Company intends to realize benefits from
major 1996 capital investments to improve productivity and also stands to
benefit from the added business volume of the recent acquisitions of Component
Engineering and Ultra Hydraulics. The production inefficiencies and development
costs associated with start-ups of a number of new hydraulic products, including
small displacement pumps, pressure compensated valves, and the introduction of a
new line of piston pumps, are now behind us. These new products, all of which
enhance our competitive position and open new markets to us, as well as the
continued growth in miniature and specialized hydraulics, are expected to
contribute to improved results.
Prospects are mixed for the Company's overseas operations to start the
year. Ongoing efforts to reorganize and make profitable the hydraulic operations
in Germany will continue to adversely impact earnings early in the new year, but
significant improvements are expected in 1997 from strengthening of market
conditions, additional volume from new product introduction, and successful
negotiations with agencies of the German government to extend operating
subsidies for one of the business units acquired from the former Treuhandanstalt
(THA) in 1994. Conditions are brighter for the Astron Division as demand is
expected to increase in major European markets, with particular strength in
Eastern Europe. Pricing should remain similar to the level of 1996 while
manufacturing costs will hold steady as a result of full manufacturing status at
the Czech Republic facility and continuation of a favorable trend in material
costs. Elsewhere, the outlook is excellent for continued economic growth in the
United Kingdom, coupled with the new acquisition of Ultra Hydraulics. Continued
growth is again expected in Australia and Brazil.
-25-
<PAGE> 26
ITEM 7. (CONTINUED)
BUSINESS OUTLOOK (CONTINUED)
The Company continues to invest in capital improvements, identify and
implement strategic initiatives, and reduce overheads where possible to lower
operating costs and improve profitability. The competitive advantages which
these programs provide, our ability to meet the challenges of globalization and
increased international competition, and continuation of moderate growth in
world economies cause us to anticipate strong consolidated results again in
1997.
FORWARD LOOKING INFORMATION
Because Commercial Intertech wants to provide shareholders with more
meaningful and useful information, this Annual Report contains certain
statements which reflect the Company's current expectations regarding the future
results of operations, performance and achievements. Commercial Intertech Corp.
has tried, wherever possible, to identify these "forward looking statements by
using words such as "anticipate," "believe," "estimate," "expect" and similar
expressions. These statements reflect the Company's current beliefs and are
based on information currently available to it. Accordingly, these statements
are subject to risks and uncertainties which could cause the Company's actual
results, performance or achievements to differ materially from those expressed
in, or implied by these statements. These risks and uncertainties include the
following: the effectiveness of the Company's program to reduce general
corporate and operating unit overhead; volumes of shipments of the Company's
products, changes in the Company's product mix and product pricing; costs of raw
materials; the rate of economic and industry growth in the United States and the
other countries in which the Company conducts its business; economic and
political conditions in the foreign countries in which the Company conducts a
substantial part of its operations and other risks associated with international
operations including taxation policies, exchange rate fluctuations and the risk
of expropriation; the Company's ability to protect its technology, proprietary
products and manufacturing techniques; changes in technology, changes in
industrial requirements and risks generally associated with new product
introductions and applications; and domestic and international competition in
the Company's global markets. The Company is not obligated to update or revise
these "forward looking" statements to reflect new events or circumstances.
-26-
<PAGE> 27
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENTS OF CONSOLIDATED INCOME
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
YEAR ENDED OCTOBER 31, 1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C>
Net sales................................. $465,209 $459,137 $373,820
Less costs and expenses:
Cost of products sold.................. 340,993 337,122 271,228
Selling, administrative and
general expenses..................... 88,799 87,670 72,799
Nonrecurring defense and
reorganization costs................. 8,202 0 0
--------- --------- ---------
437,994 424,792 344,027
--------- --------- ---------
Operating income.......................... 27,215 34,345 29,793
Nonoperating income (expense):
Interest income........................ 1,031 1,837 1,321
Interest expense....................... (7,083) (6,238) (4,262)
Gain on sale of assets................. 1,603 204 123
Other.................................. 972 231 (1,215)
--------- -------- ---------
(3,477) (3,966) (4,033)
Income from continuing operations before
income taxes and extraordinary items... 23,738 30,379 25,760
Provision for income taxes:
Current................................ 10,875 5,706 8,458
Deferred............................... (2,493) 391 (510)
--------- -------- ---------
8,382 6,097 7,948
--------- -------- ---------
Income from continuing operations before
extraordinary items.................... 15,356 24,282 17,812
Income from discontinued operations (net
of income taxes of $4,857 in 1996,
$3,462 in 1995 and $236 in 1994)....... 6,083 6,101 7,269
Extraordinary items (losses on early
retirement of debt, net of income
tax benefits of $2,694)................ (4,044) 0 0
--------- -------- ---------
Net income................................ $ 17,395 $ 30,383 $ 25,081
========= ========= =========
Preferred stock dividends and adjustments. (2,058) (2,084) (2,097)
--------- --------- ---------
Net income applicable to common stock..... $ 15,337 $ 28,299 $ 22,984
========= ========= =========
Earnings per share of common stock:
Primary:
Income from continuing operations
before extraordinary items......... $0.87 $1.42 $1.03
Income from discontinued operations.. 0.40 0.40 0.47
Extraordinary items.................. (0.26) 0.00 0.00
Net income........................... 1.01 1.82 1.50
Fully diluted:
Income from continuing operations
before extraordinary items......... $0.83 $1.35 $0.98
Income from discontinued operations.. 0.36 0.37 0.43
Extraordinary items.................. (0.24) 0.00 0.00
Net income........................... 0.95 1.72 1.41
See notes to consolidated financial statements.
</TABLE>
-27-
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
OCTOBER 31,
1996 1995
--------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (including equivalents of $19,291
in 1996 and $23,656 in 1995) . . . . . . . $ 27,552 $ 32,949
Accounts and notes receivable, less
allowances for doubtful accounts of
$1,724 in 1996 and $2,306 in 1995. . . . . 70,399 81,540
Inventories . . . . . . . . . . . . . . . . . 58,129 51,719
Deferred income tax benefits. . . . . . . . . 15,515 11,639
Prepaid expenses and other current assets . . 4,012 5,012
Dividend receivable from discontinued
operations . . . . . . . . . . . . . . . . 4,612 0
Receivable from discontinued operations . . . 10,184 0
-------- --------
TOTAL CURRENT ASSETS 190,403 182,859
NONCURRENT ASSETS
Intangible assets . . . . . . . . . . . . . . 9,051 2,098
Pension assets. . . . . . . . . . . . . . . . 37,371 32,478
Net assets of discontinued operations . . . . 0 86,883
Other noncurrent assets . . . . . . . . . . . 3,671 3,566
-------- --------
TOTAL NONCURRENT ASSETS 50,093 125,025
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements. . . . . . . . . . 6,379 7,400
Buildings . . . . . . . . . . . . . . . . . . 51,353 45,527
Machinery and equipment . . . . . . . . . . . 130,314 121,932
Construction in progress. . . . . . . . . . . 8,863 12,198
-------- --------
196,909 187,057
Less allowance for depreciation . . . . . . . 100,289 92,262
-------- --------
96,620 94,795
-------- --------
TOTAL ASSETS $337,116 $402,679
======== ========
</TABLE>
-28-
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
October 31,
1996 1995
--------------------
(in thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans. . . . . . . . . . . . . . . . . . $ 2,745 $ 9,285
Accounts payable. . . . . . . . . . . . . . . 51,648 47,697
Accrued payrolls and related taxes. . . . . . 17,116 20,564
Accrued expenses. . . . . . . . . . . . . . . 37,175 32,637
Dividends payable . . . . . . . . . . . . . . 2,449 2,788
Accrued income taxes. . . . . . . . . . . . . 4,385 3,216
Current portion of long-term debt . . . . . . 705 1,233
--------- ---------
TOTAL CURRENT LIABILITIES 116,223 117,420
NONCURRENT LIABILITIES
Long-term debt. . . . . . . . . . . . . . . . 93,415 69,869
Deferred income taxes . . . . . . . . . . . . 15,495 14,112
Postretirement benefits . . . . . . . . . . . 24,822 20,954
Deferred credit . . . . . . . . . . . . . . . 0 3,731
--------- ---------
TOTAL NONCURRENT LIABILITIES 133,732 108,666
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized: 10,000,000 shares
Series A participating preferred shares. . 0 0
Series B ESOP convertible preferred shares
Issued: 1996 - 1,039,657 shares
1995 - 1,053,508 shares. . . . 24,172 24,494
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1996 - 13,559,579 shares
(excluding 2,211,868 in treasury)
1995 - 15,439,514 shares
(excluding 149,043 in treasury) . . . 13,560 15,440
Capital surplus . . . . . . . . . . . . . . . 0 38,396
Retained earnings . . . . . . . . . . . . . . 67,808 112,907
Deferred compensation . . . . . . . . . . . . (17,594) (18,851)
Translation adjustment. . . . . . . . . . . . (785) 4,207
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 87,161 176,593
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $337,116 $402,679
========= =========
See notes to consolidated financial statements.
</TABLE>
-29-
<PAGE> 30
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Commercial Intertech Corp. and Subsidiaries
<CAPTION>
Year Ended October 31,
1996 1995 1994
-------------------------------
(in thousands, except per-share data)
<S> <C> <C> <C>
PREFERRED STOCK (Series B)
Balance at beginning of year. . . . . $ 24,494 $ 24,631 $ 24,758
Shares converted. . . . . . . . . . . (322) (137) (127)
--------- --------- ---------
Balance at end of year. . . . . . . . 24,172 24,494 24,631
COMMON STOCK
Balance at beginning of year. . . . . 15,440 15,199 10,038
Shares issued:
Employee Stock Ownership Plan. . . 99 34 25
Stock option and award plans . . . 65 207 63
Shares issued as of September 1, 1994
in stock split effected in the form
of a 50% share dividend. . . . . . 0 0 5,073
Repurchase program. . . . . . . . . . (2,044) 0 0
--------- --------- ---------
Balance at end of year. . . . . . . . 13,560 15,440 15,199
CAPITAL SURPLUS
Balance at beginning of year. . . . . 38,396 35,844 39,034
Employee Stock Ownership Plan . . . . 1,458 631 112
Stock option and award plans. . . . . 1,110 1,921 1,771
Par value transferred to common stock
in connection with stock split
effected in form of share dividend 0 0 (5,073)
Repurchase program. . . . . . . . . . (56,937) 0 0
Transfer from retained earnings . . . 15,973 0 0
--------- --------- ---------
Balance at end of year. . . . . . . . 0 38,396 35,844
RETAINED EARNINGS
Balance at beginning of year. . . . . 112,907 91,649 75,087
Net income for the year . . . . . . . 17,395 30,383 25,081
--------- --------- ---------
130,302 122,032 100,168
Less:
Dividends:
Common (per share: 1996 - $0.54;
1995 - $0.51; 1994 - $0.48) . . 7,847 7,862 7,239
Preferred Series B . . . . . . . . 2,055 2,082 2,095
--------- --------- ---------
9,902 9,944 9,334
Other preferred stock adjustments . (811) (819) (815)
Stock distribution -
CUNO Incorporated. . . . . . . . . 37,430 0 0
Transfer to capital surplus . . . . 15,973 0 0
---------- --------- --------
Balance at end of year. . . . . . . . 67,808 112,907 91,649
DEFERRED COMPENSATION. . . . . . . . . . (17,594) (18,851) (20,108)
TRANSLATION ADJUSTMENT . . . . . . . . . (785) 4,207 767
---------- --------- ---------
Total shareholders' equity . . . . $ 87,161 $176,593 $147,982
========= ========= =========
Shareholders' equity per share of common
stock . . . . . . . . . . . . . . . . $ 5.94 $11.07 $ 9.44
See notes to consolidated financial statements.
</TABLE>
<PAGE> 31
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
STATEMENTS OF CONSOLIDATED CASH FLOWS
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
<CAPTION>
Year Ended October 31,
1996 1995 1994
----------------------------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 17,395 $ 30,383 $ 25,081
Adjustments to reconcile net income to net
cash provided by operating activities:
Discontinued operations. . . . . . . . . . . . (6,083) (6,101) (7,269)
Provision for depreciation and amortization. . 12,566 11,276 9,808
Amortization of deferred credit. . . . . . . . (3,634) (16,095) (6,466)
Extraordinary losses on early retirement
of debt . . . . . . . . . . . . . . . . . . 6,738 0 0
Postretirement benefits. . . . . . . . . . . . 2,205 634 383
Pension plan credits . . . . . . . . . . . . . (2,524) (2,872) (3,207)
Change in deferred income taxes. . . . . . . . (969) 278 (884)
Change in current assets and liabilities:
Decrease (increase) in accounts receivable. 10,446 (15,999) (3,858)
(Increase) in inventories . . . . . . . . . (6,998) (9,073) (5,775)
Decrease (increase) in prepaid expenses
and other current assets . . . . . . . . 903 (2,843) (1,187)
Increase in accounts payable and accrued
expenses . . . . . . . . . . . . . . . . 12,780 14,545 19,220
Increase (decrease) in accrued income
taxes. . . . . . . . . . . . . . . . . . 2,727 5,270 (6,301)
--------- --------- ---------
Net cash provided by continuing operations . . . . . 45,552 9,403 19,545
Net cash provided by discontinued operations . . . . 8,356 3,128 6,772
--------- --------- ---------
Net cash provided by operating activities. . . . . . 53,908 12,531 26,317
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets . . . . . . . . . 2,934 374 176
Business acquisitions. . . . . . . . . . . . . . . . (10,731) (886) 11,140
Installments received -- acquisition . . . . . . . . 0 17,146 18,833
Investments in intangibles . . . . . . . . . . . . . (25) (46) (243)
Capital expenditures . . . . . . . . . . . . . . . . (17,950) (31,794) (19,446)
--------- --------- ---------
Net cash (used) provided by investing activities . . (25,772) (15,206) 10,460
FINANCING ACTIVITIES:
Proceeds from long-term debt . . . . . . . . . . . . 268,500 0 0
Principal payments on long-term debt . . . . . . . . (245,435) (2,800) (2,015)
Net borrowings under bank loan agreements. . . . . . (6,328) (251) (2,134)
Repurchase of common shares. . . . . . . . . . . . . (58,980) 0 0
Debt early retirement. . . . . . . . . . . . . . . . (6,738) 0 0
Proceeds from reserve contracts. . . . . . . . . . . 2,136 2,089 830
Purchase of reserve contracts. . . . . . . . . . . . (3,566) (3,475) (3,430)
Conversion of other assets . . . . . . . . . . . . . (1,706) (661) 621
Dividend from CUNO Incorporated. . . . . . . . . . . 30,000 0 0
Dividends paid . . . . . . . . . . . . . . . . . . . (10,177) (9,666) (9,094)
--------- --------- ---------
Net cash (used) by financing activities . . . . (32,294) (14,764) (15,222)
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . (1,239) 2,130 3,590
--------- --------- ---------
Net (decrease)increase in cash and cash equivalents . . (5,397) (15,309) 25,145
Cash and cash equivalents at beginning of year. . . . . 32,949 48,258 23,113
--------- --------- ---------
Cash and cash equivalents at end of year. . . . . . . . $ 27,552 $ 32,949 $ 48,258
========= ========= =========
Supplemental disclosures:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 6,829 $ 7,055 $ 6,612
Income taxes . . . . . . . . . . . . . . . . . . . . 12,852 4,899 16,282
See notes to consolidated financial statements.
</TABLE>
-31-
<PAGE> 32
ITEM 8. (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial Intertech Corp. and Subsidiaries
NOTE A - ACCOUNTING POLICIES
Organization:
Commercial Intertech Corp. ("Commercial Intertech" or the
"Company") is a multinational manufacturer of Hydraulic Systems
and Building Systems and Metal Products. The Company operates
twenty-seven facilities in nine countries.
Discontinued Operations
On July 29, 1996 the Board of Directors of Commercial Intertech Corp.
approved a plan to spin-off the Company's fluid purification business by
declaring a dividend distribution of 100% of the common stock of CUNO
Incorporated ("CUNO") on a pro-rata basis to the holders of Commercial Intertech
common shares (the "Distribution"). Each holder of record of Commercial
Intertech common shares at the close of business on September 10, 1996, the
payable date for the Distribution, received one share of CUNO Common Stock for
every one share of Commercial Intertech common share. No fractional shares of
CUNO were issued. The net assets and operating results of CUNO are presented in
the accompanying consolidated financial statements as a discontinued operation
through the distribution date. The CUNO revenues through the distribution date
were $147,934,000 in 1996, $162,699,000 in 1995 and $143,111,000 in 1994.
In connection with the spin-off, the Board of Directors of Commercial
Intertech declared a dividend of approximately $35,675,000 payable from the CUNO
locations to Commercial Intertech, and immediately prior to the Distribution,
CUNO assumed $30,000,000 of Commercial Intertech's debt in the form of a
dividend.
The Company and CUNO have entered into a Tax Allocation Agreement in
connection with the distribution. In addition, the Company and CUNO have entered
into a Distribution and Interim Services Agreement which provides that certain
services which have historically been provided to CUNO by the Company will
continue to be provided following the Distribution Date, at rates specified in
such agreement, for a period of up to twelve months.
Consolidation:
The accounts of the Company and its subsidiaries are included in the
consolidated financial statements. Intercompany accounts and transactions are
eliminated upon consolidation. All statements and amounts presented have been
restated to reflect the 100% spin-off of CUNO Incorporated as a discontinued
operation.
-32-
<PAGE> 33
ITEM 8. (Continued)
NOTE A - ACCOUNTING POLICIES (Continued)
Distribution and reorganization costs incurred to successfully defend
against a hostile takeover attempt and to further reorganize the remaining core
businesses have been reported in operating income under the caption nonrecurring
defense and reorganization costs.
Inventories:
Inventories are stated at the lower of cost or market. Inventories in the
United States are primarily valued on the last-in, first-out (LIFO) cost method.
The method used for all other inventories is first-in, first-out (FIFO).
Approximately 53 percent (52 percent in 1995) of worldwide inventories are
accounted for using the LIFO method. Inventories as of October 31 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Raw materials . . . . . . . . $21,090 $14,919
Work in process . . . . . . . 27,353 27,677
Finished goods. . . . . . . . 9,686 9,123
------- -------
$58,129 $51,719
======= =======
</TABLE>
If all inventories were priced using the FIFO method, which approximates
replacement cost, inventories would have been $14,603,000 higher in 1996 and
$14,371,000 higher in 1995.
<TABLE>
<CAPTION>
Intangibles:
Intangible assets at October 31 are summarized as follows:
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Goodwill, less accumulated
amortization (1996 - $1,280,000;
1995 - $912,000). . . . . . . $ 8,495 $ 1,091
Other intangibles, less accumulated
amortization (1996 - $443,000;
1995 - $2,213,000). . . . . . 556 1,007
-------- -------
$ 9,051 $ 2,098
======= =======
</TABLE>
The excess cost over the fair value of net assets acquired (or goodwill)
generally is amortized on a straight-line basis over 20 years.
Other intangibles, including patents, know-how and trademarks, are carried
at their appraised value on the acquisition date less accumulated amortization,
which is provided using the straight-line method over 10 to 25 years.
-33-
<PAGE> 34
ITEM 8. (Continued)
NOTE A - ACCOUNTING POLICIES (Continued)
The deferred credit represents negative goodwill from an acquisition and
is fully amortized at October 31, 1996 (see Note K).
Properties and Depreciation:
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided on the straight-line method over the following
estimated useful lives:
Buildings and improvements 20 - 35 years
Machinery and equipment 5 - 10 years
Furniture and fixtures 3 - 15 years
Impairment of Long-Lived Assets:
In the event that facts and circumstances indicate that the carrying value
of intangibles and long-lived assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flow associated with the asset would be
compared to the asset's carrying amount to determine if a write-down is
required.
Income Taxes:
The Company uses the liability method in measuring the provision for
income taxes and recognizing deferred tax assets and liabilities. Deferred
income tax assets and liabilities principally arise from differences between the
tax basis of the asset or liability and its reported amount in the consolidated
financial statements. Deferred tax balances are determined by using provisions
of the enacted tax laws; the effects of future changes in tax laws or rates are
not anticipated.
Provisions are made for appropriate income taxes on undistributed earnings
of foreign subsidiaries which are expected to be remitted to the parent company
in the near term. The cumulative amount of unremitted earnings of subsidiaries,
which aggregated approximately $64,314,000 at October 31, 1996, is deemed to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. tax liability is not practicable because of
the complexities associated with its hypothetical calculation; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability.
-34-
<PAGE> 35
ITEM 8. (Continued)
NOTE A - ACCOUNTING POLICIES (Continued)
Translation of Foreign Currencies:
The financial statements of foreign entities are translated in accordance
with Financial Accounting Standards Board (FASB) Statement No. 52, except for
those entities located in highly inflationary countries. Under this method,
revenue and expense accounts are translated at the average exchange rate for the
year while asset and liability accounts are translated into U.S. dollars at the
current exchange rate. Resulting translation adjustments are recorded as a
separate component of shareholders' equity and do not affect income
determination.
Earnings Per-Share Amounts:
Income per share of common stock is computed using the weighted-average
number of shares outstanding for each year. The preferred stock issuances were
determined not to be common stock equivalents for primary earnings per common
share. In computing primary earnings per common share, the Series B preferred
dividends reduce income available to common shareholders.
In computing fully diluted earnings per share, dilution is determined by
dividing net earnings by the weighted average number of common shares
outstanding during each year after giving effect to dilutive preferred stock
assumed converted to common stock. The dilutive calculation assumes conversion
of Series B preferred stock to common shares and the subsequent adjustment for
dividend rates to arrive at income available to common shareholders.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.
Investment in Reserve Contracts:
The Company holds corporate owned life insurance contracts on most
domestic employees. The contracts are recorded at cash surrender value, net of
policy loans, in other noncurrent assets. The net contract expense, including
interest expense, is included in selling, administrative and general expenses in
the Statements of Consolidated Income. The related interest expense was
$7,715,000 in 1996, $7,973,000 in 1995, and $6,320,000 in 1994 which in each
year is reduced for contract benefits and net amortization of contract premiums
and cash surrender value.
-35-
<PAGE> 36
ITEM 8. (Continued)
NOTE A - ACCOUNTING POLICIES (Continued)
Concentration of Credit Risks:
The Company sells products and extends credit based on an evaluation of
the customer's financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition:
Revenue is recognized when the earning process is complete and the risks
and rewards of ownership have transferred to the customer, which is generally
considered to have occurred upon shipment of the finished product.
Advertising:
The Company expenses all advertising cost as incurred. Advertising expense
incurred during the period was immaterial.
Newly Issued Accounting Standards:
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. As permitted by this
statement, the Company intends to continue to account for such compensation,
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25. Adoption of the new standard in this form will have no impact on
reported income in future years. Pro forma disclosures as required by this
pronouncement will apply to stock-based awards granted on or after November 1,
1995 and will first be disclosed in financial statements for 1997.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is effective for
fiscal years beginning after December 15, 1996. The SOP does not make changes to
existing accounting rules, but it clarifies how existing authoritative guidance
on loss contingencies should be applied in determining environmental
liabilities. The Company does not believe the SOP will have any material impact
on future operations. The Company will be required to report under the SOP in
financial statements for 1998.
-36-
<PAGE> 37
ITEM 8. (Continued)
<TABLE>
<CAPTION>
NOTE B - DEBT
Long-term debt obligations are summarized below:
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Revolving credit and term
loan agreement. . . . . . . . . . . $91,000 $ -0-
Senior notes . . . . . . . . . . . . . -0- 45,000
Other. . . . . . . . . . . . . . . . . 3,120 4,420
------- -------
94,120 49,420
Less current portion . . . . . . . . . 705 1,233
------- -------
93,415 48,187
Guarantee of employee stock ownership
plan loan . . . . . . . . . . . . . -0- 21,682
------- -------
$93,415 $69,869
======= =======
</TABLE>
During the third and fourth quarter of fiscal 1996, the Company entered
into a $190.0 million bridge loan agreement to fund the repurchase of 2.0
million common shares, to purchase the outstanding loans of the Company's
Employee Stock Ownership Plan ("ESOP") and to retire the $45.0 million senior
notes outstanding. Following the spin-off of CUNO Incorporated, $55.0 million of
the loan was available to CUNO Incorporated. The Company then replaced the
credit facility with a $125.0 million aggregate senior unsecured revolving
credit and $60.0 million senior unsecured term loan facilities. Losses
associated with the early retirement of debt are recorded as extraordinary
items.
The new senior revolving credit and term loan agreement was used to
repay all outstanding debt associated with the bridge financing and is available
for up to $50.0 million for the subsequent purchase (including working capital)
of Ultra Hydraulics Limited and other general purposes. The revolving credit
facility matures 5 years from the closing date (October 31, 1996) while the term
loan's final maturity is 3.25 years. The Company pays a variable per annum fee
on the unused amount of the commitment, payable quarterly in arrears. The rate
at October 31, 1996 was 0.15 percent. The agreement has interest options
determinable by the Company based upon prime interest or LIBOR rates plus an
applicable margin. The margin was 0.5 percent at October 31, 1996. The original
draw down of the loan was at prime, which was converted to LIBOR on November 5,
1996 when the LIBOR rate was 5.9 percent. The credit agreement also has a
competitive bid option feature, which under certain conditions provides lower
interest rates. The credit agreement includes covenants which require the
maintenance of certain financial ratios. The Company was in compliance with
these covenants at October 31, 1996. Additionally, under the most restrictive
provisions of the agreement, approximately $17.6 million of unrestricted
retained earnings is available for future dividend payments or share purchases.
-37-
<PAGE> 38
ITEM 8. (Continued)
NOTE B - DEBT (Continued)
The Company established the Employee Stock Ownership Plan (ESOP) in
February 1990. The ESOP is presently financed by 7.08 percent senior notes due
December 31, 2009. In 1996, the notes were purchased by the Company with
proceeds from the revolving credit and term loan agreement. Since the debt is
now owned and also guaranteed by the Company, it is no longer included in
long-term debt. However, deferred compensation related to the ESOP is recorded
in Shareholders' Equity. As Company contributions and dividends on the shares
held by the ESOP are used to meet interest and principal payments to the
Company, shares are released for allocation to eligible employees.
Principal payments due in the five years after October 31, 1996 are:
(in thousands)
1997 - $ 705
1998 - 20,924
1999 - 31,452
2000 - 8,980
2001 - 31,119
The Company had available unused lines of credit in various countries
totaling approximately $40.1 million short-term and $94.0 million long-term at
October 31, 1996.
Outstanding bank loans at October 31, 1996 and 1995 had weighted average
interest rates of 5.4 percent and 6.5 percent, respectively.
-38-
<PAGE> 39
ITEM 8. (Continued)
NOTE C - FOREIGN CURRENCY TRANSLATION
The cumulative effects of foreign currency translation gains and losses are
reflected in the translation adjustment section of Shareholders' Equity.
Foreign currency transaction gains and losses, which include U.S. dollar
translation losses in Brazil, are reflected in income. Foreign currency gains
and losses have increased (decreased) income from continuing operations before
income taxes and extraordinary items as follows:
(in thousands)
1996 - $ 266
1995 - (330)
1994 - (1,818)
NOTE D - STOCK OPTIONS AND AWARDS
Under the Company's stock option and award plans, approximately 1,835,300
shares of common stock are reserved for issuance to key employees as of October
31, 1996. The options are exercisable at various dates and expire ten years from
the date of grant. Stock options granted during 1996 totaled 142,000 shares. A
total of 47,250 options were forfeited during the year. Stock appreciation
rights may be granted as part of a stock option or as a separate right to the
holders of any options previously granted. The present plan also provides for
awards of restricted and performance shares of common stock to key employees.
There were 42,380 restricted shares awarded in 1996 and 43,800 restricted shares
awarded in 1995. Awards of performance shares totaled 900 in 1996 and 130,650 in
1995. When rights, options or awards are granted, associated compensation
expense is accrued from date of grant to the date such options or awards are
exercised.
During 1996, terms of the outstanding stock option grants were amended to
offset the dilution created by the September 10, 1996 distribution of the common
stock of CUNO Incorporated to the shareholders of Commercial Intertech common
stock. The amendments, which applied to stock options outstanding as of the
distribution date, included a pro-rata reduction in the exercise price per
option and an increase in the number of shares under option, thereby restoring
option holders to the same economic position which existed prior to the
distribution. The number of options outstanding as of October 31, 1996 increased
by 591,200 shares as a result of this adjustment and no compensation expense was
charged to earnings.
-39-
<PAGE> 40
ITEM 8. (Continued)
NOTE D STOCK OPTIONS AND AWARDS (Continued)
<TABLE>
<CAPTION>
A summary of the activity follows for 1996 and 1995:
Number Option Price Range
of Shares Per Share
--------- ------------------
<S> <C> <C>
Options outstanding at October 31:
1996. . . . . . . . . . . . 1,067,473 $4.68 - $ 9.76
1995. . . . . . . . . . . . 617,051 9.83 - 21.88
Options exercised during the year:
1996. . . . . . . . . . . . 235,547 $9.83 - $21.88
1995. . . . . . . . . . . . 86,536 $6.50 - $14.83
Options exercisable at October 31:
1996. . . . . . . . . . . . 485,709 $4.68 - $ 9.76
1995. . . . . . . . . . . . 340,376 9.83 - 15.58
</TABLE>
Shares available for future grants amounted to approximately 767,760 and
796,550 as of October 31, 1996 and 1995, respectively.
NOTE E - BENEFIT PLANS
The Company and its subsidiaries have a number of noncontributory defined
benefit pension plans covering most U.S. employees. Pension benefits for the
hourly employees covered by these plans are expressed as a percentage of average
earnings over a ten-year period times years of continuous service or as a flat
benefit rate times years of continuous service. Benefits for salaried employees
are based upon a percentage of the employee's average compensation during the
preceding ten years, reduced by 50 percent of the Social Security Retirement
Benefit. The Company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as may be
deemed appropriate from time to time.
The Company also sponsors defined contribution pension plans for the hourly
employees of its operations in Benton, Arkansas; Kings Mountain, North Carolina;
and Minneapolis, Minnesota. Contributions and expense for these plans are
computed at 3 percent of annual employee compensation or at a discretionary rate
as determined each year by the Company. Hourly employees at the Orange,
California facility are covered by a multiemployer plan which provides benefits
in a manner similar to a defined contribution arrangement.
-40-
<PAGE> 41
ITEM 8. (Continued)
NOTE E BENEFIT PLANS (Continued)
The Company accounts for pension costs under the provisions of FASB
Statement No. 87 for contributory defined benefit pension plans covering its
employees in the United Kingdom. Benefits under these plans are generally based
on years of service and compensation during the years immediately preceding
retirement. Funding is predicated on minimum contributions as required by local
laws and regulations plus additional amounts, if any, as may be deemed
appropriate. Some employees of other foreign operations also participate in
postemployment benefit arrangements not subject to the provisions of FASB
Statement No. 87.
<TABLE>
<CAPTION>
A summary of the various components of net periodic pension cost for
defined benefit plans and cost information for other plans for the three-year
period is shown below:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(in thousands)
Defined benefit plans:
Service cost. . . . . . . . . . $ 2,338 $ 1,829 $ 1,959
Interest cost . . . . . . . . . 7,942 7,483 6,653
Actual return on plan assets. . (29,778) (24,410) (3,662)
Net amortization and deferral . 18,299 13,526 (6,349)
------ ------ ------
Net pension (income). . . . . . (1,199) (1,572) (1,399)
Other plans:
Defined contribution plans. . . 463 388 356
Multiemployer plan. . . . . . . 73 70 81
Foreign plans . . . . . . . . . 396 367 415
Termination benefit . . . . . . 1,639 0 0
------ ------ ------
Total pension expense (income). $ 1,372 $ (747) $ (547)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Assumptions used in the accounting for the defined benefit plans as of October
31 were:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate . . . . . . . . . 7.75% 7.25% 8.5%
Rates of increase in compensation levels . . . . 5.0 % 4.5 % 4.5%
Expected long-term rate of return on assets. . .10.0 % 10.0 % 10.0%
</TABLE>
-41-
<PAGE> 42
ITEM 8. (CONTINUED)
NOTE E BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at October 31, 1996 and 1995 for the Company's
U.S. and foreign defined benefit pension plans. Other foreign pension plans do
not determine net assets or the actuarial present value of accumulated benefits
as calculated and disclosed herein:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
---------------------------- ----------------------------
Plans Whose Plans Whose Plans Whose Plans Whose
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(in thousands)
Actuarial present value of
benefit obligations:
Vested benefit obligation. . . . $(84,866) $ (6,190) $(51,207) $(35,841)
========= ========= ========= =========
Accumulated benefit obligation . $(88,304) $ (6,194) $(53,236) $(37,204)
========= ========= ========= =========
Projected benefit obligation . . . $(99,738) $ (6,719) $(57,085) $(43,779)
Market value of plan assets. . . . 146,732 2,956 89,627 35,805
--------- --------- --------- ---------
Projected benefit obligation less
than or (in excess of) plan
assets. . . . . . . . . . . . . 46,994 (3,763) 32,542 (7,974)
Unrecognized net (gain) loss . . . (22,504) 643 (1,040) 4,996
Unrecognized prior service cost. . 5,309 696 2,479 1,429
Unrecognized net (asset) obligation 1,872 657 (4,528) 200
Additional liability . . . . . . . 0 (1,471) 0 (87)
--------- --------- --------- ---------
Net pension asset (liability)
recognized in the Consolidated
Balance Sheet . . . . . . . . . $ 31,671 $ (3,238) $ 29,453 $ (1,436)
========= ========= ========= =========
</TABLE>
Plan assets at October 31, 1996 are invested in publicly traded and
restricted mutual funds, various corporate and government bonds, guaranteed
income contracts and listed stocks, including common stock of the Company having
a market value of $2,179,000 at that date.
In addition to pension benefits, the Company sponsors other defined benefit
postretirement plans in the U.S. which provide medical and life insurance
benefits for certain hourly and salaried employees. Benefits are provided on a
noncontributory basis for those salaried retirees who have attained the age of
55 with 15 years of service and those hourly retirees who have attained the age
of 60 with 15 years of service or 30 years of service with no age restriction,
up to 65 years of age. Coverage is also provided for surviving spouses of hourly
retirees. Medical plans for both employee groups incorporate deductibles and
coinsurance features. The plans are unfunded, and postretirement benefit claims
and premiums are paid as incurred. Company-sponsored postretirement benefits are
not available to employees of foreign subsidiaries.
-42-
<PAGE> 43
ITEM 8. (CONTINUED)
NOTE E BENEFIT PLANS (CONTINUED)
Components of net periodic postretirement benefit cost are shown below.
Net periodic cost associated with retiree life insurance benefits amounted to
$190,000 in 1996, $269,000 in 1995, and $314,000 in 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Service cost. . . . . . . . . . . . . . . $ 396 $ 386 $ 419
Interest cost . . . . . . . . . . . . . . 1,294 1,463 1,357
Actual return on plan assets. . . . . . . 0 0 0
Amortization of transition obligation . . 0 0 0
Net amortization and deferral . . . . . . (47) (11) 49
------- ------- ------
Net periodic postretirement benefit cost. $ 1,643 $ 1,838 $1,825
======== ======== =======
</TABLE>
The following table shows the aggregated funded status of the benefit plans
reconciled with amounts recognized in the Company's Consolidated Balance Sheets.
The accrued postretirement cost associated with retiree life insurance benefits
amounted to $3,429,000 and $3,410,000 as of October 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees. . . . . . . . . . . . . . . . . $ (7,833) $ (7,897)
Fully eligible active plan participants . (3,553) (3,462)
Other active plan participants. . . . . . (5,849) (7,269)
--------- ---------
(17,235) (18,628)
Plan assets at fair value. . . . . . . . . . 0 0
Accumulated postretirement benefit
obligation (in excess of) plan assets . . (17,235) (18,628)
Unrecognized net (gain) loss . . . . . . . . (772) 771
Unrecognized prior service (asset) . . . . . (471) 0
Unrecognized transition obligation . . . . . 0 0
--------- --------
(Accrued) postretirement benefit cost. . . . $(18,478) $(17,857)
========= =========
</TABLE>
-43-
<PAGE> 44
ITEM 8. (CONTINUED)
NOTE E BENEFIT PLANS(CONTINUED)
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits in the medical plans, or health care cost trend rate, was
9.5 percent for 1996 and 10.0 percent for 1995. The trend rate is assumed to
decrease gradually from 9.0 percent in 1997 to 5.5 percent in the year 2004 and
remain at that level thereafter. Increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of October 31, 1996 by $1,635,500 and the
aggregate of service and interest cost components of net periodic postretirement
benefit cost for 1996 by $189,000. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.75 percent
and 7.25 percent at October 31, 1996 and 1995, respectively. The annual assumed
rate of salary increase for retiree life insurance is 5.0 percent and 4.5
percent at October 31, 1996 and October 31, 1995, respectively.
<TABLE>
NOTE F - INCOME TAXES
The components of income from continuing operations before income taxes and
extraordinary items and the provision for income taxes are summarized as
follows:
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income from continuing operations
before income taxes and
extraordinary items
Domestic . . . . . . . . . . . . $ 8,466 $20,717 $21,170
Foreign . . . . . . . . . . . . 15,272 9,662 4,590
-------- -------- -------
23,738 30,379 25,760
Provision for income taxes
Current
Domestic-Federal . . . . . . . . 6,261 6,258 5,988
-State and local . . . . 1,294 374 1,780
Foreign. . . . . . . . . . . . . 4,242 2,053 2,782
-------- -------- -------
11,797 8,685 10,550
Deferred
Domestic-Federal . . . . . . . . (2,687) (699) (266)
-State and local . . . . (510) (177) (126)
Foreign. . . . . . . . . . . . . 704 1,267 (118)
-------- -------- --------
(2,493) 391 (510)
Benefit of operating loss
carryforwards. . . . . . . . . . (922) (2,979) (2,092)
-------- -------- --------
8,382 6,097 7,948
Income from continuing operations
before extraordinary items
Domestic . . . . . . . . . . . . 4,108 14,961 13,794
Foreign. . . . . . . . . . . . . 11,248 9,321 4,018
-------- -------- -------
$15,356 $24,282 $17,812
======== ======== ========
</TABLE>
<PAGE> 45
ITEM 8. (Continued)
NOTE F - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
A reconciliation of the effective tax rate to the U.S. statutory rate
follows:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate. . . . . 35.0% 35.0% 35.0%
State and local taxes on income net of
domestic income tax benefit . . . . . . . . . 2.4 .4 4.2
(Decrease) increase in effective rate due
to impact of foreign subsidiaries . . . . . . (1.7) (.2) 4.1
Benefit of operating loss carryforwards . . . . (3.9) (9.8) (8.1)
Repatriation of foreign earnings. . . . . . . . 5.1 1.2 .4
Nonrecurring defense costs. . . . . . . . . . . 8.0 0 0
Reserve contracts . . . . . . . . . . . . . . . (7.8) (7.2) (5.4)
Stock options exercised . . . . . . . . . . . . (2.4) (.4) (.7)
Goodwill with no U.S. tax benefit . . . . . . . .6 .6 .5
All other . . . . . . . . . . . . . . . . . . . 0 .5 .9
----- ----- ----
Effective income tax rate . . . . . . . . . . 35.3% 20.1% 30.9%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Significant components of the Company's deferred income tax liabilities and
assets as of October 31, are as follows:
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation. . . . . . . . . $ 8,512 $ 8,215 $ 7,920
Prepaid pension asset . . . . . . . . . . . 12,615 11,555 10,502
United Kingdom property sale. . . . . . . . 1,400 1,360 1,407
Other . . . . . . . . . . . . . . . . . . . 387 383 93
-------- ------- -------
Total deferred income tax liabilities. . 22,914 21,513 19,922
Deferred income tax assets:
Postretirement benefits . . . . . . . . . . 7,248 7,032 6,769
Employee benefits . . . . . . . . . . . . . 6,241 5,404 5,019
Net operating loss carryforwards. . . . . . 54,047 65,037 55,308
Inventory valuation . . . . . . . . . . . . 1,222 1,504 952
Product liability . . . . . . . . . . . . . 4,237 3,484 2,575
Other . . . . . . . . . . . . . . . . . . . 3,986 1,616 2,524
-------- ------- -------
Total deferred income tax assets . . . . 76,981 84,077 73,147
Valuation allowance for deferred income tax
assets . . . . . . . . . . . . . . . . . 54,047 65,037 55,308
-------- ------- -------
Net deferred income tax assets . . . . . 22,934 19,040 17,839
-------- ------- -------
Net deferred income tax (assets)
liabilities. . . . . . . . . . . . . . $ (20) $ 2,473 $ 2,083
======== ======= =======
</TABLE>
-45-
<PAGE> 46
ITEM 8. (CONTINUED)
NOTE F - INCOME TAXES (CONTINUED)
The valuation allowance has decreased by $10,990,000 in 1996, and increased
by $9,729,000 in 1995 and $55,308,000 in 1994. The decrease in fiscal 1996 is
the result of tax audits on years prior to the acquisition of ORSTA Hydraulik.
At October 31, 1996, the Company also had unused foreign tax credit carryovers
of approximately $4,432,000 of which $672,000 will expire in 1998, $1,603,000 in
1999, and the balance will expire in the year 2001.
Tax benefits from operating loss carryforwards relate to the ORSTA
Hydraulik operations acquired in 1994 which are available indefinitely.
-46-
<PAGE> 47
<TABLE>
<CAPTION>
ITEM 8. (CONTINUED)
NOTE G - QUARTERLY DATA (UNAUDITED)
1996 First Second Third Fourth total
- --------------------------------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
Net sales......................................... $106,962 $112,227 $121,009 $125,011 $465,209
Gross profit...................................... 26,853 28,960 32,299 36,104 124,216
Income from continuing operations
before extraordinary items .................... 3,402 4,392 3,199 4,363 15,356
Income from discontinued operations .............. 1,851 3,251 630 351 6,083
Extraordinary items .............................. 0 0 0 (4,044) (4,044)
Net income ....................................... 5,253 7,643 3,829 670 17,395
Earnings per share:
Primary:
Income from continuing operations
before extraordinary items ............... $ 0.18 $ 0.25 $ 0.17 $ 0.28 $ 0.87
Income from discontinued operations ......... 0.12 0.21 0.05 0.02 0.40
Extraordinary items ......................... 0.00 0.00 0.00 (0.29) (0.26)
Net Income .................................. 0.30 0.46 0.22 0.01 1.01
Fully diluted:
Income from continuing operations
before extraordinary items ............... 0.18 0.24 0.17 0.26 0.83
Income from discontinued operations ......... 0.11 0.19 0.04 0.02 0.36
Extraordinary items ......................... 0.00 0.00 0.00 (0.25) (0.24)
Net Income .................................. 0.29 0.43 0.21 0.01 0.95
Dividends per common share ....................... 0.135 0.135 0.135 0.135 0.540
</TABLE>
<TABLE>
<CAPTION>
1995 First Second Third Fourth total
- --------------------------------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 97,594 $114,335 $119,261 $127,947 $459,137
Gross profit ..................................... 27,526 30,291 31,355 32,843 122,015
Income from continuing operations ................ 4,704 6,066 6,974 6,538 24,282
Income from discontinued operations .............. 1,416 1,241 1,419 2,025 6,101
Net income ....................................... 6,120 7,307 8,393 8,563 30,383
Earnings per share:
Primary:
Income from continuing operations ........... $ 0.27 $ 0.35 $ 0.41 $ 0.39 $ 1.42
Income from discontinued
operations ................................ 0.09 0.08 0.09 0.13 0.40
Net income .................................. 0.36 0.43 0.50 0.52 1.82
Fully diluted:
Income from continuing operations ........... 0.26 0.34 0.39 0.37 1.35
Income from discontinued
operations ................................ 0.08 0.07 0.08 0.12 0.37
Net income .................................. 0.34 0.41 0.47 0.49 1.72
Dividends per common share ....................... 0.125 0.125 0.125 0.135 0.510
</TABLE>
-47-
<PAGE> 48
ITEM 8. (CONTINUED)
NOTE G - QUARTERLY DATA (UNAUDITED) (CONTINUED)
The Company incurred charges of $3,637,000 or $.21 per share during the
third quarter of 1996 and $3,452,000 or $.21 per share (net of tax) during the
fourth quarter to successfully defend itself against a hostile takeover attempt
and to further reorganize the remaining core business of the Company following
the September 10, 1996 spin-off of CUNO Incorporated. The Company also recorded
extraordinary charges of $4,044,000 or $.24 per share in the fourth quarter of
1996 for losses associated with early retirement of debt.
Gains on the sale of assets were recorded during the fiscal year,
principally related to assets located in Germany and the United Kingdom.
After tax gains were as follows:
First quarter - $241,000 or $0.01 per share;
Second quarter - $320,000 or $0.02 per share and
Third quarter - $906,000 or $0.05 per share of fiscal 1996
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not
necessarily equal the total for the year.
NOTE H - PRODUCT DEVELOPMENT COSTS
The Company maintains ongoing development programs at various facilities to
formulate, design and test new products and product alternatives, and to further
develop and significantly improve existing products. The Company intends to
continue substantial expenditures on research and development in this area.
Costs associated with these activities, which the Company expenses as incurred,
are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Research and Development. . .$ 5,897 $ 5,966 $ 5,409
Engineering . . . . . . . . . 12,885 11,885 8,548
------- ------- -------
$18,782 $17,851 $13,957
======= ======= =======
Percent of net sales. . . . . 4.0% 3.9% 3.7%
==== ==== ====
</TABLE>
-48-
<PAGE> 49
ITEM 8. (CONTINUED)
NOTE I - SEGMENT REPORTING
The Company is engaged in the design, manufacture and sale of products
in two segments: Hydraulic Systems and Building Systems and Metal Products.
Operating income represents total revenue less total operating expenses.
Identifiable assets are those assets used in the operations of each business
segment or geographic area or which are allocated when used jointly. Corporate
assets are principally cash and cash equivalents, and receivables from
discontinued operations.
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
(in thousands) Building
Systems Nonrecurring
And Defense &
Hydraulic Metal Reorganization
1996 Systems Products Costs Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $294,337 $170,872 $ 0 $465,209
Operating income . . . . . . . . . 19,624 15,793 (8,202) 27,215
Interest expense . . . . . . . . . 7,083
Other income - net . . . . . . . . 3,606
Income from continuing operations
before income taxes and
extraordinary items . . . . . . 23,738
Identifiable assets. . . . . . . . 213,790 79,596 0 293,386
Corporate assets . . . . . . . . . 43,730
Total assets . . . . . . . . . . . 337,116
Depreciation and amortization. . . 9,241 2,935 0 12,176
Capital expenditures . . . . . . . 13,851 3,861 0 17,712
1995
- ----------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . $285,679 $173,458 $ 0 $459,137
Operating income . . . . . . . . . 24,308 10,037 0 34,345
Interest expense . . . . . . . . . 6,238
Other income - net . . . . . . . . 2,272
Income from continuing operations
before income taxes . . . . . . 30,379
Identifiable assets. . . . . . . . 194,746 88,569 0 283,315
Corporate assets . . . . . . . . . 119,364
Total assets . . . . . . . . . . . 402,679
Depreciation and amortization. . . 7,932 3,088 0 11,020
Capital expenditures . . . . . . . 28,110 3,599 0 31,709
1994
- ----------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . $240,830 $132,990 $ 0 $373,820
Operating income . . . . . . . . . 19,666 10,127 0 29,793
Interest expense . . . . . . . . . 4,262
Other income - net. . . . . . . . 229
Income from continuing operations
before income taxes . . . . . . 25,760
Identifiable assets. . . . . . . . 171,295 65,734 0 237,029
Corporate assets . . . . . . . . . 133,566
Total assets . . . . . . . . . . . 370,595
Depreciation and amortization. . . 6,724 2,604 0 9,328
Capital expenditures . . . . . . . 16,540 2,696 0 19,236
</TABLE>
-49-
<PAGE> 50
ITEM 8. (CONTINUED)
NOTE I - SEGMENT REPORTING (CONTINUED)
In the following table, data in the column labeled "Europe" pertains to
subsidiaries operating within the European Economic Community. Data for all
remaining overseas subsidiaries is shown in the column marked "Other."
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
(in thousands)
Eliminations
and
United Corporate
1996 States Europe Other Items Consolidated
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to customers. . . $252,414 $190,919 $ 21,876 $465,209
Inter-area sales. . . . 6,855 6,826 918 $ 14,599
-----------------------------------------------------
Total sales . . . . . . 259,269 197,745 22,794 14,599 465,209
Operating income. . . . 28,501 5,503 1,413 8,202 27,215
Identifiable assets . . 150,795 133,661 8,930 0 293,386
1995
- -----------------------------------------------------------------------------
Sales to customers. . . $254,533 $180,335 $ 24,269 $459,137
Inter-area sales. . . . 9,803 5,465 1,326 $ 16,594
-----------------------------------------------------
Total sales . . . . . . 264,336 185,800 25,595 16,594 459,137
Operating income. . . . 29,193 3,222 1,930 0 34,345
Identifiable assets . . 126,864 146,318 10,133 0 283,315
1994
- -----------------------------------------------------------------------------
Sales to customers. . . $218,397 $139,007 $ 16,416 $373,820
Inter-area sales. . . . 8,604 2,944 1,337 $ 12,885
-----------------------------------------------------
Total sales . . . . . . 227,001 141,951 17,753 12,885 373,820
Operating income. . . . 27,704 86 2,003 0 29,793
Identifiable assets . . 90,102 138,014 8,913 0 237,029
</TABLE>
Net assets of foreign subsidiaries at October 31, 1996 and 1995 were
$85,708,000 and $71,483,000, respectively, of which net current assets were
$50,517,000 and $52,859,000, also respectively.
-50-
<PAGE> 51
ITEM 8. (CONTINUED)
NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures of financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate fair value.
Long and short-term debt: The carrying amounts of the Company's borrowings
under its short-term credit agreements approximate their fair value. The fair
values of the long-term debt are estimated using discounted cash flow analysis,
based on the Company's incremental borrowing rates for similar types of
borrowing arrangements.
Foreign currency exchange contracts: The Company utilizes foreign currency
exchange contracts to minimize the impact of currency fluctuations on
transactions. At October 31, 1996 and 1995, the Company held contracts for
$2,100,000 and $8,978,000 respectively, with fair values of $2,051,000 and
$8,908,000, also respectively. The fair values of these foreign currency
exchange contracts are estimated based on quoted exchange rates at October 31,
1996 and 1995.
The carrying amounts and fair values of the Company's financial instruments
at October 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- ------------------
(IN THOUSANDS) CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents.. $ 27,552 $ 27,552 $ 32,949 $ 32,949
Short-term debt............ 2,745 2,745 9,285 9,285
Long-term debt:
Revolving credit and
term loan.............. $ 91,000 $ 91,000 $ 0 $ 0
Senior notes............. 0 0 45,000 47,667
Industrial revenue loans. 1,315 1,340 3,533 3,596
Other.................... 1,805 1,662 887 912
--------- --------- --------- --------
94,120 94,002 49,420 52,175
ESOP guarantee........... 0 0 21,682 22,440
--------- ---------- --------- --------
$ 94,120 $ 94,002 $ 71,102 $ 74,615
========= ========= ========= ========
</TABLE>
From time to time, the Company makes loans to its foreign subsidiaries
denominated in the subsidiaries' functional currencies. Generally, these loans
are made when the Company can borrow at lower interest rate spreads than are
available to the subsidiary in its local market. Foreign currency forward
contracts are used to hedge the Company's receipt of principal and interest due
from the loans. The forward contracts are an effective hedge against
fluctuations in the value of the foreign currency. Therefore, the contracts have
no income statement impact.
-51-
<PAGE> 52
ITEM 8. (CONTINUED)
NOTE K - ACQUISITIONS
COMPONENT ENGINEERING COMPANY
Effective June 28, 1996, the Company acquired the assets of Component
Engineering Company, a manufacturer of cartridge type hydraulic valves based in
Chanhassen, Minnesota. The acquisition was accounted for as a purchase
transaction, and therefore, included in the accompanying financial statements
since the acquisition date. Pro forma financial results are not provided herein
because the impact of sales and net earnings on consolidated amounts is
immaterial.
HALL F&D HEAD COMPANY
Effective January 31, 1995, the Company acquired the assets of Hall F&D
Head Company, a producer of medium and large diameter bump and spun metal
products, located in Saginaw, Texas. The acquisition was accounted for as a
purchase transaction, and therefore, included in the accompanying financial
statements since the acquisition date.
ORSTA HYDRAULIK
Effective May 3, 1994 (the "acquisition date"), the Company acquired the
stock of Sachsenhydraulik Chemnitz GmbH ("SHC") and its wholly owned subsidiary
(Hydraulik Rochlitz GmbH), which are known as ORSTA Hydraulik. ORSTA is a
manufacturer of hydraulic cylinders, piston and gear pumps and industrial
valves. The stock was acquired from the Treuhandanstalt, the regulatory agency
of the Federal Republic of Germany responsible for the privatization of the
former East German state-owned enterprises. The acquisition has been accounted
for as a purchase transaction; therefore, the accounts are included in the
accompanying financial statements since the acquisition date.
-52-
<PAGE> 53
ITEM 8. (CONTINUED)
NOTE K - ACQUISITIONS (CONTINUED)
Under terms of the Agreement, the Company tendered no financial
consideration to acquire the stock of SHC and its wholly owned subsidiary but
received, in addition to the net business assets of the two companies, cash
contributions of 59.0 million Deutsche marks (approximately U.S. $36.0 million)
to fund pre-existing capital investment programs and to cover estimated
operating losses over a period of two years. This additional consideration was
negotiated with the Treuhandanstalt based on the financial position of the
acquired companies as of January 1, 1994 (the "measurement date"). Cash
contributions available to the Company on the acquisition date were adjusted for
funds consumed by the operations during the interim period between the
measurement and acquisition dates. Details of investment on the acquisition date
are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Fair value of assets acquired,
other than cash and cash equivalents $ 31,836
Liabilities assumed (19,333)
Deferred credit - operating loss
indemnification (23,643)
-------
Cash and cash equivalents acquired $ 11,140
========
</TABLE>
In addition to the cash acquired at the acquisition date, a balance of 44.1
million Deutsche marks (approximately U.S. $28.5 million) was received from the
Treuhandanstalt in regard to the original cash contribution during fiscal 1995
and 1994. Of the funds provided by the Treuhandanstalt since the acquisition
date, 39.1 million Deutsche marks (approximately U.S. $26.2 million) were
consumed by operating losses from May 3, 1994 to April 30, 1996 and 27.7 million
Deutsche marks (approximately U.S. $19.0 million) were used to fund the
pre-existing capital investment program.
The Company agreed to the following obligations and guarantees with respect
to the operation of the acquired businesses:
a) to maintain a minimum employment level for a period
of three years; the level stipulated by the Agreement
is considered by the Company to be reasonable and
necessary for the intended use of the business,
b) to invest 39.0 million Deutsche marks (approximately
U.S. $23.6 million) in capital programs over a period
of four years,
c) to continue to operate the businesses for a minimum
of five years, and
d) to refrain from selling or transferring acquired land
and buildings for a period of six years.
-53-
<PAGE> 54
ITEM 8. (CONTINUED)
NOTE K - ACQUISITIONS (CONTINUED)
Of the total 59.0 million Deutsche mark cash contribution received (as
calculated on the measurement date of January 1, 1994), 51.5 million Deutsche
marks was designed as an indemnification of estimated operating losses over a
period of two years from acquisition. The amount of operating loss
indemnification available to the Company was adjusted for cash consumed by the
ORSTA operations between the measurement date and the acquisition date. The
operating loss indemnification is being amortized based on estimated operating
results of the ORSTA Hydraulik operations as determined on May 3, 1994. The
quarterly amortization value was translated from Deutsche marks into U.S.
dollars at the average exchange rate for the period. The deferred credit on the
balance sheet was translated at the end-of-period rate.
<TABLE>
<CAPTION>
Negative Goodwill Amortization:
Fiscal Quarters Deutsche Marks U.S. Dollars
- --------------- -------------- ------------
<S> <C> <C>
(in thousands)
Amounts Amortized
- -----------------
FISCAL 1994
Third quarter DM 3,297 $ 2,044
Fourth quarter 7,015 4,422
------- --------
TOTAL FISCAL 1994 DM 10,312 6,466
FISCAL 1995
First quarter DM 6,855 4,419
Second quarter 6,500 4,470
Third quarter 5,410 3,879
Fourth quarter 4,745 3,327
------- --------
TOTAL FISCAL 1995 DM 23,510 16,095
FISCAL 1996
First quarter DM 3,745 2,617
Second quarter 1,504 1,017
---------- --------
TOTAL FISCAL 1996 DM 5,249 3,634
---------- --------
TOTAL AMORTIZED DM 39,071 $ 26,195
========== ========
</TABLE>
-54-
<PAGE> 55
ITEM 8. (CONTINUED)
NOTE K - ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
ORSTA Hydraulik income statement for the years ended October 31, 1996 and
1995 follows:
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Sales $ 38,181 $ 35,846
Cost of products sold 40,165 41,918
Less: negative goodwill (3,634) (16,095)
--------- ---------
Total cost of products sold 36,531 25,823
--------- --------
Gross profit 1,650 10,023
Selling, administrative and
general expense 9,443 12,234
--------- --------
Operating loss $ 7,793 $ 2,211
========= ========
</TABLE>
NOTE L - PREFERRED STOCK
The Company has two separate series of preferred shares:
Series A Participating Preferred Shares
- ---------------------------------------
The Series A Participating Preferred Shares (the Series A) and related
Shareholder Rights Plan (the Plan) are designed to protect shareholders from the
disruptions created by market accumulators and certain abusive takeover
practices. The Plan provides for the distribution of one preferred share
purchase right as a dividend for each outstanding share of common stock. Each
right, when exercisable, entitles shareholders to buy one one-hundredth of a
share of the Series A preferred stock for $75. Each one one-hundredth of a share
of preferred stock is intended to be the practical economic equivalent of a
share of common stock and will have one one-hundredth of a vote on all matters
submitted to a vote of shareholders of the Company. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
The rights may be exercised, in general, only if a person or group acquires
20 percent or more of the common stock without the prior approval of the Board
of Directors of the Company or announces a tender or exchange offer that would
result in ownership of 20 percent or more of the common stock. In the event of
the acquisition of 20 percent or more of the common stock without the prior
approval of the Board, all rights holders except the acquirer may purchase the
common stock of the Company having a value of twice the exercise price of the
rights. If the Company is acquired in a merger, after the acquisition of 20
percent of the voting power of the Company, rights holders except the acquirer
may purchase shares in the acquiring company at a similar discount. The Plan was
not adopted in response to any pending takeover proposal, and the rights will
expire on November 29, 1999.
-55-
<PAGE> 56
ITEM 8. (CONTINUED)
NOTE L - PREFERRED STOCK (CONTINUED)
Series B ESOP Convertible Preferred Stock
- -----------------------------------------
During 1990, the Company established two newly-formed leveraged employee
stock ownership plans (the ESOPs) and sold to the ESOPs 1,074,107 shares of a
newly created cumulative ESOP Convertible Preferred Stock Series B (the Series
B) for a total of $24,973,000. The ESOPs currently cover most domestic salaried
employees and certain domestic hourly employees. The remaining Series B shares
are convertible into 3,142,615 shares of common stock at any time (3.023 shares
of common stock for each Series B share), subject to anti-dilution adjustments.
The Series B shares are entitled to one vote per share and will vote together
with the common stock as a single class. The Series B shares are held by a
trustee which votes the allocated shares as directed by Plan participants.
Unallocated shares held by the trustee are voted in the same proportion as are
the allocated shares. Annual dividends are $1.97625 per share. The ESOPs have
borrowed to purchase the Series B shares, and the Company guaranteed the
repayment of the remaining outstanding balance of that loan.
The Company paid to the ESOPs $2,061,000 in 1996 ($2,084,000 in 1995 and
$2,097,000 in 1994) in preferred stock dividends and accrued or paid an
additional $1,907,000 in 1996, ($1,787,000 in 1995 and $1,310,000 in 1994) in
Company match of employees' contributions to the plan and to cover amounts
sufficient to meet the debt service. These expenses were determined on the
shares allocated method. In turn, the ESOPs made debt service payments of
$2,362,000 in 1996 ($2,364,000 in 1995, and $2,366,000 in 1994) primarily for
interest charges.
The number of ESOP shares outstanding at October 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Allocated shares................. 283 242
Committed-to-be-released
shares........................ 54 54
Suspense shares.................. 703 758
----- -----
TOTAL ESOP SHARES............. 1,040 1,054
===== =====
</TABLE>
-56-
<PAGE> 57
ITEM 8. (CONTINUED)
NOTE M - SUBSEQUENT EVENT
On November 18, 1996, the Company reported it acquired all of the
outstanding common stock of Ultra Hydraulics Limited through its wholly-owned
subsidiary, Commercial Intertech Limited, located in the United Kingdom. Ultra
Hydraulics is headquartered near Gloucester, England and employs more than 300
men and women in the United Kingdom and the United States. Commercial Intertech
will account for the stock acquisition of Ultra as a purchase. The initial
purchase price for the stock of Ultra is approximately $43.0 million and is
subject to adjustments based upon audit.
Ultra Hydraulics Limited serves the mobile equipment market primarily in
the United Kingdom, Europe, the United States and the Far East. Major customers
include manufacturers of material handling, turf care, construction,
transportation and compaction equipment. Ultra's products complement and extend
the range of pumps, motors and valves now offered by Commercial.
-57-
<PAGE> 58
ITEM 8. (CONTINUED)
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Commercial Intertech Corp.
Youngstown, Ohio
We have audited the accompanying consolidated balance sheets of Commercial
Intertech Corp. and subsidiaries as of October 31, 1996 and 1995, and the
related statements of consolidated income, shareholders' equity and cash flows
for each of the three years in the period ended October 31, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Commercial
Intertech Corp. and subsidiaries at October 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/Ernst & Young LLP
Cleveland, Ohio
December 9, 1996
-58-
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
N/A
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Regarding the directors of the Registrant, reference is made to the
information set forth under the caption "Election of Directors" in the company's
definitive Proxy Statement filed January 21, 1997, which information is
incorporated by reference herein.
The principal executive officers of the Company and their recent business
experience are as follows:
NAME OFFICE HELD AGE
---- ----------- ---
Paul J. Powers. . . . . . . Chairman of the Board of the 61
Board of Directors, President
and Chief Executive Officer
Steven J. Hewitt. . . . . . Senior Vice President and Chief 47
Financial Officer
Bruce C. Wheatley . . . . . Senior Vice President-Administration 55
Robert A. Calcagni. . . . . Group Vice President-Building 56
Systems and Metal Products
John Gilchrist. . . . . . . Group Vice President-Hydraulic 51
Systems
Gilbert M. Manchester . . . Vice President and General Counsel 52
Kenneth E. Stumbaugh . . . Controller 50
None of the officers are related and they are elected from year to year or
until their successors are duly elected and qualified.
All of the Executive Officers have been continuously employed by the
Company for more than five years except Mr. Bruce Wheatley.
Mr. Wheatley became an employee of Commercial Intertech Corp. in July of
1992. Before joining Commercial, Mr. Wheatley's experience includes, Senior
Vice President of Marketing and Public Affairs of The PIE Mutual Insurance
Company and President of Dix & Eaton/Public Relations.
-59-
<PAGE> 60
PART III - (Continued)
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation" appearing in the Company's definitive Proxy Statement
filed January 21, 1997, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Reference is made to the information contained under the captions
"Security Ownership of Board of Directors and named Executives" and "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement filed January 21, 1997, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information contained under the caption
"Compensation of Directors" in the Company's definitive Proxy Statement filed
January 21, 1997, which information is incorporated herein by reference.
-60-
<PAGE> 61
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) The following consolidated financial statements of Commercial
Intertech Corp. and Subsidiaries are included in Item 8:
Page Number
In This Report
--------------
Statements of Consolidated Income - Years
ended October 31, 1996, 1995 and 1994. . . 27
Consolidated Balance Sheets as of
October 31, 1996 and 1995. . . . . . . . . 28 and 29
Statements of Consolidated Shareholders'
Equity - Years ended October 31, 1996,
1995, and 1994 . . . . . . . . . . . . . . 30
Statements of Consolidated Cash Flows -
Years ended October 31, 1996, 1995,
and 1994 . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . 32 - 57
Report of Independent Auditors . . . . . . . 58
(2) The following consolidated financial statement
schedule of Commercial Intertech Corp. and
Subsidiaries are included in Item 14(d):
Schedule II Valuation and Qualifying
Accounts . . . . . . . . . . . . .. . . . . S-1
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
-61-
<PAGE> 62
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(Continued)
(3) Exhibits
3 -- Articles of Incorporation Filed as of April 17, 1992
(Incorporated by reference to Exhibit I to the Company's Annual
Report on Form 10-K for the year ended October 31, 1992)
10 -- Material Contracts
Exhibits
10.18 Employment Agreement - Paul J. Powers dated July 27, 1994
- (Incorporated by reference to Exhibit 18 filed with
Registrant's Form 10-K for the year ended October 31,
1994.
10.19 Termination and Change of Control Agreement
- Paul J. Powers dated October 1, 1996
10.20 Termination and Change of Control Agreement
- Bruce C. Wheatley dated October 1, 1996
10.21 Termination and Change of Control Agreement
- Steven J. Hewitt dated December 1, 1996
10.22 Termination and Change of Control Agreement
- John Gilchrist dated October 1, 1996
10.23 Termination and Change of Control Agreement
- Robert A. Calcagni dated October 1, 1996
10.24 Termination and Change of Control Agreement
- Gilbert M. Manchester dated October 1, 1996
10.25 Termination and Change of Control Agreement
- Kenneth E. Stumbaugh dated October 1, 1996
10.26 Form of Distribution and Interim Service Agreement
by and between CUNO Incorporated and
Commercial Intertech Corp., incorporated by
reference to Exhibit 10.4 to the Form 10 of
CUNO Incorporated (as filed with Amendment No. 2
thereto dated August 20, 1996) (File No. 0-21109)
10.27 Form of Tax Sharing Agreement by and between
CUNO Incorporated and Commercial Intertech Corp.,
incorporated by reference to Exhibit 10.5 to the
Form 10 of CUNO Incorporated (as filed with
Amendment No. 2 thereto dated August 20, 1996)
(File No. 0-21109)
-62-
<PAGE> 63
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
10.28 Form of Employee Benefits and Compensation Allocation
Agreement by and between CUNO Incorporated and Commercial
Intertech Corp., incorporated by reference to Exhibit 10.6
to the Form 10 of CUNO Incorporated (as filed with
Amendment No. 2 thereto dated August 20, 1996) (File No.
0-21109)
Additional information relating to management contracts and
renumerative plans is contained in Note D - Stock Options and Awards
of the Notes to Consolidated Financial Statements on pages 39 and 40.
11 -- Statement re: Computation of Per Share Earnings
21 -- Subsidiaries of The Registrant
23 -- Consent of Independent Auditors
27 -- Financial Data Schedule
(B) Form 8-K - Date of Report - September 10, 1996
Item 2. Acquisition or Disposition of Assets
a) Reported spin-off of CUNO Incorporated
Item 7. Pro Forma Financial Information
a) Pro Forma Consolidated Condensed Balance
Sheet as of July 31, 1996
b) Pro Forma Consolidated Condensed Statement
of Income for the Nine Months Ended
July 31, 1996
c) Pro Forma Consolidated Condensed Statement
of Income for the Year Ended
October 31, 1995
-63-
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Commercial Intertech Corp.
Dated: January 22, 1997
/s/ Paul J. Powers /s/ Steven J. Hewitt
Paul J. Powers Steven J. Hewitt
Chairman of the Board of Senior Vice President and
Directors, President and Principal Financial Officer
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated above.
NAME TITLE DATE
---- ----- ----
/s/ William J. Bresnahan
William J. Bresnahan Director January 22, 1997
/s/ Charles B. Cushwa III
Charles B. Cushwa III Director January 22, 1997
/s/ William W. Cushwa
William W. Cushwa Director January 22, 1997
/s/ John M. Galvin
John M. Galvin Director January 22, 1997
/s/ Richard J. Hill
Richard J. Hill Director January 22, 1997
/s/ Neil D. Humphrey
Neil D. Humphrey Director January 22, 1997
/s/ William E. Kassling
William E. Kassling Director January 22, 1997
/s/ Gerald C. McDonough
Gerald C. McDonough Director January 22, 1997
/s/ C. Edward Midgley
C. Edward Midgley Director January 22, 1997
/s/ George M. Smart
George M. Smart Director January 22, 1997
/s/ Don E. Tucker
Don E. Tucker Director January 22, 1997
-64-
<PAGE> 65
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<CAPTION>
==================================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DESCRIPTION BEGINNING ADDITIONS
OF PERIOD ------------------------------ DEDUCTIONS BALANCE AT
CHARGED TO CHARGED TO END OF
COSTS AND OTHER PERIOD
EXPENSES ACCOUNTS-
DESCRIBE
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $ 2,306,479 $ 850,085 $ 0 $ 1,432,954 (A) $ 1,723,610
============ =========== ============= ============ ===========
Valuation allowance for deferred 10,068,000 (E)
income tax assets $65,037,000 $ 0 $ 0 $ 922,000 (C) $54,047,000
============ =========== ============= ============ ===========
Year ended October 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $ 2,016,320 $ 745,451 $ 0 $ 455,292 (A) $ 2,306,479 (A)
============ =========== ============= ============ ============
Valuation allowance for deferred
income tax assets $55,308,000 $ 0 $ 12,708,000 (D) $ 2,979,000 (C) $65,037,000
============ =========== ============= ============ ===========
Year ended October 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $ 1,062,701 $ 796,780 $ 2,384,000 (B) $ 2,227,161 (A) $ 2,016,320
============ =========== ============= ============ ===========
Valuation allowance for deferred $ 10,060,000 (D)
income tax assets $ 0 $ 0 $ 47,340,000 (B) $ 2,092,000 (C) $55,308,000
============ =========== ============= ============ ===========
<FN>
(A) Uncollectible accounts written off.
(B) Represents beginning balance acquired with the ORSTA Hydraulik acquisition.
(C) Net operating loss carryforwards utilized or expired.
(D) (Decrease) increase in net operating loss carryforwards for the year.
(E) Decrease due to German tax audits.
</TABLE>
S-1
<PAGE> 1
Exhibit 10.19
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- -------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.19
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and Paul J. Powers ("Executive") is and shall become effective as of
October 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
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 ar rangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. TERM AND APPLICATION. The Term of this Termination Agreement shall commence
on the date hereof and shall terminate, except to the extent that any obligation
of the Company under this Termination Agreement remains unpaid as of such time,
on the date five (5) years from the date hereof (subject to earlier termination
in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the
Extension Date (as defined below), the Term of this Termination Agreement shall
be the Extended Employment Period (as defined below). As long as the Extension
Date has not occurred, commencing on the date five (5) years after the date of
this Termination Agreement and each anniversary date of this Termination
Agreement thereafter, the Term of this Termination Agreement shall automatically
be extended for one (1) additional year unless not later than on (1) year prior
to the date five (5) years after the date of this Termination Agreement or
subsequent anniversary date, the Company or Executive shall have given written
notice to the other of its intention not to extend this Termination Agreement.
If there is a conflict between the Employment Agreement, if any, between the
Company and Executive ("Employment Agreement") and this Termination Agreement,
this Termination Agreement shall supersede the Employment Agreement; provided
the Executive shall receive the more valuable payment, right or benefit under
the Employment Agreement (including without limitation, the continuation of
medical benefits under the Employment Agreement) and this Termination Agreement.
In no event shall any payment, right or benefit under the Employment Agreement
be reduced, eliminated or otherwise adversely affected by this Termination
Agreement. In no event shall Executive receive any payment, right or benefit
under both this Termination Agreement and the Employment Agreement with respect
to the same Date of Termination (as defined below).
1. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
2. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
2
<PAGE> 4
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
3. Long-Term Compensation, Including Stock Options, and
Benefits, Deferred Compensation, and Expense Reimbursement
----------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
4. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
3
<PAGE> 5
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
5. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
6. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal 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:
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<PAGE> 7
(i) The unpaid portion of Annual Base Salary at
the rate payable, in accordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not
theretofore paid;
(ii) twenty-four (24) semi-monthly payments
during a twelve (12) consecutive month
period equal to the Executive's Annual Base
Salary divided by twenty-four (24);
provided, however, notwithstanding anything
to the contrary in the Termination Agreement
or in the Employment Agreement, none of such
amounts shall qualify Executive for any
incremental benefit under any plan or
program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the
plans and programs and the agreements and
other documents thereunder pursuant to which
such stock options were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the
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<PAGE> 8
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.
7. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's Annual
Bonus paid or payable for the Company's
fiscal year in which occurs the Date of
Termination, assuming Executive and Company
satisfy all conditions to Executive's
receiving the full Annual Bonus at target
(and annualized for any fiscal year
consisting of less than twelve (12) full
months or during which the Executive was
employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(ii) the amount equal to three (3) times the sum
of (1) the Executive's Annual Base Salary
and (2) the Executive's 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
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<PAGE> 9
not completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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 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
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<PAGE> 10
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, including, without limitation, fuel, insurance,
maintenance and car phone;
(f) for one (1) year after Executive's Date of Termination,
the provision of exclusive secretarial service;
(g) for three (3) years after Executive's Date of
Termination, the provision of reasonable personal tax accounting and financial
planning by a firm chosen by Executive and reasonably acceptable to the Company;
(h) the Company shall reimburse the Executive the actual
brokerage commissions paid by Executive in connection with the sale of
Executive's principal residence, if the Executive lists (and continues to list)
the Executive's principal residence for sale commencing not later than the
second anniversary of the Date of Termination, and the Executive shall have the
right to cause the Company to purchase Executive's principal residence at any
time prior to the second anniversary of the Date of Termination for its
appraised value; provided, the appraised value shall be the average of the
values of the Executive's principal residence (net of any indebtedness assumed
by the Company) determined within ten (10) days of the date the residence is
listed for sale by three real estate appraisers, one chosen by each of the
Executive and the Company and the third appraiser chosen by the other two
appraisers;
(i) for three (3) years after the Executive's Date of
Termination, the payment of all regular lunch and country club membership dues
or fees in respect of any lunch or country club of which Executive is a member
on Executive Date or Termination; and
(j) for three (3) years after Executive's Date of
Termination, the payment of all normal insurance premiums with respect to the
insurance policies on the life of Executive under the Company's Group
Replacement Insurance Program, or any successor thereto.
8. 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 miscon-
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<PAGE> 11
duct" 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
promul gated under the Exchange Act) of
twenty percent (20%) or more of either (A)
the then-outstanding shares of common stock
of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting
power of the then-outstanding voting
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that for purposes of this
subsection (i), the following acquisitions
shall not constitute a Change of Control:
(A) any acquisition directly from the
Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company, (D) any
acquisition by a lender to the Company
pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least
a majority of the Board; provided, however,
that any individual becoming a director
subsequent to the date hereof whose
election, or nomination for election by the
Company's shareholders, was approved by a
vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a
member of the Incumbent Board, but
excluding, for this purpose, any such
individual whose initial assumption of
office occurs as a result of an actual or
threatened
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<PAGE> 12
election contest with respect to the
election or removal of directors or other
actual or threatened solicitation of proxies
or consents by or on behalf of a Person
other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the Company (a "Business Combination"), in
each case, unless, following such Business
Combination, (A) all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%)
of, respectively, the then-outstanding
shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be,
of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result
of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time of the execution of the
initial agreement, or of the action of the
Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
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<PAGE> 13
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including status,
offices, titles and reporting requirements),
authority, duties or responsibilities as
contemplated by Section 2(a) of this
Termination Agreement, or any other action
by the Company which results in a diminution
in such position, authority, duties or
responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
action not taken in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4 of this
Termination Agreement or the Employment
Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is remedied
by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than
as provided in Section 2(b) hereof or the
Company's requiring the Executive to travel
on Company business to a substantially
greater extent than required immediately
prior to the Effective Date;
(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
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<PAGE> 14
(vi) any failure by the Company to comply with
and satisfy Section 12(b) of this
Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
9. Excise Tax Gross-Up.
---------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
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
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(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.
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
14
<PAGE> 16
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 (includ ing additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority. If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of this Section 10) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section 10, a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the
15
<PAGE> 17
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of two years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business conducted
by the Company or any of its subsidiaries on the date of the consummation of the
Change of Control; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his employment with the Company or
any of its subsidiaries, to curtail or cancel their business with such companies
or any of them; or (iii) induce, or attempt to influence, any employee of the
Company or any of its subsidiaries to terminate employment. The provisions of
subparagraphs (i), (ii), and (iii) above are separate and distinct commitments
independent of each of the other subparagraphs. It is agreed that the ownership
of not more than one percent of the equity securities of any company having
securities listed on an exchange or regularly traded in the over-the-counter
market shall not, of itself, be deemed inconsistent with clause (i) of this
paragraph (a), neither shall service (whether as an employee, officer, director,
or consultant) with respect to CUNO Incorporated, nor shall service as a member
of a board of directors on which Executive is serving on the Date of Termination
(including any successor board thereto) be deemed, of itself, to be inconsistent
with clause (i) of this paragraph (a). The Executive and the Company agree that
the value to be assigned to the obligations of the Executive under this
paragraph (a) is an amount equal to one hundred percent (100%) of the
Executive's Annual Base Salary and Recent Annual Bonus. Violation of Section
11(a) or (b) shall not require Executive to return any payment or benefit
previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to
16
<PAGE> 18
enforce this Termination Agreement. The Company agrees to reimburse Executive,
on an after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section II and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
11. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of Section 11 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING
OF OBLIGATIONS. On and after the Extension Date, all reasonable costs and
expenses (including fees and disbursements of counsel) incurred by Executive in
seeking to enforce rights pursuant to this Termination Agreement shall be paid
on behalf of or reimbursed to Executive promptly by the Company, whether or not
Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no
reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that Executive's assertion of such
rights was in bad faith or frivolous, as determined by independent counsel
mutually acceptable to Executive and the Company and made without reference to
or not related to a Change of Control. Immediately prior to the Extension Date
but not less than five (5) days prior thereto, the Company agrees to maintain a
minimum amount in a rabbi trust (or to provide to the trustee of such rabbi
trust) an irrevocable letter of credit in an amount equal to such minimum amount
(and callable at will by such trustee) sufficient to fund any such litigation
and the aggregate present value of all liabilities potentially 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.
17
<PAGE> 19
12. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving 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: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
18
<PAGE> 20
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: ------------------------------------------
------------------------------------------
------------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are
for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be
required to seek other employment or otherwise to mitigate Executive's damages
on or after Executive's Date of Termination, nor shall the amount of any payment
hereunder be reduced by any compensation earned by the Executive as a result of
employment by another employer; PROVIDED, HOWEVER, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in this Termination Agreement,
any such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by
the Company to Executive pursuant to this Termination Agreement shall not be
subject to offset, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against 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
<PAGE> 21
beneficiaries, and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.
13. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and
the Company has caused this instrument to be duly executed as of the day and
year first above written.
COMMERCIAL INTERTECH CORP.
By: /s/ Bruce C. Wheatley
------------------------------------------------
Name: Bruce C. Wheatley
---------------------------------------------
Title: Senior Vice President-Administration
--------------------------------------------
PAUL J. POWERS
/s/Paul J. Powers
--------------------------------------------------
20
<PAGE> 22
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application................................................................................... 1
2. Office and Duties...................................................................................... 1
3. Salary and Annual Incentive Compensation............................................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement......................................................... 3
5. Termination of Employment.............................................................................. 3
6. Termination Due to Normal Retirement, Death, or Disability............................................. 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability................................................................................... 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period............................................... 7
9. Definitions Relating to Termination Events............................................................. 10
10. Excise Tax Gross-Up.................................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation.............................................. 16
12. Governing Law; Disputes; Arbitration................................................................... 17
13. Miscellaneous.......................................................................................... 18
14. Indemnification........................................................................................ 20
</TABLE>
<PAGE> 1
Exhibit 10.20
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- -------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.20
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and BRUCE C. WHEATLEY ("Executive") is and shall become effective as
of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. TERM AND APPLICATION. The Term of this Termination Agreement shall commence
on the date hereof and shall terminate, except to the extent that any obligation
of the Company under this Termination Agreement remains unpaid as of such time,
on the date five (5) years from the date hereof (subject to earlier termination
in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the
Extension Date (as defined below), the Term of this Termination Agreement shall
be the Extended Employment Period (as defined below). As long as the Extension
Date has not occurred, commencing on the date five (5) years after the date of
this Termination Agreement and each anniversary date of this Termination
Agreement thereafter, the Term of this Termination Agreement shall automatically
be extended for one (1) additional year unless not later than on (1) year prior
to the date five (5) years after the date of this Termination Agreement or
subsequent anniversary date, the Company or Executive shall have given written
notice to the other of its intention not to extend this Termination Agreement.
If there is a conflict between the Employment Agreement, if any, between the
Company and Executive ("Employment Agreement") and this Termination Agreement,
this Termination Agreement shall supersede the Employment Agreement; provided
the Executive shall receive the more valuable payment, right or benefit under
the Employment Agreement (including without limitation, the continuation of
medical benefits under the Employment Agreement) and this Termination Agreement.
In no event shall any payment, right or benefit under the Employment Agreement
be reduced, eliminated or otherwise adversely affected by this Termination
Agreement. In no event shall Executive receive any payment, right or benefit
under both this Termination Agreement and the Employment Agreement with respect
to the same Date of Termination (as defined below).
1. Office and Duties.
------------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
2. SALARY AND ANNUAL INCENTIVE COMPENSATION.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
2
<PAGE> 4
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
3. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
4. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
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(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
5. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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<PAGE> 6
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
6. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainent 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
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<PAGE> 7
pay Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(i) The unpaid portion of Annual Base Salary at
the rate payable, in accordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not
theretofore paid;
(ii) twenty-four (24) semi-monthly payments
during a twelve (12) consecutive month
period equal to the Executive's Annual Base
Salary divided by twenty-four (24);
provided, however, notwithstanding anything
to the contrary in the Termination Agreement
or in the Employment Agreement, none of such
amounts shall qualify Executive for any
incremental benefit under any plan or
program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the
plans and programs and the agreements and
other documents thereunder pursuant to which
such stock options were granted; and
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<PAGE> 8
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination, to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's Annual
Bonus paid or payable for the Company's
fiscal year in which occurs the Date of
Termination, assuming Executive and Company
satisfy all conditions to Executive's
receiving the full Annual Bonus at target
(and annualized for any fiscal year
consisting of less than twelve (12) full
months or during which the Executive was
employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numera tor of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(ii) the amount equal to three (3) times the sum
of (1) the Executive's Annual Base Salary
and (2) the Highest Annual Bonus. (Payment
of any amount under Section 8(a)(i) shall
not
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<PAGE> 9
constitute a payment or discharge of the
Company's obligation under Section 8(a)(ii),
and VICE VERSA);
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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<PAGE> 10
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For three (3)
years after the Executive's Date of Termination, or such longer period as may be
provided by the terms of the plan, the Company shall continue tax-qualified
defined contribution plan accruals for the Executive, including participation
and crediting of service, contributions and compensation at least equal to what
the Executive would have accrued in accordance with such plans of the Company or
affiliated companies if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of
Termination, a continued application of the Company's auto leasing policy in
effect on the Extension Date with respect to the Executive;
(f) for 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;
(g) 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;
(h) the Company shall reimburse the Executive the actual
brokerage commissions paid by Executive in connection with the sale of
Executive's principal residence, if the Executive lists (and continues to list)
the Executive's principal residence for sale commencing not later than the
second anniversary of the Date of Termination and the Executive shall have the
right to cause the Company to purchase the Executive's principal residence at
any time prior to the second anniversary of the Date of Termination for its
appraised value; provided, the appraised value shall be the average of the
values of the Executive's principal residence (net of any indebtedness assumed
by the Company) determined within ten (10) days of the date the residence is
listed for sale by three real estate
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<PAGE> 11
appraisers, one chosen by each of the Executive and the Company and the third
appraiser chosen by the other two appraisers; and
(i) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Company's Group Replacement Insurance
Program, or any successor thereto.
8. 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 com mon stock
of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting
power of the then-outstanding voting
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that for purposes of this
subsection (i), the following acquisitions
shall not constitute a Change of Control:
(A) any acquisition directly from the
Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company, (D) any
acquisition by a lender to the Company
pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction
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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 indi
vidual whose initial assumption of office
occurs as a result of an actual or
threatened election contest with respect to
the election or removal of directors or
other actual or threatened solicitation of
proxies or consents by or on behalf of a
Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the Company (a "Business Combination"), in
each case, unless, following such Business
Combination, (A) all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%)
of, respectively, the then- outstanding
shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be,
of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result
of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time
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<PAGE> 13
of the execution of the initial agreement,
or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including 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
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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).
9. Excise Tax Gross-up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
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(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar 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
14
<PAGE> 16
cannot be finally determined on or before such day, the Company shall pay to
Executive on such day an estimate, as determined by the Independent Advisors, of
the minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code), as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to Executive,
payable on the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code). If more than one
Gross-up Payment is made, the amount of each Gross-up Payment shall be computed
so as not to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
(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
15
<PAGE> 17
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income or
employment tax (including income or employment or interest or penalties with
respect thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority. If, after the receipt by
the Executive of an amount advanced by the Company pursuant to this Section 10,
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements of
this Section 10) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
----------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of 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 conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to CUNO
Incorporated, nor shall service as a member of a board of directors on which
Executive is serving on the Date of Termination (including any successor board
thereto) be deemed, of itself, to be inconsistent with clause (i) of this
paragraph (a). The Executive and the Company agree that the value to be assigned
to the obligations of the Executive under this paragraph (a) is an amount equal
to one hundred percent (100%) of the Executive's Annual Base Salary
16
<PAGE> 18
and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not require
Executive to return any payment or benefit previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section 11 and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
11. Governing Law; Disputes; Arbitration.
-------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of
17
<PAGE> 19
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.
12. Miscellaneous.
--------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
18
<PAGE> 20
(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: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: ----------------------------------------
----------------------------------------
----------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are
for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be
required to seek other employment or otherwise to mitigate Executive's damages
on or after Executive's Date of
19
<PAGE> 21
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.
13. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
20
<PAGE> 22
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.
COMMERCIAL INTERTECH CORP.
By: /s/ Gilbert M. Manchester
-------------------------------------------------
Name: Gilbert M. Manchester
-----------------------------------------------
Title: Vice President and General Counsel
----------------------------------------------
BRUCE C. WHEATLEY
/s/ Bruce C. Wheatley
----------------------------------------------------
21
<PAGE> 23
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application................................................................................... 1
2. Office and Duties...................................................................................... 1
3. Salary and Annual Incentive Compensation............................................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement.............................................. 3
5. Termination of Employment.............................................................................. 3
6. Termination Due to Normal Retirement, Death, or Disability............................................. 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability.......................................................................................... 5
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period............................... 7
9. Definitions Relating to Termination Events............................................................. 9
10. Excise Tax Gross-Up.................................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation.............................................. 16
12. Governing Law; Disputes; Arbitration................................................................... 17
13. Miscellaneous.......................................................................................... 18
14. Indemnification........................................................................................ 20
</TABLE>
<PAGE> 1
Exhibit 10.21
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- -------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.21
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and STEVEN J. HEWITT ("Executive") is and shall become effective as
of December 1, 1996 (the "Effective Date").
W I T N E S S E T H
-------------------
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced, eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
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
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
2
<PAGE> 4
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
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(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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<PAGE> 6
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainent 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
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<PAGE> 7
pay Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(i) The unpaid portion of Annual Base Salary at
the rate payable, in accordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not
theretofore paid;
(ii) twenty-four (24) semi-monthly payments
during a twelve (12) consecutive month
period equal to the Executive's Annual Base
Salary divided by twenty-four (24);
provided, however, notwithstanding anything
to the contrary in the Termination Agreement
or in the Employment Agreement, none of such
amounts shall qualify Executive for any
incremental benefit under any plan or
program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the
plans and programs and the agreements and
other documents thereunder pursuant to which
such stock options were granted; and
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<PAGE> 8
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination, to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's Annual
Bonus paid or payable for the Company's
fiscal year in which occurs the Date of
Termination, assuming Executive and Company
satisfy all conditions to Executive's
receiving the full Annual Bonus at target
(and annualized for any fiscal year
consisting of less than twelve (12) full
months or during which the Executive was
employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numera tor of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(ii) the amount equal to three (3) times the sum
of (1) the Executive's Annual Base Salary
and (2) the Highest Annual Bonus. (Payment
of any amount under Section 8(a)(i) shall
not
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<PAGE> 9
constitute a payment or discharge of the
Company's obligation under Section 8(a)(ii),
and VICE VERSA);
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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<PAGE> 10
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For three (3)
years after the Executive's Date of Termination, or such longer period as may be
provided by the terms of the plan, the Company shall continue tax-qualified
defined contribution and supplemental retirement plan accruals for the
Executive, including participation and crediting of service, contributions and
compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of
Termination, a continued application of the Company's auto leasing policy in
effect on the Extension Date with respect to the Executive;
(f) for 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;
(g) 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;
(h) the Company shall reimburse the Executive the actual
brokerage commissions paid by Executive in connection with the sale of
Executive's principal residence, if the Executive lists (and continues to list)
the Executive's principal residence for sale commencing not later than the
second anniversary of the Date of Termination and the Executive shall have the
right to cause the Company to purchase the Executive's principal residence at
any time prior to the second anniversary of the Date of Termination for its
appraised value; provided, the appraised value shall be the average of the
values of the Executive's principal residence (net of any indebtedness assumed
by the Company) determined within ten (10) days of the date the residence is
listed for sale by three real estate
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<PAGE> 11
appraisers, one chosen by each of the Executive and the Company and the third
appraiser chosen by the other two appraisers; and
(i) for three (3) years after Executive's Date of
Termination, the payment of normal insurance premiums with respect to the
insurance policies on the life of Executive under the Company's Group
Replacement Insurance Program, or any successor thereto.
9. Definitions Relating to Termination Events.
-------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A)
the then-outstanding shares of common stock
of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting
power of the then-outstanding voting
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that for purposes of this
subsection (i), the following acquisitions
shall not constitute a Change of Control:
(A) any acquisition directly from the
Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company, (D) any
acquisition by a lender to the Company
pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction
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<PAGE> 12
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 indi
vidual whose initial assumption of office
occurs as a result of an actual or
threatened election contest with respect to
the election or removal of directors or
other actual or threatened solicitation of
proxies or consents by or on behalf of a
Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the Company (a "Business Combination"), in
each case, unless, following such Business
Combination, (A) all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%)
of, respectively, the then-outstanding
shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be,
of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result
of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time
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of the execution of the initial agreement,
or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the
Term of this Termination Agreement on which a Change of Control occurs. Anything
in this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination
Agreement, "Good Reason" shall mean the occurrence of a Change of Control and
following which but not later than the third anniversary of the date of the
Change of Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including 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
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Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than
as provided in Section 2(b) hereof or the
Company's requiring the Executive to travel
on Company business to a substantially
greater extent than required immediately
prior to the Effective Date;
(iv) any failure by the Company to perform any
material obligation under, or breach by the
Company of any material provision of, this
Termination Agreement;
(v) any purported termination by the Company of
the Executive's employment otherwise than as
expressly permitted by this Termination
Agreement; or
(vi) any failure by the Company to comply with
and satisfy Section 12(b) of this
Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Gross-Up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
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(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar 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
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<PAGE> 16
cannot be finally determined on or before such day, the Company shall pay to
Executive on such day an estimate, as determined by the Independent Advisors, of
the minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code), as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to Executive,
payable on the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code). If more than one
Gross-up Payment is made, the amount of each Gross-up Payment shall be computed
so as not to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
(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
15
<PAGE> 17
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income or
employment tax (including income or employment or interest or penalties with
respect thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority. If, after the receipt by
the Executive of an amount advanced by the Company pursuant to this Section 10,
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements of
this Section 10) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
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 conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to CUNO
Incorporated, nor shall service as a member of a board of directors on which
Executive is serving on the Date of Termination (including any successor board
thereto) be deemed, of itself, to be inconsistent with clause (i) of this
paragraph (a). The Executive and the Company agree that the value to be assigned
to the obligations of the Executive under this paragraph (a) is an amount equal
to one hundred percent (100%) of the Executive's Annual Base Salary
16
<PAGE> 18
and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not require
Executive to return any payment or benefit previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
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 Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of
17
<PAGE> 19
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.
(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.
18
<PAGE> 20
(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: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: ---------------------------------------
---------------------------------------
---------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are
for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be
required to seek other employment or otherwise to mitigate Executive's damages
on or after Executive's Date of
19
<PAGE> 21
Termination, nor shall the amount of any payment hereunder be reduced by any
compensation earned by the Executive as a result of employment by another
employer; PROVIDED, HOWEVER, that, to the extent Executive receives from a
subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by
the Company to Executive pursuant to this Termination Agreement shall not be
subject to offset, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against Executive or others, other than with
respect to any amounts that are owed to the Company by Executive due to his
receipt of Company funds as a result of his fraudulent activity. The foregoing
and other provisions of this Termination Agreement notwithstanding, all payments
to be made to Executive under this Termination Agreement will be subject to
required withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it 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.
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<PAGE> 22
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.
COMMERCIAL INTERTECH CORP.
By: /s/ Bruce C. Wheatley
------------------------------------------
Name: Bruce C. Wheatley
----------------------------------------
Title: Senior Vice President- Administration
---------------------------------------
STEVEN J. HEWITT
/s/ Steven J. Hewitt
---------------------------------------------
21
<PAGE> 23
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Term and Application................................................................................... 1
2. Office and Duties...................................................................................... 1
3. Salary and Annual Incentive Compensation............................................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement.............................................. 3
5. Termination of Employment.............................................................................. 3
6. Termination Due to Normal Retirement, Death, or Disability............................................. 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability................................................................................. 5
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period............................... 7
9. Definitions Relating to Termination Events............................................................. 9
10. Excise Tax Gross-Up.................................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation.............................................. 16
12. Governing Law; Disputes; Arbitration................................................................... 17
13. Miscellaneous.......................................................................................... 18
14. Indemnification........................................................................................ 20
</TABLE>
<PAGE> 1
Exhibit 10.22
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- -------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.22
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and JOHN GILCHRIST ("Executive") is and shall become effective as of
October 1, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
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 ar rangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. TERM AND APPLICATION. The Term of this Termination Agreement shall commence
on the date hereof and shall terminate, except to the extent that any obligation
of the Company under this Termination Agreement remains unpaid as of such time,
on the date five (5) years from the date hereof (subject to earlier termination
in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the
Extension Date (as defined below), the Term of this Termination Agreement shall
be the Extended Employment Period (as defined below). As long as the Extension
Date has not occurred, commencing on the date five (5) years after the date of
this Termination Agreement and each anniversary date of this Termination
Agreement thereafter, the Term of this Termination Agreement shall automatically
be extended for one (1) additional year unless not later than on (1) year prior
to the date five (5) years after the date of this Termination Agreement or
subsequent anniversary date, the Company or Executive shall have given written
notice to the other of its intention not to extend this Termination Agreement.
If there is a conflict between the Employment Agreement, if any, between the
Company and Executive ("Employment Agreement") and this Termination Agreement,
this Termination Agreement shall supersede the Employment Agreement; provided
the Executive shall receive the more valuable payment, right or benefit under
the Employment Agreement (including without limitation, the continuation of
medical benefits under the Employment Agreement) and this Termination Agreement.
In no event shall any payment, right or benefit under the Employment Agreement
be reduced, eliminated or otherwise adversely affected by this Termination
Agreement. In no event shall Executive receive any payment, right or benefit
under both this Termination Agreement and the Employment Agreement with respect
to the same Date of Termination (as defined below).
1. Office and Duties.
-----------------
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and
1
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
2. Salary and Annual Incentive Compensation.
----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
2
<PAGE> 4
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
3. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
4. Termination of Employment.
-------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
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(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
5. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
6. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal 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:
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(i) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 4(a) hereof, at the
Date of Termination, pro rated through such Date of
Termination, will be paid; and
(ii) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and
benefit plans, programs, and arrangements in which
Executive theretofore participated will be paid under
the terms and conditions of the plans, programs, and
arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were
granted, including any supplemental retirement plan in
which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments 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
(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
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<PAGE> 8
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation
and benefits were granted, including any supplemental
retirement plan in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period
---------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and (2) the product of (x) the
higher of (A) the Recent Annual Bonus and (B) the
Executive's Annual Bonus paid or payable for the
Company's fiscal year in which occurs the Date of
Termination, assuming Executive and Company
satisfy all conditions to Executive's receiving
the full Annual Bonus at target (and annualized
for any fiscal year consisting of less than twelve
(12) full months or during which the Executive was
employed for less than twelve (12) full months)
(such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the
current fiscal year through the Date of
Termination, and the denominator of which is 365;
(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
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in accordance with Section 4(a) hereof, for any
performance period not completed at the Executive's Date
of Termination, an amount equal to the cash amount
payable plus the value of any shares, dividends or other
property (valued at the Date of Termination) payable
upon the achievement of the then existing performance in
respect of each tranche of such performance shares or
awards as if the Date of Termination were the end of the
performance period, but in no event less than one
hundred percent (100%) of target, multiplied by (A) with
respect to any tranche as of the Date of Termination for
which at least fifty percent (50%) of the performance
period has elapsed, one hundred percent (100%), and (B)
with respect to any tranche as of the Date of
Termination for which less than fifty percent (50%) of
the performance period has elapsed, a fraction, the
numerator of which is the number of days that have
elapsed in the relevant performance period and the
denominator of which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or (iv),
all vested, nonforfeitable amounts owing or accrued at
the Date of Termination under any other compensation and
benefit plans, programs, and arrangements in which
Executive theretofore participated, including any
supplemental retirement plan in which the Executive may
have participated, including any additional accruals
provided under such plan due to the Change of Control,
will be paid under the terms and conditions of the
plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination,
a continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for 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;
(g) 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;
(h) the Company shall reimburse the Executive the actual
brokerage commissions paid by Executive in connection with the sale of
Executive's principal residence, if the Executive lists (and continues to list)
the Executive's principal residence for sale commencing not later than the
second anniversary of the Date of Termination and the Executive shall have the
right to cause the Company to purchase the Executive's principal residence at
any time prior to the second anniversary of the Date of Termination for its
appraised value; provided, the appraised value shall be the average of the
values of the Executive's principal residence (net of any indebtedness assumed
by the Company) determined within ten (10) days of the date the residence is
listed for sale by three real estate
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appraisers, one chosen by each of the Executive and the Company and the third
appraiser chosen by the other two appraisers; and
(i) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Company's Group Replacement Insurance
Program, or any successor thereto.
8. Definitions Relating to Termination Events.
------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this
Termination Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock")
or (B) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any
acquisition by a lender to the Company pursuant to
a debt 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;
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(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of the directors then
comprising the Incumbent Board shall be considered
as though such individual were a member of the
Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of
office occurs as a result of an actual or
threatened election contest with respect to the
election or removal of directors or other actual
or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than fifty
percent (50%) of, respectively, the
then-outstanding shares of common stock and the
combined voting power of the then outstanding
voting securities entitled to vote generally in
the election of directors, as the case may be, of
the corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction
owns the Company or all or substantially all of
the Company's assets either directly or through
one or more subsidiaries) in substantially the
same proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B)
no Person (excluding any corporation resulting
from such Business Combination or any employee
benefit plan (or related trust) of the Company or
such corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then 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.
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(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including 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
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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).
9. Excise Tax Gross-Up.
-------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part)
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<PAGE> 15
do not constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar 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
14
<PAGE> 16
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the
amount of each Gross-up Payment shall be computed so as not to duplicate any
prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up
15
<PAGE> 17
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by the Executive of
an amount advanced by the Company pursuant to this Section 10, the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of this Section
10) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
---------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of eighteen (18) consecutive months thereafter, acting alone
or in conjunction with others, directly or indirectly (i) engage (either as
owner, investor, partner, stockholder, employer, employee, consultant, advisor
or director (other than as below)) in any business in the continental United
States which is a material business conducted by the Company or any of its
subsidiaries on the date of the consummation of a Change of Control in which he
has been directly engaged, or has supervised as an executive, on the date of the
consummation of the Change of Control and which is directly in competition with
a material business then conducted by the Company or any of its subsidiaries on
the date of the consummation of the Change of Control; (ii) induce any customers
of the Company or any of its subsidiaries with whom Executive has had contacts
or relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to CUNO
Incorporated, nor shall service as a member of a board of directors on which
Executive is serving on the Date of Termination (including any successor board
thereto) be deemed, of itself, to be inconsistent with clause (i) of this
paragraph (a). The Executive and the Company agree that the value to be assigned
to the obligations of the Executive under this paragraph (a) is an amount equal
to one hundred percent (100%) of the Executive's Annual Base Salary and Recent
Annual Bonus. Violation of Section 11(a) or (b) shall not require Executive to
return any payment or benefit previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
16
<PAGE> 18
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section 11 and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
11. Governing Law; Disputes; Arbitration.
------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of Section 11 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING
OF OBLIGATIONS. On and after the Extension Date, all reasonable costs and
expenses (including fees and disbursements of counsel) incurred by Executive in
seeking to enforce rights pursuant to this Termination Agreement shall be paid
on behalf of or reimbursed to Executive promptly by the Company, whether or not
Executive is successful in asserting such rights; PROVIDED, HOWEVER,
17
<PAGE> 19
that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's assertion
of such rights was in bad faith or frivolous, as determined by independent
counsel mutually acceptable to Executive and the Company and made without
reference to or not related to a Change of Control. Immediately prior to the
Extension Date but not less than five (5) days prior thereto, the Company agrees
to maintain a minimum amount in a rabbi trust (or to provide to the trustee of
such rabbi trust) an irrevocable letter of credit in an amount equal to such
minimum amount (and callable at will by such trustee) sufficient to fund any
such litigation and the aggregate present value of all liabilities potentially
owed to the Executive under this Agreement as if he or she had incurred a
termination of employment by the Company other than for Cause.
12. Miscellaneous.
-------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving 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
18
<PAGE> 20
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: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: --------------------------
--------------------------
--------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement
are for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages on or
after Executive's Date of Termination, nor shall the amount of any payment
hereunder be reduced by any compensation earned by the Executive as a result of
employment by another employer; PROVIDED, HOWEVER, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in this Termination Agreement,
any such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) OFFSETS; WITHHOLDING. The amounts required to be
paid by the Company to Executive pursuant to this Termination Agreement shall
not be subject to offset, counterclaim,
19
<PAGE> 21
recoupment, defense or other claim, right or action which the Company may have
against Executive or others, other than with respect to any amounts that are
owed to the Company by Executive due to his receipt of Company funds as a result
of his fraudulent activity. The foregoing and other provisions of this
Termination Agreement notwithstanding, all payments to be made to Executive
under this Termination Agreement will be subject to required withholding taxes
and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
13. Indemnification.
---------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
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<PAGE> 22
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.
COMMERCIAL INTERTECH CORP.
By: /S/Bruce C. Wheatley
------------------------------------
Name: Bruce C. Wheatley
------------------------------------
Title: Senior Vice President-Administration
JOHN GILCHRIST
/S/John Gilchrist
------------------------------------------------
21
<PAGE> 23
<TABLE>
<CAPTION>
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR
- -------------------------------------------------------------------------------
<C> <C>
1. Term and Application................................................................................... 1
2. Office and Duties...................................................................................... 1
3. Salary and Annual Incentive Compensation............................................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement....................................................... 3
5. Termination of Employment.............................................................................. 3
6. Termination Due to Normal Retirement, Death, or Disability............................................. 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability.......................................................................................... 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period...................................................... 7
9. Definitions Relating to Termination Events............................................................. 10
10. Excise Tax Gross-Up.................................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation.............................................. 16
12. Governing Law; Disputes; Arbitration................................................................... 17
13. Miscellaneous.......................................................................................... 18
14. Indemnification........................................................................................ 20
</TABLE>
22
<PAGE> 1
Exhibit 10.23
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- -------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.23
------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and ROBERT A. CALCAGNI ("Executive") is and shall become effective
as of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
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 ar rangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. TERM AND APPLICATION. The Term of this Termination Agreement shall commence
on the date hereof and shall terminate, except to the extent that any obligation
of the Company under this Termination Agreement remains unpaid as of such time,
on the date five (5) years from the date hereof (subject to earlier termination
in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the
Extension Date (as defined below), the Term of this Termination Agreement shall
be the Extended Employment Period (as defined below). As long as the Extension
Date has not occurred, commencing on the date five (5) years after the date of
this Termination Agreement and each anniversary date of this Termination
Agreement thereafter, the Term of this Termination Agreement shall automatically
be extended for one (1) additional year unless not later than on (1) year prior
to the date five (5) years after the date of this Termination Agreement or
subsequent anniversary date, the Company or Executive shall have given written
notice to the other of its intention not to extend this Termination Agreement.
If there is a conflict between the Employment Agreement, if any, between the
Company and Executive ("Employment Agreement") and this Termination Agreement,
this Termination Agreement shall supersede the Employment Agreement; provided
the Executive shall receive the more valuable payment, right or benefit under
the Employment Agreement (including without limitation, the continuation of
medical benefits under the Employment Agreement) and this Termination Agreement.
In no event shall any payment, right or benefit under the Employment Agreement
be reduced, eliminated or otherwise adversely affected by this Termination
Agreement. In no event shall Executive receive any payment, right or benefit
under both this Termination Agreement and the Employment Agreement with respect
to the same Date of Termination (as defined below).
1. Office and Duties.
-----------------
(a) GENERALLY. During the Extended Employment Period,
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties and
1
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
2. Salary and Annual Incentive Compensation.
----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
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later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
3. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
4. Termination of Employment.
-------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
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(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
5. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
6. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal 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:
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<PAGE> 7
(i) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 4(a) hereof, at the
Date of Termination, pro rated through such Date of
Termination, will be paid; and
(ii) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and
benefit plans, programs, and arrangements in which
Executive theretofore participated will be paid under
the terms and conditions of the plans, programs, and
arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were
granted, including any supplemental retirement plan in
which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments 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
(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
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<PAGE> 8
participated will be paid under the terms and
conditions of the plans, programs, and arrangements
(and agreements and documents thereunder) pursuant to
which such compensation and benefits were granted,
including any supplemental retirement plan in which
the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period
---------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the
extent not theretofore paid, and (2) the product
of (x) the higher of (A) the Recent Annual Bonus
and (B) the Executive's Annual Bonus paid or
payable for the Company's fiscal year in which
occurs the Date of Termination, assuming
Executive and Company satisfy all conditions to
Executive's receiving the full Annual Bonus at
target (and annualized for any fiscal year
consisting of less than twelve (12) full months
or during which the Executive was employed for
less than twelve (12) full months) (such higher
amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal
year through the Date of Termination, and the
denominator of which is 365;
(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
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<PAGE> 9
in accordance with Section 4(a) hereof, for any
performance period not completed at the
Executive's Date of Termination, an amount equal
to the cash amount payable plus the value of any
shares, dividends or other property (valued at
the Date of Termination) payable upon the
achievement of the then existing performance in
respect of each tranche of such performance
shares or awards as if the Date of Termination
were the end of the performance period, but in no
event less than one hundred percent (100%) of
target, multiplied by (A) with respect to any
tranche as of the Date of Termination for which
at least fifty percent (50%) of the performance
period has elapsed, one hundred percent (100%),
and (B) with respect to any tranche as of the
Date of Termination for which less than fifty
percent (50%) of the performance period has
elapsed, a fraction, the numerator of which is
the number of days that have elapsed in the
relevant performance period and the denominator
of which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or
(iv), all vested, nonforfeitable amounts owing
or accrued at the Date of Termination under any
other compensation and benefit plans, programs,
and arrangements in which Executive theretofore
participated, including any supplemental
retirement plan in which the Executive may have
participated, including any additional accruals
provided under such plan due to the Change of
Control, will be paid under the terms and
conditions of the plans, programs, and
arrangements (and agreements and documents
thereunder) pursuant to which such compensation
and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination,
a continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for 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;
(g) 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;
(h) the Company shall reimburse the Executive the actual
brokerage commissions paid by Executive in connection with the sale of
Executive's principal residence, if the Executive lists (and continues to list)
the Executive's principal residence for sale commencing not later than the
second anniversary of the Date of Termination and the Executive shall have the
right to cause the Company to purchase the Executive's principal residence at
any time prior to the second anniversary of the Date of Termination for its
appraised value; provided, the appraised value shall be the average of the
values of the Executive's principal residence (net of any indebtedness assumed
by the Company) determined within ten (10) days of the date the residence is
listed for sale by three real estate
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appraisers, one chosen by each of the Executive and the Company and the third
appraiser chosen by the other two appraisers; and
(i) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Company's Group Replacement Insurance
Program, or any successor thereto.
8. Definitions Relating to Termination Events.
------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this
Termination Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of either (A) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(B) the combined voting power of the
then-outstanding voting securities of the Company
entitled to vote generally in the election of
directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any
acquisition by a lender to the Company pursuant to a
debt 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;
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(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising
the Incumbent Board shall be considered as though
such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs
as a result of an actual or threatened election
contest with respect to the election or removal of
directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person
other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of
all or substantially all of the assets of the
Company (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all
or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of,
respectively, the then-outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation resulting from such
Business Combination (including, without limitation,
a corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan
(or related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then 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.
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(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the
Executive's position (including 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
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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).
9. Excise Tax Gross-Up.
-------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part)
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<PAGE> 15
do not constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar 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
14
<PAGE> 16
1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the
amount of each Gross-up Payment shall be computed so as not to duplicate any
prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information
reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company
shall reasonably request in writing from
time to time, including, without
limitation, accepting legal representation
with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith
in order effectively to contest such
claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up
15
<PAGE> 17
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. If, after the receipt by the Executive of
an amount advanced by the Company pursuant to this Section 10, the Executive
becomes entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of this Section
10) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
---------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of eighteen (18) consecutive months thereafter, acting alone
or in conjunction with others, directly or indirectly (i) engage (either as
owner, investor, partner, stockholder, employer, employee, consultant, advisor
or director (other than as below)) in any business in the continental United
States which is a material business conducted by the Company or any of its
subsidiaries on the date of the consummation of a Change of Control in which he
has been directly engaged, or has supervised as an executive, on the date of the
consummation of the Change of Control and which is directly in competition with
a material business then conducted by the Company or any of its subsidiaries on
the date of the consummation of the Change of Control; (ii) induce any customers
of the Company or any of its subsidiaries with whom Executive has had contacts
or relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to CUNO
Incorporated, nor shall service as a member of a board of directors on which
Executive is serving on the Date of Termination (including any successor board
thereto) be deemed, of itself, to be inconsistent with clause (i) of this
paragraph (a). The Executive and the Company agree that the value to be assigned
to the obligations of the Executive under this paragraph (a) is an amount equal
to one hundred percent (100%) of the Executive's Annual Base Salary and Recent
Annual Bonus. Violation of Section 11(a) or (b) shall not require Executive to
return any payment or benefit previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
16
<PAGE> 18
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section 11 and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
11. Governing Law; Disputes; Arbitration.
------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of Section 11 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING
OF OBLIGATIONS. On and after the Extension Date, all reasonable costs and
expenses (including fees and disbursements of counsel) incurred by Executive in
seeking to enforce rights pursuant to this Termination Agreement shall be paid
on behalf of or reimbursed to Executive promptly by the Company, whether or not
Executive is successful in asserting such rights; PROVIDED, HOWEVER,
17
<PAGE> 19
that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's assertion
of such rights was in bad faith or frivolous, as determined by independent
counsel mutually acceptable to Executive and the Company and made without
reference to or not related to a Change of Control. Immediately prior to the
Extension Date but not less than five (5) days prior thereto, the Company agrees
to maintain a minimum amount in a rabbi trust (or to provide to the trustee of
such rabbi trust) an irrevocable letter of credit in an amount equal to such
minimum amount (and callable at will by such trustee) sufficient to fund any
such litigation and the aggregate present value of all liabilities potentially
owed to the Executive under this Agreement as if he or she had incurred a
termination of employment by the Company other than for Cause.
12. Miscellaneous.
-------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving 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
18
<PAGE> 20
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: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: ----------------------------
----------------------------
----------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement
are for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be
required to seek other employment or otherwise to mitigate Executive's damages
on or after Executive's Date of Termination, nor shall the amount of any
payment hereunder be reduced by any compensation earned by the Executive as a
result of employment by another employer; PROVIDED, HOWEVER, that, to the extent
Executive receives from a subsequent employer health or other insurance benefits
that are substantially similar to the benefits referred to in this Termination
Agreement, any such benefits to be provided by the Company to Executive
following the Term shall be correspondingly reduced.
(i) OFFSETS; WITHHOLDING. The amounts required to be
paid by the Company to Executive pursuant to this Termination Agreement shall
not be subject to offset, counterclaim,
19
<PAGE> 21
recoupment, defense or other claim, right or action which the Company may have
against Executive or others, other than with respect to any amounts that are
owed to the Company by Executive due to his receipt of Company funds as a result
of his fraudulent activity. The foregoing and other provisions of this
Termination Agreement notwithstanding, all payments to be made to Executive
under this Termination Agreement will be subject to required withholding taxes
and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
13. Indemnification.
---------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
20
<PAGE> 22
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.
COMMERCIAL INTERTECH CORP.
By: /S/Bruce C. Wheatley
----------------------------------
Name: Bruce C. Wheatley
Title: Senior Vice President-Administration
ROBERT A. CALCAGNI
/S/ROBERT A. CALCAGNI
---------------------------------------------
21
<PAGE> 23
<TABLE>
<CAPTION>
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- -------------------------------------------------------------------------------
<S> <C> <C>
1. Term and Application 1
2. Office and Duties 1
3. Salary and Annual Incentive Compensation 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement 3
5 Termination of Employment 3
6 Termination Due to Normal Retirement, Death, or Disability 4
7 Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability 5
8 Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period 7
9 Definitions Relating to Termination Events 10
10 Excise Tax Gross-Up 13
11 Non-Competition and Non-Disclosure; Executive Cooperation 16
12 Governing Law; Disputes; Arbitration 17
13 Miscellaneous 18
14 Indemnification 20
</TABLE>
22
<PAGE> 1
Exhibit 10.24
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.24
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and GILBERT M. MANCHESTER ("Executive") is and shall become
effective as of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced, eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
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
1
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
-----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
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<PAGE> 4
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
--------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
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<PAGE> 5
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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<PAGE> 6
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainent 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
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<PAGE> 7
pay Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(i) The unpaid portion of Annual Base Salary at
the rate payable, in accordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing
and accrued at the Date of Termination
under any compensation and benefit plans,
programs, and arrangements in which
Executive theretofore participated will
be paid under the terms and conditions of
the plans, programs, and arrangements
(and agreements and documents thereunder)
pursuant to which such compensation and
benefits were granted, including any
supplemental retirement plan in which the
Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary
through the Date of Termination to the
extent not theretofore paid;
(ii) twenty-four (24) semi-monthly payments
during a twelve (12) consecutive month
period equal to the Executive's Annual Base
Salary divided by twenty-four (24);
provided, however, notwithstanding anything
to the contrary in the Termination Agreement
or in the Employment Agreement, none of such
amounts shall qualify Executive for any
incremental benefit under any plan or
program in which he has participated or
continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the
plans and programs and the agreements and
other documents thereunder pursuant to which
such stock options were granted; and
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<PAGE> 8
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs,
and arrangements in which Executive
theretofore participated will be paid under
the terms and conditions of the plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment
Period
-----------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination, to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's Annual
Bonus paid or payable for the Company's
fiscal year in which occurs the Date of
Termination, assuming Executive and Company
satisfy all conditions to Executive's
receiving the full Annual Bonus at target
(and annualized for any fiscal year
consisting of less than twelve (12) full
months or during which the Executive was
employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(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
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<PAGE> 9
constitute a payment or discharge of the
Company's obligation under Section 8(a)(ii),
and VICE VERSA);
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For three (3) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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<PAGE> 10
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For three (3)
years after the Executive's Date of Termination, or such longer period as may be
provided by the terms of the plan, the Company shall continue tax-qualified
defined contribution and supplemental retirement plan accruals for the
Executive, including participation and crediting of service, contributions and
compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for three (3) years after Executive's Date of Termination,
a continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for 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;
(g) 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;
(h) the Company shall reimburse the Executive the actual
brokerage commissions paid by Executive in connection with the sale of
Executive's principal residence, if the Executive lists (and continues to list)
the Executive's principal residence for sale commencing not later than the
second anniversary of the Date of Termination and the Executive shall have the
right to cause the Company to purchase the Executive's principal residence at
any time prior to the second anniversary of the Date of Termination for its
appraised value; provided, the appraised value shall be the average of the
values of the Executive's principal residence (net of any indebtedness assumed
by the Company) determined within ten (10) days of the date the residence is
listed for sale by three real estate
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appraisers, one chosen by each of the Executive and the Company and the third
appraiser chosen by the other two appraisers; and
(i) for three (3) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Company's Group Replacement Insurance
Program, or any successor thereto.
9. Definitions Relating to Termination Events.
-------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Termination Agreement. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this Termination
Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A)
the then-outstanding shares of common stock
of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting
power of the then-outstanding voting
securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that for purposes of this
subsection (i), the following acquisitions
shall not constitute a Change of Control:
(A) any acquisition directly from the
Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any corporation
controlled by the Company, (D) any
acquisition by a lender to the Company
pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction
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<PAGE> 12
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 indi
vidual whose initial assumption of office
occurs as a result of an actual or
threatened election contest with respect to
the election or removal of directors or
other actual or threatened solicitation of
proxies or consents by or on behalf of a
Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the Company (a "Business Combination"), in
each case, unless, following such Business
Combination, (A) all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%)
of, respectively, the then-outstanding
shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be,
of the corporation resulting from such
Business Combination (including, without
limitation, a corporation which as a result
of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time
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of the execution of the initial agreement,
or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including 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
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Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than
as provided in Section 2(b) hereof or the
Company's requiring the Executive to travel
on Company business to a substantially
greater extent than required immediately
prior to the Effective Date;
(iv) any failure by the Company to perform any
material obligation under, or breach by the
Company of any material provision of, this
Termination Agreement;
(v) any purported termination by the Company of
the Executive's employment otherwise than as
expressly permitted by this Termination
Agreement; or
(vi) any failure by the Company to comply with
and satisfy Section 12(b) of this
Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Gross-Up.
--------------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
13
<PAGE> 15
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar 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
14
<PAGE> 16
cannot be finally determined on or before such day, the Company shall pay to
Executive on such day an estimate, as determined by the Independent Advisors, of
the minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code), as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to Executive,
payable on the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code). If more than one
Gross-up Payment is made, the amount of each Gross-up Payment shall be computed
so as not to duplicate any prior Gross-up Payment.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
(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
15
<PAGE> 17
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income or
employment tax (including income or employment or interest or penalties with
respect thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority. If, after the receipt by
the Executive of an amount advanced by the Company pursuant to this Section 10,
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements of
this Section 10) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section 10, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
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 conducted by the Company or any of its subsidiaries on the date of the
consummation of the Change of Control; (ii) induce any customers of the Company
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to CUNO
Incorporated, nor shall service as a member of a board of directors on which
Executive is serving on the Date of Termination (including any successor board
thereto) be deemed, of itself, to be inconsistent with clause (i) of this
paragraph (a). The Executive and the Company agree that the value to be assigned
to the obligations of the Executive under this paragraph (a) is an amount equal
to one hundred percent (100%) of the Executive's Annual Base Salary
16
<PAGE> 18
and Recent Annual Bonus. Violation of Section 11(a) or (b) shall not require
Executive to return any payment or benefit previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not otherwise been disclosed
or is not otherwise in the public domain, except as required by law or pursuant
to legal process.
(c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to
cooperate with the Company (including following Executive's Date of Termination
for any reason), on a reasonable basis when cooperation would not unreasonably
interfere with Executive's employment by making himself available to testify on
behalf of the Company or any subsidiary or affiliate of the Company, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
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 Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of
17
<PAGE> 19
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.
(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.
18
<PAGE> 20
(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: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: -------------------------------------------
-------------------------------------------
-------------------------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not be deemed to render the remainder of this
Termination Agreement invalid.
(f) HEADINGS. The headings of this Termination Agreement are
for convenience of reference only and do not constitute a part hereof.
(g) NO GENERAL WAIVERS. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) NO OBLIGATION TO MITIGATE. Executive shall not be
required to seek other employment or otherwise to mitigate Executive's damages
on or after Executive's Date of
19
<PAGE> 21
Termination, nor shall the amount of any payment hereunder be reduced by any
compensation earned by the Executive as a result of employment by another
employer; PROVIDED, HOWEVER, that, to the extent Executive receives from a
subsequent employer health or other insurance benefits that are substantially
similar to the benefits referred to in this Termination Agreement, any such
benefits to be provided by the Company to Executive following the Term shall be
correspondingly reduced.
(i) OFFSETS; WITHHOLDING. The amounts required to be paid by
the Company to Executive pursuant to this Termination Agreement shall not be
subject to offset, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against Executive or others, other than with
respect to any amounts that are owed to the Company by Executive due to his
receipt of Company funds as a result of his fraudulent activity. The foregoing
and other provisions of this Termination Agreement notwithstanding, all payments
to be made to Executive under this Termination Agreement will be subject to
required withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
14. Indemnification.
----------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it 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.
20
<PAGE> 22
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.
COMMERCIAL INTERTECH CORP.
By: /s/Bruce C. Wheatley
------------------------------------
Name: Bruce C. Wheatley
------------------------------------
Title: Senior Vice President-Administration
------------------------------------
GILBERT M. MANCHESTER
/s/Gilbert M. Manchester
------------------------------------------
21
<PAGE> 23
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <C> <C>
1. Term and Application.................................................................. 1
2. Office and Duties..................................................................... 1
3. Salary and Annual Incentive Compensation.............................................. 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement............................. 3
5. Termination of Employment............................................................. 3
6. Termination Due to Normal Retirement, Death, or Disability............................ 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability......................................................................... 5
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period.............. 7
9. Definitions Relating to Termination Events............................................ 9
10. Excise Tax Gross-Up................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation............................. 16
12. Governing Law; Disputes; Arbitration.................................................. 17
13. Miscellaneous......................................................................... 18
14. Indemnification....................................................................... 20
</TABLE>
22
<PAGE> 1
Exhibit 10.25
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- -------------------------------------------------------------------------------
<PAGE> 2
TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.25
------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and KENNETH E. STUMBAUGH ("Executive") is and shall become effective
as of October 1, 1996 (the "Effective Date").
W I T N E S S E T H
- - - - - - - - - -
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Termination Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. TERM AND APPLICATION. The Term of this Termination Agreement shall
commence on the date hereof and shall terminate, except to the extent that any
obligation of the Company under this Termination Agreement remains unpaid as of
such time, on the date five (5) years from the date hereof (subject to earlier
termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or
after the Extension Date (as defined below), the Term of this Termination
Agreement shall be the Extended Employment Period (as defined below). As long as
the Extension Date has not occurred, commencing on the date five (5) years after
the date of this Termination Agreement and each anniversary date of this
Termination Agreement thereafter, the Term of this Termination Agreement shall
automatically be extended for one (1) additional year unless not later than on
(1) year prior to the date five (5) years after the date of this Termination
Agreement or subsequent anniversary date, the Company or Executive shall have
given written notice to the other of its intention not to extend this
Termination Agreement. If there is a conflict between the Employment Agreement,
if any, between the Company and Executive ("Employment Agreement") and this
Termination Agreement, this Termination Agreement shall supersede the Employment
Agreement; provided the Executive shall receive the more valuable payment, right
or benefit under the Employment Agreement (including without limitation, the
continuation of medical benefits under the Employment Agreement) and this
Termination Agreement. In no event shall any payment, right or benefit under the
Employment Agreement be reduced, eliminated or otherwise adversely affected by
this Termination Agreement. In no event shall Executive receive any payment,
right or benefit under both this Termination Agreement and the Employment
Agreement with respect to the same Date of Termination (as defined below).
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
1
<PAGE> 3
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to CUNO
Incorporated. It is expressly understood and agreed that, to the extent that any
activities have been conducted by the Executive prior to the Extension Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Extension Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
3. Salary and Annual Incentive Compensation.
----------------------------------------
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
Annual Base Salary as so increased. As used in this Termination Agreement, the
term "affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(b) ANNUAL INCENTIVE COMPENSATION. During the Extended
Employment Period, any annual incentive compensation payable to Executive shall
be paid in accordance with the Company's usual practices with respect to payment
of incentive compensation of senior executives, including, without limitation,
the Company's Senior Management Target Incentive Plan and Salaried Employee
Incentive Plan (except to the extent deferred). In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at
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
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later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
-------------------------------------------------------------
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
-------------------------
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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.
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<PAGE> 5
(b) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(d) of
this Termination Agreement. For purposes of this Termination Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Termination Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the Date of
Termination (which date shall be not more than thirty (30) days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(c) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such Date of Termination, and (iii) if the Executive's employment
is terminated by reason of death or Disability, or due to his voluntary decision
to retire on or after his Normal Retirement Date other than for Good Reason, the
Date of Termination shall be the date of death of the Executive, the Disability
Effective Date, or the date the Executive notifies the Company that the
Executive's employment will terminate, as the case may be. Notwithstanding the
foregoing, solely the transfer of an Executive to employment with an affiliated
companies shall not constitute a termination of employment with the Company.
6. Termination Due to Normal Retirement, Death, or Disability
-----------------------------------------------------------
Upon an Executive's Date of Termination due to his voluntary
decision to retire on or after his Normal Retirement Date (other than for Good
Reason during the Extended Employment Period), death or Disability, the Term of
this Termination Agreement will immediately terminate and all obligations of the
Company and Executive under this Termination Agreement will immediately cease;
PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company
will pay Executive (or his beneficiaries or estate), and Executive (or his
beneficiaries or estate) will be entitled to receive, the following:
(a) The unpaid portion of Annual Base Salary at the rate
payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will be paid;
(b) All vested, nonforfeitable amounts owing and accrued at
the Date of Termination under any compensation and benefit plans, programs, and
arrangements in which Executive theretofore participated will be paid under the
terms and conditions of the plans, 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;
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<PAGE> 6
(c) In lieu of any annual incentive compensation under Section
3(b) for the year in which Executive's employment terminated (unless otherwise
payable under (b) above), Executive will be paid an amount equal to the average
annual incentive compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not eligible to receive
or did not receive such incentive compensation for any year in such three year
period, the Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation) multiplied by
a fraction the numerator of which is the number of days Executive was employed
in the year of termination and the denominator of which is the total number of
days in the year of termination;
(d) Stock options then held by Executive will be exercisable
to the extent and for such periods, and otherwise governed, by the plans and
programs and the agreements and other documents thereunder pursuant to which
such stock options were granted; and
(e) If Executive's Date of Termination is due to Disability,
for the period extending from such Date of Termination until Executive reaches
age 65, Executive shall continue to participate in all employee benefit plans,
programs, and arrangements providing health, medical, and life insurance in
which Executive was participating immediately prior to the Date of Termination,
the terms of which allow Executive's continued participation, as if Executive
had continued in employment with the Company during such period or, if such
plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service and age with the
Company during such period following Executive's Date of Termination, with such
benefits payable by the Company at the same times and in the same manner as such
benefits would have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits will be based on
the premium cost to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit rating).
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payments shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
7. Termination of Employment For Reasons Other Than Normal
Retirement, Death or Disability
-------------------------------------------------------
(a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY
EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or
voluntarily by Executive for reasons other than Good Reason or other than the
attainment of the Normal Retirement Date, death or Disability, the Term will
immediately terminate, and all obligations of the Company under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
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<PAGE> 7
(i) The unpaid portion of Annual Base Salary at
the rate payable, in acchordance with Section
4(a) hereof, at the Date of Termination, pro
rated through such Date of Termination, will
be paid; and
(ii) All vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the plans, programs, and
arrangements (and agreements and documents
thereunder) pursuant to which such
compensation and benefits were granted,
including any supplemental retirement plan in
which the Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after the Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Upon an
Executive's Date of Termination by the Company prior to the Extension Date
without Cause, the Term will terminate and all obligations of the Company and
Executive under Sections 1 through 4 of this Termination Agreement will
immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section
13(c) the Company shall pay to the Executive (or his or her beneficiaries) and
Executive (or his or her beneficiaries) shall be entitled to receive within, or
commencing within, thirty (30) days after the Date of Termination, the following
amounts:
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not
theretofore paid;
(ii) twenty-four (24) semi-monthly payments during
a twelve (12) consecutive month period equal
to the Executive's Annual Base Salary divided
by twenty-four (24); provided, however,
notwithstanding anything to the contrary in
the Termination Agreement or in the
Employment Agreement, none of such amounts
shall qualify Executive for any incremental
benefit under any plan or program in which he
has participated or continues to participate;
(iii) stock options then held by Executive will be
exercisable to the extent and for such
periods, and otherwise governed, by the plans
and programs and the agreements and other
documents thereunder pursuant to which such
stock options were granted; and
(iv) all vested, nonforfeitable amounts owing and
accrued at the Date of Termination under any
compensation and benefit plans, programs, and
arrangements in which Executive theretofore
participated will be paid under the terms and
conditions of the
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<PAGE> 8
plans, programs, and arrangements (and
agreements and documents thereunder)
pursuant to which such compensation and
benefits were granted, including any
supplemental retirement plan in which the
Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. Termination by the Company Without Cause and Termination by
Executive for Good Reason During the Extended Employment Period
---------------------------------------------------------------
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the
extent not theretofore paid, and (2) the product
of (x) the higher of (A) the Recent Annual Bonus
and (B) the Executive's current Annual Bonus
paid or payable for the Company's fiscal year in
which occurs the Date of Termination, assuming
Executive and Company satisfy all conditions to
Executive's receiving the full Annual Bonus at
target (and annualized for any fiscal year
consisting of less than twelve (12) full months
or during which the Executive was employed for
less than twelve (12) full months) (such higher
amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of
which is the number of days in the current
fiscal year through the Date of Termination, and
the denominator of which is 365;
(ii) the amount equal to two (2) times the sum of (1)
the Executive's Annual Base Salary and (2) the
Highest Annual Bonus. (Payment of any amount
under Section 8(a)(i) shall not constitute a
payment or discharge of the Company's obligation
under Section 8(a)(ii), and VICE VERSA);
(iii) in lieu of any payment in respect of performance
shares, or other long term incentive awards
granted prior to the Extension Date or in
accordance with Section 4(a) hereof, for any
performance period
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<PAGE> 9
not completed at the Executive's Date of
Termination, an amount equal to the cash amount
payable plus the value of any shares, dividends
or other property (valued at the Date of
Termination) payable upon the achievement of the
then existing performance in respect of each
tranche of such performance shares or awards as
if the Date of Termination were the end of the
performance period, but in no event less than
one hundred percent (100%) of target, multiplied
by (A) with respect to any tranche as of the
Date of Termination for which at least fifty
percent (50%) of the performance period has
elapsed, one hundred percent (100%), and (B)
with respect to any tranche as of the Date of
Termination for which less than fifty percent
(50%) of the performance period has elapsed, a
fraction, the numerator of which is the number
of days that have elapsed in the relevant
performance period and the denominator of which
is the total number of days in the relevant
performance period; and
(iv) to the extent not covered in (i), (ii), (iii) or
(iv), all vested, nonforfeitable amounts owing
or accrued at the Date of Termination under any
other compensation and benefit plans, programs,
and arrangements in which Executive theretofore
participated, including any supplemental
retirement plan in which the Executive may have
participated, including any additional accruals
provided under such plan due to the Change of
Control, will be paid under the terms and
conditions of the plans, programs, and
arrangements (and agreements and documents
thereunder) pursuant to which such compensation
and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For two (2) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive is employed with another employer and is eligible to receive medical
or other welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For two (2)
years after the Executive's Date of Termination, or such longer period as may be
provided by the terms of the plan, the Company shall continue tax-qualified
defined contribution and supplemental retirement plan accruals for the
Executive, including participation and crediting of service, contributions and
compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally
8
<PAGE> 10
at any time thereafter with respect to other peer executives of the Company and
its affiliated companies. If such welfare benefit or tax-qualified defined
contribution plans, programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis to the value of
the additional benefits Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, compensation
and age with the Company during such period following Executive's Date of
Termination, with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by Executive under
such plans (it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which shall not exceed
the highest risk premium charged by a carrier having an investment grade or
better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for two (2) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for two (2) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(g) for two (2) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the Company's Group Replacement Insurance
Program, or any successor thereto.
9. Definitions Relating to Termination Events.
------------------------------------------
(a) "CAUSE." For purposes of this Termination Agreement,
"Cause" shall mean Executive's gross misconduct (as defined herein). For
purposes of this definition, "gross misconduct" shall mean (A) a felony
conviction in a court of law under applicable federal or state laws which
results in material damage to the Company or any of its subsidiaries or
materially impairs the value of Executive's services to the Company, or (B)
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company or any of its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties
9
<PAGE> 11
under this Termination Agreement. Notwithstanding the foregoing, Executive may
not be terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
which constitutes Cause as set forth in this Section 9(a).
(b) "CHANGE OF CONTROL." For the purpose of this
Termination Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of
twenty percent (20%) or more of either (A) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock")
or (B) the combined voting power of the
then-outstanding voting securities of the
Company entitled to vote generally in the
election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for
purposes of this subsection (i), the following
acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company, (D) any acquisition by a lender to the
Company pursuant to a debt restructuring of the
Company, or (E) any acquisition by any
corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 9;
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a
majority of the Board; provided, however, that
any individual becoming a director subsequent to
the date hereof whose election, or nomination
for election by the Company's shareholders, was
approved by a vote of at least a majority of the
directors then comprising the Incumbent Board
shall be considered as though such individual
were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a
result of an 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;
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<PAGE> 12
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of
all or substantially all of the assets of the
Company (a "Business Combination"), in each
case, unless, following such Business
Combination, (A) all or substantially all of the
individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of,
respectively, the then-outstanding shares of
common stock and the combined voting power of
the then outstanding voting securities entitled
to vote generally in the election of directors,
as the case may be, of the corporation resulting
from such Business Combination (including,
without limitation, a corporation which as a
result of such transaction owns the Company or
all or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be,
(B) no Person (excluding any corporation
resulting from such Business Combination or any
employee benefit plan (or related trust) of the
Company or such corporation resulting from such
Business Combination) beneficially owns,
directly or indirectly, twenty percent (20%) or
more of, respectively, the then outstanding
shares of common stock of the corporation
resulting from such Business Combination, or the
combined voting power of the then outstanding
voting securities of such corporation except to
the extent that such ownership existed prior to
the Business Combination and (C) at least a
majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the
Incumbent Board at the time of the execution of
the initial agreement, or of the action of the
Board, providing for such Business Combination;
or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the
Company.
(c) "DISABILITY" means the failure of Executive to render and
perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the 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.
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(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the second anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a)
of this Termination Agreement, or any other
action by the Company which results in a
diminution in such position, authority, duties
or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
action not taken in bad faith and which is
remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4 of this Termination
Agreement or the Employment Agreement, other
than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is
remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as
provided in Section 2(b) hereof or the Company's
requiring the Executive to travel on Company
business to a substantially greater extent than
required immediately prior to the Effective
Date;
(iv) any failure by the Company to perform any
material obligation under, or breach by the
Company of any material provision of, this
Termination Agreement;
(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.
12
<PAGE> 14
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. Excise Tax Limit.
----------------
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or could become subject to
the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall reduce or eliminate the Total Payments, but only to the
extent necessary, such that no amount of the Total Payments shall be subject to
the Excise Tax.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax:
(a) No part of the Total Payments shall be treated as subject
to the Excise Tax to the extent that, in the written opinion of independent
legal counsel, compensation consultants or auditors of nationally recognized
standing ("Independent Advisors") selected by the Company and reasonably
acceptable to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Total Payments or (ii) the total amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause (a)
above); and
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
The Company agrees to indemnify and hold Executive harmless
from any tax, penalty or other charge or liability imposed upon Executive
resulting directly or indirectly from a Total Payment's (in whole or in part)
being subject to the Excise Tax after giving effect to any reduction directed by
the Company pursuant to the first paragraph of this Section 10, or from any tax,
penalty or other charge or liability resulting directly or indirectly from the
Company's obligation to indemnify and hold Executive harmless hereunder,
including investigation and attorneys' fees and expenses ("Indemnification
Obligation").
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company under its Indemnification Obligation. Such notification shall be
given as soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall
13
<PAGE> 15
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably
request in writing from time to time, including,
without limitation, accepting legal
representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to its Indemnification Obligation hereunder and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority. If, after the
receipt by the Executive of an amount advanced by the Company pursuant to this
Section 10, the Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's complying with the
requirements of this Section 10) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
14
<PAGE> 16
amount advanced by the Company pursuant to this Section 10, a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Indemnification Obligation payment required to be paid.
11. Non-Competitino and Non-Disclosure; Executive Cooperation.
---------------------------------------------------------
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of six (6) consecutive calendar months thereafter, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor or director (other than as below)) in any business in the continental
United States which is a material business conducted by the Company or any of
its subsidiaries on the date of the consummation of a Change of Control in which
he has been directly engaged, or has supervised as an executive, on the date of
the consummation of the Change of Control and which is directly in competition
with a material business conducted by the Company or any of its subsidiaries on
the date of the consummation of the Change of Control; (ii) induce any customers
of the Company or any of its subsidiaries with whom Executive has had contacts
or relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above
are separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a), neither shall service
(whether as an employee, officer, director or consultant) with respect to CUNO
Incorporated, nor shall service as a member of a board of directors on which
Executive is serving on the Date of Termination (including any successor board
thereto) be deemed, of itself, to be inconsistent with clause (i) of this
paragraph (a). The Executive and the Company agree that the value to be assigned
to the obligations of the Executive under this paragraph (a) is an amount equal
to fifty percent (50%) of Executive's Annual Base Salary and Recent Annual
Bonus. Violation of Section 11(a) or (b) shall not require Executive to return
any payment or benefit previously distributed to Executive.
(b) NON-DISCLOSURE. Executive shall not at any time (including
following Executive's Date of Termination for any reason), disclose, use,
transfer, or sell, except in the course of employment with or other service to
the Company, any confidential or proprietary information of the Company or any
of its subsidiaries so long as such information has not 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
15
<PAGE> 17
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board and its representatives or counsel, or
representatives or counsel of or to the Company, or any subsidiary or affiliate
of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not
apply to any action between the Executive and the Company to enforce this
Termination Agreement. The Company agrees to reimburse Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
(d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a
condition to receipt of the termination payments and benefits provided
hereunder, that he will execute a release agreement, in a form satisfactory to
the Company, releasing any and all claims arising out of Executive's employment
(other than claims made pursuant to any indemnities provided under the articles
or by-laws of the Company, under any directors or officers liability insurance
policies maintained by the Company or enforcement of this Termination
Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section 11 and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
12. Governing Law; Disputes; Arbitration.
------------------------------------
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of Ohio, without regard to Ohio conflicts of law principles, except
insofar as federal laws and regulations may be applicable. If under the
governing law, any portion of this Termination Agreement is at any time deemed
to be in conflict with any applicable statute, rule, regulation, ordinance, or
other principle of law, such portion shall be deemed to be modified or altered
to the extent necessary to conform thereto or, if that is not possible, to be
omitted from this Termination Agreement. The invalidity of any such portion
shall not affect the force, effect, and validity of the remaining portion
hereof. If any court determines that any provision of Section 11 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) REIMBURSEMENT OF EXPENSES IN ENFORCING RIGHTS AND FUNDING
OF OBLIGATION. 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
16
<PAGE> 18
letter of credit in an amount equal to such minimum amount (and callable at will
by such trustee) sufficient to fund any such litigation and the aggregate
present value of all liabilities potentially owed to the Executive under this
Agreement as if he or she had incurred a termination of employment by the
Company other than for Cause.
13. Miscellaneous.
-------------
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination Agreement
nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving 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:
17
<PAGE> 19
If to the Company: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
With copies to: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: General Counsel
If to Executive: --------------------------
--------------------------
--------------------------
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Termination Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) REFORMATION. The invalidity of any portion of this
Termination Agreement shall not 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
18
<PAGE> 20
foregoing and other provisions of this Termination Agreement notwithstanding,
all payments to be made to Executive under this Termination Agreement will be
subject to required withholding taxes and other required deductions.
(j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall
be binding upon and shall inure to the benefit of Executive, his heirs,
executors, administrators and beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
14. Indemnification.
---------------
All rights to indemnification by the Company now existing in
favor of Executive as provided in the Company's Articles of Incorporation or
Code of Regulations or pursuant to other agreements in effect on or immediately
prior to the Extension Date shall continue in full force and effect from the
Extension Date (including all periods after the expiration of the Term), and the
Company shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an undertaking
to repay such advances if it is ultimately determined that Executive is not
entitled to indemnification; PROVIDED, HOWEVER, that any determination required
to be made with respect to whether Executive's conduct complies with the
standards required to be met as a condition of indemnification or advancement of
expenses under applicable law and the Company's Articles of Incorporation, Code
of Regulations, or other agreement shall be made by independent counsel mutually
acceptable to Executive and the Company (except to the extent otherwise required
by law). After the date hereof, the Company shall not amend its Articles of
Incorporation or Code of Regulations or any agreement in any manner which
adversely affects the rights of Executive to indemnification thereunder. Any
provision contained herein notwithstanding, this Termination Agreement shall not
limit or reduce any rights of Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain directors' and officers'
liability insurance in effect and covering acts and omissions of Executive,
during the Term and for a period of six years thereafter, on terms substantially
no less favorable as those in effect on the Extension Date.
IN WITNESS WHEREOF, Executive has hereunto set his hand and
the Company has caused this instrument to be duly executed as of the day and
year first above written.
COMMERCIAL INTERTECH CORP.
By: /s/ Bruce C. Wheatley
------------------------------------
Name: Bruce C. Wheatley
Title: Senior Vice President-Administration
KENNETH E. STUMBAUGH
/s/ Kenneth E. Stumbaugh
---------------------------------------------
19
<PAGE> 21
<TABLE>
<CAPTION>
COMMERCIAL INTERTECH CORP.
- -------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- -------------------------------------------------------------------------------
<C> <C>
1. Term and Application................................................................................... 1
2. Office and Duties...................................................................................... 1
3. Salary and Annual Incentive Compensation............................................................... 2
4. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement................................................ 3
5. Termination of Employment.............................................................................. 3
6. Termination Due to Normal Retirement, Death, or Disability............................................. 4
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability................................................................................... 5
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period............................................... 7
9. Definitions Relating to Termination Events............................................................. 9
10. Excise Tax Limit....................................................................................... 13
11. Non-Competition and Non-Disclosure; Executive Cooperation.............................................. 15
12. Governing Law; Disputes; Arbitration................................................................... 16
13. Miscellaneous.......................................................................................... 17
14. Indemnification........................................................................................ 19
20
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED OCTOBER 31,
1996 1995 1994
---- ---- ----
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding.................. 14,916 15,381 15,146
Net effect of dilutive stock options -
based on the treasury stock
method using average market price....... 340 201 181
--------- --------- --------
Total....................... 15,256 15,582 15,327
========= ========= ========
Income from continuing operations
before extraordinary items.............. $ 15,356 $ 24,282 $ 17,812
Preferred stock dividends and adjustments... (2,058) (2,084) (2,097)
--------- --------- ---------
Income applicable to common stock........... $ 13,298 $ 22,198 $ 15,715
========= ========= ========
Per share amount............................ $0.87 $1.42 $1.03
Income from discontinued operations......... $ 6,083 $ 6,101 $ 7,269
Per share amount............................ $0.40 $0.40 $0.47
Extraordinary items......................... $ (4,044) $ 0 $ 0
Per share amount............................ ($0.26) $0.00 $0.00
Net income.................................. $ 17,395 $ 30,383 $ 25,081
Preferred stock dividends and adjustments... (2,058) (2,084) (2,097)
--------- --------- ---------
Income applicable to common stock........... $ 15,337 $ 28,299 $ 22,984
========= ========= ========
Per share amount............................ $1.01 $1.82 $1.50
FULLY DILUTED
- -------------
Average shares outstanding.................. 14,916 15,381 15,146
Net effect of dilutive stock options -
based on the treasury stock method
using the year end price, if higher
than average market price............... 478 202 266
Common share equivalents:
Series B Preferred...................... 1,545 1,302 1,308
--------- --------- --------
Total....................... 16,939 16,885 16,720
========= ========= ========
Income from continuing operations
before extraordinary items.............. $ 15,356 $ 24,282 $ 17,812
Preferred stock (Series B) dividends
rate adjustment......................... (1,223) (1,420) (1,474)
--------- --------- ---------
Income applicable to common stock........... $ 14,133 $ 22,862 $ 16,338
========= ========= ========
Per share amount............................ $0.83 $1.35 $0.98
Income from discontinued operations......... $ 6,083 $ 6,101 $ 7,269
Per share amount............................ $0.36 $0.37 $0.43
Extraordinary items......................... $ (4,044) $ 0 $ 0
Per share amount............................ ($0.24) $0.00 $0.00
Net income.................................. $ 17,395 $ 30,383 $ 25,081
Preferred stock (Series B) dividends
rate adjustment......................... (1,223) (1,420) (1,474)
--------- --------- ---------
Income applicable to common stock........... $ 16,172 $ 28,963 $ 23,607
========= ========= ========
Per share amount............................ $0.95 $1.72 $1.41
</TABLE>
1
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Listed below, as of January 3, 1997, are the significant subsidiaries of
the Company and their jurisdictions of organization. All of such subsidiaries
are either directly of indirectly wholly-owned by the Company. Other
subsidiaries of the Company have been omitted because, considered in the
aggregates they would not constitute a significant subsidiary.
Jurisdiction of
Name of Subsidiary Organization
------------------ ------------
100% Owned
- ----------
Orange County Metal Works California
Cylinder City, Inc. Minnesota
Commercial Hydraulics Pty., Ltd. Australia
Commercial Intertech do Brasil, Ltda. Brazil
Commercial Intertech s.r.o. Czech Republic
Commercial Intertech Limited England
Astron S.A.R.L. France
Sachsenhydraulik Chemnitz GmbH Germany
Commercial Intertech S.A. Luxembourg
Astron Building Systems
(Shenzhen) Co. Ltd. Peoples Republic of China
Other: (see Note A)
- --------------------
Hydraulik Rochlitz GmbH Germany
Commercial Intertech GmbH Germany
Ultra Hydraulics Ltd. England
NOTE A Commercial Intertech GmbH is 100% owned by Hydraulik Rochlitz GmbH, which
is 100% owned by Sachsenhydraulik Chemnitz GmbH.
Ultra Hydraulics Ltd. is 100% owned by Commercial Intertech Limited.
1
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated December 9,
1996, with respect to the consolidated financial statements and schedule of
Commercial Intertech Corp. and subsidiaries included in this Annual Report (Form
10-K) for the year ended October 31, 1996, in the prospectus contained in the
following registration statements:
Registration
Number Description Filing Date
------ ----------- -----------
2-66710 Savings and Stock Purchase Plan for
Employees of Commercial Shearing, Inc. -
Form S-8 Registration Statement June 23, 1986
2-62512 Commercial Shearing, Inc. Stock Option and
Award Plan of 1985 - Forms S-8 and S-3
Registration Statement April 24, 1986
33-25795 Non-Qualified Stock Purchase Plan of
Commercial Intertech Corp. - Form S-8
Registration Statement Nov. 29, 1988
33-29980 Commercial Intertech Corp. Stock Option and
Award Plan of 1989 including Pre-Effective
Amendment No. 1 to Form S-8 Registration
Statement filed July 24, 1989 July 10, 1989
33-43907 Commercial Intertech Corp. Retirement Stock
Ownership and Savings Plan - Form S-8
Registration Statement Nov. 13, 1991
33-52443 Commercial Intertech Corp. Stock Option
and Award Plan of 1993 - Form S-8
Registration Statement Feb. 28, 1994
33-61453 Commercial Intertech Corp. Stock Option
and Award Plan of 1995 - Form S-8
Registration Statement August 1, 1995
/s/ Ernst & Young LLP
Cleveland, Ohio
January 22, 1997
1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 27,552
<SECURITIES> 0
<RECEIVABLES> 72,123
<ALLOWANCES> 1,724
<INVENTORY> 58,129
<CURRENT-ASSETS> 190,403
<PP&E> 196,909
<DEPRECIATION> 100,289
<TOTAL-ASSETS> 337,116
<CURRENT-LIABILITIES> 116,223
<BONDS> 93,415
<COMMON> 13,560
0
24,172
<OTHER-SE> 49,429
<TOTAL-LIABILITY-AND-EQUITY> 337,116
<SALES> 465,209
<TOTAL-REVENUES> 465,209
<CGS> 340,993
<TOTAL-COSTS> 340,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 850
<INTEREST-EXPENSE> 7,083
<INCOME-PRETAX> 23,738
<INCOME-TAX> 8,382
<INCOME-CONTINUING> 15,356
<DISCONTINUED> 6,083
<EXTRAORDINARY> (4,044)
<CHANGES> 0
<NET-INCOME> 17,395
<EPS-PRIMARY> 1.01
<EPS-DILUTED> .95
</TABLE>
