<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, 1999
Commission File Number 1-10697
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 44501-0239
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 746-8011
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------ ------------------------
Common Stock, par value $1 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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. [X]
The aggregate market value of common shares held by non-affiliates of
the Registrant at December 31, 1999 was approximately $166 million (based upon
the closing price on that date). For purposes of this calculation only,
affiliates of the Registrant are deemed to be the Registrant's directors,
executive officers and their affiliates.
As of December 31, 1999, 14,620,812 shares of Common Stock, par value
$1, were outstanding.
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INDEX
COMMERCIAL INTERTECH CORP.
<TABLE>
<CAPTION>
Page No.
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PART I
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<S> <C>
ITEM 1. Business................................................................... 3
ITEM 2. Properties................................................................. 7
ITEM 3. Legal Proceedings.......................................................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders........................ 7
ITEM 4A. Executive Officers of the Registrant....................................... 8
PART II
- -------
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 8
ITEM 6. Selected Financial Data.................................................... 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 11
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk................. 22
ITEM 8. Financial Statements and Supplementary Data................................ 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 53
PART III
- --------
ITEM 10. Directors and Executive Officers of the Registrant......................... 53
ITEM 11. Executive Compensation..................................................... 58
ITEM 12. Security Ownership of Certain Beneficial Owners and Management............. 66
ITEM 13. Certain Relationships and Related Transactions............................. 69
PART IV
- -------
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 70
SIGNATURES............................................................................ 75
</TABLE>
2
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PART I
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ITEM 1. BUSINESS
(a) General development of business:
RECENT DEVELOPMENTS
On January 17, 2000, Commercial Intertech Corp. (the "Company" or
"Commercial Intertech") and Parker-Hannifin Corporation ("Parker") announced
that their Boards of Directors had approved a definitive agreement to merge in a
cash - and - stock transaction whereby Parker would acquire all outstanding
stock of Commercial Intertech Corp. for $20.00 per share. Commercial Intertech
shareholders will receive Parker common stock based on an exchange ratio that
will be determined by the twenty-day average of Parker's closing price as
determined five days immediately preceding the closing date of the merger.
Alternatively, shareholders may elect to receive $20.00 per share in cash,
subject to a maximum of 49 percent of the value of the total shares acquired by
Parker. The transaction will be accounted for by the purchase method of
accounting for business combinations and is expected to be tax-deferred for that
portion of the purchase price received in Parker common stock. The merger, which
is anticipated to close in May 2000, is subject to approval of the shareholders
of Commercial Intertech Corp.; regulatory approvals in the United States, Europe
and other countries; and other closing conditions.
GENERAL
Commercial Intertech was incorporated in Ohio in 1920. The Company's
operations are principally organized and managed by product line and are
comprised of three reportable segments: Commercial Hydraulics, Buildings Systems
and Metal Forming. In 1986, the Company acquired CUNO Incorporated ("CUNO"), a
manufacturer of fluid purification products. The Company made a 100 percent
spin-off of the common stock of the CUNO business in 1996 and reflected the net
assets and operating results for CUNO for 1996 and prior years as a discontinued
operation. Therefore, the Commercial Hydraulics, Building Systems and Metal
Forming segments account for all of the Company's continuing businesses. Unless
otherwise noted, all references in this report of the Registrant relate to the
continuing businesses.
(b) Financial information about segments:
See "Note I - Segment Reporting" of the Consolidated Financial Statements
on pages 44 through 46.
(c) Narrative description of business:
COMMERCIAL HYDRAULICS SEGMENT
The Commercial Hydraulics segment manufactures 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. A worldwide Systems
Engineering organization was formed in 1999 to focus exclusively on providing
complete hydraulic systems
3
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Item 1. BUSINESS (Continued)
to customers. 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 71 persons outside North America.
A portion of the Company's sales is made to independent distributors for resale
primarily to the replacement market.
In November 1996, the Company acquired all of the outstanding common stock
of Ultra Hydraulics Limited ("Ultra") through its wholly-owned subsidiary,
Commercial Intertech Limited, located in the United Kingdom. Ultra 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
offered by Commercial Intertech.
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, Minnesota.
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 and power packs.
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. The Company's Commercial Hydraulics segment competes on the basis
of product quality and innovation, customer service and price.
BUILDING SYSTEMS SEGMENT
The Building Systems segment consists of Astron Building Systems(R) which
designs and manufactures custom-engineered buildings. Astron, the European
market leader in metal building systems, produces pre- engineered 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 elsewhere in the Asia Pacific region. This division developed its own
computerized building pricing and proposal system, known as Cyprion(R) 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 approximately 101
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.
The Company's Building Systems segment competes on the basis of product
performance and price.
4
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Item 1. BUSINESS (Continued)
METAL FORMING SEGMENT
The Company's Metal Forming segment produces custom and standard metal
products, including tank ends and a wide variety of other steel products, such
as wheels for tracked vehicles, components for railcar brake activators,
couplings and covers for mechanical power differential and transmission
applications, large circuit breaker covers, and circular closures and
accessories for a broad variety of vessels and containers produced in sizes from
four inches to 25 feet. Also known as tank ends or tank heads, this product line
is the most comprehensive and extensive in the United States, serving thousands
of customers from three manufacturing locations and four strategically located
Distribution Centers.
The Metal Forming's Distribution Center concept is unique to the industry,
and has successfully served both large and small vessel fabricators for over 35
years providing 48 to 72-hour delivery service. The Distribution Center concept
remains a major contributor to the success of the Metal Forming operations. The
sales and marketing activities for metal forming products are conducted in North
America, with exports to the Pacific Rim, South America and the Middle East, by
a sales organization of approximately 20 persons. The Metal Forming segment
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 the Metal Forming Distribution Centers located in Saginaw, Texas;
Chicago, Illinois; Hagerstown, Maryland; and Orange, California.
The Company purchased the former Hall F&D Head Company (renamed the
Southern Metals Division) in Saginaw, Texas, in 1995. 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.
The Company's Metal Forming segment competes on the basis of product
quality, customer service and price.
MANUFACTURING
The Company manufactures Commercial Hydraulics products in 19 plants,
Building Systems products in two plants and Metal Forming products in three
plants worldwide. The Company's hydraulic manufacturing operation is highly
integrated and the Company generally 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 the time
of manufacturing. In general, raw materials required by the Company's
manufacturing operations are available from numerous sources in the quantities
desired.
RESEARCH AND PRODUCT DEVELOPMENT
The Company conducts research and development primarily for its Hydraulics
products. In fiscal 1999 the Company expended $7,001,000 for research and
development activities compared with $6,915,000 and $6,984,000 in 1998 and 1997,
respectively. The Company intends to continue to make substantial research and
development expenditures in order to bring developmental products to market.
5
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Item 1. BUSINESS (Continued)
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 Commercial
Hydraulics, Building Systems or Metal Forming segments. 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 each of its business segments.
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 3,836 full-time employees worldwide. The Company
believes that its labor relations are generally satisfactory.
BACKLOG
The consolidated backlog of unfilled orders at the end of fiscal 1999 was
approximately $154 million. Backlogs at the end of fiscal years 1998 and 1997
were $192 million and $200 million, respectively. The Company expects a
substantial portion of its order backlog at the end of 1999 will be shipped
during fiscal 2000.
(d) Financial information about geographic areas:
See "Note I - Segment Reporting" of the Notes to Consolidated Financial
Statements on pages 44 through 46.
6
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ITEM 2. PROPERTIES
The principal facilities of the Registrant and its subsidiaries by
reportable segments are located in:
OWNED:
<TABLE>
<CAPTION>
Commercial Hydraulics Building Systems Metal Forming
- --------------------- ---------------- -------------
<S> <C> <C>
Youngstown, Ohio Diekirch, Luxembourg Youngstown, Ohio
Hicksville, Ohio Orange, California
Kings Mountain, North Carolina Saginaw, Texas
Benton, Arkansas
Mairinque, Brazil
Grantham, England
Minneapolis, Minnesota
Port Melbourne, Australia
Warwick, England
Chemnitz, Germany
Geringswalde, Germany
LEASED:
Commercial Hydraulics Building Systems Metal Forming
- --------------------- ---------------- -------------
Chanhassen, Minnesota Prerov, Czech Republic Hagerstown, Maryland
Minneapolis, Minnesota Chicago, Illinois
Blacktown, Australia
Brisbane, Australia
Perth, Australia
Cheltenham, England
Gloucester, England
Verona, Italy
</TABLE>
Properties of Registrant and its subsidiaries are suitably constructed and
maintained for their respective uses.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof there is no pending litigation, other than ordinary
routine litigation incidental to the business that is not of a material nature,
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
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Registrant is presented in
Part III of this report and is incorporated herein by reference.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 by quarters for fiscal 1999 and 1998.
RANGE OF SALES
PRICES
------------------ DIVIDENDS
HIGH LOW PER SHARE
------------------ ---------
1999:
First quarter........................$ 19 5/8 $ 12 1/4 $ .15
Second quarter....................... 14 15/16 11 1/8 .15
Third quarter........................ 16 7/16 12 15/16 .15
Fourth quarter....................... 14 5/8 10 1/2 .15
------
$ .60
======
1998:
First quarter........................$ 21 1/4 $ 16 $ .135
Second quarter....................... 24 9/16 18 1/4 .150
Third quarter........................ 23 9/32 17 3/16 .150
Fourth quarter....................... 22 13/16 14 1/4 .150
------
$ .585
======
As of October 31, 1999, there were 3,591 holders of record of the
Company's common stock.
8
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ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF FINANCIAL DATA, 1989 - 1999
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
(in thousands, except per share data and ratios) 1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME DATA - Note A
Net sales .................................... $534,994 $576,449 $526,624 $465,209 $459,137 $373,820
Gross profit ................................. 130,652 142,843 139,284 124,216 122,015 106,832
Interest expense ............................. 9,000 10,204 10,493 7,083 6,238 4,262
Income from continuing operations before
income taxes .............................. 31,695 49,310 40,318 23,738 30,379 25,760
Income taxes ................................. 11,915 16,503 13,527 8,382 6,097 7,948
Income from continuing operations ............ 19,780 32,807 26,791 15,356 24,282 17,812
Discontinued operations, accounting
changes and extraordinary items ........... 0 0 0 2,039 6,101 7,269
Net income ................................... 19,780 32,807 26,791 17,395 30,383 25,081
Earnings per share - Note B
Income from continuing operations:
Basic ..................................... 1.28 2.23 1.83 .91 1.48 1.06
Diluted ................................... 1.14 1.90 1.56 .86 1.37 1.00
Net income:
Basic ..................................... 1.28 2.23 1.83 1.05 1.89 1.55
Diluted ................................... 1.14 1.90 1.56 .99 1.75 1.44
Dividends per share of common stock:
Cash ...................................... .60 .585 .54 .54 .51 .48
Stock ..................................... -- -- -- -- -- 50%
OTHER FINANCIAL DATA - Note A
Total assets ................................. $402,010 $409,225 $384,798 $337,116 $402,679 $370,595
Current assets ............................... 191,845 208,103 189,996 190,403 182,859 172,760
Less current liabilities ..................... 114,810 122,959 127,345 116,223 117,420 99,482
Net working capital ....................... 77,035 85,144 62,651 74,180 65,439 73,278
Net plant investment ......................... 112,648 107,864 103,426 96,620 94,795 77,105
Gross capital expenditures ................... 23,529 20,899 11,699 17,712 31,709 19,236
Long-term debt ............................... 100,215 108,533 111,342 93,415 69,869 71,846
Redeemable preferred stock ................... 0 0 0 0 0 0
Shareholders' equity ......................... 135,947 130,412 102,830 87,161 176,593 147,982
Shareholders' equity per share - Note C ...... 8.78 8.69 6.89 5.94 11.07 9.44
Actual number of shares outstanding at
year-end .................................. 14,695 14,270 14,125 13,560 15,440 15,199
Average number of shares outstanding
during the year - Note B .................. 14,106 13,870 13,567 14,578 14,956 14,813
RATIOS - Note A
Gross profit to net sales .................... 24.4% 24.8% 26.4% 26.7% 26.6% 28.6%
Income from continuing operations to
net sales ................................ 3.7% 5.7% 5.1% 3.3% 5.3% 4.8%
Effective income tax rate .................... 37.6% 33.5% 33.6% 35.3% 20.1% 30.9%
Income from continuing operations to average
shareholders' equity ...................... 14.9% 28.1% 28.2% 11.6% 15.0% 13.3%
Ratio of current assets to current liabilities 1.67:1 1.69:1 1.49:1 1.64:1 1.56:1 1.74:1
Ratio of long-term debt to shareholders'
equity plus long-term debt ................ 42.4% 45.4% 52.0% 51.7% 28.3% 32.7%
</TABLE>
Note A - Years 1996 and prior have been restated to reflect the 100 percent
spin-off of CUNO Incorporated as of September 10, 1996. Fiscal years
1991-1999 have been computed in accordance with Employers' Accounting
for Postretirement Benefits Other Than Pensions, FASB Statement No.
106. Fiscal years 1992-1999 have been computed in accordance with
Accounting for Income Taxes, FASB Statement No. 109. Prior years have
not been restated for FASB Statements No. 106 and No. 109.
Note B - Earnings per share data has been computed in accordance with Earnings
Per Share, FASB Statement No. 128, for all years presented. Average
number of shares outstanding during the year have been restated for all
years presented and represents the denominator used for basic earnings
per share calculations. Weighted average number of shares outstanding
used for earnings per share computations have been 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.
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ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
SUMMARY OF FINANCIAL DATA, 1989 - 1999
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
(in thousands, except per share data and ratios) 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME DATA - Note A
Net sales ..................................... $ 317,806 $ 322,413 $ 305,942 $ 322,167 $ 300,640
Gross profit .................................. 88,243 94,550 90,801 101,061 96,180
Interest expense .............................. 5,472 4,650 4,549 4,592 6,168
Income from continuing operations before
income taxes ............................... 23,151 28,163 32,150 41,636 42,085
Income taxes .................................. 8,435 9,402 13,242 17,809 16,251
Income from continuing operations ............. 14,716 18,761 18,908 23,827 25,834
Discontinued operations, accounting changes and
extraordinary items ........................ (701) (1,325) (7,805) 3,780 (19,104)
Net income .................................... 14,015 17,436 11,103 27,607 6,730
Earnings per share - Note B
Income from continuing operations:
Basic ...................................... .86 .99 .87 1.17 1.49
Diluted .................................... .81 .93 .81 1.11 1.40
Net income:
Basic ...................................... .81 .89 .33 1.40 .39
Diluted .................................... .77 .85 .32 1.32 .39
Dividends per share of common stock:
Cash ....................................... .45 .45 .45 .44 .40
Stock ...................................... -- -- -- -- --
OTHER FINANCIAL DATA - Note A
Total assets .................................. $ 302,295 $ 301,734 $ 289,712 $ 315,617 $ 298,252
Current assets ................................ 114,082 113,209 102,330 124,936 109,474
Less current liabilities ...................... 78,934 76,040 62,383 70,775 74,423
Net working capital ........................ 35,148 37,169 39,947 54,161 35,051
Net plant investment .......................... 65,426 70,586 71,753 71,376 58,166
Gross capital expenditures .................... 6,194 7,387 11,543 16,432 12,056
Long-term debt ................................ 72,479 79,974 48,268 64,871 39,175
Redeemable preferred stock .................... 0 0 38,491 37,594 0
Shareholders' equity .......................... 120,106 117,405 112,608 124,891 170,463
Shareholders' equity per share - Note C ....... 7.74 7.74 7.59 8.45 8.96
Actual number of shares outstanding at year-end 15,056 14,864 14,686 14,781 19,030
Average number of shares outstanding
during the year - Note B ................... 14,711 14,563 14,539 16,503 17,394
RATIOS - Note A
Gross profit to net sales ..................... 27.8% 29.3% 29.7% 31.4% 32.0%
Income from continuing operations to net sales 4.6% 5.8% 6.2% 7.4% 8.6%
Effective income tax rate ..................... 36.4% 33.4% 41.2% 42.8% 38.6%
Income from continuing operations to average
shareholders' equity ....................... 12.4% 16.3% 15.9% 16.1% 16.3%
Ratio of current assets to current liabilities 1.45:1 1.49:1 1.64:1 1.77:1 1.47:1
Ratio of long-term debt to shareholders' equity
plus long-term debt ........................ 37.6% 40.5% 30.0% 34.2% 18.7%
</TABLE>
Note A - Years 1996 and prior have been restated to reflect the 100 percent
spin-off of CUNO Incorporated as of September 10, 1996. Fiscal years
1991-1999 have been computed in accordance with Employers' Accounting
for Postretirement Benefits Other Than Pensions, FASB Statement No.
106. Fiscal years 1992-1999 have been computed in accordance with
Accounting for Income Taxes, FASB Statement No. 109. Prior years have
not been restated for FASB Statements No. 106 and No. 109.
Note B - Earnings per share data has been computed in accordance with Earnings
Per Share, FASB Statement No. 128, for all years presented. Average
number of shares outstanding during the year have been restated for all
years presented and represents the denominator used for basic earnings
per share calculations. Weighted average number of shares outstanding
used for earnings per share computations have been 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.
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 1997 - 1999
RESULTS OF OPERATIONS
Revenues
Consolidated sales in 1999 of $535.0 million were seven percent lower than
the record revenues of $576.4 million reported in 1998. Sales were lower in 1999
for all three of the Company's business segments reflecting reduced customer
demand and adverse business conditions on a global scale. Sales for 1999
exceeded 1997 revenues of $526.6 million by two percent, however, as a result of
modest period-to-period increases in the Building Systems and Commercial
Hydraulics business segments. Domestic operations accounted for 58 percent of
the Company's total sales in 1999 versus 57 percent in 1998 and 55 percent in
1997. Reduced activity in the Commercial Hydraulics and Metal Forming business
units caused domestic sales to fall short of those in 1998 by six percent but
revenues were higher than those in 1997 by more than five percent. Export sales
from the U.S. to nonaffiliated customers in Canada, Latin America and South
America were down 24 percent in 1999 following three years of uninterrupted
growth. Sales for the Company's foreign operations decreased six percent from
those in 1998, after adjusting for exchange rate differences, as a result of
reduced activity in all of the overseas markets served by the Commercial
Hydraulics business segment. Strong sales volumes for Building Systems in the
first and last fiscal quarters of 1999 were negated by adverse weather
conditions and political conflict during the second and third quarters, causing
sales for the year to be about the same as those in 1998 on a parity-adjusted
basis. Building Systems revenues for 1999 were 14 percent higher than those in
1997 while sales for Commercial Hydraulics' combined overseas operations were
lower than 1997 sales by 8 percent.
Operating Income
During the quarter ended January 31, 1999, the Company recorded a
nonrecurring charge of $5.4 million ($3.3 million after taxes) to recognize
costs incurred in connection with initiatives to reorganize certain areas of the
business and reduce operating costs. The nonrecurring costs consist of: (i)
charges totaling $5.2 million in association with a voluntary early retirement
program and the separation of fixed support personnel at certain locations;
these actions reduced the Company's worldwide employment by a total of 70
employees, and (ii) charges totaling $0.2 million in connection with the
consolidation of certain operating facilities in the United States and Europe.
None of the costs relate to the write-down or write-off of inventory or fixed
assets of the affected businesses. Most of the indicated actions were completed
in the first quarter of fiscal 1999 with the remainder being completed during
the year. Of the total pre-tax charge of $5.4 million, approximately $4.4
million will be settled in the form of deferred payments over an extended period
of time. The remainder was fully expended during the year. Annual savings from
these profit improvement initiatives should exceed $5.0 million on a pre-tax
basis. For fiscal 1999, most of the savings from these programs were realized in
the last three quarters of the fiscal year.
Operating income for 1999 amounted to $40.5 million compared to $55.2
million in 1998 and $48.8 million in 1997. Excluding the nonrecurring charge of
$5.4 million, operating income for the year totaled $45.9 million representing
decreases from 1998 and 1997 of 17 percent and 6 percent, respectively. Income
for Commercial Hydraulics in 1999 was 23 percent lower than last year's record
performance and was down nine percent compared to 1997. Operating incomes for
the Building Systems and Metal Forming business segments were down 15 percent
and four percent, respectively, from 1998 but were nearly equal to income
reported in 1997 for both segments. ORSTA, a manufacturer of hydraulic
cylinders, piston pumps and gear pumps, was acquired in 1994 from
Truehandanstalt ("THA"),
11
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ITEM 7. (Continued)
the regulatory agency of the Federal Republic of Germany responsible for
privatizing state-owned enterprises in this region. Under terms of the Purchase
Agreement, Commercial Intertech tendered no financial consideration to acquire
the shares of the business but received, in addition to net assets, cash
contributions from the THA to fund pre-existing capital investment programs and
cover estimated operating losses over a period of two years. Additional
operating subsidies totaling $4.5 million were received from the German
government at the outset of fiscal 1997 and were amortized to income through the
end of fiscal 1998. $1.8 million was amortized to income through cost of
products sold in 1998 and $2.7 million was amortized in 1997.
The Company's operations are principally organized into three business
segments. A discussion follows of results of operations for each segment.
- - Commercial Hydraulics
1999 1998 1997
---- ---- ----
(in millions)
Net Sales........................ $ 358.9 $ 390.5 $ 353.0
Operating Income................. 24.5 31.9 26.9
Percent To Sales................. 6.8% 8.2% 7.6%
Commercial Hydraulics accounted for 67 percent of the Company's total
sales and 53 percent of total operating income (before nonrecurring charges) in
1999. Revenues in this segment of $358.9 million were lower than last year by
$31.6 million or eight percent while operating income of $24.5 million was down
$7.4 million or 23 percent from record income in 1998. Sales in the United
States were down six percent from those in 1998 reflecting a slowdown in demand
from customers in most of the mobile hydraulic industry segments served by the
Company. Most of the domestic business units reported lower income in 1999 as a
consequence of the reduced sales volume. Sales and operating income were also
lower for the Company's operations located in the United Kingdom, Australia and
Brazil as a result of weak industry and economic conditions. Operating losses
narrowed to $3.5 million in Germany, down from losses of $5.0 million in 1998
(excluding operating subsidies of $1.8 million) and $8.0 million in 1997
(excluding subsidies of $2.7 million). Selling prices in this business segment
remain under pressure as a result of reduced customer demand, increased
production capacity, and industry consolidation. In response to these
conditions, the Company has continued to aggressively pursue strategies to lower
the cost of manufactured and purchased components. Capital expenditures amounted
to $15.2 million for this segment in 1999 versus expenditures of $17.7 million
in 1998 and $9.9 million in 1997. Included in the total for the current year are
expenditures of $8.7 million for equipment upgrades in the U.S. to improve
manufacturing performance and the installation of new computer systems. The
majority of the remaining expenditures in 1999 pertain to the purchase of
equipment for the manufacture and assembly of new product lines in the United
Kingdom and general upgrades of production equipment in Europe. Incoming orders
for the year ended 11 percent lower than 1998 with the backlog of unfilled
orders to start the new fiscal year being 20 percent lower than last year on a
parity-adjusted basis.
12
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ITEM 7. (Continued)
- - Building Systems
1999 1998 1997
---- ---- ----
(in millions)
Net Sales....................... $ 121.9 $ 126.7 $ 113.0
Operating Income................ 12.1 14.3 12.5
Percent To Sales................ 9.9% 11.3% 11.1%
Building Systems accounted for 23 percent of the Company's total sales
and 27 percent of total operating income (before nonrecurring charges) in 1999.
Revenues of $121.9 million in 1999 were down two percent from last year on a
parity-adjusted basis while operating income of $12.1 million was down 15
percent. Adverse weather conditions placed construction constraints on builder
dealers and caused delays in the shipment of finished orders during most of the
second and third quarters, while uncertainty over the political conflict in
Kosovo resulted in a significant decline in quotations and order placement
throughout the period. Conditions normalized in the fourth quarter of 1999
enabling the Building Systems operations to ship a record number of tons for the
quarter. Results for the year were also reduced by costs incurred to start up a
new manufacturing facility in the Czech Republic. Price and cost structures were
relatively stable for this business segment in 1999. Capital expenditures for
this segment amounted to $5.3 million in 1999 versus $0.9 million in 1998 and
$0.6 million in 1997. Most expenditures in 1999 pertained to the purchase of
production equipment for the new manufacturing facility in the Czech Republic.
Other expenditures in these years relate to production capacity and office
automation. Incoming orders for Building Systems in the current fiscal year were
equal to those in 1998 on a parity-adjusted basis. The backlog of unfilled
orders to start the new fiscal year is five percent lower than last year after
adjusting for exchange rate differences.
- - Metal Forming
1999 1998 1997
---- ---- ----
(in millions)
Net Sales............................... $ 54.2 $ 59.2 $ 60.6
Operating Income........................ 9.3 9.0 9.4
Percent To Sales........................ 17.2% 15.2% 15.4%
Metal Forming accounted for 10 percent of the Company's total sales and
20 percent of total operating income (before nonrecurring charges) in 1999.
While revenues of $54.2 million in 1999 were down eight percent from last year,
operating income was up three percent over the same period. The year-over-year
gain in operating income results from increased activity in the truck equipment
market and comprehensive efforts to reduce fixed operating costs of the business
unit. Selling prices in this segment generally move in line with the cost of raw
materials and, accordingly, did not fluctuate substantially in 1999. However,
competitive pressures necessitated some price adjustments in certain markets.
Capital expenditures for this segment amounted to $3.0 million in 1999 versus
$2.3 million in 1998 and $1.1 million in 1997. Nearly one-half of the
expenditures in 1999 pertain to installation of new computer systems and the
purchase of equipment for the Southern Metals operation in Texas to enter the
large tank head business. Other expenditures in these years relate to
refurbishment and replacement of production equipment. Incoming orders for Metal
Forming ended the fiscal year 14 percent lower than 1998 while the backlog of
unfilled orders to start the new fiscal year is 22 percent lower.
13
<PAGE> 14
ITEM 7. (Continued)
Nonoperating Income and Expense
Interest received from investments increased from $0.7 million in 1998
to $0.9 million in 1999 due, principally, to increased working capital needs in
Europe. Investment yields in 1999 were reflective of declining interest rates
throughout the world.
Approximately 85 percent of total interest expense incurred on borrowed
funds in 1999 resulted from long-term obligations. Most of the long-term
interest expense derives from the senior unsecured notes and the senior
unsecured revolving credit agreement. The notes represent a 7.61 percent private
placement senior unsecured note with a group of institutional investors which
was completed in July 1997. Remaining interest expense primarily pertains to
long-term debt to fund major construction projects, equipment leases and
short-term borrowings to support current operations. Effective interest rates
paid by the Company have decreased since last year due to a slightly lower
interest rate on amounts drawn under the unsecured revolving credit agreement.
Short-term rates have fluctuated on an interim basis with interest rates
significantly higher for local currency debt in Brazil.
Foreign currency exchange and translation gains and losses are included
in other nonoperating expense. These amounts totaled losses of $1.3 million in
1999 and $1.0 million in 1998 and $0.5 million in 1997. A significant portion of
the currency loss in 1999 resulted from a sharp devaluation of the local
currency in Brazil. 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 period (see Note J).
Other nonoperating income for 1998 includes a pre-tax gain of $4.5
million on the sale of vacant property located in Europe. Nonoperating income in
1997 includes a $1.0 million gain from the transfer of Astron Building Systems
marketing and manufacturing rights to a new licensee in Korea.
Taxes
The Company's effective tax rate increased to 38 percent in 1999
compared to 34 percent in 1998 and 1997. The Company continues to utilize the
tax loss carryforwards acquired with the ORSTA business in 1994 to shelter
earnings of the Company's German operations, including those of a Building
Systems subsidiary. Under German law, the net operating loss carryforwards are
only available to be utilized against taxable income generated by the German
subsidiaries. Remaining net operating losses in Germany of approximately $109
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.
Offsetting these benefits were the tax consequences of repatriating foreign
earnings, state and local taxes levied on domestic income and the unfavorable
effects of tax changes on reserve contracts beginning in 1999.
Net Income
Net income for 1999, including the after-tax charge of $3.3 million
associated with initiatives to reorganize certain areas of the business and
reduce operating costs, amounted to $19.8 million compared to $32.8 million in
1998 and $26.8 million in 1997. Results for 1998 include a $2.9 million
after-tax gain on the sale of vacant land in Europe. Excluding these one-time
charges and gains, net income for 1999 was lower than income in 1998 and 1997 by
23 percent and 14 percent, respectively. Diluted earnings per share for the
three-year period amounted to $1.14 per share in 1999 ($1.34 per share excluding
the nonrecurring charge), $1.90 per share in 1998 ($1.73 per share excluding the
one-time gain on sale of property) and $1.56 per share in 1997.
14
<PAGE> 15
ITEM 7. (Continued)
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations thereby causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. The Year 2000
Issue could also impact embedded systems which are devices which are used to
control, monitor or assist in the operation of the Company's plant, machinery
and equipment. Embedded systems are an integral part of the system in which they
operate and the impact of the Year 2000 Issue may not be obvious in these
instances. Embedded systems can affect manufacturing and process control
systems, communications systems, systems related to the operation of buildings
and premises and the operation of office equipment.
During the fiscal year 1998, the Company completed an assessment which
indicated that it was required to modify or replace portions of its software to
ensure that its computer systems will function properly with respect to dates in
the year 2000 and thereafter. The Company utilized both internal and external
resources to reprogram, replace, and test the software for Year 2000 compliance.
The Company identified no Year 2000 compliance issues nor experienced any
operational disruptions at the turn of the millennium.
Concurrent with the Year 2000 Issue, the Company replaced outdated
computer hardware and software at major facilities in the U.S. and Germany. The
computer hardware and software installed in those countries increased the
functionality and efficiency of information technology systems required to
support manufacturing processes and administrative functions. Costs incurred in
this regard were capitalized in accordance with the Company's accounting
policies. The amount capitalized through October 31, 1999 in connection with
these replacement programs is approximately $6.4 million. Costs for converting
the remainder of the Company's computer systems to ensure Year 2000 compliance
are expected to total $1.1 million. Of this amount, approximately $0.9 million
was expended prior to October 31, 1999 with the balance having been expended by
January 1, 2000.
The Company also made inquiries with regard to certain of its vendors
and suppliers with which it has a significant relationship in order to identify
any potential material adverse effects that may impact such third parties as a
result of the Year 2000 Issue. Although the Company's efforts addressed the Year
2000 Issue internally, it is possible that the Company will be adversely
affected by problems encountered by its vendors or suppliers. Despite any
vendor's or supplier's certification regarding Year 2000 compliance, there can
be no assurance that the vendor's or supplier's ability to provide goods and
services will not be adversely affected by the Year 2000 Issue. The most likely
worst-case scenario would be that a failure by the Company or one or more of its
vendors or suppliers to adequately and timely address the Year 2000 Issue would
interrupt manufacturing of the Company's products for an indeterminable period
of time. Although we have neither identified nor been notified by our vendors or
suppliers of any Year 2000 Issue following the turn of the millennium, the
Company has identified alternative vendors should a vendor's ability to meet the
Company's raw material and supply requirements ultimately be impacted by the
Year 2000 Issue. While the Company believes it can minimize the impact of such
non-compliance through the use of these alternative vendors, such alternative
use has, thus far, not proven to be necessary.
15
<PAGE> 16
ITEM 7. (Continued)
Impact of Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the
European Union (the "participating countries") established fixed conversion
rates between their existing sovereign currencies (the "legacy currencies") and
a new common currency called the "euro." The euro trades on currency exchanges
and is available for non-cash transactions. The legacy currencies are scheduled
to remain legal tender in the participating countries as denominations of the
euro until January 1, 2002 (the "transition period"). During the transition
period, payment for goods and services can be made using either the euro or the
participating country's legacy currency. Beginning January 1, 2002, the
participating countries will withdraw all bills and coins denominated in the
legacy currencies, making conversion to euro complete.
The euro conversion is expected to stimulate competition by creating
cross-border price transparency, which may make it more difficult for businesses
to charge different prices for the same products on an country-by-country basis.
The Company has reviewed the marketing strategies and the cost structures of its
European operations and did not significantly change current pricing strategies
as a result of implementation of the euro. In addition, the Company does not
expect changing competitive pressures resulting from the euro conversion to
significantly impact the Company's businesses or its operating results,
financial position or liquidity.
The Company has reviewed its information systems software and
identified modifications necessary to ensure business transactions can be
conducted consistent with the requirements of the conversion to the euro.
Certain of these modifications have been implemented and others will be
implemented during the course of the transition period. The Company expects that
modifications not yet implemented will be made on a timely basis and expects the
incremental cost of the euro conversion to be immaterial. Any costs associated
with implementing changes to comply with the euro conversion are expensed as
incurred.
The Company has also addressed the impact of euro conversion on matters
such as currency exchange rate risk, taxation, and continuity of contracts
including continuity of contracts involving derivatives and other financial
instruments. The impact of euro conversion in these areas did not significantly
impact operating results, financial condition or liquidity.
The Company believes it has identified all euro conversion issues and
formulated and implemented appropriate action plans. However, there can be no
certainty that such plans will successfully address euro conversion issues or
that external factors may arise as a result of euro conversion either of which
may have an adverse effect on the Company's operations.
Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income." This Statement defines
comprehensive income and outlines certain reporting and disclosure requirements
related to comprehensive income. This standard was adopted during fiscal 1999
and prior years financial statements have been restated. This standard had no
impact on the Company's financial condition or results of operations.
Also in June 1997, the FASB issued Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The Statement requires the
Company to evaluate its present
16
<PAGE> 17
ITEM 7. (Continued)
reporting and disclosure requirements regarding operating segments. The
Statement was adopted as of October 31, 1999 and prior years disclosures have
been restated, where necessary. The Company's operations are principally
organized and managed by product line and are comprised of three reportable
segments: Commercial Hydraulics, Building Systems and Metal Forming. The
Statement had no effect on the amounts recorded in the consolidated financial
statements.
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The Statement
revises the disclosure requirements relative to pension and other postretirement
benefit information included in annual financial statements. This standard was
adopted as of October 31, 1999. Statement No. 132, which did not change the
measurement or recognition of pension or other postretirement benefits, did not
impact the Company's consolidated financial condition or results of operations.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 was initially
required to be adopted by the Company effective for the fiscal year ending
October 31, 2000. In July 1999, the FASB issued Statement No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133," which extends the effective date of Statement
No. 133 to the fiscal year ending October 31, 2001. Because of the Company's
minimal use of derivatives, management does not anticipate that the Statement
will have a significant effect on consolidated earnings or financial position of
the Company.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and SOP 98-5 "Reporting on the
Costs of Start-up Activities." SOP 98-1 requires companies to adopt uniform
rules in their financial statements in accounting for the costs of computer
software developed or obtained for internal use. SOP 98-5 defines start-up
activities and requires that companies expense start-up costs and organization
costs as they are incurred. Both SOP's are effective for the fiscal year ending
October 31, 2000. The Company does not expect either SOP to have a material
impact on the consolidated financial condition or results of operations.
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 1999, the balance of cash and cash
equivalents decreased from $35.9 million at the end of 1998 to a total of $27.0
million at the end of the current period - a difference of $8.9 million. Cash
generated by Commercial Intertech's operations amounted to $33.2 million in
1999, representing a decrease of $3.4 million from the previous year. Cash
generated by reductions in accounts receivable and inventories was more than
offset by cash utilized for accounts payable and accrued expenses, income taxes
and increases in prepaid and other current assets. Amortization of intangibles,
postretirement benefits, deferred income taxes and most of the nonrecurring
costs are noncash in nature and, therefore, had no effect on cash flow in these
periods.
Cash used in investing activities amounted to $24.0 million in 1999,
most, of which, pertained to capital expenditures. Capital expenditures totaled
$20.7 million in 1998 and $11.4 million in 1997 (see Note I). Approximately 50
percent of the current year spending pertained to investments in the U.S. for
expansion of production capacity, improvements in manufacturing performance, and
the installation of advanced computer systems to support manufacturing
processes, sales order entry, accounting and
17
<PAGE> 18
ITEM 7. (Continued)
administrative functions. Investments in equipment for new products and improved
manufacturing capabilities for the operations in Germany and the United Kingdom
and an Astron Building Systems expansion in the Czech Republic accounted for
most of the overseas capital spending. Investing activities in 1998 included
$4.1 million in proceeds from the sale of vacant land in Europe.
Investments for expansion of production capacity, equipment to improve
manufacturing performance and the installation of new computer hardware and
software accounted for most of the capital spending during 1998 and 1997.
Authorized but unspent capital expenditures program totaled $6.4 million at
fiscal year-end. Major projects include new manufacturing equipment for the
operations in Germany, United Kingdom and the United States.
Cash used in financing activities totaled $16.8 million. Principal
activities included the net repayment of $9.2 million of long-term debt, an
increase in short-term bank loans of $4.5 million, transactions associated with
reserve contracts and the distribution of dividends to shareholders. Dividends
totaled $10.3 million in 1999, of which $8.5 million were paid to shareholders
of common stock.
On February 10, 1999, the Company reported that the Board of Directors
had authorized the repurchase of up to 1,000,000 shares of Commercial Intertech
common stock to be used for employee benefit plans and other corporate purposes.
Purchases were authorized to be made from time to time in the open market or in
private transactions at prevailing prices. No time limit was placed on the
duration of the repurchase program. The timing and extent of any purchases, if
made, will depend upon market conditions and other Company considerations and
will be funded by internally generated cash or through utilization of available
credit. As of October 31, 1999, the Company has not repurchased any of its
common shares.
Cash flows, generated from both internal and external sources, are
expected to be sufficient to provide the capital resources necessary to support
operating needs, finance capital expenditure programs in the coming year and to
fund the purchase of up to 1,000,000 of its common stock, if such repurchase
occurs. The Company and its foreign subsidiaries have made and will continue to
make loans among affiliates of the consolidated group to fund worldwide cash
requirements when interest rate spreads make it cost effective to do so. Foreign
currency forward contracts are used to hedge the lending affiliate's receipt of
principal and interest due from these loans (see Note J). The forward contracts
are an effective hedge against fluctuations in the value of the foreign
currency. The Company has available $86.3 million of a $125.0 million credit
facility 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 $123.7 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
in accordance with prevailing market conditions.
MARKET RISK
In the normal course of business, the financial position of the Company
is routinely subjected to a variety of market risks. For the Company, the
primary market risks are the impact of interest and currency rate movements on
outstanding debt and non-U.S. dollar denominated assets and liabilities. The
Company does not currently utilize material derivative financial instruments
which expose the Company to significant market risk.
18
<PAGE> 19
ITEM 7. (Continued)
A significant portion of the Company's operations consists of
manufacturing and sales activities in foreign jurisdictions. The Company
manufactures its products principally in the United States, Germany, Luxembourg
and the United Kingdom and sells its products in those markets as well as other
markets worldwide. As a result, the Company's financial results could be
significantly affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in the foreign markets in which the Company
manufactures and/or distributes its products. To mitigate the short-term effect
of changes in currency exchange rates on the Company's functional currency based
sales, the Company sometimes enters into foreign currency forward contracts to
hedge certain foreign currency sales transactions.
The majority of the Company's outstanding indebtedness at October 31,
1999 and 1998 is denominated in U.S. dollars and pound sterling (see Note B).
Therefore, changes in interest expense are primarily sensitive to changes in the
general level of interest rates in the United States and the United Kingdom.
Additionally, the U.S. dollar equivalent carrying value of pound sterling
denominated debt is sensitive to changes in foreign currency exchange rates. To
mitigate the impact of fluctuations in interest rates, the Company maintains a
portion of its overall indebtedness as fixed rate. The portion maintained as
fixed rate is dependent on many factors including judgements as to future trends
in interest rates.
From time to time, the Company and its foreign subsidiaries make loans
among affiliates of the consolidated group. Generally, these loans are made when
the Company can borrow at lower interest rate spreads than are available to the
borrowing affiliate in its local market. Foreign currency forward contracts are
used to hedge the lending affiliate'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.
The Company regularly assesses the above-described market risks and has
established policies and business practices to protect against the adverse
effects of these and other potential exposures. As a result, the Company does
not anticipate any material losses in these areas.
For disclosure purposes, the Company uses sensitivity analysis to
determine the impacts that market risk exposures may have on the fair values of
the Company's debt and financial instruments. The financial instruments included
in the sensitivity analysis consist of all of the Company's cash and cash
equivalents, long-term and short-term debt and all derivative financial
instruments. Foreign currency forward contracts used to hedge loans among
affiliates of the consolidated group primarily constitute the Company's
portfolio of derivative financial instruments as of October 31, 1999 and 1998.
To perform sensitivity analysis, the Company assesses the risk of loss
in fair values from the impact of hypothetical changes in interest rates and
foreign currency exchange rates on market sensitive instruments. The fair values
for interest and foreign currency exchange risk are computed based on the
present value of future cash flows as impacted by the changes in the rates
attributable to the market risk being measured. The discount rates used for the
present value computations were selected based on market interest and foreign
currency exchange rates in effect at October 31, 1999 and October 31, 1998. The
fair values that result from these computations are compared with the fair
values of these financial instruments at each respective date. The differences
in this comparison are the hypothetical gains or losses associated with each
type of risk. The results of the sensitivity analysis at October 31, 1999 and
October 31, 1998 are as follows:
19
<PAGE> 20
ITEM 7. (Continued)
Interest Rate Sensitivity: As of October 31, 1999, a 10 percent
decrease in the levels of interest rates with all other variables held
constant would result in a decrease in the fair value of the Company's
financial instruments by $1.9 million, as compared to $2.3 million as
of October 31, 1998. As of October 31, 1999, a 10 percent increase in
the levels of interest rates with all other variables held constant
would result in an increase in the fair value of the Company's
financial instruments by $1.9 million, as compared to $2.3 million as
of October 31, 1998. The Company maintains a portion of its financial
instruments, including long-term debt of $38.7 million and $45.0
million at October 31, 1999, and 1998, respectively, at variable
interest rates. If interest rates were to increase 10 percent, the
impact of such instruments on cash flows or earnings would not be
material in either fiscal year 1999 or 1998.
Foreign Currency Exchange Rate Sensitivity: As of October 31, 1999, a
10 percent movement in the levels of foreign currency exchange rates
against the U.S. dollar with all other variables held constant would
result in a decrease in the fair value of the Company's financial
instruments by $1.8 million or an increase in the fair value of the
Company's financial instruments by $1.8 million, as compared to a
decrease of $2.3 million or an increase of $2.8 million as of October
31, 1998.
IMPACT OF INFLATION AND CHANGING PRICES
Rates of inflation for 1999 were moderately higher in the United
States, but lower in the United Kingdom and Europe. The rates of inflation
ranged from one half to two 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 again in
1999. Consequently, the Company 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.
The ability to recover cost increases and maintain margins continues to
be a major challenge for most operating units. 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 $154.1 million
at the end of the year which, after adjusting for the effects of exchange rate
differences on foreign segments, represents a decrease of 17 percent over the
previous fiscal year end. Commercial Hydraulics was down 20 percent from the
beginning of the year while backlogs in Building Systems and Metal Forming were
lower by five percent and 22 percent, respectively. However, fourth quarter
bookings were up in each of our segments compared to the last quarter of fiscal
1998 and, in total, were higher by six percent on a parity- adjusted basis. This
positive momentum has continued into the new year with currency adjusted orders
for the first two months of fiscal 2000 exceeding those for the same period in
1999 by 27 percent in Commercial Hydraulics; four percent in Metal Forming; and
47 percent in Building Systems. Bookings in Commercial Hydraulics are higher in
both the domestic and overseas market segments but are particularly robust in
the U.S. reflecting increased demand from customers in the important truck,
construction, refuse and marine mobile hydraulic industry segments. Modest order
improvements in Metal Forming are indicative of current trends in the container
industry segment while increased
20
<PAGE> 21
ITEM 7. (Continued)
bookings for Building Systems reflect continuing success in efforts to penetrate
East European markets.
Current business conditions suggest that moderate growth in sales and
income should be possible for the Company's Commercial Hydraulics and Building
Systems business segments in fiscal 2000 while results are expected to be
somewhat stable in Metal Forming. Although the Company has achieved excellent
results from ongoing cost containment initiatives, a worldwide effort has been
launched to tap the potential of our workforce through utilization of
self-directed work teams and a heightened focus on lean manufacturing.
Additionally, a Systems Engineering organization has been formed within
Commercial Hydraulics to identify, develop and market state-of-the-art
integrated hydraulic systems to solve complex customer needs in the mobile
equipment industry. A number of special purpose teams have also been assembled
in Commercial Hydraulics and Metal Forming to address new product development
and customer service needs in the marketplace while Building Systems will be
putting into place additional business infrastructure necessary to exploit the
market potential in East Europe. While the costs to implement these and other
programs will impact results in fiscal 2000, the enhanced business opportunities
and benefits which are expected to result from these programs will be realized
over the long term in future periods.
Certain of the Company's overseas hydraulics operations in Germany and
the United Kingdom have performed far below acceptable levels in recent years
and strategic initiatives are being developed to deal aggressively with this
issue in fiscal 2000. Details of such initiatives have yet to be finalized and,
at present, no commitment has been made to proceed. However, actions associated
with this effort, if approved, are expected to result in significant cash and
noncash charges in fiscal 2000 for employee separations; relocation and
consolidation of certain manufacturing operations and administrative functions;
project management expenses; employee recruitment and training; product
rationalization; the writeoff of certain assets made redundant by the
consolidation; lost operating efficiency during the transition period; and other
related costs and liabilities. Additional production equipment will also be
acquired and installed to support this effort. Benefits resulting from
implementation of the program are expected to be realized in periods subsequent
to fiscal 2000 and are expected to include increased manufacturing efficiency,
improved product quality, and lower operating costs. It is anticipated that cash
required to carry out this initiative will be available in sufficient quantity
from internal sources and existing credit facilities.
The Company remains committed to the enhancement of manufacturing
efficiency through capital investments and continues in its effort to identify
and implement strategic programs which will lower operating costs, improve
profitability and grow the business. The competitive advantages which these
programs provide, our ability to meet the challenges of globalization and
increased competition, and anticipation of worldwide economic expansion cause us
to look forward to moderate improvement in consolidated results in 2000
exclusive of the effects of the aforementioned strategic initiatives.
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 such words as "anticipate," "believe," "estimate," "expect," "should,"
"suggest," "lead to" 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
21
<PAGE> 22
ITEM 7. (Continued)
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, without limitation: 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; cost of raw materials; the rate of
economic and industry growth in the United States and 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 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 the "forward looking" statements to reflect new events or
circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding market risk of the Registrant is presented under
the caption "Market Risk" which is included in Item 7 of this report and is
incorporated herein by reference.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENTS OF CONSOLIDATED INCOME
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended October 31,
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales ..................................... $ 534,994 $ 576,449 $ 526,624
Less costs and expenses:
Cost of products sold ...................... 404,342 433,606 387,340
Selling, administrative and general expenses 84,722 87,616 90,516
Nonrecurring costs ......................... 5,392 0 0
--------- --------- ---------
494,456 521,222 477,856
--------- --------- ---------
Operating income .............................. 40,538 55,227 48,768
Nonoperating income (expense):
Interest income ............................ 853 682 880
Interest expense ........................... (9,000) (10,204) (10,493)
Gain on sale of assets ..................... 152 4,957 506
Other ...................................... (848) (1,352) 657
--------- --------- ---------
(8,843) (5,917) (8,450)
--------- --------- ---------
Income before income taxes .................... 31,695 49,310 40,318
Provision for income taxes:
Current .................................... 11,930 12,557 12,259
Deferred ................................... (15) 3,946 1,268
--------- --------- ---------
11,915 16,503 13,527
--------- --------- ---------
Net income .................................... $ 19,780 $ 32,807 $ 26,791
========= ========= =========
Preferred stock dividends and adjustments ..... (1,790) (1,842) (1,895)
--------- --------- ---------
Net income applicable to common stock ......... $ 17,990 $ 30,965 $ 24,896
========= ========= =========
Earnings per share of common stock:
Net income:
Basic .................................. $ 1.28 $ 2.23 $ 1.83
Diluted ................................ $ 1.14 $ 1.90 $ 1.56
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
October 31,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash (including equivalents of $21,671 in 1999 and $26,963
in 1998) ............................................ $ 27,046 $ 35,851
Accounts and notes receivable, less allowances for doubtful
accounts of $2,768 in 1999 and $2,703 in 1998 .......... 82,918 87,197
Inventories ............................................... 61,305 65,992
Deferred income tax benefits .............................. 15,742 15,172
Prepaid expenses and other current assets ................. 4,834 3,891
-------- --------
TOTAL CURRENT ASSETS ............ 191,845 208,103
NONCURRENT ASSETS
Intangible assets ......................................... 40,249 42,242
Pension assets ............................................ 53,536 47,052
Other assets .............................................. 3,732 3,964
-------- --------
TOTAL NONCURRENT ASSETS ............ 97,517 93,258
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements ................................ 6,366 6,135
Buildings ................................................. 51,328 51,888
Machinery and equipment ................................... 181,307 166,575
Construction in progress .................................. 7,820 8,206
-------- --------
246,821 232,804
Less allowance for depreciation ........................... 134,173 124,940
-------- --------
112,648 107,864
-------- --------
TOTAL ASSETS ............ $402,010 $409,225
======== ========
</TABLE>
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS (Continued)
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
October 31,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Bank loans ........................................................... $ 4,892 $ 499
Accounts payable ..................................................... 49,215 50,896
Accrued payrolls and related taxes ................................... 16,907 21,717
Accrued expenses ..................................................... 33,213 34,066
Dividends payable .................................................... 2,968 2,759
Accrued income taxes ................................................. 5,591 9,885
Current portion of long-term debt .................................... 2,024 3,137
--------- ---------
TOTAL CURRENT LIABILITIES ..................... 114,810 122,959
NONCURRENT LIABILITIES
Long-term debt ....................................................... 100,215 108,533
Deferred income taxes ................................................ 22,666 22,111
Postretirement benefits .............................................. 28,372 25,210
--------- ---------
TOTAL NONCURRENT LIABILITIES ..................... 151,253 155,854
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: 1999 - 893,343 shares; 1998 - 926,070 shares ........... 20,770 21,531
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1999 - 14,695,136 shares (excluding 1,787,615 in treasury);
1998 - 14,270,134 shares (excluding 1,937,689 in treasury) 14,695 14,270
Capital surplus ...................................................... 8,414 5,749
Retained earnings .................................................... 119,224 109,289
Deferred compensation ................................................ (13,822) (15,079)
Accumulated other comprehensive income:
Translation adjustment ............................................ (13,334) (5,348)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ..................... 135,947 130,412
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 402,010 $ 409,225
========= =========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
Other Total
Preferred Common Capital Deferred Retained Comprehensive Shareholders'
Stock Stock Surplus Compensation Earnings Income Equity
---------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1996 ....... $ 24,172 $ 13,560 $ 0 $(17,594) $ 67,808 $ (785) $ 87,161
Comprehensive income:
Net income ..................... 26,791 26,791
Translation adjustment ......... (7,235) (7,235)
--------
Total comprehensive income ........ 19,556
Cash dividends - $0.54 per common
share .......................... (7,603) (7,603)
Cash dividends - Preferred Series B (1,863) (1,863)
Preferred shares converted ........ (2,258) 319 2,291 352
Preferred stock adjustments ....... 751 751
Shares issued under stock option
and award plans ................ 246 2,973 3,219
Compensation earned ............... 1,257 1,257
-------- -------- -------- -------- -------- -------- --------
Balance at October 31, 1997 ....... 21,914 14,125 5,264 (16,337) 85,884 (8,020) 102,830
Comprehensive income:
Net income ..................... 32,807 32,807
Translation adjustment ......... 2,672 2,672
--------
Total comprehensive income ........ 35,479
Cash dividends - $0.585 per common
share .......................... (8,316) (8,316)
Cash dividends - Preferred Series B (1,846) (1,846)
Preferred shares converted ........ (383) 50 333 0
Preferred stock adjustments ....... 760 760
Shares issued under stock option
and award plans ................ 95 152 247
Compensation earned ............... 1,258 1,258
-------- -------- -------- -------- -------- -------- --------
Balance at October 31, 1998 ....... 21,531 14,270 5,749 (15,079) 109,289 (5,348) 130,412
Comprehensive income:
Net income ..................... 19,780 19,780
Translation adjustment ......... (7,986) (7,986)
--------
Total comprehensive income ........ 11,794
Cash dividends - $.60 per common
share .......................... (8,765) (8,765)
Cash dividends - Preferred Series B (1,782) (1,782)
Preferred shares converted ........ (761) 99 662 0
Preferred stock adjustments ....... 702 702
Shares issued under stock option
and award plans ................ 326 2,003 2,329
Compensation earned ............... 1,257 1,257
-------- -------- -------- -------- -------- -------- --------
Balance at October 31, 1999 ....... $ 20,770 $ 14,695 $ 8,414 $(13,822) $119,224 $(13,334) $135,947
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENTS OF CONSOLIDATED CASH FLOWS
Commercial Intertech Corp. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended October 31,
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ....................................................... $ 19,780 $ 32,807 $ 26,791
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation ................................. 15,879 14,944 14,071
Amortization of intangibles ................................ 1,792 1,774 1,827
Amortization of deferred credit ............................ 0 (1,432) (1,518)
Nonrecurring costs, net of income taxes .................... 3,297 0 0
Postretirement benefits .................................... (910) (164) 333
Pension plan credits ....................................... (6,606) (3,832) (5,467)
Change in deferred income taxes ............................ 1,962 3,478 2,539
Change in current assets and liabilities:
Decrease (increase) in accounts receivable .............. 978 (4,508) (7,956)
Decrease (increase) in inventories ...................... 1,466 (4,757) (1,800)
(Increase) decrease in prepaid expenses and other
current assets ....................................... (1,348) 1,230 (2,796)
Decrease in receivable from discontinued operations ..... 0 0 10,253
(Decrease) increase in accounts payable and accrued
expenses ............................................. (557) (3,706) 10,113
(Decrease) increase in accrued income taxes ............. (2,511) 734 7,536
--------- --------- ---------
Net cash provided by operating activities ............... 33,222 36,568 53,926
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets ............................... 52 5,707 849
Business acquisitions ............................................ 0 834 (39,359)
Investments in intangibles ....................................... 0 0 (896)
Capital expenditures ............................................. (24,046) (20,670) (11,405)
Operating subsidies .............................................. 0 0 3,016
--------- --------- ---------
Net cash (used) by investing activities ................... (23,994) (14,129) (47,795)
FINANCING ACTIVITIES:
Proceeds from long-term debt ..................................... 21,811 17,315 137,974
Principal payments on long-term debt ............................. (31,025) (21,226) (123,925)
Net borrowings under bank loan agreements ........................ 4,531 30 (5,371)
Proceeds from reserve contracts .................................. 1,636 1,978 619
Purchase of reserve contracts .................................... (3,019) (4,202) (4,083)
Conversion of other assets ....................................... (413) (79) (3,576)
Dividend from discontinued operations ............................ 0 0 4,612
Dividends paid ................................................... (10,338) (9,995) (9,322)
--------- --------- ---------
Net cash (used) by financing activities ................... (16,817) (16,179) (3,072)
Effect of exchange rate changes on cash and cash equivalents ........ (1,216) 1,961 (2,981)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ................ (8,805) 8,221 78
Cash and cash equivalents at beginning of year ...................... 35,851 27,630 27,552
--------- --------- ---------
Cash and cash equivalents at end of year ............................ $ 27,046 $ 35,851 $ 27,630
========= ========= =========
Supplemental disclosures:
Cash paid during the year for:
Interest........................................................ $ 9,147 $ 9,910 $ 9,523
Income taxes ................................................... 13,781 12,291 5,303
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
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 Hydraulics, Building Systems and Metal Forming
products. The Company operates 27 facilities in eight countries.
Consolidation:
The accounts of the Company and its subsidiaries are included in the
consolidated financial statements. Intercompany accounts and transactions are
eliminated upon consolidation.
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 59 percent (57 percent in 1998) of worldwide inventories are
accounted for using the LIFO method. Inventories as of October 31 consisted of
the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Raw materials.................................................. $ 19,348 $ 23,341
Work in process................................................ 30,067 31,460
Finished goods ................................................ 11,890 11,191
-------- --------
$ 61,305 65,992
======== ========
</TABLE>
If all inventories were priced using the FIFO method, which
approximates replacement cost, inventories would have been $14,647,000 higher in
1999 and $15,301,000 higher in 1998.
Intangible Assets:
Intangible assets at October 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Goodwill, less accumulated amortization (1999 -
$5,865,000; 1998 - $4,295,000).............................. $ 39,398 $ 41,161
Other intangibles, less accumulated amortization (1999 -
$1,109,000; 1998 - $885,000) ............................... 851 1,081
-------- --------
$ 40,249 $ 42,242
======== ========
</TABLE>
The excess cost over the fair value of net assets acquired (or
goodwill) generally is amortized on a straight-line basis over 10 to 40 years.
The majority of the goodwill resulted from the acquisition of Ultra Hydraulics
Limited (see Note K). Other intangibles, including patents, know-how and
trademarks,
28
<PAGE> 29
ITEM 8. (Continued)
are carried at their appraised value on the acquisition date less accumulated
amortization, which is provided using the straight-line method over 5 to 10
years.
Properties and Depreciation:
Property, plant and equipment are recorded at cost. The Company uses
the straight-line method in computing depreciation for financial reporting
purposes and generally uses accelerated methods for income tax purposes. The
annual provisions for depreciation are provided using 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 are deemed to be permanently reinvested aggregated
approximately $57,711,000 at October 31, 1999. 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.
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. Effective for the quarter ended January 31, 1998, the
Company changed its foreign currency translation procedures for its operation
located in Brazil to reflect a change to a non-
29
<PAGE> 30
ITEM 8. (Continued)
highly inflationary status for the economy of that country. The change did not
materially impact the Company's financial statements.
Derivative Financial Instruments:
The Company's utilization of derivative financial instruments is
primarily limited to the use of forward exchange contracts which are designated
as hedges of specific foreign currency transactions, including specific loans
among consolidated affiliates. The unrealized gains and losses related to such
contracts are deferred and included in the measurement of related foreign
currency transaction. In instances where hedge designations are, or become
inappropriate, gains and losses related to such contracts will be included in
income as nonoperating income (expense).
Earnings Per Share Amounts:
Basic earnings per share has been computed based on the average number
of common shares outstanding. Diluted earnings per share reflects the increase
in average common shares outstanding that would result from the assumed exercise
of outstanding stock options, calculated using the treasury stock method and the
assumed conversion of dilutive preferred stock to common stock. Diluted earnings
per share also reflects adjustments to net income for the assumed conversion of
Series B preferred stock to common stock and the subsequent adjustment for
preferred dividends 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
$4,322,000 in 1999, $6,989,000 in 1998, and $7,264,000 in 1997, which in each
year is reduced for contract benefits and net amortization of contract premiums
and cash surrender value.
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.
30
<PAGE> 31
ITEM 8. (Continued)
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
expenses incurred during the period were immaterial.
Stock-Based Compensation:
FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
permits the Company to continue to use the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation awards to employees. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount that must be paid to
acquire the stock. Such cost is expensed over the period from the date of grant
to the date the stock options become exercisable. Compensation cost for stock
appreciation rights and awards of common stock is determined based on the quoted
market price of the Company's stock.
Newly Issued Accounting Standards:
As of November 1, 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." The adoption of this statement had no impact
on the Company's financial condition or results of operations. Statement No. 130
establishes standards for reporting total nonowner changes in shareholders'
equity. For the Company, total nonowner changes in shareholders' equity include
net income and the change in the cumulative foreign exchange translation
adjustment and is presented in the Statement of Consolidated Shareholders'
Equity.
Effective October 31, 1999 FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was adopted. See Note I.
Effective October 31, 1999, the Company adopted the provisions of SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which revised the disclosure requirements relative to pension and
other postretirement benefit information included in annual financial
statements. Prior year disclosures were restated, as necessary, to conform to
the new requirements. See Note E.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 was initially
required to be adopted by the Company effective for fiscal year ending October
31, 2000. In July 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which extends the effective date of Statement No.
133 for years beginning after June 15, 2000 which would be effective for the
fiscal year ending October 31, 2001 for the Company. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
Statement No. 133 will have a significant effect on earnings or the financial
position of the Company.
31
<PAGE> 32
ITEM 8. (Continued)
During 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-up Activities," and SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires entities to adopt uniform rules in their
financial statements in accounting for the costs of computer software developed
or obtained for internal use. SOP 98-5 defines start-up activities and requires
that entities expense start-up costs and organization costs as they are
incurred. The adoptions of SOP 98-5 and SOP 98-1, which are effective for fiscal
year ending October 31, 2000, are not expected to have a material impact on the
Company's financial condition or results of operations.
NOTE B - DEBT
Long-term debt obligations at October 31 are summarized below:
1999 1998
---- ----
(in thousands)
Senior unsecured notes.......................... $ 60,000 $ 60,000
Senior unsecured revolving credit agreement .... 38,665 44,997
Other .......................................... 3,574 6,673
-------- --------
102,239 111,670
Less current portion ........................... 2,024 3,137
-------- --------
$100,215 $108,533
======== ========
Senior Unsecured Notes
- ----------------------
In July 1997, the Company completed a private placement of $60,000,000
in senior unsecured notes with a group of institutional investors. At issuance,
the 7.61 percent notes had an average life of seven years and a maturity date of
10 years. The notes, subject to certain provisions, are callable at any time at
the option of the Company. The notes include covenants which require the
maintenance of certain financial ratios. The Company was in compliance with
these covenants at October 31, 1999.
Senior Unsecured Revolving Credit Agreement
- -------------------------------------------
The Company maintains a $125,000,000 revolving credit agreement which
includes an option to borrow the pounds sterling equivalent of $50,000,000. At
October 31, 1999, all funds drawn on the revolving credit agreement were
denominated in pounds sterling. The weighted-average interest rate was 5.90
percent. The revolving credit agreement matures on October 31, 2001.
Under the revolving credit agreement, the Company pays a variable
per-annum fee on the unused amount of the commitment, payable quarterly in
arrears. The rate at October 31, 1999 was .125 percent. The agreement has
interest rate options determinable by the Company based upon prime interest or
LIBOR rates plus an applicable margin. The margin was .375 percent at October
31, 1999. 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, 1999. Additionally, under the most
32
<PAGE> 33
ITEM 8. (Continued)
restrictive provisions of the agreement, approximately $37,400,000 of
unrestricted retained earnings is available for future dividend payments or
share purchases.
Other
- -----
Debt principal payments due in the five fiscal years after October 31,
1999 are:
(in thousands)
2000.............. $ 2,024
2001.............. 47,803
2002.............. 8,723
2003.............. 8,713
2004.............. 8,701
Included in debt principal payments for the fiscal year 2001 is
$38,665,000 currently outstanding under the senior unsecured revolving credit
agreement which is scheduled to mature on October 31, 2001.
The Company had available unused lines of credit in various countries
totaling approximately $37,400,000 short-term and $86,300,000 long-term at
October 31, 1999. Outstanding short-term bank loans of $4,892,000 at October 31,
1999 had a weighted average interest rate of 10.03 percent. Excluding short-term
bank loans of the Brazilian operations, which had a higher interest rate due to
Brazil's fiscal policies, the weighted average interest rate would have been
6.51 percent.
NOTE C - FOREIGN CURRENCY TRANSLATION
The cumulative effects of foreign currency translation gains and losses
are reflected in the translation adjustments section of Shareholders' Equity.
Foreign currency transaction gains and losses, including U.S. dollar
translation losses in Brazil for the year of 1997, are reflected in income.
Foreign currency gains and losses have decreased income before income taxes as
follows:
(in thousands)
1999............... $ 1,332
1998............... 1,037
1997............... 492
NOTE D - STOCK OPTION AND AWARD PLANS
Under the Company's stock option and award plans, approximately
1,112,950 shares of common stock are reserved for issuance to key employees and
non-employee directors at October 31, 1999. Stock options are exercisable at
various dates and generally expire ten years from the date of grant. 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 stock and performance shares of common stock
to key employees. The restricted shares generally vest over a five-year period
33
<PAGE> 34
ITEM 8. (Continued)
and are charged to earnings over the vesting period. There were 74,000, 19,990
and 46,890 restricted shares awarded in 1999, 1998 and 1997, respectively. The
performance shares generally vest over a three-year period based on the
attainment of specified average annual earnings growth and return-on-equity
targets. Awards of performance shares totaled 136,750 in 1999, 18,500 in 1998
and 154,950 in 1997. The weighted-average grant-date fair value of the
restricted and performance share awards was $13.83 in 1999, $17.89 in 1998 and
$12.29 for 1997. Charges to income before income taxes for current and future
distributions amounted to $1,468,000 in 1999, $1,706,000 in 1998 and $3,117,000
in 1997.
The Company maintains a plan which allows non-employee directors to
elect to receive shares of the Company's common stock at a future date instead
of cash otherwise payable for certain director fees. If shares are elected, the
number of shares at market value equal to 120 percent of the fees otherwise
payable are identified for distribution at a future date established by the
Management Evaluation and Compensation Committee of the Board of Directors. In
addition, non-employee directors automatically receive an option to purchase
2,250 shares upon election to a new three-year term and also receive biannual
awards of 2,000 performance shares which are vested over a three-year period
based upon the achievement of certain Company financial targets.
Information regarding stock options for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 856,083 $10.36 965,875 $ 7.95 1,067,473 $ 6.90
Adjustment................ 0 -- 0 -- (25,214) --
Options exercised......... (159,804) 6.55 (256,542) 6.29 (179,056) 5.84
Options granted........... 189,000 13.52 146,750 19.12 147,500 12.82
Options expired........... 0 0 0 0 0 0
Options forfeited......... 0 0 0 0 (44,828) 8.36
---------------------- ----------------------- ------------------------
Options outstanding,
end of year............ 885,279 $11.72 856,083 $10.36 965,875 $ 7.95
====================== ======================= ========================
Option price range
at end of year......... $ 5.32 to $22.94 $ 4.68 to $22.94 $4.68 to $12.88
Option price range for
exercised shares....... $ 4.68 to $ 8.64 $ 4.68 to $ 8.64 $5.13 to $8.64
Options available for
grant at end of year 227,660 537,270 562,930
Weighted-average fair
value of options granted
during the year........ $ 3.26 $ 6.62 $ 4.14
Options exercisable
at end of year......... 481,779 $ 8.70 451,650 $ 7.21 501,234 $ 6.16
</TABLE>
34
<PAGE> 35
ITEM 8. (Continued)
The following table summarizes information about stock options
outstanding as of October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- --------------------- ---------------------------------------- ---------- ----------------------------
<S> <C> <C> <C> <C> <C>
$ 5.32 to $ 6.95 115,196 3.99 $ 5.85 115,196 $ 5.85
$ 8.42 to $ 9.76 286,833 5.92 8.55 286,833 8.55
$ 12.00 to $ 12.94 191,500 7.71 12.80 75,250 12.81
$ 13.75 to $ 18.94 285,000 8.68 16.30 0 0
$ 22.94 6,750 8.42 22.94 4,500 22.94
--------------------------------------------------- -------------------------
$ 5.32 to $ 22.94 885,279 6.96 $ 11.72 481,779 $ 8.70
=================================================== =========================
</TABLE>
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and
related Interpretations, in accounting for stock-based awards to employees.
Under APB No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized in the Company's financial statements for all
periods presented. Compensation expense is recognized for performance shares
based upon the current stock fair value and the number of shares expected to be
earned under APB No. 25.
If the Company had elected to follow FASB Statement No. 123, the effect
on net income and earnings per share would have been minimal in fiscal 1999,
1998 and 1997. Because the Statement provides for pro forma amounts for option
grants after December 15, 1995, the pro forma expense will likely increase in
future years as the new option grants become subject to the pricing model.
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
Net income - as reported....... $ 19,780 $ 32,807 $ 26,791
Net income - pro forma......... 18,961 32,611 26,674
Net income per share:
Basic:
As reported.............. $ 1.28 $ 2.23 $ 1.83
Pro forma................ 1.22 2.22 1.83
Diluted:
As reported.............. $ 1.14 $ 1.90 $ 1.56
Pro forma................ 1.10 1.92 1.59
35
<PAGE> 36
ITEM 8. (Continued)
The fair value of each option grant is estimated on the date of grant,
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Expected life (years)................. 6.42 6.62 6.75
Risk-free interest rate (%)........... 6.36 4.76 6.00
Volatility (%)........................ 45.20 40.60 40.50
Dividend yield (%).................... 4.44 3.14 5.63
NOTE E - BENEFIT PLANS
Pension Plans
- -------------
The Company and its domestic subsidiaries have a number of
noncontributory defined benefit plans covering most U.S. employees. Employees in
the United Kingdom are covered by contributory defined benefit pension plans.
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. The Company also sponsors defined contribution pension
plans covering certain U.S. hourly employees.
The Company accounts for pension costs under the provisions of FASB
Statement No. 87 for defined benefit pension plans covering its employees in the
U.S. and the United Kingdom. Some employees of other foreign operations also
participate in postemployment benefit arrangements not subject to the provisions
of FASB Statement No. 87. A summary of the various components of net periodic
pension cost for defined benefit pension plans and cost information for other
plans for the three-year period is shown below:
36
<PAGE> 37
ITEM 8. (Continued)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Defined benefit plans:
Service cost ....................... $ 3,588 $ 3,177 $ 2,560
Interest cost ...................... 9,741 8,963 9,026
Expected return on plan assets ..... (19,554) (15,258) (15,239)
Net amortization and deferral ...... 2,442 (304) 1,615
Cost of special termination benefits
(See Note N) .................. 3,313 0 0
-------- -------- --------
Net pension (income) ............... (470) (3,422) (2,038)
Other plans:
Defined contribution plans ......... 506 514 482
Multiemployer plan ................. 67 71 68
Foreign plans ...................... 571 424 444
-------- -------- --------
Total pension expense (income) ..... $ 674 $ (2,413) $ (1,044)
======== ======== ========
</TABLE>
Assumptions used in the accounting for the defined benefit plans as of
October 31 were:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate .............. 7.75% 6.75% 7.25%
Rates of increase in compensation levels .... 5.0 % 4.0 % 4.5 %
Expected long-term rate of return on assets . 10.0 % 10.0 % 10.0 %
</TABLE>
The following table sets forth the changes in the benefit obligation
and the changes in fair value of plan assets and indicates the aggregated funded
status reconciled with amounts recognized in the Consolidated Balance Sheets at
October 31, 1999 and 1998 for the Company's U.S. and certain 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.
37
<PAGE> 38
ITEM 8. (Continued)
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ..................... $ 143,123 $ 124,031
Service cost ................................................ 3,588 3,177
Interest cost ............................................... 9,741 8,963
Plan participants' contributions ............................ 218 211
Actuarial (gain) loss ....................................... (6,008) 12,363
Benefits paid ............................................... (9,959) (4,983)
Expenses paid ............................................... (222) (266)
Foreign currency exchange rate changes ...................... (166) (373)
Cost of special termination benefits (See Note N) ........... 3,313 0
--------- ---------
Benefit obligation at end of year ........................... 143,628 143,123
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year .............. 208,360 189,958
Actual return on plan assets ................................ 89,945 22,392
Employer contributions ...................................... 2,295 1,510
Plan participants' contributions ............................ 218 211
Benefits paid ............................................... (9,959) (5,088)
Expenses paid ............................................... (222) (162)
Foreign currency exchange rate changes ...................... (171) (461)
--------- ---------
Fair value of plan assets at end of year .................... 290,466 208,360
--------- ---------
Funded status ............................................... 146,838 65,237
Unrecognized net actuarial (gain) loss ...................... (107,496) (29,139)
Unrecognized prior service cost ............................. 4,559 5,301
Unrecognized net (asset) obligation ......................... (529) (757)
--------- ---------
Net amount recognized....................................... $ 43,372 $ 40,642
========= =========
Amounts recognized in the Consolidated Balance
Sheets consist of:
Pension assets........................................ $ 50,461 $ 44,173
Accrued pension liability ............................. (7,089) (4,423)
Intangible asset ...................................... 0 892
--------- ---------
Net amount recognized ....................................... 43,372 40,642
Other plans (not subject to FASB
Statement No. 87 accounting):
Pension assets ........................................ 3,075 1,987
Accrued pension liability ............................. (4,410) (4,607)
--------- ---------
Total net amount recognized................................. $ 42,037 $ 38,022
========= =========
</TABLE>
38
<PAGE> 39
ITEM 8. (Continued)
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $9,688,000, $9,197,000, and $4,393,000,
respectively, as of October 31, 1999, and $8,970,000, $7,767,000, and
$3,832,000, respectively, as of October 31, 1998.
Plan assets 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
$2,783,000 at October 31, 1999 and $3,907,600 at October 31, 1998.
Other Postretirement Benefit Plans
- ----------------------------------
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. Components of net
periodic postretirement benefit cost are shown below.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Service cost............................................ $ 421 $ 429 $ 434
Interest cost........................................... 1,256 1,262 1,456
Net amortization and deferral........................... (47) (47) (47)
Cost of special termination benefits
(See Note N)...................................... 886 0 0
------- ------- -------
Net periodic postretirement benefit cost $ 2,516 $ 1,644 $ 1,843
======= ======= =======
</TABLE>
The following table shows the changes in the benefit obligation and
indicates the aggregated funded status of the defined benefit postretirement
plans reconciled with amounts recognized in the Company's Consolidated Balance
Sheets as of October 31, 1999 and 1998.
39
<PAGE> 40
ITEM 8. (Continued)
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ......... $ 18,673 $ 19,545
Service cost .................................... 421 429
Interest cost ................................... 1,256 1,262
Actuarial (gain) loss ........................... (571) (1,490)
Benefits paid ................................... (1,338) (1,073)
Cost of special termination benefits (See Note N) 886 0
-------- --------
Benefit obligation at end of year ............... 19,327 18,673
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year .. 0 0
Employer contributions .......................... 1,338 1,073
Benefits paid ................................... (1,338) (1,073)
-------- --------
Fair value of plan assets at end of year ........ 0 0
-------- --------
Funded status ................................... (19,327) (18,673)
Unrecognized net actuarial (gain) loss .......... (1,316) (745)
Unrecognized prior service cost (asset) ......... (329) (376)
-------- --------
Accrued postretirement benefit cost ............. $(20,972) $(19,794)
======== ========
</TABLE>
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 7.5 percent in 1999 and 8.0 percent for 1998. The trend rate is assumed to
decrease gradually from 6.5 percent in 2000 to 5.0 percent in the year 2003 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, 1999 by $1,641,000 and the
aggregate of service and interest cost components of net periodic postretirement
benefit cost for 1999 by $172,000. Decreasing the assumed health care cost trend
rate by one percentage point in each year would decrease the accumulated
postretirement benefit obligation as of October 31, 1999 by $1,442,000 and the
aggregate of service and interest cost components of net periodic postretirement
benefit cost for 1999 by $148,000. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.75 percent
and 6.75 percent at October 31, 1999 and 1998, respectively. The annual assumed
rate of salary increase for retiree life insurance is 5.0 percent and 4.0
percent at October 31, 1999 and October 31, 1998, respectively.
NOTE F - INCOME TAXES
The components of income before income taxes and the provision for
income taxes are summarized as follows:
40
<PAGE> 41
ITEM 8. (Continued)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income before taxes
Domestic ................................ $ 20,415 $ 30,362 $ 23,295
Foreign ................................. 11,280 18,948 17,023
-------- -------- --------
31,695 49,310 40,318
Provision for income taxes
Current
Domestic
Federal ............................. 8,399 8,523 7,021
State and local ..................... 548 930 604
Foreign ................................. 5,035 6,226 6,278
-------- -------- --------
13,982 15,679 13,903
Deferred
Domestic
Federal .............................. 531 1,731 872
State and local ...................... 122 281 175
Foreign ................................. (668) 1,934 221
-------- -------- --------
(15) 3,946 1,268
Benefit of operating loss
carryforwards ........................... (2,052) (3,122) (1,644)
-------- -------- --------
11,915 16,503 13,527
Net income
Domestic ................................ 10,815 18,897 14,623
Foreign ................................. 8,965 13,910 12,168
-------- -------- --------
$ 19,780 $ 32,807 $ 26,791
======== ======== ========
</TABLE>
A reconciliation of the effective tax rate to the U.S. statutory rate
follows:
1999 1998 1997
---- ---- ----
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 ............. 1.1 1.6 1.3
Benefit of operating loss carryforwards ... (6.5) (6.3) (4.1)
Repatriation of foreign earnings .......... 5.0 2.0 2.9
Increase in effective rate due to impact of
foreign subsidiaries .................... 1.4 2.7 1.4
Reserve contracts ......................... 1.4 (1.6) (1.8)
All other ................................. .2 .1 (1.1)
---- ---- ----
Effective income tax rate ................. 37.6% 33.5% 33.6%
==== ==== ====
41
<PAGE> 42
ITEM 8. (Continued)
Significant components of the Company's deferred income tax liabilities
and assets as of October 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation ............. $ 8,530 $ 9,252 $ 9,976
Prepaid pension asset .................. 18,922 16,720 14,500
Sale of properties ..................... 3,624 4,020 1,547
Other .................................. 80 80 81
------- ------- -------
Total deferred income tax liabilities 31,156 30,072 26,104
Deferred income tax assets:
Postretirement benefits ................ 8,195 7,765 7,544
Employee benefits ...................... 7,671 6,452 6,891
Net operating loss carryforwards ....... 48,004 55,570 47,886
Inventory valuation .................... 1,486 1,420 1,204
Product liability ...................... 4,760 4,657 4,479
Other .................................. 3,050 6,996 6,250
------- ------- -------
Total deferred income tax assets .... 73,166 82,860 74,254
Valuation allowance for deferred income
tax assets .......................... 48,934 59,727 51,143
------- ------- -------
Net deferred income tax liabilities ......... $ 6,924 $ 6,939 $ 2,993
======= ======= =======
</TABLE>
Tax benefits from operating loss carryforwards relate to the ORSTA
Hydraulik operations acquired in 1994 which are available indefinitely. Under
German law, the net operating loss carryforwards are only available to be
utilized against taxable income generated by the German subsidiaries. To date,
the Company has not been able to conclude that it is more likely than not that
the operating loss carryforward will be realized during each period. Therefore,
a valuation allowance is provided.
Tax benefits associated with the exercise of stock options by employees
of shares issued in the Company's stock purchase plans reduced taxes payable by
$566,000 in 1999 and $1,388,000 in 1998. The benefit is included in capital
surplus.
The valuation allowance decreased by $10,793,000 in 1999, increased by
$8,584,000 in 1998 and decreased $7,336,000 in 1997. The principle changes in
the valuation allowances result from changes in the net operating loss
carryforwards available from the acquisition of ORSTA Hydraulik and the changes
in unused foreign tax credits. The decrease in fiscal 1999 is mainly the result
of a $3,200,000 utilization in foreign tax credits, a decrease in the net
operating loss carryforward due to translation into a stronger dollar at October
1999 versus 1998; the increase in fiscal 1998 is a result of amendments to tax
returns filed for periods prior to the acquisition; the decrease in fiscal 1997
is a result of translation into the stronger dollar at October 1997 versus 1996.
At October 31, 1999, the Company also had unused foreign tax credit carryovers
of approximately $930,000 that expire in 2002.
42
<PAGE> 43
ITEM 8. (Continued)
NOTE G - QUARTERLY FINANCIAL DATA (unaudited)
Selected quarterly financial data for each quarter in fiscal year 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ................ $ 120,290 $ 139,260 $ 135,693 $ 139,751 $ 534,994
Gross profit ............. 28,642 34,536 33,428 34,046 130,652
Net income (loss) ........ (712) 6,067 6,898 7,527 19,780
Earnings (loss) per share:
Basic ................. $ (0.08) $ 0.40 $ 0.46 $ 0.50 $ 1.28
Diluted ............... (0.08) 0.35 0.40 0.44 1.14
Dividends per common share 0.15 0.15 0.15 0.15 0.60
<CAPTION>
1998 First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ................ $ 128,530 $ 146,086 $ 151,331 $ 150,502 $ 576,449
Gross profit ............. 30,726 36,071 36,855 39,191 142,843
Net income ............... 3,908 6,970 8,329 13,600 32,807
Earnings per share:
Basic ................. $ 0.25 $ 0.47 $ 0.57 $ 0.94 $ 2.23
Diluted ............... 0.22 0.40 0.48 0.79 1.90
Dividends per common share 0.135 0.150 0.150 0.150 0.585
</TABLE>
During the first quarter of 1999, the Company recorded a nonrecurring
after-tax charge of $3,297,000, or $0.20 per diluted share, to recognize costs
in connection with initiatives to reorganize certain areas of the business and
reduce operating costs (see Note N). Results for the first quarter of 1999 were
also unfavorably impacted by a severely devalued local currency in Brazil which
resulted in an after-tax foreign currency loss of approximately $500,000, or
$0.03 per diluted share.
During the third quarter of 1998, the Company recorded a $567,000 or
$0.04 per diluted share charge associated with employee separation costs at its
German operations. The fourth quarter was favorably impacted by a gain on the
sale of property located in Luxembourg. The gain increased net income by
$2,865,000 or $0.17 per diluted share.
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.
43
<PAGE> 44
ITEM 8. (Continued)
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. Costs
associated with these activities, which the Company expenses as incurred, are
shown below:
1999 1998 1997
------ ------ ------
(in thousands)
Research and development.......... $ 7,001 $ 6,915 $ 6,984
Engineering ...................... 11,977 12,896 12,566
------- ------- -------
$18,978 $19,811 $19,550
======= ======= =======
Percent of net sales ............. 3.5% 3.4% 3.7%
======= ======= =======
NOTE I - SEGMENT REPORTING
Effective October 31, 1999, the Company adopted the provisions of FASB
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information" which revises reporting and disclosure requirements for operating
segments. Prior year disclosures were restated, where necessary, to conform to
the new requirements.
The Company's operations are principally organized and managed by
product line and are comprised of three reportable segments: Commercial
Hydraulics, Buildings Systems and Metal Forming. The Commercial Hydraulics
segment manufactures gear pumps and motors, control valves and telescopic
cylinders which are sold primarily to original equipment manufacturers and to
independent distributors worldwide. The Building Systems segment produces
pre-engineered single and multi-story buildings that serve many industries
throughout Europe, China and elsewhere in the Asia Pacific region. The Metal
Forming segment produces custom and standard metal stampings serving a variety
of customers in North America.
The Company's operating segments are strategic business groups that
design and manufacture different products. Each segment is managed separately
because each business requires different technologies and serves different
markets. The Company evaluates segment performance based on segment income which
represents total revenues less total operating expenses except that nonrecurring
costs are not allocated. Segment income includes depreciation and amortization.
The accounting policies of the segments are the same as those described
in Note A - Accounting Policies. Segment assets are those assets used in the
operations of each business segment. Assets that are used jointly by more than
one segment are allocated to each respective segment based on benefits derived.
Corporate assets are principally cash and cash equivalents.
44
<PAGE> 45
ITEM 8. (Continued)
- --------------------------------------------------------------------------------
OPERATING SEGMENTS
(in thousands)
<TABLE>
<CAPTION>
Commercial Building Metal
1999 Hydraulics Systems Forming Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ................... $ 358,914 $ 121,919 $ 54,161 $ 534,994
Operating income excluding
nonrecurring costs ....... 24,469 12,121 9,340 45,930
Nonrecurring costs .......... (5,392)
Operating income ............ 40,538
Nonoperating income (expense) (8,843)
Income before income taxes .. 31,695
Segment assets .............. 298,281 48,805 26,182 373,268
Corporate assets ............ 28,742
Total assets ................ 402,010
Depreciation and amortization 14,346 1,783 1,373 17,502
Capital expenditures ........ 15,162 5,377 2,990 23,529
1998
- -----------------------------------------------------------------------------------------
Net sales ................... $ 390,524 $ 126,680 $ 59,245 $ 576,449
Operating income ............ 31,922 14,299 9,006 55,227
Nonoperating income (expense) (5,917)
Income before income taxes .. 49,310
Segment assets .............. 304,070 40,879 26,719 371,668
Corporate assets ............ 37,557
Total assets ................ 409,225
Depreciation and amortization 14,031 1,597 1,175 16,803
Capital expenditures ........ 17,685 868 2,346 20,899
1997
- -----------------------------------------------------------------------------------------
Net sales ................... $ 353,043 $ 112,989 $ 60,592 $ 526,624
Operating income ............ 26,863 12,552 9,353 48,768
Nonoperating income (expense) (8,450)
Income before income taxes .. 40,318
Segment assets .............. 280,610 40,145 34,510 355,265
Corporate assets ............ 29,533
Total assets ................ 384,798
Depreciation and amortization 12,604 1,635 1,378 15,617
Capital expenditures ........ 9,907 644 1,148 11,699
</TABLE>
45
<PAGE> 46
ITEM 8. (Continued)
Geographic sales information, which is determined based on the location
from which product is shipped to external customers, is provided below for the
United States, for individual foreign countries where shipments to external
customers are significant and for the remaining foreign countries in total.
Long-lived assets which are used in each geographic area consist of property,
plant and equipment net of accumulated depreciation, pension assets and other
noncurrent assets excluding intangible assets.
- -------------------------------------------------------------------------------
GEOGRAPHIC AREAS
(in thousands)
<TABLE>
<CAPTION>
Net Sales
to External Long-lived
1999 Customers Assets
------------------------------------------------------------------------------
<S> <C> <C>
United States............................... $ 307,712 $ 107,086
Germany..................................... 102,419 8,464
United Kingdom.............................. 63,258 38,908
Luxembourg.................................. 26,803 13,092
Other foreign countries..................... 34,802 3,258
----------- -----------
Total....................................... $ 534,994 $ 170,808
=========== ===========
1998
------------------------------------------------------------------------------
United States............................... $ 328,101 $ 99,604
Germany..................................... 119,535 9,621
United Kingdom.............................. 68,872 35,757
Luxembourg.................................. 21,743 10,944
Other foreign countries..................... 38,198 2,954
----------- -----------
Total....................................... $ 576,449 $ 158,880
=========== ===========
1997
------------------------------------------------------------------------------
United States............................... $ 291,453 $ 94,847
Germany..................................... 106,573 7,968
United Kingdom.............................. 68,508 32,909
Luxembourg.................................. 23,483 11,718
Other foreign countries..................... 36,607 2,900
----------- -----------
Total....................................... $ 526,624 $ 150,342
=========== ===========
</TABLE>
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 and long-term revolving 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
46
<PAGE> 47
ITEM 8. (Continued)
borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial
instruments at October 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents ... $ 27,046 $ 27,046 $ 35,851 $ 35,851
Short-term debt ............. 4,892 4,892 499 499
Foreign currency forward
contracts ................ 0 396 0 (1)
Long-term debt:
Senior unsecured notes ... $ 60,000 $ 59,352 $ 60,000 $ 62,062
Senior unsecured revolving
credit agreement ...... 38,665 38,665 44,997 44,997
Other .................... 3,574 3,405 6,673 6,523
--------- --------- --------- ---------
Total long-term debt ...... $ 102,239 $ 101,422 $ 111,670 $ 113,582
========= ========= ========= =========
</TABLE>
From time to time, the Company and its foreign subsidiaries make loans
among affiliates of the consolidated group. Generally, these loans are made when
the Company can borrow at lower interest rate spreads than is available to the
borrowing affiliate in its local market. Foreign currency forward contracts are
used to hedge the lending affiliate'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. At October 31, 1999 and 1998, the Company
held contracts for $17,317,000 and $25,222,000, respectively. The fair values of
these foreign currency forward contracts are estimated based on quoted exchange
rates at October 31, 1999 and 1998.
NOTE K - ACQUISITIONS
On November 18, 1996, the Company reported it acquired all of the
outstanding common stock of Ultra Hydraulics Limited ("Ultra") for approximately
$39,400,000 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. The acquisition has been accounted for as a
purchase transaction and, therefore, the accounts of Ultra have been included in
the accompanying financial statements since the date of acquisition.
Ultra 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 Intertech.
47
<PAGE> 48
ITEM 8. (Continued)
NOTE L - SHAREHOLDERS' EQUITY
Series A Participating Preferred Stock
- --------------------------------------
The Series A Participating Preferred Shares and related Shareholder
Rights Plan were designed to protect shareholders from the disruptions created
by market accumulators and certain abusive takeover practices. The Plan provided
for the distribution of one preferred share purchase right as a dividend for
each outstanding share of common stock. The rights expired on November 29, 1999.
A new Shareholder Rights Plan was approved on November 17, 1999 (see below).
Series B ESOP Convertible Preferred Stock
- -----------------------------------------
During 1990, the Company established two 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. During fiscal year 1997, the Company combined the
two ESOPs into one plan. The ESOP currently covers most domestic employees. The
remaining Series B shares are convertible into 2,700,342 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 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. The ESOP trust agreement provides that unallocated shares
held by the trustee are to be voted in the same proportion as are the allocated
shares. Annual dividends are $1.97625 per share. The ESOP borrowed to purchase
the Series B shares, and the Company guaranteed the repayment of the remaining
outstanding balance of that loan. In 1996, the notes were purchased by the
Company.
The Company paid to the ESOP $1,798,000 in 1999, ($1,855,000 in 1998
and $1,911,000 in 1997) in preferred stock dividends, and accrued or paid an
additional $1,624,000 ($1,605,000 in 1998 and $1,192,000 in 1997) 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 ESOP made debt service payments of $2,355,000 in 1999
($2,358,000 in 1998 and $2,360,000 in 1997) primarily for interest charges.
The number of ESOP shares outstanding at October 31 are as follows:
1999 1998
-------- -------
Allocated shares..................... 299 277
Committed-to-be-released shares...... 54 54
Suspense shares...................... 540 595
-------- -------
Total ESOP Shares.................. 893 926
======== =======
48
<PAGE> 49
ITEM 8. (Continued)
Common Stock
- ------------
On February 10, 1999, the Company reported that the Board of
Directors has authorized the repurchase of up to 1,000,000 shares of Commercial
Intertech common stock to be used for employee benefit plans and other corporate
purposes. Purchases will be made from time to time in the open market and in
private transactions at prevailing prices. No time limit was placed on the
duration of the repurchase program. As of October 31, 1999, the Company has not
repurchased any of its common shares under this program.
On November 17, 1999, the Company's Board of Directors approved a new
Shareholders Rights Plan (the "Plan") to replace the Shareholder Rights Plan
which was originally adopted in 1989 and which expired on November 29, 1999. The
Plan is designed to protect against future abusive takeover tactics such as
partial tender offers and selective open market purchases. The Plan was not
adopted in response to any specific effort to acquire control of the Company.
The Plan is intended to assure that shareholders receive fair and equitable
treatment in the event of unsolicited attempts to acquire the Company.
Under the Plan, one right to purchase one share of the Company's
common stock ("Right") was distributed as a dividend for each share of the
Company's common stock outstanding as of December 8, 1999. Each Right, when
exercisable, entitles shareholders to purchase one share of common stock from
the Company at a price of $60.00 subject to adjustment from time to time to
prevent dilution. Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Company, including without limitation,
the right to vote or to receive dividends. Until the Rights are exercisable,
they will 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 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, all Rights holders, except the acquirer, may purchase common stock
of the Company having a value equal to two times the purchase price of the
Rights. If, after acquisition of 20 percent of the voting power of the Company,
the Company is acquired or is the surviving corporation in a merger, all Rights
holders, except the acquirer, may purchase shares in the surviving or acquiring
company at a similar discount. The Rights will expire on November 23, 2009
unless redeemed earlier by the Company at a price of $.01 per Right or the
expiration date is extended.
49
<PAGE> 50
ITEM 8. (Continued)
NOTE M - PER SHARE DATA
The computation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
Year Ended October 31,
1999 1998 1997
-------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Net income ............................................. $ 19,780 $ 32,807 $ 26,791
Series B preferred stock dividends ..................... (1,790) (1,842) (1,895)
-------- -------- --------
Numerator for basic earnings per share - net income
applicable to common stock ........................... 17,990 30,965 24,896
Effect of dilutive securities - Series B preferred stock
dividends and adjustments resulting from assumed
conversion ........................................... 1,635 1,642 1,565
-------- -------- --------
Numerator for diluted earnings per share - net income
applicable to common stock after assumed
conversion ........................................... $ 19,625 $ 32,607 $ 26,461
======== ======== ========
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding ........................... 14,106 13,870 13,567
Effect of dilutive securities:
Series B convertible preferred stock ................. 2,725 2,812 2,922
Assumed issuance of stock under stock option and
award plans based on treasury stock method ........ 327 460 438
-------- -------- --------
Denominator for diluted earnings per share - weighted
average shares outstanding and impact of dilutive
securities ........................................... 17,158 17,142 16,927
======== ======== ========
Basic earnings per share ............................... $ 1.28 $ 2.23 $ 1.83
======== ======== ========
Diluted earnings per share ............................. $ 1.14 $ 1.90 $ 1.56
======== ======== ========
</TABLE>
Options to purchase 483,250 shares of common stock at a
weighted-average exercise price of $15.00 per share were outstanding during the
year ended October 31, 1999 but were not included in the computation of diluted
earnings per share because the exercise price of the options was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive.
NOTE N - NONRECURRING COSTS
During the quarter ended January 31, 1999, the Company recorded a
nonrecurring charge of $5,392,000 ($3,297,000 after taxes) to recognize costs
incurred in connection with initiatives to reorganize certain areas of the
business and reduce operating costs. The nonrecurring costs consist of: (i)
charges totaling $5,203,000 in association with a voluntary early retirement
program and the separation of fixed
50
<PAGE> 51
ITEM 8. (Continued)
support personnel at certain locations; these actions will reduce the Company's
worldwide employment by a total of 70 employees, and (ii) charges totaling
$189,000 in connection with the consolidation of certain operating facilities in
the United States and Europe. None of the recorded costs relate to the
write-down or write-off of inventory or fixed assets of the affected businesses.
Most of the indicated actions were completed in the first quarter of fiscal 1999
and the remainder were completed during the year. Of the total pre-tax charge of
$5,392,000, approximately $4,400,000 will be settled in the form of deferred
payments over an extended period of time.
NOTE O - SUBSEQUENT EVENT (unaudited)
On January 17, 2000, Commercial Intertech and Parker-Hannifin
Corporation ("Parker") announced that their Boards of Directors had approved a
definitive agreement to merge in a cash - and stock transaction whereby Parker
would acquire all outstanding stock of Commercial Intertech Corp. for $20.00 per
share. Commercial Intertech shareholders will receive Parker common stock based
on an exchange ratio that will be determined by the twenty-day average of
Parker's closing price as determined five days immediately preceding the closing
date of the merger. Alternatively, shareholders may elect to receive $20.00 per
share in cash, subject to a maximum of 49 percent of the value of the total
shares acquired by Parker. The transaction will be accounted for by the purchase
method of accounting for business combinations and is expected to be
tax-deferred for that portion of the purchase price received in Parker common
stock. The merger, which is anticipated to close in May 2000, is subject to
approval of the shareholders of Commercial Intertech Corp.; regulatory approvals
in the United States, Europe and other countries; and other closing conditions.
51
<PAGE> 52
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, 1999 and 1998, and the
related statements of consolidated income, shareholders' equity and cash flows
for each of the three years in the period ended October 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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
November 29, 1999
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company and their business experience are listed
below. Except for Messrs. William W. Cushwa and Charles B. Cushwa III, who are
brothers, none of the directors is related to any other director.
William J. Bresnahan, age 49 - Director since 1995.
Committee Membership - (2), (3)
President of Hynes Industries. He held sales and
general management positions at Hynes Industries
from 1980 until he was named President in 1989. He
held sales and marketing positions with Procter &
Gamble and Pharmacia, Inc. before joining Hynes
Industries. Mr. Bresnahan received his bachelor's
of science degree in Business Administration from
Youngstown State University and his master's degree
in Business Administration from the University of
Pittsburgh. Mr. Bresnahan is a director of the
Mahoning National Bank, Youngstown, Ohio.
William W. Cushwa, age 62 - Director since 1975.
Committee Membership - (2), (3)
Retired in 1996 as Vice President Planning and
Assistant Treasurer of the Company. Mr. Cushwa
joined the Company in 1960, was elected Assistant
Treasurer in 1969, Director of Corporate Planning
in 1977 and Vice President Planning and Assistant
Treasurer in 1983. Mr. Cushwa received his
bachelor's of arts degree from the University of
Notre Dame and his master's degree in Business
Administration from Case Western Reserve
University.
C. Edward Midgley, age 62 - Director since 1995.
Committee Membership - (1), (4)
Advisory Director, PaineWebber Incorporated since
1995. Until 1995 he was Co-Head of Investment
Banking, Executive Managing Director, Head of
Mergers and Acquisitions and member of the Board of
Directors of Kidder, Peabody & Co. Incorporated. He
has served as Managing Director, Partner and Head
of Corporate Finance/Client Coverage Group of
Bankers Trust Company; Vice Chairman, Office of the
Chief Executive at Fieldcrest Cannon, Inc.; and
Vice Chairman of Amoskeag Company. Mr. Midgley
received his bachelor's of arts degree in Economics
from Princeton University and his master's degree
in Business Administration from the Harvard
Business School. Mr. Midgley is a director of CUNO
Incorporated, Meriden, Connecticut.
53
<PAGE> 54
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(Continued)
Stephen J. Perkins, age 52 - Director since 1999.
President and Chief Operating Officer of the
Company since May 1999. He was President and Chief
Executive Officer of Aftermarket Technology
Corporation from October 1996 to January 1999. From
1979 to 1996, he was employed by Senior Flexonics
Inc., where he served as President and Chief
Executive Officer from June 1983 to October 1996.
Mr. Perkins received his bachelor's degree in
Industrial Engineering from the University of
Pittsburgh and his master's degree in Business
Administration from the University of Chicago.
Gerald C. McDonough, age 71 - Director since 1992.
Committee Membership - chairman (3), (1), (4)
Retired in July 1988 as Chairman of the Board and
Chief Executive Officer of Leaseway Transportation
Corporation. Mr. McDonough received his bachelor's
degree in Business Administration from Case Western
Reserve University. Mr. McDonough is a director of
York International, York, Pennsylvania; CUNO
Incorporated, Meriden, Connecticut; and Associated
Estates Realty Corporation, Cleveland, Ohio; and he
is Chairman of the Independent Trustees of the
Fidelity Funds, Boston, Massachusetts.
Paul J. Powers, age 64 - Director since 1984.
Committee Membership - chairman (1)
Chairman and Chief Executive Officer of the
Company. Mr. Powers joined the Company in 1982 as
Group Vice President of Hydraulics, was elected
President and Chief Operating Officer in 1984 and
was elected Chairman and Chief Executive Officer in
1987. Mr. Powers received his bachelor's degree in
Economics from Merrimack College and his master's
degree in Business Administration from George
Washington University. Mr. Powers is a director of
CUNO Incorporated, Meriden, Connecticut; First
Energy Corp., Akron, Ohio; Twin Disc, Inc., Racine,
Wisconsin; and Global Marine, Inc., Houston, Texas.
George M. Smart, age 54 - Director since 1995.
Committee Membership - (2), (3)
President and Chairman of the Board of Phoenix
Packaging Corporation. He has been President and
Chairman of Phoenix Packaging Corporation since
1993. He was President and Chief Executive Officer
of Central States Can Co. from 1978 to 1993. Mr.
Smart received his bachelor's of science degree
from The Defiance College and his master's degree
in Business Administration from the Wharton School,
University of Pennsylvania. Mr. Smart is a director
of Phoenix Packaging Corporation, North Canton,
Ohio; First Energy Corp., Akron, Ohio; and The
Defiance College, Defiance, Ohio.
54
<PAGE> 55
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(Continued)
Don E. Tucker, age 71 - Director since 1977.
Committee Membership - (1), (2)
Retired in 1993 as Senior Vice President and Chief
Administrative Officer of the Company. Mr. Tucker
joined the Company in 1972 as General Counsel and
Assistant Secretary and was elected Senior Vice
President and Chief Administrative Officer in 1984.
Mr. Tucker received his bachelor's of arts degree
from Aurora College and his bachelor's of law
degree from Yale University.
Charles B. Cushwa III, age 65 - Director since
1972. Committee Membership - (2), (3)
Retired in 1998 as Director of Cushwa Center for
Entrepreneurship, Youngstown State University. Mr.
Cushwa joined the Company in 1961 and held various
management positions with the Company until
retiring in 1988 as Secretary. Mr. Cushwa received
his bachelor's of arts degree in Sociology and his
master's of arts degree in Economics from the
University of Notre Dame. Mr. Cushwa is a director
of Home Savings and Loan Company, Youngstown, Ohio.
John M. Galvin, age 67 - Director since 1993.
Committee Membership - (1), (4)
Private investor and consultant following his
retirement in 1992. He was Vice Chairman and
Director of The Irvine Company from 1987 to 1992.
He previously served as President of the Rust Group
of Austin, Texas; as Senior Vice President of Aetna
Life and Casualty; and as Chief Executive Officer
of Aetna's International and Diversified Business
Division. He received his bachelor's degree in
Business Administration from Indiana University.
Mr. Galvin is a Director of Global Marine, Inc.,
Houston, Texas, and CUNO Incorporated, Meriden,
Connecticut.
Richard J. Hill, age 69 - Director since 1993.
Committee Membership - chairman (2), (4)
Retired in 1990 as a Certified Public Accountant
with Hill, Barth & King, CPAs, a regional certified
public accounting firm operating in Ohio,
Pennsylvania, Florida and Virginia. Mr. Hill
formerly was a general partner and chairman of the
Executive Committee of Hill, Barth & King. He
received his bachelor's degree in Business
Administration from Youngstown State University.
Mr. Hill is a director of Panelmatic, Inc.,
Youngstown, Ohio.
55
<PAGE> 56
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(Continued)
William E. Kassling, age 55 - Director since 1996.
Committee Membership - (2), (3)
Chairman and Chief Executive Officer of the
Westinghouse Air Brake Company since 1990. Between
1984 and 1990, he served as Vice President, Group
Executive, Railway Products Group of American
Standard, Inc. and led a management buyout of the
company in 1990. Prior to 1984, he held various
operating and planning assignments for American
Standard, Clark Equipment Company and Boston
Consulting Group. Mr. Kassling received his
bachelor's of science degree in Industrial
Management from Purdue University and his master's
degree in Business Administration from the
University of Chicago. He is a director of Aearo
Company, Indianapolis, Indiana, and Scientific
Atlanta, Inc., Atlanta, Georgia.
Neil D. Humphrey, age 71 - Director since 1985.
Committee Membership - chairman (4), (1)
President Emeritus of Youngstown State University,
having retired as President in 1992 after eight
years in that position. His prior experience
includes 10 years as Chancellor of the University
of Nevada system. He also served as Budget Director
for the State of Nevada. Dr. Humphrey received his
bachelor's of arts degree from Idaho State
University, his master's of science degree in
Government Management from the School of Business
Administration of the University of Denver, and his
doctorate degree in Education from Brigham Young
University.
Board of Directors Committee Membership:
(1) Executive and Finance Committee
(2) Audit Committee
(3) Pension and Pension Investment Committee
(4) Management Evaluation and Compensation
Committee
56
<PAGE> 57
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(Continued)
The principal executive officers of the Company and their recent
business experience are as follows:
<TABLE>
<CAPTION>
Name Office Held Age
---- ----------- ---
<S> <C> <C>
Paul J. Powers Chairman of the Board of Directors
and Chief Executive Officer...........................64
Stephen J. Perkins President and Chief Operating Officer.................52
Steven J. Hewitt Senior Vice President and Chief Financial Officer.....50
Bruce C. Wheatley Senior Vice President-Administration..................58
John Gilchrist Vice President of Corporate Business Development......54
Gilbert M. Manchester Vice President and General Counsel....................55
Kenneth E. Stumbaugh Controller............................................53
</TABLE>
None of the executive officers are related and they are each 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 for Stephen J. Perkins. Mr. Perkins was
named President and Chief Operating Officer of the Company and a member of its
Board of Directors in May 1999. Prior to his employment by the Company, Mr.
Perkins was President and Chief Executive Officer of Aftermarket Technology
Corporation, a major remanufacturer of automotive powertrains, from October 1996
to January 1999. From 1979 to 1996, he was employed by Senior Flexonics, Inc.,
where he served as President and Chief Executive from June 1983 to October 1996.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than
ten-percent shareholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1999, all
officers, directors and greater than ten-percent beneficial owners complied with
applicable Section 16(a) filing requirements.
57
<PAGE> 58
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the Company's
three most recent fiscal years to its Chief Executive Officer and the four other
highest-paid executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during fiscal 1999 (each, including the Chief Executive
Officer, being referred to as a "Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
------------------------------ ------------------------- -------------
Securities
Under- LTIP
Name and Restricted lying Payouts All Other
Salary Bonus Stock Options Awards Compensation
Principal Position Year ($) ($) ($) (2) (#) ($) ($)
- ------------------ ------- --------- --------- ------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul J. Powers 1999 535,000 160,000 47,990 85,000 -0- 15,346(3)
Chairman and 1998 529,167 487,500 195,007 45,000 2,470,596 18,633
Chief Executive 1997 500,000 500,000 -0- 55,000 -0- 15,870
Officer
Stephen J. Perkins (1) 1999 187,500 120,000 194,063 35,000 -0- -0-
President and 1998 - - - - - -
Chief Operating 1997 - - - - - -
Officer
Bruce C. Wheatley 1999 245,000 30,000 12,004 11,000 -0- 9,446(4)
Senior Vice President- 1998 243,333 116,250 46,494 11,500 404,517 12,808
Administration 1997 235,000 86,250 34,508 12,500 -0- 9,478
John Gilchrist 1999 230,000 31,750 -0- 16,500 -0- 8,996(5)
Vice President of 1998 227,000 100,000 -0- 15,000 73,656 12,318
Corporate Business 1997 212,000 60,000 -0- 15,000 -0- 8,788
Development
Steven J. Hewitt 1999 225,000 45,000 -0- 11,500 -0- 7,721(6)
Senior Vice President 1998 220,833 120,000 48,007 17,500 57,791 11,079
and Chief Financial 1997 194,583 110,000 -0- 12,500 -0- 6,352
Officer
</TABLE>
(1) Stephen J. Perkins was named President and Chief Operating Officer on May 1,
1999.
(2) This column shows the market value of restricted share awards on the date of
award. The aggregate holdings/value of Restricted Stock held on October 31, 1999
by the individuals listed in this table, not including awards which were paid
out after the end of the fiscal year as part of the Salaried Employee Incentive
Plan (the "SEIP") and were elected to be taken in the form of restricted stock
as described in Note A below, were: Paul J. Powers - 66,561 shares/$844,493;
Stephen J. Perkins - 15,000 shares/$190,313; Bruce C. Wheatley - 8,375
shares/$106,258; John Gilchrist - 0 shares/$-0-; and Steven J. Hewitt - 3,174
shares/$40,270. Regular quarterly dividends are paid on Restricted Stock held by
these individuals.
Note A - To enhance the Company's objectives of encouraging additional
executive stock ownership and increasing Company cash flow, certain
participants in the SEIP may elect to receive up to 50% of their earned
awards in the form of restricted stock. If the
58
<PAGE> 59
ITEM 11. EXECUTIVE COMPENSATION (Continued)
participant elects part of an earned award in restricted stock, the
Company increases the stock award by a fixed percentage. The vesting
period associated with the stock award is three years and the shares
are forfeited in the event a participant voluntarily leaves the Company
(other than upon retirement) or is terminated "for cause."
(3) Includes Company matching contributions to Mr. Powers' Non-Qualified Stock
Purchase Plan account in the amount of $11,250; Company matching contribution to
his 401(k) Plan account in the amount of $2,000; and Company pay-based
contribution to his Employee Stock Ownership Plan account in the amount of
$2,096.
(4) Includes Company matching contributions to Mr. Wheatley's Non-Qualified
Stock Purchase Plan account in the amount of $2,550; Company matching
contribution to his 401(k) Plan account in the amount of $4,800; and Company
pay-based contribution to his Employee Stock Ownership Plan account in the
amount of $2,096.
(5) Includes Company matching contributions to Mr. Gilchrist's Non-Qualified
Stock Purchase Plan account in the amount of $2,100; Company matching
contribution to his 401(k) Plan account in the amount of $4,800; and Company
pay-based contribution to his Employee Stock Ownership Plan account in the
amount of $2,096.
(6) Includes Company matching contributions to Mr. Hewitt's Non-Qualified Stock
Purchase Plan account in the amount of $1,625; Company matching contribution to
his 401(k) Plan account in the amount of $4,000; and Company pay-based
contribution to his Employee Stock Ownership Plan account in the amount of
$2,096.
59
<PAGE> 60
ITEM 11. EXECUTIVE COMPENSATION (Continued)
The following table sets forth, for each of the Named Executive
Officers, options to purchase Common Stock granted during fiscal 1999 pursuant
to the Commercial Intertech Corp. Stock Option and Award Plan of 1995. No SARs
were granted in the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants or Option Term (2)
- ---------------------------------------------------------------------------------- ----------------------------------
Percent of
Number of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees Price Expira-
Granted in Fiscal ($/Share) tion 5% 10%
Name (#)(1) Year (%) ($) Date ($) ($)
- ---------------------- ------------ -------------- --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul J. Powers 85,000 47.2 13.75 1/25/09 735,144 1,862,988
Stephen J. Perkins 35,000 19.4 12.9375 4/30/09 284,819 721,783
Bruce C. Wheatley 11,000 6.1 13.75 1/25/09 95,136 241,093
John Gilchrist 16,500 9.2 13.75 1/25/09 142,704 361,639
Steven J. Hewitt 11,500 6.4 13.75 1/25/09 99,461 252,051
</TABLE>
(1) The non-qualified stock options listed in the above table were granted
subject to a three-year vesting period, with the options granted becoming
exercisable with respect to 50% of the underlying shares of Common Stock on the
second anniversary of the grant date and becoming exercisable with respect to
the remaining 50% of the underlying shares on the third anniversary of the grant
date. The exercisability of the options may be accelerated in the event of a
change in control or a potential change in control.
(2) Potential Realizable Value is presented net of the option exercise price but
before any federal or state income taxes associated with exercise. These amounts
represent certain assumed rates of appreciation prescribed by rules of the
Securities and Exchange Commission. Actual gains will be dependent on the future
performance of the Common Stock and the option holders' continued employment
throughout the vesting period. The amounts reflected in the table may not
necessarily be achieved.
60
<PAGE> 61
ITEM 11. EXECUTIVE COMPENSATION (Continued)
The following table sets forth, for each of the Named Executive
Officers, information regarding the exercise of options to purchase Common Stock
during fiscal 1999, and unexercised options held as of the end of fiscal 1999,
pursuant to the Company's stock option and award plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year-End Fiscal Year-End (1)
Shares (#) ($)
----------------------------- ----------------------
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- --------------------- ------------- ------------ ----------------------------- ----------------------
<S> <C> <C> <C> <C>
Paul J. Powers 80,692 802,028 282,732 / 157,500 1,288,551 / 0
Stephen J. Perkins 0 0 0 / 35,000 0 / 0
Bruce C. Wheatley 40,492 356,348 26,868 / 28,750 87,954 / 0
John Gilchrist 11,206 82,822 7,500 / 39,000 0 / 0
Steven J. Hewitt 2,802 20,709 6,250 / 35,250 0 / 0
</TABLE>
(1) The value per option is calculated by subtracting the exercise price from
the October 31, 1999 closing price of the Company's Common Stock on the New
York Stock Exchange, which was $12.6875 per share.
61
<PAGE> 62
ITEM 11. EXECUTIVE COMPENSATION (Continued)
The following table sets forth, for each of the Named Executive
Officers, certain information concerning performance share awards made under the
Company's Stock Option and Award Plan of 1995.
LONG-TERM INCENTIVE PLAN AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Shares, Performance Estimated Future Payouts
Units or or Other Under Non-Stock Price Based Plans
Other Period Until ------------------------------------------
Name Rights Maturation or Threshold Target Maximum
(#) Payout (1) (#) (#) (#)
---- --------- ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Paul J. Powers 0 - - - -
Stephen J. Perkins 30,000 10/31/01 15,000 30,000 45,000
Bruce C. Wheatley 10,000 10/31/01 5,000 10,000 15,000
John Gilchrist 15,000 10/31/01 7,500 15,000 22,500
Steven J. Hewitt 11,000 10/31/01 5,500 11,000 16,500
</TABLE>
Payouts of awards are tied to the Company's achievement of specified
levels of return on equity (the "ROE") over a three-year period. At threshold
ROE, 50% of shares underlying awards will be distributed; at target ROE, 100% of
shares will be distributed; and at maximum ROE, 150% of shares will be
distributed. The Management Evaluation and Compensation Committee of the Board
of Directors may, at or after grant, accelerate the vesting of all or part of
any performance share award.
(1) The date in the column represents the end of the three-year performance
period.
62
<PAGE> 63
ITEM 11. EXECUTIVE COMPENSATION (Continued)
RETIREMENT BENEFITS
Employees may retire from the Company with unreduced benefits under the
Company's retirement plans at age 65, or later with 25 or more years of service.
The table below shows the estimated annual pension benefits provided under the
Company's Pension Plan for Salaried Employees and supplemental executive
retirement plans for employees in higher salary classifications retiring at age
65 or later.
Estimated total annual retirement benefits under the Pension Plan for
Salaried Employees and supplemental executive retirement plans
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -------------- -------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 150,000 $ 40,226 $ 53,635 $ 67,044 70,396 $ 73,748
200,000 55,226 73,635 92,044 96,646 101,248
250,000 70,226 93,635 117,044 122,896 128,748
500,000 145,226 193,635 242,044 254,146 266,248
750,000 220,226 293,635 367,044 385,396 403,748
1,000,000 295,226 393,635 492,044 516,646 541,248
1,250,000 370,226 493,635 617,044 647,896 678,748
</TABLE>
Benefits under the plans are calculated generally under a formula of
50% of the participant's final average compensation, reduced by 50% of the
participant's estimated social security benefits, reflected in the table in the
form of a straight life annuity. The compensation covered by the pension plan is
base salary as set forth in the Salary column of the Summary Compensation Table
on page 58. The compensation covered by the supplemental executive retirement
plans is also base salary, as set forth in the Summary Compensation Table, for
those executives participating, other than the Chief Executive Officer, the
President or Chief Operating Officer and the Senior Vice Presidents, for whom
the compensation covered is base salary plus bonus as set forth in the Summary
Compensation Table, plus bonus earned but elected to be taken in the form of
restricted stock and deferred into a later year. As of December 31, 1999, the
following executive officers had the following credited years of service under
the pension plan with the Company: Mr. Powers, 17; Mr. Perkins, 1; Mr. Wheatley,
7; Mr. Gilchrist, 31; and Mr. Hewitt, 30.
63
<PAGE> 64
ITEM 11. EXECUTIVE COMPENSATION (Continued)
Compensation of Directors
Directors who are not employees of the Company receive an annual
retainer fee in the amount of $24,000, plus $1,000 for attending each meeting of
the Board of Directors and reimbursement for related expenses. They also receive
$1,000 for attending each committee meeting. Each director can elect to take up
to 100% of his annual retainer, Board meeting fees and Committee meeting fees in
the form of Company stock, in which case, the amount is increased by 20%.
Directors who are employees of the Company do not receive compensation for
serving as directors.
A non-employee director who retires with at least ten years of
non-employee Board service or upon reaching age 70 will be paid a retirement
benefit for life consisting of an annual amount equal to the Board retainer
being paid to such director at the time of retirement. Directors retiring with
less than ten years of non-employee Board service and retiring prior to age 70
will receive proportionally decreased amounts. Non-employee directors are also
entitled to receive automatic formula-based grants of options to purchase 2,250
shares of Common Stock upon election or reelection to a new three-year term. In
addition, non-employee directors received awards of 1,500 performance shares on
November 1, 1997 and 2,000 performance shares on November 1, 1998 and biannually
thereafter will receive awards of 2,000 performance shares. The 1,500
performance shares awarded to each non-employee director in 1997 were earned
based upon the achievement of Company targets over a two-year cycle, and future
performance share awards will be earned over a three-year cycle.
Employment Agreements
On July 27, 1994, the Company entered into an Employment Agreement with
Paul J. Powers. Mr. Powers' Employment Agreement expires on February 28, 2000.
The Employment Agreement provides for the payment of a base salary of $465,000,
which can be increased at the discretion of the Compensation Committee.
Additionally, under the Employment Agreement Mr. Powers is eligible to (1)
receive cash bonuses as part of the Company's SEIP; and (2) participate in other
incentive, stock option, profit sharing and similar plans maintained by the
Company for the benefit of its executives. In addition, the Employment Agreement
provides that, in the event of Mr. Powers' termination without cause (as defined
in the Employment Agreement), Mr. Powers will receive a lump sum payment equal
to two and one-half times his most recent annual cash compensation. Finally, the
Employment Agreement provides that Mr. Powers will be included in all other
employee benefit plans to the extent that he is eligible. Such plans include,
but are not limited to, group life insurance plans, hospitalization and medical
plans and long-term disability plans.
On April 9, 1999, the Company entered into an Employment Agreement with
Stephen J. Perkins. Mr. Perkins' Employment Agreement expires on May 1, 2002.
The Employment Agreement provides for the payment of a base salary of $375,000,
which can be increased at the discretion of the Compensation Committee.
Additionally, under the Employment Agreement, Mr. Perkins is eligible to (1)
receive cash bonuses as part of the Company's SEIP; and (2) participate in other
incentive, stock option, profit sharing and similar plans maintained by the
Company for the benefit of its executives. In addition, the Employment Agreement
provides that, in the event of Mr. Perkins' termination without cause, Mr.
Perkins will receive a lump sum payment equal to two times his most recent
annual cash compensation. Finally, the Employment Agreement provides that Mr.
Perkins will be included in all other employee benefit plans to the extent that
he is eligible. Such plans include, but are not limited to, group life insurance
plans, hospitalization and medical plans and long-term disability plans.
64
<PAGE> 65
ITEM 11. EXECUTIVE COMPENSATION (Continued)
Termination Benefits
During 1996, the Company entered into termination and change of control
agreements ("Termination Agreements") with each of the executive officers listed
in the Summary Compensation Table, other than Stephen J. Perkins. The Company
entered into a Termination Agreement with Mr. Perkins on May 1, 1999. Under
these Termination Agreements, each of such executive officers is entitled to
receive the following:
- If a termination of employment occurs prior to a "Change of Control"
(as defined in the Termination Agreements) and is at the request of the
Company but without "Cause" (as defined in the Termination Agreements),
the officer will receive one times his base salary and otherwise vested
amounts and benefits under the Company's compensation and benefit
plans.
- If the termination of employment occurs at any time after a Change of
Control and is either at the Company's request but without cause or is
initiated by the officer for "Good Reason" (as defined in the
Termination Agreements), the officer will receive (i) three times the
sum of his base salary and his highest annual bonus, (ii) his highest
recent bonus, (iii) the actuarial value of his accrued benefit under
the supplemental retirement benefit plans, including, for certain
officers, additional years of accrual, (iv) the full value of
performance shares assuming at least 100% target performance, (v)
vested and accrued benefits under other benefit and compensation plans,
and (vi) a continuation of medical benefits for three years and certain
other perquisites, including automobile lease payments, outplacement
services, club dues, tax planning, relocation expenses (including home
repurchase) and insurance. The Company is obligated to set aside in
trust sufficient assets to fund its obligations. In addition, because
payments could be subject to an excise tax, the officers will receive
an additional amount for excise tax payments, if applicable.
Under the Termination Agreements, each executive officer has agreed not
to compete against the Company for certain periods of time.
65
<PAGE> 66
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The directors, nominees for the office of director, the Named Executive
Officers and all directors and executive officers as a group were the beneficial
owners of the Company's voting shares, as of December 31, 1999, as set forth
below. Unless otherwise indicated below, the persons in the following table have
sole voting and sole investment power with respect to all shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership Percent
Name of Beneficial ----------------------------------------- of Voting
Owner Common Preferred (12) Shares
- ----------------------------- ----------------------------- ---------------- ----------------
<S> <C> <C> <C>
William J. Bresnahan 11,735(1) - *
Charles B. Cushwa III 219,697(1)(4)(5)(6) - 1.42%
William W. Cushwa 167,818(1)(3)(4)(7) 409 1.08%
John M. Galvin 21,233(1)(8) - *
John Gilchrist 75,388(1)(3) 1,320 *
Steven J. Hewitt 62,111(1)(2)(3) 787 *
Richard J. Hill 21,360(1)(9) - *
Neil D. Humphrey 20,159(1)(10) - *
William E. Kassling 25,052(1) - *
Gerald C. McDonough 11,902(1) - *
C. Edward Midgley 34,559(1) - *
Stephen J. Perkins 45,000 - *
Paul J. Powers 546,497(1)(2)(3) 1,576 3.45%
George M. Smart 13,257(1) - *
Don E. Tucker 154,327(1)(2)(4)(11) - 1.00%
Bruce C. Wheatley 101,452(1)(2)(3) 739 *
</TABLE>
66
<PAGE> 67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership Percent
Name of Beneficial ----------------------------------- of Voting
Owner Common Preferred (12) Shares
- --------------------------- ------ -------------- ------
<S> <C> <C> <C>
All Directors and
Executive Officers as a 1,638,013 6,645 10.22%
Group (18) people
</TABLE>
*less than 1%
(1) Includes shares of Common Stock acquirable within 60 days of
December 31, 1999 upon exercise of options issued under the Company's stock
option and award plans as follows: Mr. Bresnahan - 4,362 shares; Mr. Charles
Cushwa - 5,043 shares; Mr. William Cushwa - 1,500 shares; Mr. Galvin - 10,086
shares; Mr. Gilchrist - 22,500 shares; Mr. Hewitt - 21,500 shares; Mr. Hill -
5,043 shares; Mr. Humphrey - 3,181 shares; Mr. Kassling - 5,043 shares; Mr.
McDonough - 4,112 shares; Mr. Midgley - 4,862 shares; Mr. Powers - 332,732
shares; Mr. Smart - 4,112 shares; Mr. Tucker - 5,793 shares; and Mr. Wheatley -
38,868 shares.
(2) Includes the following number of shares of Common Stock (fractional
shares not shown) credited to the accounts of the above-named beneficial owners
by the trustee acting under the provisions of the Company's 401(k) plan: Mr.
Hewitt - 2,764 shares; Mr. Powers - 15,292 shares; Mr. Tucker - 10,208 shares;
and Mr. Wheatley - 6,524 shares. Participants in the Company's 401(k) plan have
shared voting power and sole dispositive power as to the shares in their
accounts.
(3) Includes the following number of shares of Common Stock (fractional
shares not shown) as a result of participation in the Commercial Intertech
Employee Stock Ownership Plan (the "ESOP Plan"): Mr. William Cushwa - 2,010
shares; Mr. Gilchrist - 1,174 shares; Mr. Hewitt - 102 shares; Mr. Powers -
2,348 shares; and Mr. Wheatley - 659 shares. Participants in the ESOP Plan have
shared voting power and no dispositive power as to the shares in their accounts.
(4) Does not include Common Stock owned by the members of the
above-mentioned individuals' families who share their homes, as follows: Mr.
Charles Cushwa - 947 shares; Mr. William Cushwa - 13,466 shares; Mr. Tucker -
1,146 shares. Beneficial ownership thereof is disclaimed by the respective named
individuals.
(5) Includes 19,600 shares of Common Stock held in various trusts, in
which the children of Charles B. Cushwa III have a remainder interest, and of
which National City Bank, N.E. and Charles B. Cushwa III are co-trustees.
Includes 32,446 shares of Common Stock held in a trust, in which the children of
Charles B. Cushwa III have a remainder interest and of which National City Bank,
N.E. and Charles B. Cushwa III are co-trustees. Includes 35,000 shares of Common
Stock held in various trusts, in which the children of Charles B. Cushwa III's
deceased sister have a remainder interest, and of which National City Bank, N.E.
and Charles B. Cushwa III are co-trustees. Beneficial ownership thereof is
disclaimed by Mr. Charles B. Cushwa III. Voting and dispositive power are shared
with the trustee.
(6) Includes 47,908 shares of Common Stock held by the Charles B.
Cushwa III Limited Partnership as to which Mr. Cushwa has sole voting and
dispositive power.
67
<PAGE> 68
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)
(7) Includes 28,000 shares of Common Stock held in various trusts, in
which the children of William W. Cushwa have a remainder interest and of which
National City Bank, N.E. and William W. Cushwa are co-trustees. Includes 53,550
shares of Common Stock held in various trusts, in which the children of William
W. Cushwa have a remainder interest and of which National City Bank, N.E. and
William W. Cushwa are co-trustees. Beneficial ownership thereof is disclaimed by
Mr. William W. Cushwa. Voting and dispositive power are shared with the trustee.
(8) Includes 1,500 shares of Common Stock over which Mr. Galvin shares
voting and investment power with his wife.
(9) Includes 10,749 shares of Common Stock held by a trust of which
Richard J. Hill is sole trustee.
(10) Includes 2,604 shares of Common Stock (fractional shares not
shown) held by a trust of which Neil D. Humphrey is co-trustee, with his wife,
and 4,677 shares of Common Stock (fractional shares not shown) held by Dr.
Humphrey and his wife, over all of which Dr. Humphrey shares voting and
investment power with his wife.
(11) Includes 132,117 shares of Common Stock held by a trust of which
Don E. Tucker is sole trustee.
(12) Shares of Series B Preferred Stock which are convertible into
Common Stock upon participant's termination of employment at a rate of 3.0227
per share (fractional shares not shown) held as a result of participation in the
ESOP Plan.
The information set forth above concerning beneficial ownership is
based on information received from the persons named. None of such persons,
directly or indirectly, owns beneficially any equity securities of any
subsidiary of the Company.
68
<PAGE> 69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The name of any person or "group" (as that term is used in the Exchange
Act) known by the Company to be the beneficial owner of more than 5% of any
class of the Company's voting securities as of December 31, 1999 is set forth
below:
<TABLE>
<CAPTION>
Amount and
Title Name and Address Nature of Percent Percent of
of of Beneficial of All Voting
Class Beneficial Owner Ownership Class Shares
----- ---------------- --------- ----- ------
<S> <C> <C> <C> <C>
Common LaSalle Bank N.A. 381,682(1) 2.61% 2.46%
135 South LaSalle St.
Chicago, IL 60603
Series B LaSalle Bank N.A. 893,342(2) 100.0% 5.76%
Preferred 135 South LaSalle St.
Chicago, IL 60603
</TABLE>
(1) LaSalle Bank N.A. has shared voting power and sole investment power
over all of these shares.
(2) This figure represents all of the outstanding ESOP Convertible
Preferred Stock Series B held of record by LaSalle Bank N.A. (trustee) for the
benefit of participants in the Commercial Intertech Employee Stock Ownership
Plan. LaSalle Bank N.A. has shared voting power and sole investment power,
except with respect to a tender or exchange offer, over all of these shares of
Preferred Stock Series B. The trust for this Plan contains provisions for
pass-through voting rights to the employee participants in the plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
One of the Company's non-employee directors, Don E. Tucker, who was
formerly Senior Vice President and Chief Administrative Officer of the Company,
provides consulting services to the Company. Fees paid by the Company to Mr.
Tucker for those services during fiscal 1999 were $28,000.
69
<PAGE> 70
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:
<TABLE>
<CAPTION>
Page Number
In This Report
--------------
<S> <C>
Statements of Consolidated Income - Years Ended
October 31, 1999, 1998 and 1997.......................................... 23
Consolidated Balance Sheets as of October 31, 1999
and 1998.................................................................24 and 25
Statements of Consolidated Shareholders' Equity -
Years Ended October 31, 1999, 1998 and 1997.............................. 26
Statements of Consolidated Cash Flows - Years Ended
October 31, 1999, 1998 and 1997.......................................... 27
Notes to Consolidated Financial Statements..................................28 - 51
Report of Independent Auditors.............................................. 52
(2) The following consolidated financial statement schedule of Commercial
Intertech Corp. and Subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts................................S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(3) Exhibits
3.1 Articles of Incorporation filed as of April
17, 1992, incorporated by reference to
Exhibit 3 filed with Registrant's Annual
Report on Form 10-K for the year ended
October 31, 1992
3.2 Code of Regulations of Commercial Intertech
Corp. as amended through March 26, 1997,
incorporated by reference to Exhibit 3.2
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1997
70
<PAGE> 71
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
4.1 Rights Agreement dated as of November 23,
1999 between Commercial Intertech Corp. and
ChaseMellon Shareholder Services, L.L.C.
which includes as Exhibit A the Form of
Rights Certificate and as Exhibit B the
Summary of Rights to Purchase Common
Shares, incorporated by reference to
Exhibit 1 filed with Registrant's Form 8-A
which was filed on November 24, 1999.
Pursuant to the Rights Agreement, Rights
Certificates will not be mailed until after
the Distribution Date.
* 10.01 Employment Agreement - Paul J. Powers
dated July 27, 1994, incorporated by
reference to Exhibit 10.18 filed with
Registrant's Annual Report on Form 10-K for
the year ended October 31, 1994
* 10.02 Employment Agreement - Stephen J.
Perkins dated April 9, 1999 (filed
herewith)
* 10.03 Termination and Change of Control
Agreement - Paul J. Powers dated October 1,
1996, incorporated by reference to Exhibit
10.19 filed with Registrant's Annual Report
on Form 10-K for the year ended October 31,
1996
* 10.04 Termination and Change of Control Agreement
- Stephen J. Perkins effective as of May 1,
1999 (filed herewith)
* 10.05 Termination and Change of Control Agreement
- Bruce C. Wheatley dated October 1, 1996,
incorporated by reference to Exhibit 10.20
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1996
* 10.06 Termination and Change of Control Agreement
- Steven J. Hewitt dated December 1, 1996,
incorporated by reference to Exhibit 10.21
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1996
* 10.07 Termination and Change of Control Agreement
- John Gilchrist dated October 1, 1996,
incorporated by reference to Exhibit 10.22
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1996
* 10.08 Termination and Change of Control Agreement
- Gilbert M. Manchester dated October 1,
1996, incorporated by reference to Exhibit
10.24 filed with Registrant's Annual Report
on Form 10-K for the year ended October 31,
1996
* 10.09 Termination and Change of Control Agreement
- Kenneth E. Stumbaugh dated October 1,
1996, incorporated by reference to Exhibit
10.25 filed with Registrant's Annual Report
on Form 10-K for the year ended October 31,
1996
71
<PAGE> 72
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
* 10.10 Termination and Change of Control Agreement
- J. Patrick Downey dated October 1, 1996
(filed herewith)
* 10.11 Termination and Change of Control Agreement
- Kenneth W. Marcum dated October 1, 1996
(filed herewith)
* 10.12 Termination and Change of Control Agreement
- Shirley M. Shields dated October 1, 1996
(filed herewith)
10.13 Credit Agreement by and among Commercial
Intertech Corp. and Commercial Intertech
Holdings Limited, as borrowers, and the
banks party thereto and Mellon Bank, N.A.,
as agent, dated October 31, 1996,
incorporated by reference to Exhibit 10.29
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1997
10.14 Commercial Intertech Corp. Note Purchase
Agreement dated as of June 30, 1997,
incorporated by reference to Exhibit 10.30
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1997
* 10.15 Non-Qualified Stock Purchase Plan of
Commercial Intertech Corp. incorporated by
reference to Exhibit 4.1 filed with
Registration Statement No. 33-25795 on Form
S-8
* 10.16 Commercial Intertech Corp. Stock Option and
Award Plan of 1989 incorporated by
reference to Exhibit 4.1 filed with
Registration Statement No. 33-29980 on Form
S-8
10.17 Commercial Intertech Corp. Retirement Stock
Ownership and Savings Plan incorporated by
reference to Exhibit 4.1 filed with
Registration Statement No. 33-43907 on Form
S-8
* 10.18 Commercial Intertech Corp. Stock Option and
Award Plan of 1993 incorporated by
reference to Exhibit 4.1 filed with
Registration Statement No. 33-52443 on Form
S-8
* 10.19 Commercial Intertech Corp. Stock Option and
Award Plan of 1995 incorporated by
reference to Exhibit 4.1 filed with
Registration Statement No. 33-61453 on Form
S-8
* 10.20 Commercial Intertech Corp. Non-Employee
Directors' Stock Plan incorporated by
reference to Exhibit 4.1 filed with
Registration Statement No. 333-28903 on
Form S-8
* 10.21 Commercial Intertech Corp. Non-Employee
Directors' Performance Share Plan
incorporated by reference to Exhibit 4.1
filed with Registration Statement No.
333-41551 on Form S-8
72
<PAGE> 73
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
* 10.22 Commercial Intertech Corp. Nonqualified
Deferred Compensation Plan for Paul J.
Powers, as amended and restated effective
January 1, 1996, incorporated by reference
to Exhibit 10.39 filed with Registrant's
Annual Report on Form 10-K for the year
ended October 31, 1997
* 10.23 Commercial Intertech Corp. Nonqualified
Deferred Compensation Plan for Stephen J.
Perkins effective as of May 1, 1999 (filed
herewith)
* 10.24 Commercial Intertech Corp. Nonqualified
Deferred Compensation Plan for Bruce C.
Wheatley, as amended and restated effective
January 1, 1996, incorporated by reference
to Exhibit 10.40 filed with Registrant's
Annual Report on Form 10-K for the year
ended October 31, 1997
* 10.25 First Amendment to the Commercial Intertech
Corp. Nonqualified Deferred Compensation
Plan for Bruce C. Wheatley, as amended and
restated effective as of January 1, 1996,
incorporated by reference to Exhibit 10.41
filed with Registrant's Annual Report on
Form 10-K for the year ended October 31,
1997
* 10.26 Commercial Intertech Corp. Supplemental
Executive Retirement Plan, as amended and
restated effective as of January 1, 1996,
incorporated by reference to Exhibit 10.42
filed with Registrant's Annual Report on
Form 10- K for the year ended October 31,
1997
* 10.27 First Amendment to the Commercial Intertech
Supplemental Executive Retirement Plan, as
amended and restated effective as of
January 1, 1996, incorporated by reference
to Exhibit 10.43 filed with Registrant's
Annual Report on Form 10-K for the year
ended October 31, 1997
10.28 First Amendment to Credit Agreement dated
as of February 12, 1997 among Commercial
Intertech Corp., Commercial Intertech
Holdings Limited, Mellon Bank, N.A., as
agent, and the banks party thereto,
incorporated by reference to Exhibit 10.46
filed with Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30,
1999
10.29 Second Amendment to Credit Agreement dated
as of April 9, 1999 among Commercial
Intertech Corp. and Commercial Intertech
Holdings Limited, as borrowers, the
guarantors identified thereto, the banks
party thereto and Mellon Bank, N.A., as
agent, incorporated by reference to Exhibit
10.45 filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended
April 30, 1999
10.30 Agreement and Plan of Merger dated January
14, 2000, by and between Parker-Hannifin
Corporation and the Registrant,
incorporated by reference to Exhibit 10.30
filed with Registrant's Form 8-K which was
filed on January 20, 2000
73
<PAGE> 74
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
11 Statement re: Computation of Per Share
Earnings is inapplicable and has been
omitted. The information with respect to
the computation of both basic and diluted
earnings per share is presented in Note M
to the financial statements included in
Part II, Item 8.
21 Subsidiaries of the Registrant (filed
herewith)
23 Consent of Independent Auditors (filed
herewith)
27 Financial Data Schedule (filed herewith)
* Denotes management contracts and compensatory plans and
arrangements required to be identified by Item 14(a)(3).
(b) The Registrant filed Form 8-K reports on November 19, 1999 and
January 20, 2000 both of which reported information under Items 5
and 7 thereof. No financial statements were filed with such Form
8-K reports.
(c) The Company hereby files as exhibits to this Form 10-K the
exhibits set forth in Item 14(a)(3) hereof which are not
incorporated by reference.
(d) The Company hereby files as a financial statement schedule to this
Form 10-K the financial statement schedule set forth in Item
14(a)(2) hereof.
74
<PAGE> 75
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, on the 26th day of
January, 2000.
COMMERCIAL INTERTECH CORP.
(Registrant)
/s/ Paul Powers /s/ Steven J. Hewitt
- ------------------------------- -----------------------------------
Paul J. Powers Steven J. Hewitt
Chairman of the Board of Directors Senior Vice President and
and Principal Executive Officer Principal Financial 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 indicated, on the 26th day of January, 2000.
/s/William J. Bresnahan /s/ William E. Kassling
- ---------------------------------- -----------------------------------
William J. Bresnahan, Director William E. Kassling, Director
/s/ Charles B. Cushwa III
- ---------------------------------- -----------------------------------
Charles B. Cushwa III, Director Gerald C. McDonough, Director
/s/ William W. Cushwa
- ---------------------------------- -----------------------------------
William W. Cushwa, Director C. Edward Midgley, Director
/s/ John M. Galvin /s/ Stephen J. Perkins
- ---------------------------------- -----------------------------------
John M. Galvin, Director Stephen J. Perkins, Director
/s/ Richard J. Hill /s/ George M. Smart
- ---------------------------------- -----------------------------------
Richard J. Hill, Director George M. Smart, Director
/s/ Neil D. Humphrey /s/ Don E. Tucker
- ---------------------------------- -----------------------------------
Neil D. Humphrey, Director Don E. Tucker, Director
75
<PAGE> 76
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ --------- ----------- ---------- ---------- ----------
Additions
----------------------
Balance At Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- ------------------------------------------ --------- ----------- ---------- ---------- ----------
Year ended October 31, 1999
Deducted from asset accounts:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable ........................................ $ 2,703 $ 1,577 $ 0 $ 1,512(A) $ 2,768
======== ======== ======= ======= =======
$ 5,541(E)
Valuation allowance for deferred $ 3,200(F)
income tax assets ................................. $ 59,727 $ 0 $ 0 $ 2,052(C) $48,934
======== ======== ======= ========= =======
Year ended October 31, 1998 Deducted from asset accounts:
Allowance for doubtful accounts
receivable ........................................ $ 2,456 $ 561 $ 166(G) $ 480(A) $ 2,703
======== ======== ======= ======= =======
Valuation allowance for deferred
income tax assets ................................. $ 51,143 $ 900 $10,806(D) $ 3,122(C) $59,727
======== ======== ======= ======= =======
Year ended October 31, 1997 Deducted from asset accounts:
Allowance for doubtful accounts
receivable ........................................ $ 1,724 $ 1,607 $ 105(B) $ 980(A) $ 2,456
======== ======== ======= ======= =======
$ 1,175(F)
Valuation allowance for deferred $ 1,644(C)
income tax assets ................................. $ 58,479 $ 0 $ 0 $ 4,517(E) $51,143
======== ======== ======= ======= =======
</TABLE>
(A) Uncollectible accounts written off.
(B) Represents beginning balance acquired with Ultra Hydraulics Limited
acquisition.
(C) Net operating loss carryforwards utilized.
(D) Primarily represents result of amendments to German tax returns filed for
periods prior to the acquisition of ORSTA Hydraulik.
(E) Primarily represents impact of foreign currency translation.
(F) Net foreign tax credit utilized.
(G) Represents reclassification from a liability account.
S-1
<PAGE> 77
Commercial Intertech Corp.
Index To Exhibits Filed Herewith
Exhibit No Description
---------- -----------
10.02 Employment Agreement - Stephen J. Perkins dated April 9, 1999
10.04 Termination and Change of Control Agreement - Stephen J.
Perkins effective as of May 1, 1999
10.10 Termination and Change of Control Agreement - J. Patrick
Downey dated October 1, 1996
10.11 Termination and Change of Control Agreement - Kenneth W.
Marcum dated October 1, 1996
10.12 Termination and Change of Control Agreement - Shirley M.
Shields dated October 1, 1996
10.23 Commercial Intertech Corp. Nonqualified Deferred Compensation
Plan for Stephen J. Perkins effective as of May 1, 1999
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.02
Revised to show additions agreed on May 14, 1999
- ------------------------------------------------
VIA EXPRESS
- -----------
April 9, 1999
Personal and Confidential
-------------------------
Mr. Stephen J. Perkins
14735 Pine Tree Road
Orland Park, IL 60462
Dear Steve:
On behalf of Commercial Intertech Corp., I am pleased to extend an offer of
employment, the terms of which are detailed as follows:
- - TITLE
President & Chief Operating Officer, effective May 1, 1999, or as soon
as practicable.
- - RESPONSIBILITIES
Reporting to the Chief Executive Officer, you will have overall
responsibility for "top line" and "bottom line" results via guidance
and direction of management in the development, production, promotion
and sale of the Company's products.
<PAGE> 2
Mr. Stephen J. Perkins -2- April 9, 1999
- - BOARD OF DIRECTORS
As corporate officers must be elected by the Board of Directors, this
action will be recommended to our Board after your acceptance.
You will also be named a Director by the Board as soon as practicable
after your acceptance and thereafter submitted for election by the
shareholders at the March 2000 annual meeting of shareholders.
- - EMPLOYMENT AGREEMENT
While it is our desire that you will complete your business career at
Commercial Intertech, an initial employment agreement is for a three
year period. If you should involuntarily without cause leave the
Company, we will provide a severance amount equal to your annual base
salary paid in monthly installments for a period of two years plus
customary benefits.
- - SUCCESSION
Effective March 1, 2000, you will be named Chief Executive Officer of
Commercial Intertech Corp. In addition, if not appointed Chief
Executive Officer by March, 2000, you have the option to leave the
Company and receive 36 months of salary, customary benefits, and a
relocation allowance to return to Chicago.
<PAGE> 3
Mr. Stephen J. Perkins -3- April 9, 1999
- - COMPENSATION
Base Salary - $375,000 per year
1999 Guaranteed Bonus - $120,000 payable in December 1999.
With your promotion to Chief Executive Officer on March 1, 2000, the
Management Evaluation & Compensation Committee will increase your
salary appropriate with your additional responsibilities (range of
$430K-$570K) and establish your annual incentive target at 70% of base
salary (maximum of 140% upon achievement of performance goals).
- - LONG-TERM INCENTIVES
The following long-term incentives, which represent median levels for
the Chief Executive Officer position for comparable sized durable goods
manufacturers, will be granted to you effective May 1, 1999, or the
date you join the Company:
<PAGE> 4
Mr. Stephen J. Perkins -4- April 9, 1999
Restricted Shares -
15,000 shares granted conditioned only upon your continued
employment by the Company for five years. During the five year
restricted period you will receive dividends and vote the
shares, although the share certificates will be legended and
held in escrow by our Corporate Secretary.
If you should involuntarily without cause leave the Company at
any time during the five year period, the shares will vest 20%
per year of accrued employment with the Company.
Non-qualified Stock Options -
A grant of NQSO of 35,000 shares for ten years, exercisable
one-half in two years and one-half in three years. The
exercise price will be the fair market value on the date of
the grant.
Performance Shares -
30,000 shares to be granted for the three-year period
commencing November 1998, with maximum 45,000 shares that can
be earned based on achievement of performance targets (senior
officers are measured on corporate ROE) during the three-year
performance cycle. At the end of the three-year period
dividends will be paid on all earned shares.
- - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In addition to participation in the Salaried Pension Plan, the Company
agrees to provide a Supplemental Executive Retirement Plan (SERP)
utilizing base salary and annual incentive to be valued at age 65 to be
equivalent to 25 years of service with Commercial Intertech with an
offset for any qualified plans from prior employers. It is understood
that an accommodation will be developed that will provide some SERP
coverage in the event of a change of control prior to vesting in five
years.
<PAGE> 5
Mr. Stephen J. Perkins -5- April 9, 1999
- - BENEFIT PROGRAMS
You will be entitled to participate in various Company benefit programs
as soon as eligibility requirements are fulfilled. Such programs
include salaried pension plan, 401(k), non-qualified savings and stock
purchase plan, medical, hospitalization, GRIP (life), disability, and
accidental death and dismemberment insurance. Some modest contributions
on your part may be required depending upon selected coverage levels.
- - AUTOMOBILE ALLOWANCE
Commercial Intertech will provide a $1100 per month allowance plus
insurance and gasoline credit card.
- - VACATION
You will be eligible for four weeks vacation annually.
- - RELOCATION
The Company will provide customary key executive reimbursement for
moving expenses and normal costs associated with the purchase of a
residence in the Youngstown area and the sale of your primary residence
in Illinois.
Additionally, Commercial Intertech agrees to provide reasonable
temporary living expenses for a mutually agreed upon period, and a
payment of one-half month base salary for incidental relocation
expenses.
- - CHANGE OF CONTROL
In the event of termination after a change of control of the Company,
you will receive compensation and benefits commensurate with your
position.
<PAGE> 6
Mr. Stephen J. Perkins -6- April 9, 1999
- - MEMBERSHIPS
The Company will pay initiation fees and dues for memberships to The
Youngstown Country Club and The Youngstown Club. Any assessments will
be your responsibility.
- - TAX SERVICE
The Company will pay for the annual preparation of your Federal and
State tax returns by an outside firm.
Steve, over the last several weeks we have spent many hours discussing
Commercial Intertech and your role in its continuing growth. From the outset of
our discussions, I have been operating from the premise that we are really
searching for our next Chief Executive Officer - the fifth in the history of the
Company - with the Chief Operating Officer the interim step to this final
position. Please understand that we feel your initial responsibilities as COO
critical at this point in our history - there are many challenges and much to
accomplish. But the COO position and its accompanying responsibilities is not a
"make-or-break" assignment. That is to say, you are not on trial, i.e., "I must
prove my worth as COO before I receive the CEO promotion." The Board of
Directors joins me in expressing our collective confidence in your ability to
lead the Company as the next CEO.
I personally look forward to working with you and I am excited about the future
of Commercial Intertech under your leadership.
In summary, this offer of employment is conditioned upon the completion of a
full physical examination to the satisfaction of the Company physician.
<PAGE> 7
Mr. Stephen J. Perkins -7- April 9, 1999
Steve, I hope you find this offer acceptable. If you agree with the terms,
please sign the acceptance on a copy of the letter and return it to me.
We look forward to welcoming Carolyn and you into the Commercial Intertech
family!
Sincerely,
Acceptance
----------
The above terms and conditions are accepted this ____ day of _______________,
1999.
------------------------------
Stephen J. Perkins
<PAGE> 1
EXHIBIT 10.04
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT
- --------------------------------------------------------------------------------
1. Term and Application.....................................................-1-
2. Office and Duties........................................................-2-
3. Salary and Annual Incentive Compensation.................................-2-
4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred
Compensation, and Expense Reimbursement..................................-3-
5. Termination of Employment................................................-3-
6. Termination Due to Normal Retirement, Death, or Disability...............-4-
7. Termination of Employment For Reasons Other Than Normal Retirement, Death
or Disability............................................................-5-
8. Termination by the Company Without Cause and Termination by Executive for
Good Reason During the Extended Employment Period........................-7-
9. Definitions Relating to Termination Events..............................-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-
<PAGE> 3
TERMINATION AND CHANGE OF CONTROL AGREEMENT
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and Stephen J. Perkins ("Executive") is and shall become effective
as of May 1, 1999 (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
dated April 9, 1999, between the Company and Executive ("Employment Agreement")
and this Termination Agreement, this Termination Agreement shall supersede the
Employment Agreement; provided the Executive shall receive the more valuable
payment, right or benefit under the Employment Agreement (including without
limitation, the continuation of medical benefits under the Employment Agreement)
and this Termination Agreement. In no event shall any payment, right or benefit
under the Employment Agreement be reduced, eliminated or otherwise adversely
affected by this Termination Agreement. In no event shall Executive receive any
payment, right or benefit under both this Termination Agreement and the
Employment Agreement with respect to the same Date of Termination (as defined
below).
<PAGE> 4
2. OFFICE AND DUTIES.
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement. It is expressly understood and
agreed that, to the extent that any activities have been conducted by the
Executive prior to the Extension Date, the continued conduct of such activities
(or the conduct of activities similar in nature and scope thereto) subsequent
to the Extension Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) PLACE OF EMPLOYMENT. During the Extended Employment
Period, the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Extension Date or any office or
location less than thirty-five (35) miles from such location.
3. SALARY AND ANNUAL INCENTIVE COMPENSATION.
(a) BASE SALARY. During the Extended Employment Period, the
Executive shall receive an annual base salary, which shall be paid at a monthly
rate, at least equal to twelve (12) times the highest monthly base salary paid
or payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Extension Date occurs
("Annual Base Salary"). During the Extended Employment Period, the Annual Base
Salary shall be reviewed no more than twelve (12) months after the last salary
increase awarded to the Executive prior to the Extension Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Termination Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Termination Agreement shall refer to
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)
-2-
<PAGE> 5
(the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
4. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT.
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended
Employment Period, benefit plans, practices, policies and programs, in the
aggregate, shall provide Executive with benefits substantially no less favorable
than those provided by the Company to senior executives in similar capacities.
During the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the 120-day
period immediately preceding the Extension Date or, if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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> 6
(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;
-4-
<PAGE> 7
(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.
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:
-5-
<PAGE> 8
(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 plans,
programs, and arrangements (and agreements
and documents thereunder) pursuant to which
such compensation and benefits were granted,
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including any supplemental retirement plan
in which the Executive may have
participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. TERMINATION BY THE COMPANY WITHOUT CAUSE AND TERMINATION BY
EXECUTIVE FOR GOOD REASON DURING THE EXTENDED EMPLOYMENT
PERIOD.
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) 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 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
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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 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
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<PAGE> 11
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 reasonable personal tax accounting and financial planning by a
firm chosen by Executive and reasonably acceptable to the Company;
(g) 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;
(h) for three (3) years after the Executive's Date of
Termination, the payment of all regular lunch and country club membership dues
or fees in respect of any lunch or country club of which Executive is a member
on Executive's Date of Termination; and
(i) 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.
Notwithstanding anything to the contrary, if the Executive's Date of
Termination under this section 8 occurs at or within thirty-six (36) months
prior to the Executive's 65th birthday, the benefits otherwise provided under
paragraph 8(d) shall be eliminated, and the lump sum amount payable under
paragraph 8(a)(ii) shall be reduced by multiplying such amount by a fraction,
the numerator of which is the number of months remaining until the Executive
reaches age 65 and the denominator of which is 36, so that such lump sum
gradually diminishes to elimination upon the Executive's 65th birthday. In
addition, any payments or benefits available to Executive under paragraphs 8(c),
8(e), 8(f), 8(h) and 8(i) shall terminate upon the Executive's 65th birthday.
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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 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
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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.
(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
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of Executive's good health prepared by a physician selected by Company and
reasonably acceptable to Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the Term
of this Termination Agreement on which a Change of Control occurs. Anything in
this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the "Extension Date" shall mean the date
immediately prior to the date of such termination of employment.
(f) "GOOD REASON." For purposes of this Termination Agreement,
"Good Reason" shall mean the occurrence of a Change of Control and following
which but not later than the third anniversary of the date of the Change of
Control there occurs, without Executive's prior written consent:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including status,
offices, titles and reporting requirements),
authority, duties or responsibilities as
contemplated by Section 2(a) of this
Termination Agreement, or any other action
by the Company which results in a diminution
in such position, authority, duties or
responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
action not taken in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4 of this
Termination Agreement or the Employment
Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is remedied
by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than
as provided in Section 2(b) hereof or the
Company's requiring the Executive to travel
on Company business to a substantially
greater extent than required immediately
prior to the Effective Date;
(iv) any failure by the Company to perform any
material obligation under, or breach by the
Company of any material provision of, this
Termination Agreement;
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<PAGE> 15
(v) any purported termination by the Company of
the Executive's employment otherwise than as
expressly permitted by this Termination
Agreement; or
(vi) any failure by the Company to comply with
and satisfy Section 12(b) of this
Termination Agreement.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this Termination
Agreement, an Executive's Normal Retirement Date is his or her attainment of age
sixty-five (65).
10. EXCISE TAX GROSS-UP.
If Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Termination
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 10, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent legal counsel, compensation consultants or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to Executive, the Total Payments (in whole
or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
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 that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in
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<PAGE> 17
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 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.
-15-
<PAGE> 18
11. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION.
(a) NON-COMPETITION. Without the consent in writing of the
Board, upon the Executive's Date of Termination for any reason, Executive will
not, for a period of two years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor or director (other than as
below)) in any business in the continental United States which is a material
business conducted by the Company or any of its subsidiaries on the date of the
consummation of a Change of Control in which he has been directly engaged, or
has supervised as an executive, on the date of the consummation of the Change of
Control and which is directly in competition with a material business conducted
by the Company or any of its subsidiaries on the date of the consummation of the
Change of Control; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his employment with the Company or
any of its subsidiaries, to curtail or cancel their business with such companies
or any of them; or (iii) induce, or attempt to influence, any employee of the
Company or any of its subsidiaries to terminate employment. The provisions of
subparagraphs (i), (ii), and (iii) above are separate and distinct commitments
independent of each of the other subparagraphs. It is agreed that the ownership
of not more than one percent of the equity securities of any company having
securities listed on an exchange or regularly traded in the over-the-counter
market shall not, of itself, be deemed inconsistent with clause (i) of this
paragraph (a), 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 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
-16-
<PAGE> 19
Executive's employment (other than claims made pursuant to any indemnities
provided under the articles or by-laws of the Company, under any directors or
officers liability insurance policies maintained by the Company or enforcement
of this Termination Agreement).
(e) SURVIVAL. Notwithstanding any provision of this
Termination Agreement to the contrary, the provisions of this Section 11 shall
survive the termination or expiration of this Termination Agreement, shall be
valid and enforceable, and shall be a condition precedent to the Executive (or
his or her beneficiaries) receiving any amounts payable hereunder. The
obligations of Executive under this Section II and any comparable type of
obligation under the Employment Agreement are expressly conditioned upon
Company's satisfaction of its obligations to Executive under this Termination
Agreement and the Employment Agreement.
12. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) GOVERNING LAW. This Termination Agreement is governed by
and is to be construed, administered, and enforced in accordance with the laws
of the State of 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.
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<PAGE> 20
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:
If to the Company: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
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<PAGE> 21
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 beneficiaries, and shall be binding upon and inure
to the benefit of the Company and its successors and assigns.
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<PAGE> 22
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:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
STEPHEN J. PERKINS
-----------------------------------------------
-20-
<PAGE> 1
Exhibit 10.10
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
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 Limit........................................................................................13
11. Non-Competition and Non-Disclosure; Executive Cooperation...............................................15
12. Governing Law; Disputes; Arbitration....................................................................16
13. Miscellaneous...........................................................................................17
14. Indemnification.........................................................................................19
</TABLE>
<PAGE> 3
TERMINATION AND CHANGE OF CONTROL AGREEMENT
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and J. PATRICK DOWNEY ("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.
<PAGE> 4
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to 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
2
<PAGE> 5
for the whole of any such fiscal year or the fiscal year consisted of
less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
4. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the
Extended Employment Period, benefit plans, practices, policies and programs, in
the aggregate, shall provide Executive with benefits substantially no less
favorable than those provided by the Company to senior executives in similar
capacities. During the Extended Employment Period, in no event shall such plans,
practices, policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Extension Date or, if more
favorable to the Executive, those provided generally at any time after the
Extension Date to other peer executives of the Company and its affiliated
companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment
shall terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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> 6
(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;
4
<PAGE> 7
(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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(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
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paid under the terms and conditions of the
plans, programs, and arrangements (and
agreements and documents thereunder)
pursuant to which such compensation and
benefits were granted, including any
supplemental retirement plan in which the
Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. TERMINATION BY THE COMPANY WITHOUT CAUSE AND TERMINATION BY
EXECUTIVE FOR GOOD REASON DURING THE EXTENDED EMPLOYMENT
PERIOD.
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum
in cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's current
Annual Bonus paid or payable for the
Company's fiscal year in which occurs the
Date of Termination, assuming Executive and
Company satisfy all conditions to
Executive's receiving the full Annual Bonus
at target (and annualized for any fiscal
year consisting of less than twelve (12)
full months or during which the Executive
was employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(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);
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(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be
exercisable and restricted stock held by the Executive will be vested to the
extent and for such periods, and otherwise governed, by the plans and programs
(and the agreements and other documents thereunder) pursuant to which such stock
options or restricted stock were granted;
(c) For two (2) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for two (2) years after Executive's Date of
Termination, a continued application of the Company's auto leasing policy in
effect on the Extension Date with respect to the Executive;
(f) for two (2) years after Executive's Date of
Termination, the payment of all regular lunch and country club membership dues
or fees in respect of any lunch or country club of which Executive is a member
on Executive's Date of Termination; and
(g) for two (2) years after Executive's Date of
Termination, the payment of normal insurance premiums with respect to the
insurance policies on the life of Executive under the 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,
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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;
(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-
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outstanding voting securities entitled to
vote generally in the election of directors,
as the case may be, of the corporation
resulting from such Business Combination
(including, without limitation, a
corporation which as a result of such
transaction owns the Company or all or
substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time of the execution of the
initial agreement, or of the action of the
Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render
and perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the
Term of this Termination Agreement on which a Change of Control occurs. Anything
in this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the
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"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.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this
Termination Agreement, an Executive's Normal Retirement Date is his or her
attainment of age sixty-five (65).
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10. EXCISE TAX 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 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
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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 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
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and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Indemnification Obligation payment
required to be paid.
11. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION.
(a) NON-COMPETITION. Without the consent in writing of
the Board, upon the Executive's Date of Termination for any reason, Executive
will not, for a period of six (6) consecutive calendar months thereafter, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor or director (other than as below)) in any business in the continental
United States which is a material business conducted by the Company or any of
its subsidiaries on the date of the consummation of a Change of Control in which
he has been directly engaged, or has supervised as an executive, on the date of
the consummation of the Change of Control and which is directly in competition
with a material business 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 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
15
<PAGE> 18
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 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.
16
<PAGE> 19
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:
If to the Company: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
17
<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 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.
18
<PAGE> 21
(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: _________________________________
Name:________________________________
Title:_______________________________
J. PATRICK DOWNEY
_____________________________________
19
<PAGE> 1
Exhibit 10.11
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
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 Limit........................................................................................13
11. Non-Competition and Non-Disclosure; Executive Cooperation...............................................15
12. Governing Law; Disputes; Arbitration....................................................................16
13. Miscellaneous...........................................................................................17
14. Indemnification.........................................................................................19
</TABLE>
<PAGE> 3
TERMINATION AND CHANGE OF CONTROL AGREEMENT
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and KENNETH W. MARCUM ("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.
<PAGE> 4
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to 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
2
<PAGE> 5
for the whole of any such fiscal year or the fiscal year consisted of less than
twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
4. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the
Extended Employment Period, benefit plans, practices, policies and programs, in
the aggregate, shall provide Executive with benefits substantially no less
favorable than those provided by the Company to senior executives in similar
capacities. During the Extended Employment Period, in no event shall such plans,
practices, policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Extension Date or, if more
favorable to the Executive, those provided generally at any time after the
Extension Date to other peer executives of the Company and its affiliated
companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment
shall terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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> 6
(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;
4
<PAGE> 7
(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:
5
<PAGE> 8
(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
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paid under the terms and conditions of the
plans, programs, and arrangements (and
agreements and documents thereunder)
pursuant to which such compensation and
benefits were granted, including any
supplemental retirement plan in which the
Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. TERMINATION BY THE COMPANY WITHOUT CAUSE AND TERMINATION BY
EXECUTIVE FOR GOOD REASON DURING THE EXTENDED EMPLOYMENT
PERIOD
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum
in cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's current
Annual Bonus paid or payable for the
Company's fiscal year in which occurs the
Date of Termination, assuming Executive and
Company satisfy all conditions to
Executive's receiving the full Annual Bonus
at target (and annualized for any fiscal
year consisting of less than twelve (12)
full months or during which the Executive
was employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(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);
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(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be
exercisable and restricted stock held by the Executive will be vested to the
extent and for such periods, and otherwise governed, by the plans and programs
(and the agreements and other documents thereunder) pursuant to which such stock
options or restricted stock were granted;
(c) For two (2) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for two (2) years after Executive's Date of
Termination, a continued application of the Company's auto leasing policy in
effect on the Extension Date with respect to the Executive;
(f) for two (2) years after Executive's Date of
Termination, the payment of all regular lunch and country club membership dues
or fees in respect of any lunch or country club of which Executive is a member
on Executive's Date of Termination; and
(g) for two (2) years after Executive's Date of
Termination, the payment of normal insurance premiums with respect to the
insurance policies on the life of Executive under the 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,
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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;
(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-
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outstanding voting securities entitled to
vote generally in the election of directors,
as the case may be, of the corporation
resulting from such Business Combination
(including, without limitation, a
corporation which as a result of such
transaction owns the Company or all or
substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding
any corporation resulting from such Business
Combination or any employee benefit plan (or
related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination, or the
combined voting power of the then
outstanding voting securities of such
corporation except to the extent that such
ownership existed prior to the Business
Combination and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent
Board at the time of the execution of the
initial agreement, or of the action of the
Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company
of a complete liquidation or dissolution of
the Company.
(c) "DISABILITY" means the failure of Executive to render
and perform the services required of him under this Termination Agreement, for a
total of 180 days or more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed Date of Termination due to such absence, Executive shall
have returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period
commencing on the Extension Date and ending on the third anniversary of such
date.
(e) "EXTENSION DATE" shall mean the first date during the
Term of this Termination Agreement on which a Change of Control occurs. Anything
in this Termination Agreement or the Employment Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of the Employment Agreement the
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"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.
For purposes of this Section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(g) "NORMAL RETIREMENT DATE." For purposes of this
Termination Agreement, an Executive's Normal Retirement Date is his or her
attainment of age sixty-five (65).
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10. EXCISE TAX 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 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
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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 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
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and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Indemnification Obligation payment
required to be paid.
11. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION.
(a) NON-COMPETITION. Without the consent in writing of
the Board, upon the Executive's Date of Termination for any reason, Executive
will not, for a period of six (6) consecutive calendar months thereafter, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor or director (other than as below)) in any business in the continental
United States which is a material business conducted by the Company or any of
its subsidiaries on the date of the consummation of a Change of Control in which
he has been directly engaged, or has supervised as an executive, on the date of
the consummation of the Change of Control and which is directly in competition
with a material business 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 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
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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 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.
16
<PAGE> 19
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:
If to the Company: Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
Attention: Secretary
17
<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 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.
18
<PAGE> 21
(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:_________________________________
Name:_______________________________
Title:______________________________
KENNETH W. MARCUM
____________________________________
19
<PAGE> 1
Exhibit 10.12
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<PAGE> 2
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 Limit.................................................................13
11. Non-Competition and Non-Disclosure; Executive Cooperation........................15
12. Governing Law; Disputes; Arbitration.............................................16
13. Miscellaneous....................................................................17
14. Indemnification..................................................................19
</TABLE>
<PAGE> 3
TERMINATION AND CHANGE OF CONTROL AGREEMENT
-------------------------------------------
THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination
Agreement") by and between COMMERCIAL INTERTECH CORP., an Ohio corporation (the
"Company"), and SHIRLEY M. SHIELDS ("Executive") is and shall become effective
as of October 1, 1996 (the "Effective Date").
WITNESSETH
----------
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.
<PAGE> 4
(a) GENERALLY. During the Extended Employment Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the Extension Date.
During the Extended Employment Period it shall not be a
violation of the Employment Agreement or this Termination Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (iii) manage personal investments, so long as the activities
listed in (i), (ii) and (iii) do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Termination Agreement, and (iv) serve in any capacity
(whether as employee, officer, director or consultant) with respect to 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
2
<PAGE> 5
for the whole of any such fiscal year or the fiscal year consisted of less than
twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
4. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) EXECUTIVE COMPENSATION PLANS. During the Extended
Employment Period, the compensation plans, practices, policies and programs, in
the aggregate, including without limitation the long-term incentive features of
the Company's stock option and award plans, shall provide Executive with
benefits, options to acquire Company stock and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
under such plans and programs to senior executives in similar capacities. During
the Extended Employment Period, in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), in each case, be less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Extension Date or if more favorable to the
Executive, those provided generally at any time after the Extension Date to
other peer executives of the Company and its affiliated companies. For purposes
of this Termination Agreement, all references to "performance share plans" and
"performance shares" refer to such arrangements under the Company's stock option
and award plans and to any performance shares, performance units, stock grants,
or other long-term incentive arrangements adopted as a successor or replacement
to performance shares under such plans or other plans of the Company.
(b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the
Extended Employment Period, benefit plans, practices, policies and programs, in
the aggregate, shall provide Executive with benefits substantially no less
favorable than those provided by the Company to senior executives in similar
capacities. During the Extended Employment Period, in no event shall such plans,
practices, policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Extension Date or, if more
favorable to the Executive, those provided generally at any time after the
Extension Date to other peer executives of the Company and its affiliated
companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment
shall terminate automatically upon the Executive's death during the Term of this
Termination Agreement. If the Company determines in good faith that the
Disability of the Executive has occurred during the Term of this Termination
Agreement, it may give to the Executive written notice in accordance with
Section 13(d) of this Termination Agreement of its intention to terminate the
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> 6
(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;
4
<PAGE> 7
(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:
5
<PAGE> 8
(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
6
<PAGE> 9
paid under the terms and conditions of the
plans, programs, and arrangements (and
agreements and documents thereunder)
pursuant to which such compensation and
benefits were granted, including any
supplemental retirement plan in which the
Executive may have participated.
Amounts which are immediately payable above will be paid as promptly as
practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the
extent that or the Company would not be entitled to deduct any such payments
under Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company). Any deferred payment shall be credited with the interest at a rate
applied to prevent the imputation of taxable income under the Code.
8. TERMINATION BY THE COMPANY WITHOUT CAUSE AND TERMINATION BY
EXECUTIVE FOR GOOD REASON DURING THE EXTENDED EMPLOYMENT
PERIOD
Upon an Executive's Date of Termination during the Extended
Employment Period by the Company without Cause or voluntarily by the Executive
for Good Reason, the Term of this Termination Agreement will immediately
terminate and all obligations of the Company and Executive under Sections 1
through 4 of this Termination Agreement will immediately cease; PROVIDED,
HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay
Executive (or his or her beneficiaries), and Executive (or his or her
beneficiaries) shall be entitled to receive, the following:
(a) the Company shall pay to the Executive in a lump sum in
cash on the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to
the extent not theretofore paid, and (2) the
product of (x) the higher of (A) the Recent
Annual Bonus and (B) the Executive's current
Annual Bonus paid or payable for the
Company's fiscal year in which occurs the
Date of Termination, assuming Executive and
Company satisfy all conditions to
Executive's receiving the full Annual Bonus
at target (and annualized for any fiscal
year consisting of less than twelve (12)
full months or during which the Executive
was employed for less than twelve (12) full
months) (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the
number of days in the current fiscal year
through the Date of Termination, and the
denominator of which is 365;
(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);
7
<PAGE> 10
(iii) in lieu of any payment in respect of
performance shares, or other long term
incentive awards granted prior to the
Extension Date or in accordance with Section
4(a) hereof, for any performance period not
completed at the Executive's Date of
Termination, an amount equal to the cash
amount payable plus the value of any shares,
dividends or other property (valued at the
Date of Termination) payable upon the
achievement of the then existing performance
in respect of each tranche of such
performance shares or awards as if the Date
of Termination were the end of the
performance period, but in no event less
than one hundred percent (100%) of target,
multiplied by (A) with respect to any
tranche as of the Date of Termination for
which at least fifty percent (50%) of the
performance period has elapsed, one hundred
percent (100%), and (B) with respect to any
tranche as of the Date of Termination for
which less than fifty percent (50%) of the
performance period has elapsed, a fraction,
the numerator of which is the number of days
that have elapsed in the relevant
performance period and the denominator of
which is the total number of days in the
relevant performance period; and
(iv) to the extent not covered in (i), (ii),
(iii) or (iv), all vested, nonforfeitable
amounts owing or accrued at the Date of
Termination under any other compensation and
benefit plans, programs, and arrangements in
which Executive theretofore participated,
including any supplemental retirement plan
in which the Executive may have
participated, including any additional
accruals provided under such plan due to the
Change of Control, will be paid under the
terms and conditions of the plans, programs,
and arrangements (and agreements and
documents thereunder) pursuant to which such
compensation and benefits were granted.
(b) Stock options then held by Executive will be exercisable
and restricted stock held by the Executive will be vested to the extent and for
such periods, and otherwise governed, by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
or restricted stock were granted;
(c) For two (2) years after the Executive's Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
welfare plan benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b) of this
Termination Agreement if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other 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
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compensation at least equal to what the Executive would have accrued in
accordance with such plans of the Company or affiliated companies if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies. If such welfare
benefit or tax-qualified defined contribution plans, programs, or arrangements
do not allow Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to the Date of Termination, as if
Executive had received credit under such plans, programs, and arrangements for
service, compensation and age with the Company during such period following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating);
(d) outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, provided by the
Company at its sole expense as incurred;
(e) for two (2) years after Executive's Date of Termination, a
continued application of the Company's auto leasing policy in effect on the
Extension Date with respect to the Executive;
(f) for two (2) years after Executive's Date of Termination,
the payment of all regular lunch and country club membership dues or fees in
respect of any lunch or country club of which Executive is a member on
Executive's Date of Termination; and
(g) for two (2) years after Executive's Date of Termination,
the payment of normal insurance premiums with respect to the insurance policies
on the life of Executive under the 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
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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;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition
of all or substantially all of the assets of
the
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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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<PAGE> 14
(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.
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<PAGE> 15
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
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Indemnification Obligation. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim,
(ii) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time, including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income or employment tax (including income or employment or
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be 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
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requirements of this Section 10) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to this Section 10, a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Indemnification Obligation payment required to be paid.
11 NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION.
(a) NON-COMPETITION. Without the consent in writing of
the Board, upon the Executive's Date of Termination for any reason, Executive
will not, for a period of six (6) consecutive calendar months thereafter, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor or director (other than as below)) in any business in the continental
United States which is a material business conducted by the Company or any of
its subsidiaries on the date of the consummation of a Change of Control in which
he has been directly engaged, or has supervised as an executive, on the date of
the consummation of the Change of Control and which is directly in competition
with a material business 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,
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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 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
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but not less than five (5) days prior thereto, the Company agrees to maintain a
minimum amount in a rabbi trust (or to provide to the trustee of such rabbi
trust) an irrevocable letter of credit in an amount equal to such minimum amount
(and callable at will by such trustee) sufficient to fund any such litigation
and the aggregate present value of all liabilities potentially owed to the
Executive under this Agreement as if he or she had incurred a termination of
employment by the Company other than for Cause.
13 MISCELLANEOUS.
(a) INTEGRATION. This Termination Agreement modifies and
supersedes any and all prior agreements and understandings between the parties
hereto with respect to the employment of Executive by the Company and its
subsidiaries, except for the Employment Agreement and contracts relating to
compensation under executive compensation and employee benefit plans of the
Company and only to the extent enforceable. Subject to the rights, benefits and
obligations provided for in such executive compensation contracts and employee
benefit plans of the Company, this Termination Agreement and the Employment
Agreement together constitute the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment, right or benefit under
this Termination Agreement which duplicates a payment, right or benefit received
or receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) NON-TRANSFERABILITY. Neither this Termination
Agreement nor the rights or obligations hereunder of the parties hereto shall be
transferable or assignable by Executive, except in accordance with the laws of
descent and distribution or as specified in Section 13(c). The Company may
assign this Termination Agreement and the Company's rights and obligations
hereunder, and shall assign this Termination Agreement, to any Successor (as
hereinafter defined) which, by operation of law or otherwise, continues to carry
on substantially the business of the Company prior to the event of succession,
and the Company shall, as a condition of the succession, require such Successor
to agree to assume the Company's obligations and be bound by this Termination
Agreement. For purposes of this Termination Agreement, "Successor" shall mean
any person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's voting
securities or all or substantially all of its assets, or otherwise.
(c) BENEFICIARIES. Executive shall be entitled to
designate (and change, to the extent permitted under applicable law) a
beneficiary or beneficiaries to receive any compensation or benefits payable
hereunder following Executive's death.
(d) NOTICES. Whenever under this Termination Agreement it
becomes necessary to give notice, such notice shall be in writing, signed by the
party or parties giving 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:
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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
18
<PAGE> 21
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.
19
<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:__________________________________
Name:________________________________
Title:_______________________________
SHIRLEY M. SHIELDS
_____________________________________
20
<PAGE> 1
Exhibit 10.23
July 16, 1999
Stephen J. Perkins
President and Chief Operating Officer
Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, OH 44501
Re: Change of Control Nonqualified Deferred Compensation Benefit
Dear Steve:
In your employment agreement, the Company agreed to provide you with a
supplemental executive retirement plan (SERP). The primary purpose of the SERP
is to make up the amount of your retirement benefit lost from the Pension Plan
for Salaried Employees of Commercial Intertech Corp. (Pension Plan) due to
federal laws that limit the amount of compensation taken into account under, and
the amount of benefit payments provided by, qualified retirement plans. Certain
Commercial Intertech SERPs also consider bonus in the formula that is excluded
under the Pension Plan formula. Normal retirement benefits to you under the SERP
will vest after the completion of five years of service with the Company,
identical to the vesting provisions of the Pension Plan. Furthermore, the
Company agreed to provide you some coverage in the event of a change of control
prior to vesting in five years. This letter will clarify the latter concept.
The Company will adopt a plan to provide the above benefit, named the
Commercial Intertech Corp. Nonqualified Deferred Compensation Plan for Stephen
J. Perkins, incorporating the non-change of control concepts set forth above.
Furthermore, the Plan will include change of control benefit concepts as
follows:
- change of control benefit vests immediately upon change of
control, as such phrase is defined in your Change of Control
Agreement;
- at your election, the change of control benefit may be received as
a lump sum under actuarial principles (mortality tables and
interest rates) as provided in other Company SERPs;
<PAGE> 2
- service, for purposes of the calculation of the change of control
benefit, will be the greater of (1) four years of service or (2)
your actual years of service with the Company; and
- compensation, for purposes of the calculation of the change of
control benefit, will be the greater of (1) $500,000 per year or
(2) your actual compensation as defined in the plan, base salary
plus base target award plan bonus.
A nonqualified deferred compensation plan document will be prepared and
submitted to the Management Evaluation and Compensation Committee. If you have
any questions concerning this please do not hesitate to call. Otherwise,
acknowledge your understanding of these provisions by signing below.
Very truly yours,
Bruce C. Wheatley
Senior Vice President - Administration
Agreed:
____________________________
Stephen J. Perkins
BCW:ljl
<PAGE> 3
COMMERCIAL INTERTECH CORP.
NONQUALIFIED DEFERRED COMPENSATION PLAN
FOR STEPHEN J. PERKINS
(Effective as of May 1, 1999)
ARTICLE I
ESTABLISHMENT AND CONSTRUCTION
1.1 ESTABLISHMENT. Commercial Intertech Corp. (the "Company") establishes,
effective as of May 1, 1999, this unfunded deferred compensation plan
on behalf of Stephen J. Perkins to be provided to supplement the
Pension Plan for Salaried Employees of Commercial Intertech Corp.
("Pension Plan"). This document shall be known as the "Commercial
Intertech Corp. Nonqualified Deferred Compensation Plan for Stephen J.
Perkins" (the "Plan").
1.2 PURPOSE. The Company maintains the Pension Plan which is intended to
meet the requirements of a "qualified" retirement plan under Section
401(a) of the Internal Revenue Code. The Pension Plan contains certain
restrictions required by the Code that sometimes result in a diminution
of benefits available to certain highly compensated employees. This
Plan is established to replace some of the benefits lost due to this
diminution and preclusion or upon a Change of Control. Also, this Plan
is intended to be an unfunded deferred compensation plan for a member
of a select group of management or highly compensated employees, as
described in Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee
Retirement Income Security Act of 1974 ("ERISA").
<PAGE> 4
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. The following terms shall have the meaning stated below
unless the context clearly indicates otherwise.
(a) "COMMITTEE" means the Compensation Committee described in
section 4.1 of this Plan, which has been delegated the
authority to administer this Plan.
(b) "MONTHLY PAY" means one-twelfth (1/12) of a Participant's
Compensation, as defined in the Pension Plan, received from
the Company and any Subsidiary, and shall include annual
bonuses paid under the target award programs ("SMTIP" and
"SEIP") but shall not include the premium under the stock
payout option of the target award programs, determined without
regard to the limitations of Section 401(a)(17) of the Code.
(c) "PARTICIPANT" means Stephen J. Perkins.
(d) "YEARS OF CREDITED SERVICE"
(i) with respect to separation from service with the
Company or any Subsidiary prior to age sixty five
(65) after completion of five (5) years of Service,
his Credited Service under the Pension Plan;
(ii) with respect to separation from service with the
Company or any Subsidiary at or after attainment of
age sixty-five (65), twenty-five (25) years;
(iii) with respect to death after completion of five (5)
years of Service and prior to age sixty-five (65),
his Years of Credited Service determined as if he had
separated from service at age sixty-five (65) reduced
by the number of years and fractional years (1/12th
for each complete calendar month) by which his actual
date of death precedes the date as of which he would
have attained age sixty-five (65).
<PAGE> 5
Unless the context clearly indicates otherwise, terms not defined in
this document shall have the meaning specified in the Pension Plan (if
defined therein). Where the defined meaning is intended, the term is
capitalized.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender shall include the feminine and neuter
genders; the plural shall include the singular and the singular shall
include the plural.
2.3 EMPLOYMENT RIGHTS. Establishment of the Plan shall not be construed to
give the Participant the right to be retained by the Company or any
Subsidiary or to any benefits not specifically provided by the Plan.
2.4 SEVERABILITY. In the event any provision of the Plan shall be held
invalid or illegal for any reason, any illegality or invalidity shall
not affect the remaining parts of the Plan, but the Plan shall be
construed and enforced as if the illegal or invalid provision had never
been inserted, and the Company shall have the privilege and opportunity
to correct and remedy such questions of illegality or invalidity by
amendment as provided in the Plan.
2.5 APPLICABLE LAW. This Plan is fully exempt from Titles II, III and IV of
ERISA. The Plan shall be governed and construed in accordance with
Title I of ERISA and the laws of the State of Ohio.
<PAGE> 6
ARTICLE III
BENEFITS
3.1 AMOUNT OF RETIREMENT BENEFITS. If the Participant separates from
service with the Company after attainment of five (5) years of Service,
as defined in the Pension Plan, benefits will be payable to the
Participant and will commence, at the election of the Participant as
provided in Section 3.2, and shall equal the excess, if any, of (a)
minus (b) where:
(a) is the benefit calculated under the Pension Plan as if the
provisions of the Pension Plan were administered using this
Plan's definition of compensation (Monthly Pay) and Years of
Credited Service and without regard to the benefit and
compensation limitations found in Code Sections 415 and
401(a)(17); and
(b) is (i) the actual limited Pension Plan benefit which is
payable to such Participant, plus (ii) in the event the
Participant is credited with twenty five (25) years of
Credited Service under this Plan, the benefit(s), attributable
to employer contributions, payable to the Participant pursuant
to qualified retirement plans of previous employers, expressed
as a single life annuity(ies).
3.2 FORM AND COMMENCEMENT OF BENEFITS. Provided the Participant is vested
in the benefits in this Plan, benefits payable under this Plan shall be
paid in the same manner and form and at the same time as benefits
payable under the Pension Plan. Except as provided in Section 3.4, the
Participant will not voluntarily separate from service with the Company
until after due consultation with the Company and the Committee.
3.3 DEATH BENEFITS. No death benefit shall be paid under this Plan except
as provided in this Section.
(a) SPOUSE'S BENEFIT. If the Participant dies after completion of
five (5) years of Service but before benefit payments begin
under the Plan, the Spouse, at the date of the Participant's
death, shall be paid a monthly benefit under the Plan in the
form of a life annuity calculated as under section 3.1
adjusted by applying the provisions of the Pre-Retirement
Survivor Annuity under the Pension Plan.
(b) If the Participant dies before benefit payments begin under
the Plan and has no Spouse, no death benefit shall be payable
under this Plan.
<PAGE> 7
(c) If the Participant dies after benefit payments begin under
this Plan, a death benefit shall be payable under the Plan to
the Spouse of the Participant only if a death benefit is
payable to such Spouse under the form of payment selected by
the Participant.
<PAGE> 8
3.4 CHANGE OF CONTROL.
(a) "Change of Control" shall have the meaning as defined in the
agreement providing severance compensation to the Participant
upon a change in control of the management of the Company then
existing between the Company and the Participant (the
"Severance Compensation Agreement"). In the event of a Change
of Control, the Participant shall be fully vested in the
benefit under section 3.4 of this Plan and the Participant
shall be paid a benefit equal to the benefit calculated in
Subsection 3.1(a) above, adjusted as follows:
(i) Monthly Pay, for purposes of this Section 3.4,
shall mean the Participant's Monthly Pay determined
without regard to the limitations of Section
401(a)(17) of the Code but in no case shall be less
than $41,667 per month; and
(ii) Years of Credited Service, for purposes of this
Section 3.4 , shall mean the greater of (1) four (4)
years or (2) the Years of Credited Service as defined
in Section 2.1(d) above.
(b) Unless the Participant elects to defer the commencement of benefits
to a later date, benefits under this Section 3.4 shall be payable to
the Participant, beginning on the first day of the month coincident
with or next following his separation from service with the Company or
a Subsidiary.
(c) Benefits payable under this Section 3.4 shall be paid in the same
manner as benefits payable under the Pension Plan. However, in the sole
discretion of the Participant, any benefit due to the Participant under
the Plan may be paid in any of the forms of benefit payments available
to the Participant under the Pension Plan or in the form of annual
installments for a specified period of years. Each alternate form of
payment shall be the Actuarial Equivalent of a single life annuity.
Additionally, a Participant may elect to have a benefit due under this
Section 3.4 paid in a single lump sum payment, provided notice thereof
is received by the Compensation Committee prior to separation from
service. The lump sum shall be the present value of the annuity
calculated under this Plan using the basis defined below that produces
the largest lump sum amount:
(1) the UP-1984 mortality table and the PBGC interest
rate used for purposes of determining present value
of a lump sum
<PAGE> 9
distribution on plan termination as in effect on the
date of the Participant's election, or
(2) the UP-1984 mortality table and the PBGC interest
rate used for purposes of determining present value
of a lump sum distribution on plan termination as in
effect on the date six (6) months prior to the date
of the Participant's election, or
(3) the 1983 GAM mortality table and the applicable
interest rate promulgated by the Internal Revenue
Service under Code Section 417(e)(3) for the month in
which the Participant's election occurs, or
(4) the 1983 GAM mortality table and the applicable
interest rate promulgated by the Internal Revenue
Service under Code Section 417(e)(3) for the month
which is six (6) months prior to the Participant's
election.
The Participant may elect any combination of form of benefits not exceeding two
(2).
3.5 EARLY DISTRIBUTION. Notwithstanding any other provision contained in
this Plan, the Company shall make distributions to the Participant
before such distributions otherwise are payable under this Plan if it
determines upon the advice of counsel, based on a change in the Code, a
published ruling or similar announcement issued by the Internal Revenue
Service ("IRS"), a regulation issued by the Secretary of the Treasury
or his delegate, a decision of a court of competent jurisdiction
involving the Participant or a closing agreement involving the
Participant that is approved by the IRS, that the Participant has
recognized or will recognize income for federal income tax consequences
with respect to amounts that are or will be distributable to him.
<PAGE> 10
ARTICLE IV
GENERAL PROVISIONS
4.1 ADMINISTRATION. This Plan shall be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee shall
have, to the extent appropriate, the same powers, rights, duties and
obligations with respect to this Plan as the plan administrator under
the Pension Plan has under such Pension Plan.
4.2 FINALITY OF DETERMINATION. Except with respect to questions arising
from benefits payable upon a Change of Control, the determination of
the Compensation Committee as to any disputed questions arising under
this Plan, including questions of construction and interpretation,
shall be final, binding and conclusive upon all persons.
4.3 EXPENSES. The expenses of administering the Plan shall be borne by the
Company.
4.4 INDEMNIFICATION AND EXCULPATION. The members of the Compensation
Committee, its agents and officers, directors and employees of the
Company and the Subsidiaries shall be indemnified and held harmless by
the Company against and from any and all loss, cost, liability or
expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit or proceeding
to which they may be a party or in which they may be involved by reason
of any action taken or failure to act under this Plan and against and
from any and all amounts paid by them in settlement (with the Company's
written approval) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding. The foregoing provision shall not be
applicable to any person if the loss, cost, liability or expense is due
to such person's gross negligence or willful misconduct.
4.5 FUNDING. While all benefits payable under the Plan constitute general
corporate obligations, the Company shall establish a master rabbi trust
for the benefit of the Participant, which trust shall be subject to the
claims of the general creditors of the Company (and of any Subsidiary
which has employed the Participant and become obligated under the Plan)
in the event of such corporation's insolvency, to be used as a reserve
for the discharge of the Company's or Subsidiary's obligations under
the Plan to such Participant. The Company shall contribute to such
trust an amount sufficient to fund the aggregate present value of all
liabilities potentially owed to the Participant under this Plan and
such funding shall occur no later than the date on which
<PAGE> 11
a Change of Control occurs. Any payments made to the Participant under
the trust for his benefit shall reduce dollar for dollar the amount
payable to the Participant from the general assets of the Company or
Subsidiary. The amounts payable under the Plan shall be reflected on
the accounting records of the Company or Subsidiary but shall not be
construed to create or require the creation of a trust, custodial or
escrow account, except as described above in this section. The
Participant (or Spouse of Participant) shall not have any right, title
or interest whatever in or to any investment reserves, accounts or
funds that the Company or any Subsidiary may purchase, establish or
accumulate to aid in providing benefits under this Plan. Nothing
contained in this Plan, and no action taken pursuant to its provisions,
shall create a trust or fiduciary relationship of any kind between the
Company or any Subsidiary and the Participant or any other person,
except as described above in this section. Neither the Participant nor
Spouse of the Participant shall acquire any interest greater than that
of an unsecured creditor.
4.6 CORPORATE ACTION. Any action required of or permitted by the Company or
any Subsidiary under this Plan shall be by resolution of its Board of
Directors or any person or persons authorized by resolution of such
Board of Directors.
4.7 INTERESTS NOT TRANSFERABLE. The interests of the Participant and his
Spouse under the Plan are not subject to the claims of their creditors
and may not be voluntarily or involuntarily transferred, assigned,
alienated or encumbered.
4.8 EFFECT ON OTHER BENEFIT PLANS. Amounts credited or paid under this Plan
shall not be considered to be compensation for the purposes of the
Pension Plan maintained by the Company or any Subsidiary. The treatment
of such amounts under other employee benefits plans shall be determined
pursuant to the provisions of such plans.
4.9 TAX LIABILITY. The Company or Subsidiary may withhold from any payment
of benefits hereunder any taxes required to be withheld and such sum as
such employer may reasonably estimate to be necessary to cover any
taxes for which the Company or Subsidiary may be liable and which may
be assessed with regard to such payment.
4.10 LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Participant may incur as a result of the Company's
or any Subsidiary's contesting the validity, enforceability or the
Participant's interpretation of, or determinations under, this Plan.
<PAGE> 12
4.11 SUCCESSORS AND ASSIGNS. This Plan and all of the obligations hereunder
shall be binding on the successors and assigns of the Company.
4.12 NONDUPLICATION OF BENEFITS. The benefits payable under this Plan to a
Participant are intended to replace such benefits payable to such
Participant under the Commercial Intertech Corp. Supplemental Executive
Retirement Plan, and the Participant's benefits under such plan are
terminated.
<PAGE> 13
ARTICLE V
AMENDMENT AND TERMINATION
The Company by action of this Board of Directors reserves the right to amend
this Plan from time to time or to terminate the Plan at any time, but without
the written consent of the Participant, no such action may reduce or relieve the
Company or any Subsidiary of any obligation with respect to any benefit accrued
under the Plan by such Participant as of the date of such amendment or
termination.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by
its duly authorized officers on this ____ day of _____________, 1999.
COMMERCIAL INTERTECH CORP.
By:_______________________________
Title:____________________________
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
Listed below, as of January 3, 2000, are the subsidiaries of the
Company and their jurisdictions of organization. All of such subsidiaries are
either directly or indirectly wholly-owned by the Company. Ownership of
subsidiaries indirectly owned by the Company is indicated by indentations.
Certain subsidiaries of the Company have been omitted because, considered in the
aggregate as a single subsidiary, they would not constitute a significant
subsidiary as of the end of the year covered by this report.
Jurisdiction of
Name of Subsidiary Organization
------------------ ------------
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 Holdings, Ltd........................England
Commercial Intertech Limited.........................England
Ultra Group Limited..................................England
Ultra Hydraulics Limited.......................England
Astron S.A.R.L............................................France
Sachsenhydraulik Chemnitz GmbH............................Germany
Commercial Intertech GmbH............................Germany
Commercial Hydraulics S.r.l...............................Italy
Commercial Intertech S.A..................................Luxembourg
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated November 29,
1999, 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, 1999, in the prospectus contained in the
following registration statements:
<TABLE>
<CAPTION>
Registration
Number Description Filing Date
- ------------- -------------------------------------------- -----------------
<S> <C> <C>
33-25795 Non-Qualified Stock Purchase Plan of
Commercial Intertech Corp. - Form S-8
Registration Statement November 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 November 13, 1991
33-52443 Commercial Intertech Corp. Stock Option
and Award Plan of 1993 - Form S-8
Registration Statement February 28, 1994
33-61453 Commercial Intertech Corp. Stock Option
and Award Plan of 1995 - Form S-8
Registration Statement August 1, 1995
333-28903 Commercial Intertech Corp. Non-Employee
Directors' Stock Plan - Form S-8
Registration Statement June 10, 1997
333-41551 Commercial Intertech Corp. Non-Employee
Directors' Performance Share Plan - Form S-8
Registration Statement December 5, 1997
</TABLE>
/s/Ernst & Young LLP
Cleveland, Ohio
January 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 27,046
<SECURITIES> 0
<RECEIVABLES> 85,686
<ALLOWANCES> 2,768
<INVENTORY> 61,305
<CURRENT-ASSETS> 191,845
<PP&E> 246,821
<DEPRECIATION> 134,173
<TOTAL-ASSETS> 402,010
<CURRENT-LIABILITIES> 114,810
<BONDS> 100,215
0
20,770
<COMMON> 14,695
<OTHER-SE> 100,482
<TOTAL-LIABILITY-AND-EQUITY> 402,010
<SALES> 534,994
<TOTAL-REVENUES> 534,994
<CGS> 404,342
<TOTAL-COSTS> 404,342
<OTHER-EXPENSES> 5,392
<LOSS-PROVISION> 1,577
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 31,695
<INCOME-TAX> 11,915
<INCOME-CONTINUING> 19,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,780
<EPS-BASIC> 1.28
<EPS-DILUTED> 1.14
</TABLE>
