-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GhlHgD7fl8PZcfSPydPK4T7IkXgGT6FIbyo4uC/9jfbnkdvxOpF3ykWru9UcJbDj YGv5kvT7o4VE8n88WzTvAQ== 0000950152-97-000436.txt : 19970129 0000950152-97-000436.hdr.sgml : 19970129 ACCESSION NUMBER: 0000950152-97-000436 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970128 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUNO INC CENTRAL INDEX KEY: 0001019779 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 061159240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21109 FILM NUMBER: 97511835 BUSINESS ADDRESS: STREET 1: 400 RESEARCH PARKWAY CITY: HERIDEA STATE: CT ZIP: 06450 BUSINESS PHONE: 203-237-5541 MAIL ADDRESS: STREET 1: 400 RESEARCH PARKWAY CITY: HERIDEA STATE: CT ZIP: 06450 10-K 1 CUNO INC. FORM 10-K ANNUAL REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended October 31, 1996 COMMISSION FILE NUMBER 000-21109 CUNO INCORPORATED (Exact name of registrant as specified in its charter) Delaware 06-1159240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 Research Parkway, Meriden, Connecticut 06450 (Address of principal executive offices) (Zip Code) (203) 237-5541 Registrant's telephone number, including area code SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of January 2, 1997, 13,820,718 common shares were outstanding, and the aggregate market value of the common shares (based upon the last price on that date) was approximately $210,766,000. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the documents of the Registrant listed below have been incorporated by reference into the indicated parts of this Annual Report on Form 10-K. Notice of Annual Meeting of Shareholders March 27, 1997 and Proxy Statement filed January 21, 1997 . . Part III, Items 10-13 Part IV, Item 14 The exhibit index is located on page 53. 1 2 Part I Item 1. Business (a) General development of business: On July 11, 1996, Commercial Intertech Corp. ("Commercial Intertech") initiated a plan to separate its Fluid Purification group subsidiaries and divisions (the "Company" or "CUNO") from the rest of Commercial Intertech's businesses in a tax-free transaction, subject to regulatory approval. The following companies and divisions made up the Fluid Purification group companies - - CUNO Incorporated, USA; CUNO Pacific Pty., Ltd., Australia; Commercial Intertech do Brasil, Ltda., Brazil; CUNO Europe S.A., France; CUNO KK, Japan; CUNO Filtration Asia Pte. Ltd., Singapore; and divisions located in England, Germany and Italy. On July 29, 1996, Commercial Intertech declared a distribution of 100 percent of its interest in the Company which was effected by a distribution on September 10, 1996 of one share of common stock of the Company for each share of Commercial Intertech held by existing shareholders of Commercial Intertech, based on a record date of August 9, 1996. On that date, there were approximately 13,566,000 common shares of Commercial Intertech outstanding. In conjunction with the reorganization, the Company assumed $30,000,000 of Commercial Intertech's debt which was paid in the form of a dividend. The dividend was paid out of the proceeds from a credit facility entered into by the Company shortly after the reorganization. In addition, the Company declared an additional dividend of $35,675,000 payable to Commercial Intertech. The Company is a world leader in the design, manufacturing and marketing of a comprehensive line of filtration products for the separation, clarification and purification of liquids and gases. The Company's products, which include proprietary depth filters and semi-permeable membrane filters, are used in the health care, fluid processing and potable water markets. These products, most of which are disposable, effectively remove contaminants that range in size from molecules to sand particles. The Company's sales are approximately balanced between international and domestic markets. 2 3 ITEM 1. (Continued) The Company's objective is to provide high value-added products and premium customer service. The Company's proprietary manufacturing processes result in products that lower customers' operating expenses and improve the quality of customers' end products by providing longer lasting, higher quality, and more efficient filters. As part of the Company's commitment to customer service, the Company designates its own scientists, each of whom possess particular industry expertise, to collaborate with customers on specific projects to insure satisfaction with its products and to create new products. In mid-1994, the Company realigned its business to accelerate net sales growth and improve operating margins. A new senior management team developed and implemented the following initiatives, which are key elements of its ongoing growth strategy: (i) develop new products for specific markets, (ii) decrease product development cycle times, (iii) develop pre/final filter systems, (iv) increase customer focus, (v) improve operating efficiencies and (vi) pursue selective acquisitions. Due principally to these initiatives, net sales, before adjusting for foreign currency fluctuations, increased from $143 million to $179 million, a 25 percent increase from fiscal year 1994 to fiscal year 1996. (b) Financial information about industry segments: The Company operates in one industry segment which is the design, development, manufacture and sale of liquid and gas filtration products. (c) Narrative description of business: Market Overview Filtration is the process of separating particles of various sizes from liquids or gases. The mechanics of filtration range from the removal of coarse contaminants, most often particulates, as large as 200 microns such as sand and sediment, to the elimination of bacteria and viruses at less than .01 micron (human hair is typically 20 microns in diameter). A filtration device consists of a plastic or metal housing and a filtration medium. Filtration media, which can be manufactured out of a variety of substances, act as the separator or barrier in the filtration process. Filtration media include microporous membranes, glass, synthetic and cellulosic fibers, porous metals and ceramics. Microporous membranes are thin, film-like materials with millions of uniform microscopic holes. Membranes are the most widely used filtration media because they remove specifically-sized particles and can be configured into a variety of shapes and sizes. 3 4 ITEM 1. (Continued) Health Care The health care market is experiencing rapid growth as a result of the intensive research efforts to find cures for diseases, the increasing use of rapid and simpler diagnostic tests to help reduce health care costs, the trend toward finer and more cost-efficient filtration and increased governmental regulation. When harmful elements are identified, they are often regulated or new medical standards of care are implemented to decrease or eliminate contact. In many cases, fluid filtration can play a key role in eliminating contact with many harmful elements. Price is not the primary factor in the customers' filtration decision process, but rather the performance and reliability of the product. The health care market customers include pharmaceutical and biotechnology companies which require cost-efficient filtration and high levels of purity for production of sterile, contaminate free drugs, as well as producers of diagnostic test kits which require highly efficacious membranes. In addition, applications include the production of bacteria-free water and food and beverage products. Sales to the health care market totalled $47,912,000, $39,938,000, and $32,654,000 in 1996, 1995 and 1994, respectively. Fluid Processing Major customers in the fluid processing market include chemical, petrochemical and oil and gas processors, manufacturers of paints and resins, producers of electronics and semiconductors, and power generation facilities. As sophisticated manufacturing processes increase and as the adoption of practices focused on quality increase, the Company believes the demand for filtration products will also increase. In part, this trend is driven by the enhanced ability to detect contaminants in process streams. As automation increases, focus on quality control increases, and as the ability to detect contaminants progresses, fluid filtration will play a greater role in the manufacturing process. One of the fastest growing areas of the fluid processing market is semi-conductor manufacturing. The ever-increasing demand to place finer circuitry on computer chips is requiring a cleaner environment and much higher quality standards for the chemicals and the ultra pure water used in the manufacturing process. Ultra pure water is used to rinse the chips during manufacture in order to ensure that the product is particle free and no residual contamination is left on the chip surface. The industry uses corrosive, high purity chemicals and gases for the manufacture of computer chips, hard disks, video terminals and other components. All of the chemicals and gases used are processed through very fine filtration systems. The rapidly expanding demand for electronic products and the wider use of computer chips is fueling industry growth. Sales to the fluid processing market totalled $81,839,000, $77,528,000 and $69,606,000 in 1996, 1995 and 1994 respectively. 4 5 ITEM 1. (Continued) Potable Water The potable water market includes residential, commercial and food service customers. According to industry data, it is estimated that 1.2 billion people in the world do not have safe drinking water. Demand is driven both by consumers' desire to improve the taste and quality of their drinking water and by the expanded concern of regulatory agencies. The sharpest growth in this market may occur in Asia/Pacific Rim and South American countries where the quality of drinking water has been found to be severely deficient in several regions. Water safety concerns have driven the growth of the consumer bottled water market to over $2 billion in the United States, as well as the growth in the water filtration market. The food service industry has an increasing need for consistent global product quality. Food service includes water used for fountain beverages, steam ovens, coffee and tea. Specifically, restaurants have become increasingly aware of the need for water filtration and control of the taste and quality of the water used in their businesses. Sales to the potable water market totalled $49,317,000, $45,233,000 and $40,851,000 in 1996, 1995 and 1994, respectively. Growth Strategy The Company's goal is to grow at a rate higher than the general filtration market and to increase the Company's operating margins. Key elements of the Company's growth strategy include: Develop New Products for Specific Markets. The Company has initiated a strategy to develop high value-added products for specific markets. Historically, the Company offered non-differentiated products and often competed solely on price. To gain a better understanding of specific markets and guide new product development, the Company introduced Scientific Application Support Services ("S.A.S.S."). S.A.S.S. uses scientists with post-graduate degrees who are experts in the specific industry they serve. They collaborate with customers who are developing and implementing new processes or products that have specific filtration requirements. Often these relationships lead to the development of new market specific products. 5 6 ITEM 1. (Continued) Decrease Product Development Cycle Times. The Company has decreased its product development cycle times from an average of four to five years to approximately 18 months to 24 months. This improvement has occurred through increased market focus, collaboration with leading-edge customers through S.A.S.S. teams and the formation of cross-functional product launch teams. The Company believes it can continue to shorten product development cycle times through these same methods. Develop Pre/Final Filter Systems. Many filtration systems have one or more prefilters to remove large contaminants from the liquid or gas before it passes through the final filter, prolonging the life of the more expensive final filter. When these filters are designed together in a system, the performance of the system is enhanced. The Company has a leading prefilter market position and is expanding the number of final filters it offers. This allows the Company to provide its customers with a total filter solution from one vendor. Increased Customer Focus. The Company has traditionally sold to the distributor, who in turn sells to the end user. The Company's current goal is to provide unmatched customer service to its end-user customers, while providing resources for its distributors. In many cases the customer is unable to define its filtration needs accurately and seeks outside resources to identify and chose the best filtration alternative. The Company's S.A.S.S. professionals meet this need. Management has been training and focusing distributors on specific market segments and providing additional sales and marketing support. This enables distributors to provide customers with superior industry expertise and company-specific product knowledge. Improve Operating Efficiencies. The Company believes it can improve operating efficiencies by implementing cost controls, productivity gains, profit-based compensation for its employees, shifting product mix to higher margin health care and fluid processing markets and outsourcing production of certain processes. The Company has initiated a capital investment program designed to (i) integrate cell-based manufacturing, (ii) provide higher yields from raw materials, (iii) improve inventory management, (iv) lower labor costs, (v) reduce manufacturing cycle times and (vi) reduce scrap rates. 6 7 ITEM 1. (Continued) Pursue Selective Acquisitions. The Company believes that the continuing trend towards consolidation in certain portions of the filtration industry, together with recent systems trends (prefilter and filter), will provide the Company with attractive opportunities to acquire high-quality companies and subsequently allow the Company to expand into new geographic markets, add new customers, provide new products, manufacturing and service capabilities or increase the Company's penetration with existing customers. The Company evaluates acquisition candidates on a regular basis. Products The Company manufactures a full range of products by offering its customers solutions to a wide range of filtration requirements. Many of the products manufactured by the Company use electrokinetic adsorption, a proprietary chemical process developed by the Company which alters both membrane and depth filter media surfaces. Electrokinetic adsorption uses molecular charges on dissolved ions to bind finer contaminants to the filter surface. This attribute significantly enhances filtration efficiency by removing contaminants smaller than the micron rating of the filter. The Company typically groups its products into the following categories: Membranes The typical polymer and nylon membranes that the Company produces resemble plastic films except for the molecular size pores that are engineered into the surface and depth of the membrane. By varying pore size and altering the physical or chemical properties of the membrane, the quantity and type of substances which can pass through the membrane can be regulated with absolute certainty. The Company manufactures "absolute rated" products where no particle above a certain size can pass through the membrane. In many applications, these membranes can be integrity tested to ensure specific performance both at the beginning and end of a particular process. A membrane can be employed in a variety of configurations, including flat sheets, discs and cartridges which contain high surface area, and pleated membrane media. Uses of membranes include water purification for electronics and applications in semiconductor manufacturing, pharmaceutical, biotechnology and other applications, as well as residential use for drinking water. 7 8 ITEM 1. (Continued) The Company's products include those sold under the following labels: Zetapor(R), Microfluor(R), Polypro(R), ZetaBind(R), Electropor(TM), BevASSURE(TM), Synchro(R), Acro(R), and AC/PH Lithowater(R). Depth Filters The Company's disposable depth filters are constructed from a matrix or formation of very fine and micro-fine fibers such as polypropylene, cotton, polyester, glass fiber, acrylic, rayon, polymer, carbon and other materials. The fibre matrix is then processed into a rigid filter media using techniques such as thermal bonding, resin bonding, pleating or winding. The Company's technology has a strong emphasis on graded density attributes and electrokinetic adsorption. Graded density depth technology allows filter media to be manufactured with very open porous outer layers, progressively becoming smaller in the size of the pores or void volume through the depth of the filter media. Graded density construction extends filter life in many applications and reduces pressure loss across the filtration process thereby reducing energy costs. The structure of graded density filter media allows particles to be trapped throughout the depth of the cartridge which minimizes surface binding, allows for high contaminant capacity and lower pressure drops than solely trapping particles on the surface of the media. The Company manufactures depth filters in a wide variety of cartridge and pore sizes with "absolute" particulate ratings. The filter cartridges are used in filter housings which can be manufactured in a broad range of metals or plastics to suit particular customer specifications. Filter housings are designed for a wide range of temperatures and pressures. The Company's depth filter products include those sold under the following labels: Zeta Plus(R), Betafine(R), MicroKlean(R), Beta-Klean(R), Betapure(R), MicroWynd(R), and PetroFit(R). Cleanable Filters and Systems The Company designs and manufactures an extensive range of self-cleaning disc filters, backwash strainers and recleanable metal filters. The self-cleaning disc filters and back wash strainers can be electrically or mechanically operated with automatic controls to provide for specific requirements in process applications. The recleanable metal filter elements are constructed of sintered porous stainless steel or metal screens in tubular and pleated construction. The recleanable elements can be cleaned in place in a filter housing or removed for mechanical, ultrasonic or chemical cleaning. 8 9 ITEM 1. (Continued) The Company's cleanable filters and system products include those sold under the following labels: Poro-Klean(R), Micro-Screen(R), and Auto-Klean(R). Housings and Systems The Company designs and manufactures a wide variety of filter housings to suit specific process and customer applications. The housings can be of plastic or metal construction utilizing a broad range of materials including polypropylene, PVC, nylon, aluminum, copper, brass, steel, stainless steel and other specialized metals, such as titanium. Specialized designs include sanitary, electropolished and coated finishes for chemical resistance and ease of sterilization, sanitization or cleaning. The Company supplies a broad range of standard housings manufactured from 316 stainless steel in sanitary, polished and electropolished finishes for enhancing pharmaceutical and electronic applications. Finish specifications can be measured in terms of Roughness Average (Ra) with average variations in surface finish measured in microns down to 0.45 micron, the size of small bacteria. The Company designs and manufactures proprietary housings and systems such as CTG-Klean with patented features and a totally enclosed disposable filter media pack for use in critical applications where housing cleanliness is essential or when physical separation of toxic or corrosive chemicals from the metal housing is desired. The Company's range of housings are designed and manufactured to regulatory pressure vessel codes, particularly for applications in the oil and gas, refinery and petrochemical industries. The Company designs and markets housings to meet the local regulatory requirements in most countries. Backlog The Company's backlog on October 31, 1996 was $15.3 million as compared to $14.2 million the previous year. Due to the relatively short manufacturing cycle and to the Company's use of wholesale distributors, as well as general industry practice, backlog which typically represents approximately 30 days of shipments is not deemed to be significant. A substantial portion of the Company's revenues result from orders booked and billed in the same month. 9 10 ITEM 1. (Continued) Competition The markets in which the Company competes are highly competitive. The Company competes with many domestic and international filtration companies in its global markets including some which are larger and which possess greater resources. No one company has a significant presence in all the Company's markets. The principal methods of competition are product specifications, performance, quality, knowledge, reputation, technology, distribution capabilities, service and price. Some of the Company's other competitors are multi-line companies with other principal sources of income, some of which have substantially greater resources than the Company; many others are local product assemblers or service companies that purchase components and supplies such as valves and tanks from more specialized manufacturers than the Company. Research and Development and Product Development The Company's research and development and engineering activities are conducted in its own laboratories, supplemented by on-site development and application of custom design and other technical skills. The Company's research, development and engineering expenditures, which consisted mainly of the development of new products, product applications and manufacturing processes for fiscal year 1996, 1995, and 1994 were approximately $9.9 million, $8.3 million and $7.8 million, respectively, and 5.5 percent, 5.1 percent, and 5.4 percent of net sales, respectively. The Company also incurs additional internal costs relating to its sales and service personnel for product development. Manufacturing The Company's manufacturing is largely vertically integrated, using unique, proprietary and patented processes, with many of the major components of its filtration units manufactured and assembled in its own plants. The Company has begun to outsource some portfolios of its manufacturing processes, such as certain segments of metal housing manufacturing. The Company believes that it generally has sufficient manufacturing capacity for the foreseeable future. The Company has developed a new, more efficient membrane manufacturing process which the Company believes provides a competitive advantage through the production of superior products at lower costs. 10 11 ITEM 1. (Continued) Raw Material Suppliers The primary raw materials used by the Company are cotton, nylon, acrylic, cellulose and various resins, plastics and metals. The Company has not experienced a shortage of any of its raw materials in the past three years. The Company believes that there is an adequate supply of all of its raw materials at competitive prices from a variety of suppliers. Distribution and Sales The Company has over 150 independent distributors of its products in 65 countries. Distributors represent the primary channel in the marketing of the Company's health care and fluid processing products. The Company has agreements with all of its major distributors in the United States. In certain markets outside the United States, the Company uses dedicated sales people. The Company's potable water products are sold directly to wholesalers, such as plumbing suppliers, water quality dealers and major resellers, and through manufacturing representatives. The Company's agreements with its United States distributors are usually for a period of two years. Such agreements usually assign an exclusive territory, prohibit distributors from carrying competing products, require that distributors share market and customer related information other than pricing, with the Company and require distributors to carry an adequate stock of its products. The Company does not believe that the loss of any one of its distributors would have a significant adverse effect on the Company. The Company's top ten distributors accounted for approximately 25 percent of its total sales in fiscal year 1996. The Company believes that no end-user of any of its products accounts for more than 5 percent of sales. As of October 31, 1996, the Company employed over 250 people as sales people. Of such employees, 155 are located overseas. 11 12 ITEM 1. (Continued) Trademarks and Patents Trademarks and brand name recognition are important to the Company. The Company generally owns the trademarks under which its products are marketed. The Company has registered its trademarks and will continue to do so as they are developed or acquired. The Company has over 300 registered trademarks throughout the world. The Company has over 200 active patents throughout the world and 35 patents pending worldwide. The Company additionally relies on proprietary, non-patented technologies to a certain extent. Certain of the Company's employees sign non-disclosure and assignment of proprietary rights agreements. The Company protects its intellectual property and believes there is significant value associated with it. However, the Company believes that the loss of one or more of its trademarks and patents would not have a material adverse effect, as it is not heavily dependent on any one or few and is continually expanding its intellectual estate through new additions. Seasonality The Company's business is typically not seasonal. However, sales in the first quarter of each fiscal year tend to be lower than the other quarters due to the holiday season and year-end distributor inventory reductions. Government regulations Management believes that it is in substantial compliance with applicable regulations of Federal, state and local authorities regulating the handling of specified substances and the discharge of materials into the environment. The Company manufactures certain filtration products that are used as components in medical devices and the Company must use the Food and Drug Administration ("FDA") listed materials in the manufacture of these products. Additionally, the Company maintains Drug Master File ("DMF") files on certain products sold into the health care market. 12 13 ITEM 1. (Continued) Certain medical devices marketed and manufactured by the Company's customers are subject to extensive regulation by the FDA and, in some instances, by foreign governments. Noncompliance with FDA requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing approvals and criminal prosecution. Before a new device can be introduced into the market, the manufacturer must generally obtain FDA clearance through either a 510(k) notification or premarket approval application ("PMA"). A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed Class I or II medical device, or to a Class III medical device for which the FDA has not called for PMAs. The FDA recently has been requiring a more rigorous demonstration of substantial equivalence than in the past. It generally takes from four to twelve months from submission to obtain a 510(k) clearance, but it may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information is needed before a substantial equivalence determination can be made. In many areas the sale and promotion of water treatment devices is regulated at the state level by product registration, advertising restrictions, water testing, product disclosure and other regulations specific to the water treatment industry. In some local areas certain types of water treatment products, including those manufactured by the Company, are restricted because of a concern with the amount and type of contaminants per volume of water they discharge as locally regulated. Environmental Matters Compliance with foreign, federal, state and local laws and regulations enacted to regulate the handling of and the discharge of specified materials into the environment has not had, and is not expected to have, a material effect upon the Company's business. Employees At October 31, 1996, the Company employed over 1,300 people worldwide (exclusive of employees of independent distributors), with over 700 employees in the United States and over 600 employees in other countries. (d) Financial information about foreign and domestic operations and export sales. See Note J to the financial statements on page 44 of this document. 13 14 ITEM 2. PROPERTIES The Company's world headquarters is located in Meriden, Connecticut. This facility also contains its primary manufacturing and assembly plant. The following table sets forth the location and approximate size of the Company's principal properties and facilities, all of which are owned by the Company.
Approximate Facility Size Location (Sq. Ft.) -------- -------------- Meriden, Connecticut....................... 189,000 Enfield, Connecticut....................... 120,000 Stafford Springs, Connecticut.............. 165,000 Kita-Ibaragi, Japan........................ 40,000 Marinque, Brazil........................... 65,000 Calais, France............................. 50,000 Mazeres, France............................ 40,000 Sydney, Australia * ....................... 290,000 * 40 percent of this facility is sublet to an unrelated third party.
In addition to the properties listed above, the Company leases one facility in the United States and 16 facilities outside the United States. These facilities are generally used as warehouses and/or sales offices. ITEM 3. LEGAL PROCEEDINGS As of the date hereof there is no pending litigation of a material nature, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or which may affect the income from, title, to, or possession of, any of their respective properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding executive officers of the Registrant is presented in Part III below and incorporated here by reference. 14 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the NASDAQ market under the symbol CUNO. The following table shows the high and low closing price on NASDAQ for a share of the Company's common stock since the inception of trading:
1996 ------------ High Low ---- --- Fourth Quarter *........................ $ 16 $ 14 1/2 * Market price information includes the period September 10, 1996 (the distribution date of CUNO shares) through the quarter ended October 31, 1996.
As of October 31, 1996, there were 3,605 holders of record of the Company's common stock. The Company has not paid any dividends on its common stock since its inception and does not intend to pay any dividends for the foreseeable future. The Company is also prohibited from declaring any dividends on its capital stock through October 31, 1998 in accordance with its senior unsecured revolving credit facility. 15 16 ITEM 6. SELECTED FINANCIAL DATA CUNO INCORPORATED AND SUBSIDIARIES SUMMARY OF FINANCIAL DATA, 1991 - 1996 (1) (in thousands, except per-share data and ratios)
1996 1995 1994 1993 1992 1991 -------------------------------------------------------- INCOME DATA Net sales..................$179,068 $162,699 $143,111 $130,771 $128,195 $131,019 Gross profit............... 74,220 62,927 50,604 40,605 38,383 44,337 Distribution and other nonrecurring costs (2).. 5,564 -- -- -- -- -- Interest expense........... 820 691 706 281 1,638 1,353 Income (loss) before income taxes............ 11,011 9,563 2,043 (2,549) (4,814) 4,065 Net income (loss).......... 5,593 6,101 1,807 (701) (4,300) 1,209 Earnings per share: Net income (loss)....... 0.41 0.45 0.13 (0.05) (0.32) 0.09 OTHER FINANCIAL DATA Total assets...............$138,756 $162,827 $153,071 $145,952 $151,135 $153,524 Current assets............. 68,154 88,928 77,710 67,805 68,914 71,980 Less current liabilities... 56,597 39,754 35,483 31,264 33,130 30,077 Net working capital..... 11,557 49,174 42,227 36,541 35,784 41,903 Net plant investment....... 48,201 47,931 48,332 49,555 51,563 49,072 Gross capital expenditures. 6,472 5,728 3,816 3,241 6,729 8,554 Long-term debt............. 33,772 4,060 5,175 5,580 4,418 6,450 Shareholders' equity....... 43,148 112,189 106,466 103,743 107,314 111,910 Shareholders' equity per share................... 3.13 8.27 7.85 7.65 7.91 8.25 Average number of shares outstanding during the year................ 13,566 13,566 13,566 13,566 13,566 13,566 RATIOS Gross profit to net sales.. 41.4% 38.7% 35.4% 31.1% 29.9% 33.8% Net income to net sales.... 3.1% 3.7% 1.3% (0.5)% (3.4)% 0.9% Effective income tax rates. 49.2% 36.2% 11.6% 72.5% (10.7)% 70.3% Net income to average shareholders' equity.... 7.2% 5.6% 1.7% (0.7)% (3.9)% 1.1% Ratio of current assets to current liabilities..... 1.20:1 2.24:1 2.19:1 2.17:1 2.08.1 2.39.1 Ratio of long-term debt to shareholders' equity plus long-term debt..... 43.9% 3.5% 4.6% 5.1% 4.0% 5.4% (1) In the Summary of Financial Data above, it was assumed that the common shares issued in conjunction with the reorganization were outstanding for all periods presented. However, the Company's allocation of debt and payment of dividends to Commercial Intertech, which resulted from the reorganization and as more fully described in the footnotes to the financial statements, are reflected in the 1996 amounts only. (2) Included in 1996 operating income and net income were distribution and other nonrecurring costs to the Company associated with the recent reorganization. These expenses totaled $4,858 (net of income taxes of $706).
16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1996-1994 On July 29, 1996, Commercial Intertech Corp. (Commercial Intertech) of Youngstown, Ohio announced that its Board of Directors declared a dividend to its common shareholders of 100 percent of the common stock of CUNO Incorporated of Meriden, Connecticut, its wholly-owned fluid purification business ("CUNO" or the "Company"). The new CUNO shares were distributed on September 10, 1996 on the basis of one common share of CUNO for each Commercial Intertech common share outstanding, payable to holders of record as of the close of business on August 9, 1996 (the "Distribution" or "Spin-off"). The accompanying consolidated financial statements present the financial condition and the results of operations of the Company and its subsidiaries as if the Company were a stand-alone corporation during the periods shown. RESULTS OF OPERATIONS 1996 AS COMPARED TO 1995 Sales of $179.1 million in 1996 were an all time record for the Company and were 12.6 percent greater than those recorded in 1995, after adjusting for the effects of foreign exchange fluctuations on foreign sales reported in U.S. dollars. CUNO's U.S. and foreign operations reported record sales in 1996, surpassing in total 1995's record performance of $162.7 million. The effects of foreign currency fluctuations decreased sales in 1996 by $4.0 million as compared to 1995. CUNO's U.S. operations posted a sales gain of $11.5 million in 1996, 15.4 percent over 1995 results. The sharp increase in U.S. sales was generated primarily by new product introductions in both the health care and fluid processing markets, which included the sale of proprietary nylon membrane products. Sales of these high margin membrane products increased more than 100 percent in the U.S. in 1996. Additionally, improving general economic conditions combined with the new sales programs to increase the sale of core products. The sale of both new products and existing products also benefited from management initiatives that place more focus on in-field customer service and improved solution support. Much of this new customer support, especially in the health care and fluid processing markets, has been provided through the Scientific Application Support Service (S.A.S.S.) staff, a function organized in 1995. The Company continued to increase the S.A.S.S. staff in 1996. Engineering employment in the Company, including S.A.S.S. positions, has increased 28 percent since the beginning of 1994. 17 18 ITEM 7. (Continued) U.S. sales into the potable water market increased 7.6 percent overall in 1996, with certain market segments up sharply. Sales to the food service market, which includes restaurants and institutions, increased at a double digit rate in 1996 due to new products as well as successful collaborative projects with key customers. The sale of reverse osmosis products sharply improved in 1996 due to the creation of a dedicated sales force for the product line and the success of new product sales to customers both in the U.S. and offshore. Sales from overseas operations increased $4.9 million in 1996 which, after adjusting for currency differences, represents a 10.1 percent increase. Sales improved in all international operations in 1996 when compared in local currencies. Europe sales improved by 11 percent after adjusting for currency differences, boosted by new product introductions and further penetration of the eastern European market. Japan's sales, when adjusted for the changes in the value of the Yen, increased 8.4 percent, but in U.S. dollar terms were $1.7 million less. Sales in other international regions grew by $3.8 million overall in 1996, or 10.8 percent when adjusted for exchange rates. A portion of the growth in these other regions was due to product line extensions launched over the past two years as well as to the introduction of S.A.S.S. into these markets during 1995. Gross profit for the Company increased $11.3 million over 1995, with $6.3 million of the 1996 change due to higher sales volume. A gross margin improvement of 2.7 percentage points, from 38.7 percent in 1995 to 41.4 percent in 1996, resulted in the balance of the increase. The enhanced percentage in 1996 was the result of the sale of higher margin new products, improved operating efficiencies in the U.S. and Europe, and the extension of certain product lines into the Brazilian market. The 1996 improvement continued a trend begun in 1993. Also, during 1996 a portion of the intangible assets carried by the Company became fully amortized, reducing amortization by $0.9 million. Selling, general, and administrative expenses, net of distribution and other nonrecurring costs, were $4.7 million higher in 1996 than 1995, a 9.0 percent increase, but 1.1 percentage points lower than the growth in revenue. Although all operations reported increased expenses in 1996, no one segment of the business increased proportionally more than the other segments. Generally, the growth in selling, general, and administrative expenses stemmed from a balanced program of: personnel recruitment in the sales and engineering functions of the Company; increased sales training for both Company and distributor personnel; and, improved sales and marketing promotional support. 18 19 ITEM 7. (Continued) Included in the 1996 selling, general and administrative expenses are charges for services provided to the Company by its former parent, Commercial Intertech. Similar services were provided in 1995 and 1994. Under an agreement signed prior to the Distribution, Commercial Intertech will continue to provide services in 1997 as part of the transition of CUNO to complete standalone status. These expenses will be assigned to CUNO on a basis consistent with prior years, but are expected to be less than prior years. These services are not expected to continue beyond 1997. As a result of the above, operating income of $11.9 million for 1996 also set a record. RESULTS OF OPERATIONS 1995 AS COMPARED TO 1994 Sales increased $19.6 million in 1995, with currency fluctuations favorably impacting results by $7.3 million. At comparable currency exchange rates sales increased 8.7 percent, 5.0 percentage points less than growth in reported dollars. Exchange rate fluctuations primarily benefited Japan and Europe. All operations recorded increased sales in 1995, which resulted in a record year for overall revenues. Sales for CUNO's U.S. operations were $2.9 million higher in 1995 as compared to 1994. General economic conditions as well as strength in the electronics segment of the Company's fluid processing market supported much of the growth in 1995. Additionally, management initiatives such as a market focused sales organization, the creation of the S.A.S.S. teams to support customers in certain markets, and closer interaction with distributors, all begun during the last half of 1994, began to favorably affect the business during the last six months of 1995. CUNO's international operations recorded record sales in 1995 of $87.8 million, or $16.7 million better than 1994, with $7.3 million of the improvement from currency fluctuations. After adjusting for currency movements, sales increased 13.0 percent. All of the geographic regions reported improvements in 1995, and each set a record when sales were expressed in local currencies. Sales in Europe increased $6.0 million or 13.6 percent in 1995 after currency adjustments, with much of the gain attributable to the health care market. 19 20 ITEM 7. (Continued) The Company's gross profit of $62.9 million in 1995 increased $12.3 million from 1994 with $5.4 million of the improvement attributable to margin increase from 35.4 percent in 1994 to 38.7 percent in 1995. Much of the improvement was realized in the U.S. and was due to the manufacture of products sold into the potable water market as well as the divestment of a poor performing operation servicing the fluid processing market. Additionally, new management in the European manufacturing operation sharply improved efficiencies in 1995. Selling, general, and administrative expenses increased $6.5 million or 14.2 percent. Much of the increase in these expenses in 1995 related to the costs associated with enlarging the sales staff worldwide. From the end of 1994 to the end of 1995, the number of sales personnel in the company increased by 19.0 percent. However, income from the growth in revenue of 13.7 percent coupled with improvement in the gross profit margin of 3.3 percentage points offset the increase. Due to the above, operating income of $10.8 million set a record in 1995. OTHER MATTERS DISTRIBUTION AND OTHER NONRECURRING COSTS. The Company recorded $5.6 million in distribution and other nonrecurring costs during 1996 ($4.9 after tax or $.36 per share), of which $3.5 million related directly to the tax free spin-off of CUNO; $1.6 million were associated with establishing the Company as a stand-alone entity; and, $0.5 million related to the improvement of certain foreign distribution channels in conjunction with stand-alone activities. Certain of these costs are not tax deductible. INFLATION EFFECTS ON OPERATIONS. Inflation had a negligible effect on the Company's operations during 1996. Rates of inflation in Europe and North America were in the 2 to 4 percent range. In Japan, inflation was near zero, while in other parts of Asia inflation ranged from 3 to 6 percent. In Brazil, where the Company has manufacturing and marketing operations, inflation slowed dramatically in 1996 to 11.8 percent from 23.8 percent in 1995, reflecting continued success of the government initiated Real Plan launched in the summer of 1994. The Company estimates that inflationary effects, in aggregate, were generally recovered or offset through increased pricing or cost reductions in both 1996 and 1995. 20 21 ITEM 7. (Continued) NONOPERATING ACTIVITY. Nonoperating activity improved $0.4 million in 1996 and $1.7 million in 1995. 1996 was favorably impacted by a $0.3 million reduction in exchange losses and $0.1 million gain on the sale of idle assets. In 1995 exchange losses were $0.5 million better than 1994. Additionally, a $1.1 million loss on the sale of assets was recorded in 1994 as the Company disposed of an under-performing product line. TAXES. CUNO's 1996 effective tax rate was 49 percent, primarily due to the nondeductibility of certain distribution expenses related to the spin-off of CUNO which increased the rate 12 percentage points. The adjusted 1996 tax rate is comparable to the 1995 effective rate of 36 percent. The 1994 calculated effective tax rate of 12 percent was reduced by the reversal of SFAS No. 109 tax valuation adjustments associated with certain foreign operations. LIQUIDITY AND CAPITAL RESOURCES During 1996, the Company generated cash from normal operating activities of $11.7 million, with a total amount generated of $36.7 million. $25.0 million of this total related to the net decrease in the receivable from Commercial Intertech. The decrease resulted from obligations paid by Commercial Intertech on behalf of CUNO related to CUNO's spin-off and for services provided by Commercial Intertech, net of CUNO's positive cash flows generated to its then parent. Driven by the increased level of operations, both accounts receivable and accounts payable increased, by a net of $2.6 million in 1996 and a net of $2.4 million in 1995. Due to a focused program to improve inventory management, inventories declined by $3.2 million in 1996, increased $0.6 million in 1995, and declined $1.3 million in 1994. During 1996, the Company entered into an interim agreement for a $55.0 million bridge loan to provide funding for $30.0 million in debt assumed from Commercial Intertech at the time of the spin-off, and to support operating requirements. On October 31, 1996, the bridge loan was replaced with a 5 year senior unsecured credit facility of $60.0 million. CUNO pays variable interest rates under the facility based upon prime interest or LIBOR rates, plus an applicable margin. In November 1996, the credit facility was fully syndicated which allows CUNO to borrow at more favorable interest rates (5.97% at November 30, 1996). Under the terms of the senior credit facility, the Company is prohibited from declaring dividends during fiscal 1997 and 1998. Capital expenditures were $6.3 million in 1996, $5.2 million in 1995 and $2.9 million in 1994. Budgeted 1997 capital spending is $10.5 million. Cash from operations and current lines of credit are considered adequate to provide the necessary funding. 21 22 ITEM 7. (Continued) BUSINESS OUTLOOK Sales orders in the fourth quarter of 1996 in South America and Europe were impacted by generally weak economic conditions in the regions, rather than specific market conditions. Macroeconomics are forecasted to strengthen somewhat in both of these regions during the first quarter of 1997 and steadily improve, although slowly, throughout 1997. In the U.S. and Asia economic conditions have remained nearly constant throughout 1996. Economic forecasts indicate that growth in the U.S. is expected to remain steady but slow during the year. In Asia, growth in the electronics market slowed in 1996 but is expected to improve slightly in 1997. While Japan and Australian economies are somewhat uncertain, overall, the Company expects results in the Asian region to be generally favorable again in 1997 as penetration of fluid processing markets such as oil and gas refining and chemical processing continues. The Company is committed to continuing its present strategy which has proven successful to date. This strategy includes increasing the number and frequency of new product introductions into all three of the company's major markets, implementing additional customer focused programs in both marketing and sales, and expanding use of the S.A.S.S support function. The Company expects to continue its program of capital investment begun in 1996 with $10.5 million budgeted for 1997. Much of this spending will be focused on expanding capacity and productivity in membrane manufacturing and to improve processes, production practices, and systems in other parts of the Company. Cash provided by operations and standing lines of credit are expected to be adequate to fund the Company's growth. 22 23 ITEM 7. (Continued) FORWARD LOOKING INFORMATION Because CUNO 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 of the Company. CUNO has tried, wherever possible, to identify these "forward looking" statements by using words such as "anticipate," "believe," "estimate," "expect" and similar expressions. These statements reflect the Company's current beliefs and are based on information currently available to it. Accordingly, these statements are subject to risks and uncertainties which could cause the Company's actual results, performance or achievements to differ materially from those expressed in, or implied by these statements. These risks and uncertainties include the following: absence of history as a stand-alone company; volumes of shipments of the Company's products, changes in the Company's product mix and product pricing; costs of raw materials; the rate of economic and industry growth in the United States and the other countries in which the Company conducts its business; economic and political conditions in the foreign countries in which the Company conducts a substantial part of its operations and other risks associated with international operations including taxation policies, exchange rate fluctuations and the risk of expropriation; the Company's ability to protect its technology, proprietary products and manufacturing techniques; changes in technology, changes in legislative, regulatory or industrial requirements and risks generally associated with new product introductions and applications; and domestic and international competition in the Company's global markets. The Company is not obligated to update or revise these "forward looking" statements to reflect new events or circumstances. 23 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CUNO INCORPORATED AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME
Year Ended October 31, 1996 1995 1994 -------- -------- ------ (in thousands, except per share and common share data) Net sales............................. $179,068 $162,699 $143,111 Less costs and expenses: Cost of products sold.............. 104,848 99,772 92,507 Selling, general and administrative expenses......................... 56,750 52,087 45,626 Distribution and other nonrecurring costs............... 5,564 -- -- --------- --------- --------- 167,162 151,859 138,133 --------- --------- --------- Operating income...................... 11,906 10,840 4,978 Nonoperating income (expense): Interest income.................... 156 145 88 Interest expense................... (820) (691) (706) Exchange losses.................... (171) (449) (933) Gain (loss) on sale of assets...... 121 -- (1,053) Other.............................. (181) (282) (331) --------- --------- --------- (895) (1,277) (2,935) --------- --------- --------- Income before income taxes............ 11,011 9,563 2,043 Provision for income taxes: Current............................ 5,293 4,697 1,491 Deferred........................... 125 (1,235) (1,255) --------- --------- --------- 5,418 3,462 236 --------- --------- --------- Net income............................ $ 5,593 $ 6,101 $ 1,807 ========= ========= ========= Earnings per common share............. $ 0.41 $ 0.45 $ 0.13 Weighted average common shares outstanding........................ 13,565,922 13,565,922 13,565,922
See notes to consolidated financial statements. 24 25 ITEM 8. (Continued) CUNO INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
October 31, 1996 1995 -------------------- (in thousands) Assets CURRENT ASSETS Cash and cash equivalents........................ $ 5,244 $ 6,740 Accounts and notes receivable (less allowances of $1,133 and $1,136, respectively). 36,944 33,381 Inventories...................................... 19,149 21,763 Deferred income taxes............................ 5,333 5,766 Prepaid expenses and other current assets........ 1,484 2,511 Receivables from related party................... -- 18,767 --------- -------- Total current assets................... 68,154 88,928 NONCURRENT ASSETS Intangible assets................................ 19,695 21,663 Pension assets................................... 1,174 3,264 Other noncurrent assets.......................... 1,532 1,041 --------- -------- Total noncurrent assets................ 22,401 25,968 PROPERTY, PLANT AND EQUIPMENT, NET.................. 48,201 47,931 --------- -------- Total assets....................... $138,756 $162,827 ========= ========
25 26 ITEM 8. (Continued) CUNO INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
October 31, 1996 1995 ------------------- (in thousands) Liabilities and Shareholders' Equity CURRENT LIABILITIES Bank loans...................................... $ 10,690 $ 10,440 Accounts payable................................ 12,719 10,780 Accrued payroll and related taxes............... 9,084 8,446 Accrued other expenses.......................... 6,986 6,105 Accrued income taxes............................ 1,360 2,947 Current portion of long-term debt............... 962 1,036 Dividends payable to related party.............. 4,612 -- Payable to related party........................ 10,184 -- --------- --------- Total current liabilities.......... 56,597 39,754 NONCURRENT LIABILITIES Long-term debt.................................. 33,772 4,060 Deferred income taxes........................... 3,670 4,067 Retirement benefits............................. 1,569 2,757 --------- --------- Total noncurrent liabilities....... 39,011 10,884 SHAREHOLDERS' EQUITY Preferred stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding............................... -- -- Common stock, $.001 par value; Authorized: 50,000,000 shares Issued: 1996 - 13,774,568 shares (excluding 6,854 in treasury) 1995 - 13,565,922 shares ........... 14 14 Additional paid-in-capital...................... 6,736 3,391 Retained earnings............................... 33,636 102,245 Unearned compensation........................... (3,448) -- Minimum pension liability adjustment............ (811) -- Translation adjustments......................... 7,021 6,539 --------- --------- Total shareholders' equity......... 43,148 112,189 --------- --------- Total liabilities and shareholders' equity $138,756 $162,827 ========= =========
See notes to consolidated financial statements. 26 27 ITEM 8. (Continued) CUNO INCORPORATED AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Year Ended October 31, 1996 1995 1994 ----------------------------------- (in thousands, except per share data) COMMON STOCK Balance at end of year........... $ 14 $ 14 $ 14 ADDITIONAL PAID-IN CAPITAL Balance at beginning of year..... 3,391 3,391 3,391 Performance shares issued........ 3,448 -- -- Shares repurchased............... (103) -- -- --------- --------- -------- Balance at end of year........... 6,736 3,391 3,391 RETAINED EARNINGS Balance at beginning of year..... 102,245 97,284 97,507 Net income for the year.......... 5,593 6,101 1,807 Less: Dividends to Commercial Intertech................... 36,943 -- 1,958 Transfer of Commercial Intertech debt.............. 30,000 -- -- Divisional equity retained by Commercial Intertech........ 7,259 1,140 72 --------- --------- -------- Balance at end of year........... 33,636 102,245 97,284 UNEARNED COMPENSATION Balance at beginning of year..... -- -- -- Performance shares issued........ (3,448) -- -- --------- --------- -------- Balance at end of year........... (3,448) -- -- MINIMUM PENSION LIABILITY Balance at beginning of year..... -- -- -- Other............................ (811) -- -- --------- --------- -------- Balance at end of year........... (811) -- -- TRANSLATION ADJUSTMENTS Balance at beginning of year..... 6,539 5,777 2,831 Net change for year.............. 482 762 2,946 --------- --------- -------- Balance at end of year........... 7,021 6,539 5,777 Total Shareholders' Equity.. $ 43,148 $112,189 $106,466 ========= ========= ======== Shareholders' equity per share of common stock.................... $3.13 $8.27 $7.85 ========= ========= ========
See notes to consolidated financial statements. 27 28 ITEM 8. (Continued) CUNO INCORPORATED AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended October 31, 1996 1995 1994 ------------------------- (in thousands) OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . $ 5,593 $ 6,101 $ 1,807 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization. . 7,475 7,929 8,154 Loss on sale of fixed assets . . . . . . . . . -- -- 1,053 Pension plan credits . . . . . . . . . . . . . 692 1,019 676 Change in deferred income taxes. . . . . . . . (239) (1,222) (1,143) Changes in current assets and liabilities: (Increase) in accounts receivable . . . . . (5,050) (3,839) (756) Decrease (increase) in inventories. . . . . 3,224 (636) 1,301 Decrease (increase) in prepaid expenses and other current assets . . . . . . . . 838 (292) 166 Decrease (increase) in receivable from affiliate. . . . . . . . . . . . . . . . 24,964 (3,128) (4,814) Increase in accounts payable and accrued expenses . . . . . . . . . . . . . . . . 2,425 1,477 1,323 (Decrease) increase in accrued income taxes. . . . . . . . . . . . . . . . . . (3,236) 335 229 --------- --------- --------- Net cash provided by operating activities. . . . . . 36,686 7,744 7,996 INVESTING ACTIVITIES: Proceeds from sale of fixed assets . . . . . . . . . 43 113 109 Investment in intangibles. . . . . . . . . . . . . . -- (343) (207) Capital expenditures . . . . . . . . . . . . . . . . (6,325) (5,234) (2,927) --------- --------- --------- Net cash (used) by investing activities. . . . . . . (6,282) (5,464) (3,025) FINANCING ACTIVITIES: Proceeds from long-term debt . . . . . . . . . . . . 61,000 4,012 -- Principal payments on long-term debt . . . . . . . . (30,987) (4,900) (882) Net borrowings under bank loan agreements. . . . . . 1,311 880 (104) Conversion of other assets . . . . . . . . . . . . . (701) 1 32 Dividends paid to Commercial Intertech . . . . . . . (62,331) -- (1,958) --------- --------- --------- Net cash (used) by financing activities . . . . (31,708) (7) (2,912) Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . (192) 59 396 --------- --------- --------- Net (decrease)increase in cash and cash equivalents . . (1,496) 2,332 2,455 Cash and cash equivalents at beginning of year. . . . . 6,740 4,408 1,953 --------- --------- --------- Cash and cash equivalents at end of year. . . . . . . . $ 5,244 $ 6,740 $ 4,408 ========= ========= ========= Supplemental disclosures: Cash paid during the year for: Interest . . . . . . . . . . . . . . . . . . . . . . $ 694 $ 716 $ 703 Income taxes . . . . . . . . . . . . . . . . . . . . 9,732 4,338 1,149
See notes to consolidated financial statements. 28 29 ITEM 8. (Continued) CUNO INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND ACCOUNTING POLICIES Organization: On July 11, 1996, Commercial Intertech Corp. ("Commercial Intertech") initiated a plan to separate its Fluid Purification group subsidiaries and divisions (the "Company" or "CUNO") from the rest of Commercial Intertech's businesses in a tax-free transaction, subject to regulatory approval. The following companies and divisions made up the Fluid Purification Group companies - - CUNO Incorporated, USA; CUNO Pacific Pty., Ltd., Australia; Commercial Intertech do Brasil, Ltda., Brazil; CUNO Europe S.A., France; CUNO KK, Japan; CUNO Filtration Asia Pte. Ltd., Singapore; and divisions located in England, Germany and Italy. On July 29, 1996, Commercial Intertech declared a distribution of 100 percent of its interest in the Company to be effected by a distribution on September 10, 1996 of one share of common stock of the Company for each share of Commercial Intertech held by existing shareholders of Commercial Intertech, based on a record date of August 9, 1996. On that date, there were approximately 13,566,000 common shares of Commercial Intertech outstanding. As part of the distribution, the Company's Articles of Incorporation were amended to provide for the authorization of 2,000,000 shares of $.001 par value Preferred Stock and 50,000,000 shares of $.001 par value Common Stock. No preferred shares were issued with the distribution (see Note D). In conjunction with the reorganization, the Company assumed $30,000,000 of Commercial Intertech's debt which was paid in the form of a dividend. The dividend was paid out of the proceeds from a credit facility entered into by the Company shortly after the reorganization (see Note C). In addition, the Company declared an additional dividend of $35,675,000 payable to Commercial Intertech. Of this amount, $4,612,000 remains payable at October 31, 1996. In addition, CUNO Pacific Pty. Ltd. declared and paid a $1,268,000 dividend in February 1996. 29 30 ITEM 8. (Continued) The accounts of the Company represent the consolidation of all entities formerly organized as the Fluid Purification Group of Commercial Intertech. The transfer of Commercial Intertech's interests and assets in the business and divisions which comprise the Company has been accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests as of the time of the combination. Accordingly, the historical basis is carried over. The Company's shareholders' equity has been retroactively restated as if the reorganization had occurred at the beginning of the earliest period presented. The accompanying consolidated financial statements represent the financial condition of the Company and the results of operations as if the Company was a stand-alone corporation during the years shown. References to subsidiaries include those companies and divisions which have been organized under the consolidated Company. All significant transactions between the Company and its subsidiaries have been eliminated. The Company and Commercial Intertech have entered into a Tax Allocation Agreement providing, among other things, for the respective rights and obligations of Commercial Intertech and the Company concerning tax liabilities (including the allocation of and indemnification for tax liabilities) in connection with the distribution. In addition, the Company and Commercial Intertech have entered into a Distribution and Interim Services Agreement which provides that certain services which have historically been provided to the Company by Commercial Intertech will continue to be provided to the Company following the Distribution Date, at rates specified in such agreement, for a period of up to twelve months following the Distribution Date, with certain exceptions. The Tax Allocation Agreement and Distribution and Interim Services Agreement are not expected to result in expenses materially different from those reflected in the historical financial statements. Commercial Intertech provides certain management and administrative services to the Company. Amounts of Commercial Intertech's general corporate, accounting, legal, and other administrative costs related to such services have been allocated to the Company based on actual dollars spent or the relative percentage of time each department spends providing services to the Company. Management believes that this allocation method provides the Company with a reasonable amount of such expenses. Consolidation: The accounts of the Company and all of its subsidiaries are included in the consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation. 30 31 ITEM 8. (Continued) 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 48 percent (49 percent in 1995) of worldwide inventories are accounted for using the LIFO method. Inventories as of October 31 consisted of the following:
1996 1995 ---- ---- (in thousands) Raw materials................. $ 2,817 $ 3,063 Work in process............... 6,503 6,784 Finished goods................ 9,829 11,916 -------- -------- $19,149 $21,763 ======== ========
If all inventories were priced using the FIFO method, which approximates replacement cost, inventories would have been $2,296,000 higher in 1996 and $2,220,000 higher in 1995. INTANGIBLES: Intangible assets at October 31 are summarized as follows:
1996 1995 ---- ---- (in thousands) Goodwill, less accumulated amortization (1996 - $5,519,000; 1995 - $4,944,000)...$16,164 $16,739 Other intangibles, less accumulated amortization (1996 -$21,833,000; 1995 - $20,440,000)...................... 3,531 4,924 -------- -------- $19,695 $21,663 ======== ========
Goodwill, which is the excess of cost over the fair value of net assets acquired, generally is amortized on a straight-line basis over 40 years. Other intangibles, including patents, know-how and trademarks, are carried at their appraised value on the acquisition date less accumulated amortization, which is provided using the straight-line method over 10 to 25 years. 31 32 ITEM 8. (Continued) Properties And Depreciation: Property, plant and equipment are recorded at cost. Buildings and equipment are depreciated over their useful lives, principally by use of the straight-line method, which range from 10 to 40 years for buildings and 2.5 to 20 years for machinery and equipment. Impairment of Long-Lived Assets: In the event that facts and circumstances indicate that the carrying value of intangibles and long-lived assets or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset is 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 on the balance sheet. Deferred income tax assets and liabilities principally arise from differences between the tax basis of the asset or liability and its reported amount in the consolidated financial statements. Deferred tax balances are determined by using provisions of the enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. Provisions are made for appropriate income taxes on undistributed earnings of foreign subsidiaries which are expected to be remitted to the parent company in the near term. The cumulative amount of unremitted earnings of subsidiaries, which aggregated approximately $3,000,000 at October 31, 1996, is deemed to be indefinitely reinvested and, accordingly, no provision for US 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 US income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of any unrecognized deferred US tax liability is not practicable because of the complexities associated with its hypothetical calculation. 32 33 ITEM 8. (Continued) Translation of Foreign Currencies: The financial statements of foreign entities are translated in accordance with Statement of Financial Accounting Standards (SFAS) 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 all assets and liability accounts are translated into US dollars at the current exchange rate. Resulting translation adjustments are recorded as a separate component of shareholders' equity and do not affect income determination. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Cash equivalents consist of time deposits in financial institutions at October 31, 1996 and 1995. 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 considered to have occurred upon shipment of the finished product. Advertising: Advertising costs are expensed as incurred and included in "selling, general and administrative expenses". Advertising expenses were $3,124,000, $2,906,000 and $2,738,000 for 1996, 1995 and 1994, respectively. Distribution and Other Nonrecurring Costs: Distribution and other nonrecurring costs represent incremental costs to the Company associated with the recent reorganization. Such costs are primarily comprised of professional service fees and costs associated with combining operations under a unified management. Earnings Per Share: All share and per-share information has been retroactively restated to reflect the distribution in a manner similar to a stock split. In determining the weighted average number of common shares outstanding, it was assumed that the shares issued in conjunction with the reorganization were outstanding during each year presented. Fully diluted earnings per share is not presented as the effect of other common stock equivalents on the 1996 earnings per share calculation was not material. 33 34 ITEM 8. (Continued) Uses of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Newly Issued Accounting Standards: In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued. This standard establishes a fair value method of accounting for or disclosing stock-based compensation plans. In 1997, the Company intends to adopt the disclosure provisions of this standard which requires disclosing the pro forma consolidated net income and earnings per share amounts assuming the fair value method was effective on November 1, 1995. The adoption of the disclosure provisions will not affect consolidated results of operations, financial position, or cash flows. In October 1996, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is effective for fiscal years beginning after December 15, 1996. The SOP does not make changes to existing accounting rules, but it clarifies how existing authoritative guidance on loss contingencies should be applied in determining environmental liabilities. The Company does not believe the SOP will have any material impact on its financial position or results of operations. The Company will be required to report under the SOP in its 1998 financial statements. 34 35 ITEM 8. (Continued) NOTE B - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is comprised of the following:
1996 1995 ---- ---- (in thousands) Land and land improvements................. $ 6,495 $ 6,672 Buildings.................................. 26,301 27,706 Machinery and equipment.................... 58,749 56,550 Construction in progress................... 4,605 2,451 ------- ------- 96,150 93,379 Less depreciation and amortization......... 47,949 45,448 ------- ------- $48,201 $47,931 ======= =======
Depreciation expense was $5,614,000 in 1996, $5,330,000 in 1995 and $5,395,000 in 1994. NOTE C - DEBT Long-term debt obligations are summarized below:
1996 1995 ---- ---- (in thousands) Revolving credit....................... $31,000 $ -- Mortgages.............................. 3,675 4,973 Other.................................. 59 123 ------- ------- 34,734 5,096 Less current portion................... 962 1,036 ------- ------- $33,772 $ 4,060 ======= =======
During the fourth quarter of fiscal 1996, the Company entered into a $55.0 million bridge loan agreement to pay Commercial Intertech the $30.0 million of debt assumed as part of the spin-off in the form of a dividend. The Company then replaced the bridge financing with a $60.0 million senior unsecured revolving credit facility. 35 36 ITEM 8. (Continued) The new senior unsecured revolving credit facility was used to repay all outstanding debt associated with the bridge financing and for other general purposes. The credit facility matures in five years. The Company pays a variable per annum fee on the unused amount of the commitment, payable quarterly in arrears. The rate was 0.125 percent at October 31, 1996. The interest rate on outstanding borrowings at October 31, 1996 was 8.25 percent. The facility has interest options determinable by the Company based upon prime interest or LIBOR rates plus an applicable margin. These significantly reduced rates were not available to the Company on October 31, 1996 because the loan was not fully syndicated. Syndication has been completed and the rate at November 30, 1996 was 5.97 percent. The Company has $7.0 million in outstanding letters of credit at October 31, 1996 which reduces the availability of this credit facility. The credit agreement includes covenants which require the maintenance of certain financial ratios. The Company was in compliance with these covenants at October 31, 1996. The Company is prohibited from declaring dividends during fiscal 1997 and 1998. However, the Company may repurchase a maximum of $5,000,000 in treasury stock during 1997 and 1998 for its employee benefit plans. Mortgages relate to two manufacturing facilities. Two loans relating to a Japanese manufacturing facility bear interest at 1.75 and 1.88 percent, and mature through the year 2000. One of the two loans is secured with property and equipment in KitaIbaragi, Japan (net book value at October 31, 1996 - -$5,466,000). The second loan is unsecured. A facility located in Enfield, Connecticut collateralizes a loan which bears interest at 5.0 percent, also maturing in the year 2000. The Enfield facility's net book value at October 31, 1996 was $3,885,000. Principal payments due in the five years after October 31, 1996 are: (in thousands) 1997................................$ 962 1998................................ 913 1999................................ 924 2000................................ 935 2001................................ 31,000 The Company had available unused short-term lines of credit in various countries totaling approximately $9.2 million at October 31, 1996. Drawdowns under the unused short-term lines of credit are subject to the lender's approval. Outstanding bank loans at October 31, 1996 and 1995 had weighted average interest rates of 1.4 percent and 2.5 percent, respectively. The bank loans and unused short-term lines of credit are payable upon demand and are unsecured. There are no significant commitment fees related to the bank loans or unused lines of credit. 36 37 ITEM 8. (Continued) NOTE - D CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, par value $.001 per share, and 2,000,000 shares of Preferred Stock, par value $.001 per share. Common Stock In conjunction with the reorganization, 13,565,922 shares of Common Stock were issued excluding shares of Common Stock reserved for issuance upon exercise of options granted under the Company's Stock Option Plans. Subject to preferences that may be applicable to any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. Holders of Common Stock are entitled to one vote per share in all matters to be voted upon by shareholders. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of the Company's liabilities and the liquidation preferences of any outstanding Preferred Stock. Holders of Common Stock have no preemptive rights and no rights to convert their Common Stock into any other securities, and there are no redemption provisions with respect to such shares. All of the outstanding shares of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may issue in the future. Preferred Stock The authorized class of Preferred Stock may be issued in series from time to time with such designations, relative rights, priorities, preferences, qualifications, limitations and restrictions thereof as the Board of Directors determines. The rights, priorities, preferences, qualifications, limitations and restrictions of different series of Preferred Stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. The Board of Directors may authorize the issuance of Preferred Stock which ranks senior to the Common Stock with respect to the payment of dividends and the distribution of assets upon liquidation. In addition, the Board is authorized to fix the limitations and restrictions, if any, upon the payment of dividends on Common Stock to be effective while any shares of Preferred Stock are outstanding. 37 38 ITEM 8. (Continued) NOTE E - OPERATING LEASES The Company has entered into certain lease agreements for various facilities and equipment. Rent expense under operating leases was approximately $1,672,000 in 1996, $1,729,000 in 1995, and $1,532,000 in 1994. Future minimum lease payments under noncancellable operating leases with an initial term of one year or more were as follows at October 31, 1996: (in thousands) 1997...................................$ 705 1998................................... 509 1999................................... 380 2000................................... 349 2001................................... 348 Thereafter............................. 234 ------ Total minimum lease payments...........$2,525 ====== NOTE F - BENEFIT PLANS The Company maintains noncontributory defined benefit plans for substantially all of its United States employees. Pension benefits for the hourly employees covered by these plans are expressed as a flat benefit rate times years of continuous service. The salaried employees have previously been included in a defined benefit pension plan sponsored by Commercial Intertech. Benefits for salaried employees are now provided under a successor plan with essentially the same benefits which are based upon a percentage of the employee's average compensation during the preceding ten years, reduced by 50 percent of the Social Security Retirement Benefit. The Company's funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as may be deemed appropriate from time to time. The Company also accounts for pension costs under the provisions of SFAS No. 87 for contributory defined benefit pension plans covering its employees in Japan. Benefits under these plans are based on years of service and compensation in the period immediately preceding retirement. Funding is predicated on minimum contributions as required by local laws and regulations plus additional amounts, if any, as may be deemed appropriate. Some employees of other foreign operations also participate in postemployment benefit arrangements not subject to the provisions of SFAS No. 87. 38 39 ITEM 8. (Continued) The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets at October 31, 1996 and 1995 for the Company's US and foreign defined benefit pension plans. Other foreign pension plans do not determine net assets or the actuarial present value of accumulated benefits as calculated and disclosed herein:
1996 1995 ---- ---- (in thousands) Actuarial present value of benefit obligations: Vested benefit obligation....................... $(17,546) $(18,426) ========= ========= Accumulated benefit obligation.................. $(20,071) $(20,492) ========= ========= Projected benefit obligation..................... $(24,567) $(26,009) Market value of plan assets...................... 19,632 16,921 --------- --------- Projected benefit obligation in excess of plan assets.................................... (4,935) (9,088) Unrecognized net loss............................ 819 2,887 Unrecognized prior service cost.................. 1,132 1,451 Unrecognized net obligation...................... 567 3,590 Additional minimum liability..................... (408) (2,498) --------- --------- Net pension liability recognized in the consolidated balance sheets................... $ (2,825) $ (3,658) ========= ========
Plan assets at October 31, 1996 are invested in publicly traded and restricted mutual funds, various corporate and government bonds, guaranteed income contracts and listed stocks, including common stock of the Company having a market value of $376,000 at that date. Salaried plan assets have been estimated. 39 40 ITEM 8. (Continued) A summary of the various components of net periodic pension cost for defined benefit plans and cost information for other plans for the three-year period is shown below:
1996 1995 1994 ---- ---- ---- (in thousands) Defined benefit plans: Service cost..............................$ 1,651 $ 1,337 $ 1,095 Interest cost............................. 1,049 1,065 831 Actual return on plan assets.............. (1,930) (1,785) (462) Net amortization and deferral............. 1,369 1,145 (150) -------- -------- -------- Net pension expense.................... 2,139 1,762 1,314 Other plans: Foreign plans............................. 273 218 184 -------- -------- -------- Total pension expense..................$ 2,412 $ 1,980 $ 1,498 ======== ======== ========
Assumptions used in the accounting for the defined benefit plans as of October 31 were:
1996 1995 1994 ---- ---- ---- Domestic Plans - -------------- Weighted-average discount rate.............. 7.75% 7.25% 8.5% Rates of increase in compensation levels.... 5.0 % 4.5 % 4.5% Expected long-term rate of return on assets. 10.0 % 10.0 % 10.0% CUNO KK (Japan) Plan - -------------------- Weighted-average discount rate.............. 4.0 % 4.0 % 5.0% Rates of increase in compensation levels.... 4.0 % 5.0 % 5.0% Expected long-term rate of return on assets. 4.5 % 5.5 % 6.0%
40 41 ITEM 8. (Continued) NOTE G - INCOME TAXES The components of income (loss) before income taxes and the provision (benefit) for income taxes are summarized as follows:
1996 1995 1994 ---- ---- ---- (in thousands) Income (loss) before income taxes Domestic................................. $ 3,436 $ 3,652 $(1,037) Foreign.................................. 7,575 5,911 3,080 -------- -------- -------- 11,011 9,563 2,043 Provision (benefit) for income taxes Current Domestic - Federal..................... 1,947 1,466 (3) - State and local............. 722 368 115 Foreign................................ 2,960 3,546 1,379 Benefit of operating loss carryforwards.. (336) (683) -- -------- -------- -------- 5,293 4,697 1,491 Deferred Domestic - Federal..................... 79 (633) (376) - State and local............. 4 (95) (140) Foreign................................ 42 (507) (739) -------- -------- -------- 125 (1,235) (1,255) -------- -------- -------- 5,418 3,462 236 Net income (loss) Domestic................................. 684 2,546 (633) Foreign.................................. 4,909 3,555 2,440 -------- -------- -------- $ 5,593 $ 6,101 $ 1,807 ======== ======== ========
A reconciliation of the effective tax rate to the US statutory rate follows:
1996 1995 1994 ---- ---- ---- Statutory US federal income tax rate....... 35.0% 35.0% 35.0% State and local taxes on income net of domestic federal income tax benefit...... 4.4 1.9 (0.8) Impact of foreign subsidiaries on effective rate..................................... (2.8) 4.0 (36.6) Benefit of operating loss carryforwards.... (3.1) (7.1) -- Nonrecurring distribution costs............ 11.9 -- -- Goodwill with no US tax benefit............ 3.1 4.7 21.8 All other.................................. .7 (2.3) (7.8) ------ ----- ------ Effective income tax rate................ 49.2% 36.2% 11.6% ====== ===== ======
41 42 ITEM 8. (Continued) Significant components of the Company's deferred income tax liabilities and assets as of October 31 are as follows:
1996 1995 1994 ---- ---- ---- Deferred income tax liabilities: Tax over book depreciation................ $4,508 $4,925 $5,222 Other..................................... 61 87 103 ------- ------- ------ Total deferred income tax liabilities... 4,569 5,012 5,325 Deferred income tax assets: Pension liability......................... 942 684 511 Employee benefits......................... 1,919 2,209 2,031 Net operating loss carryforwards.......... 1,061 1,832 3,279 Inventory valuation....................... 1,001 877 538 Net operating loss carryback.............. 1,309 1,309 1,081 Other..................................... 1,061 1,632 1,628 ------- ------- ------ Total deferred income tax assets........ 7,293 8,543 9,068 Valuation allowance for deferred income tax assets.............................. 1,061 1,832 3,279 ------- ------- ------ Net deferred income tax assets......... 6,232 6,711 5,789 ------- ------- ------ Net deferred income tax assets......... $1,663 $1,699 $ 464 ======= ======= ======
The valuation allowance has decreased by $771,000 in 1996, $1,447,000 in 1995 and $931,000 in 1994. The decrease in 1996 is the result of the reorganization of Cuno Latina Ltda. (Brazil), in addition to the utilization of net operating loss carryforwards. Although realization of the net deferred income tax assets is not assured, management believes it is more likely than not that all of the remaining net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could be reduced if estimates of future taxable income are reduced. The tax benefits from net operating loss carryforwards relate to the operation in Brazil and are available indefinitely. 42 43 ITEM 8. (Continued) NOTE H - RELATED PARTY TRANSACTIONS Transactions with Commercial Intertech included in the balance sheets as "Receivables from related party", "Dividends payable to related party" and "Payable to related party" represent a net balance as a result of various transactions between the Company and Commercial Intertech. These accounts are short-term and non-interest bearing. The balance is primarily the result of the Company's declaration of dividends and other payments associated with the reorganization. Prior to the reorganization, the balance was primarily the result of the Company's participation in Commercial Intertech's domestic cash management system as all excess cash was remitted to Commercial Intertech and certain disbursements were made by Commercial Intertech. Also included are transactions relating to the Company's federal income tax liability and other corporate charges. Transactions with other Commercial Intertech subsidiaries are included in the "Other" classification. A summary of transactions follows:
October 31, --------------------------- 1996 1995 1994 ---- ---- ---- (in thousands) Balance at beginning of year......... $ 18,767 $ 15,104 $ 10,923 Net cash remitted to Commercial Intertech............ 22,145 15,084 11,716 Administrative expenses........... (11,835) (9,869) (8,607) Payment of dividends.............. (31,063) -- -- Other............................. (8,198) (1,552) 1,072 --------- --------- -------- Balance at end of year............... $(10,184) $ 18,767 $ 15,104 ========= ========= ========
NOTE I - 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. Costs associated with these activities, which the Company expenses as incurred, are shown below:
1996 1995 1994 ---- ---- ---- Research and development....... $ 3,625 $ 2,483 $ 1,884 Engineering.................... 6,236 5,825 5,888 -------- -------- ------- $ 9,861 $ 8,308 $ 7,772 ======== ======== ======= Percent of net sales........... 5.5% 5.1% 5.4% ======== ======== =======
43 44 ITEM 8. (Continued) NOTE J - SEGMENT REPORTING The Company has a single industry segment which is engaged in the design, manufacture and sale of products in the fluid purification industry. In the following table, data in the column labeled "Europe" pertains to subsidiaries operating within the European Economic Community. Data in the "Other" column pertains to operations located in Asia, Australia and Brazil. Operating income represents total revenue less total operating expenses. Identifiable assets are those assets used in the operations of each business or geographic area or which are allocated when used jointly.
- -------------------------------------------------------------------------------------- GEOGRAPHIC AREA UNITED STATES EUROPE JAPAN OTHER ELIMINATION CONSOLIDATED - -------------------------------------------------------------------------------------- 1996 - -------------------------------------------------------------------------------------- Sales to customers.. $ 86,394 $ 30,541 $ 28,778 $ 33,355 $ -- $179,068 Inter-area sales.... 16,894 1,305 300 41 (18,540) -- ---------------------------------------------------------------- Total net sales..... 103,288 31,846 29,078 33,396 (18,540) 179,068 Operating income.... 1,935 2,923 1,269 5,779 -- 11,906 Identifiable assets. 74,647 17,350 24,430 17,085 133,512 Corporate assets.... 5,244 Total assets........ 138,756 - -------------------------------------------------------------------------------------- 1995 - -------------------------------------------------------------------------------------- Sales to customers.. $ 74,893 $ 27,700 $ 30,508 $ 29,598 $ -- $162,699 Inter-area sales.... 16,516 1,423 593 1,470 (20,002) -- --------- --------- --------- --------- --------- -------- Total net sales..... 91,409 29,123 31,101 31,068 (20,002) 162,699 Operating income.... 1,607 2,351 2,533 4,349 -- 10,840 Identifiable assets. 101,640 11,381 26,595 16,471 -- 156,087 Corporate assets.... 6,740 Total assets........ 162,827 - -------------------------------------------------------------------------------------- 1994 - -------------------------------------------------------------------------------------- Sales to customers.. $ 71,964 $ 21,651 $ 25,234 $ 24,262 $ -- $143,111 Inter-area sales.... 12,981 1,069 236 1,197 (15,483) -- --------- --------- --------- --------- --------- -------- Total net sales..... 84,945 22,720 25,470 25,459 (15,483) 143,111 Operating income.... (1,413) 373 2,392 3,626 -- 4,978 Identifiable assets. 96,174 13,749 25,125 13,615 -- 148,663 Corporate assets.... 4,408 Total assets........ 153,071
Net assets of foreign subsidiaries at October 31, 1996 and 1995 were $24,043,000 and $36,298,000, respectively, of which net current assets were $9,677,000 and $19,558,000 respectively. 44 45 ITEM 8. (Continued) NOTE K - STOCK OPTIONS AND AWARDS In September 1996, the Company adopted and approved a stock option and award plan which allows for the grant of a number of stock incentive instruments, including nonqualified and incentive stock options, restricted stock, performance shares and stock appreciation rights which may be granted as part of a stock option or as a separate right to the holders of any options previously granted. The plan permits the granting of such stock awards of up to 1,200,000 shares of Common Stock. Accordingly, such shares have been authorized and reserved. The options are exercisable at various dates and have varying expiration dates. Approximately 946,760 shares of common stock are reserved for issuance to key employees and nonemployee directors under the provisions of these option and award plans as of October 31, 1996. Of its 353,961 stock options which were granted during 1996, 81,961 related to Commercial Intertech options held by Company executives prior to the September 10, 1996 distribution date. Such options were issued in a manner to preserve the economic position of the option holders which existed prior to the distribution. No accounting expense was charged to earnings in connection with this issuance. Awards of performance shares totaled 215,500 in 1996. When rights, options or awards are granted, associated compensation expense is accrued from date of grant to the date such options or awards are exercised. A summary of the stock option activity follows for 1996:
----------------------------------- Shares Exercise Under Price Options Option (per share) Exercisable ----------------------------------- Outstanding at October 31, 1995 -- -- -- Options granted..............: 272,000 $ 15.13 -- Commercial Intertech options exchanged..........: 81,961 7.47-10.99 -- Options exercised ...........: -- -- -- ----------------------------------- Outstanding at October 31, 1996...........: 353,961 $7.47-15.13 --
Shares available for future grants amounted to approximately 592,800 shares as of October 31, 1996. 45 46 ITEM 8. (Continued) NOTE L - FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheets for cash and cash equivalents approximate fair value. Long and short-term debt: The carrying amounts of the Company's borrowings under its short-term credit agreements approximate their fair value. The fair values of the long-term debt are estimated using discounted cash flow analysis, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's long-term debt approximates its carrying value because of the variable interest rate of the majority of the debt. The carrying amounts and fair values of the Company's financial instruments follows:
October 31, ------------------------------------- 1996 1995 Carrying Fair Carrying Fair Value Value Value Value ------- ------- -------- ------ Cash and cash equivalents.. $ 5,244 $ 5,244 $ 6,740 $ 6,740 Bank Loans................. 10,690 10,690 10,440 10,440 Long-term debt............. 34,734 34,719 5,096 5,068
The carrying amounts of accounts and notes receivable, receivables from related party, accounts payable and accrued expenses and amounts payable to related party approximates fair value because of the short-term nature of those transactions. Foreign currency exchange contracts: At times, the Company utilizes foreign currency exchange contracts to minimize the impact of currency fluctuations on transactions. At October 31, 1996 and 1995, the Company held contracts for $1,000,000 and $500,000 respectively, with fair values of $1,002,000 and $500,000, respectively. The fair value of foreign currency exchange contracts is estimated based on quoted exchange rates at year end. The forward contracts are an effective hedge against fluctuations in the value of the foreign currency. Therefore, the contracts have no income statement impact. 46 47 ITEM 8. (Continued) NOTE M - DISPOSAL The Company recorded a loss of $1,053,000 during fiscal 1994 on the disposal of assets it had acquired from Bioken Separation, Inc., a manufacturer of proprietary cross-flow membrane devices and systems. The original cost of the acquisition was $2,224,000. NOTE N - QUARTERLY DATA (unaudited)
1996 First Second Third Fourth - ---- ----- ------ ----- ------ (in thousands, except per-share amounts) Net sales.................$ 41,004 $ 45,090 $ 48,542 $ 44,432 Gross profit.............. 15,748 18,460 20,796 19,216 Distribution and other nonrecurring costs (1).. -- -- 2,876 2,688 Net income (loss)......... 1,851 3,251 630 (139) Earnings per common share................... $0.14 $0.24 $0.05 $(0.01) 1995 First Second Third Fourth - ---- ----- ------ ----- ------ (in thousands, except per-share amounts) Net sales................ $ 37,713 $ 39,630 $ 43,467 $ 41,889 Gross profit............. 13,926 14,995 17,025 16,981 Net income............... 1,416 1,241 1,419 2,025 Earnings per common share.................. $0.10 $0.09 $0.10 $0.15
The Company incurred $2,876,000 or $.21 per share during the third quarter of 1996 and $1,982,000 or $.15 per share during the fourth quarter (net of taxes) for distribution and other nonrecurring costs. Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not necessarily equal the total for the year. (1) Included in 1996 operating income and net income were distribution and other nonrecurring costs to the Company associated with the recent reorganization. These expenses totaled $4,858 (net of income taxes of $706). 47 48 ITEM 8. (Continued) Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors CUNO Incorporated Meriden, Connecticut We have audited the accompanying consolidated balance sheets of CUNO Incorporated and subsidiaries as of October 31, 1996 and 1995, and the related statements of consolidated income, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CUNO Incorporated and subsidiaries at October 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/Ernst & Young LLP Cleveland, Ohio December 16, 1996 48 49 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 Regarding the directors of the Registrant, reference is made to the information set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement filed January 21, 1997, which information is incorporated by reference herein. The principal executive officers of the Company and their recent business experience are as follows: Name Office Held Age ---- ----------- --- Paul J. Powers...........Chairman of the Board of 61 Directors and Chief Executive Officer Mark G. Kachur...........President and Chief Operating 53 Officer Michael H. Croft.........Senior Vice President 52 Ronald C. Drabik.........Senior Vice President, Chief 50 Financial Officer, Assistant Secretary and Treasurer Timothy B. Carney........Vice President and Controller 44 John A. Tomich...........Counsel and Secretary 39 None of the officers are related and they are elected from year to year or until their successors are duly elected and qualified. 49 50 ITEM 10. (Continued) Paul J. Powers. Mr. Powers is the Chief Executive Officer of the Company. He has also been a director of the Company and Commercial Intertech since 1984, President and Chief Operating Officer of Commercial Intertech since 1984 and Chief Executive Officer of Commercial Intertech since 1987. He holds a bachelor's degree in Economics from Merrimack College and a master's degree in Business Administration from George Washington University. Mr. Powers is also a director of Ohio Edison Company, Global Marine, Inc. and Twin Disc, Ind. Mark G. Kachur. Mr. Kachur is the President and Chief Operating Officer of the Company. Mr. Kachur has been a director of the Company since July 1996. Since joining the Company in 1994, Mr. Kachur has been a Senior Vice President of Commercial Intertech and President of the Company. From 1992 until 1994, he was President and CEO of Biotage, Inc., from 1971 to 1991, he was with Pall Corporation, the last seven years as a Group Vice President. He holds a bachelor of science degree in Mechanical Engineering from Purdue University and a master's degree in Business Administration from the University of Hartford. Michael H. Croft. Mr. Croft is the Senior Vice President of the Company. From 1993 until 1996 Mr. Croft was President - U.S. Operations of the Company. From 1984 until 1993 he was with CUNO Pacific Rim operations serving as Managing Director of CUNO Pacific, CUNO Asia with oversight of CUNO K.K. (Japan). He holds a bachelor's degree in Engineering (Chemistry) from The University of Sydney and a Certificate in Marketing from the University of New South Wales. Ronald C. Drabik. Mr. Drabik is the Senior Vice President, Chief Financial Officer, Secretary and Treasurer of the Company. From July 1996 until joining the Company, he was a Vice-President of Commercial Intertech. From 1995 until 1996, he was Vice President of Acme-Cleveland Corporation, a manufacturer of telecommunication and other products. From 1993 until 1995, he was with Met-Coil Systems Corp., a machine tool builder, for which he served at various times as President, Executive Vice President, Senior Vice President and Chief Financial Officer. From 1989 until 1992, he was Vice President of Finance and Chief Financial Officer of RB&W Corporation, a manufacturer/distributor of engineered fasteners. He holds a bachelor of arts degree from Baldwin-Wallace College. 50 51 ITEM 10. (Continued) Timothy B. Carney. Mr. Carney is the Company's Vice President - Controller and Assistant Secretary. From 1993 until joining the Company, he served Commercial Intertech as CUNO Inc. Group Controller and from 1989 until 1993 he served Commercial Intertech as General Manager and Controller of Water Factory Systems. He holds a bachelor's of science degree (Economics) and a master's degree in Business Administration from Youngstown State University. John A. Tomich. Mr. Tomich is Counsel and Secretary of the Company. Before joining CUNO Incorporated, after the spin-off, he was Counsel and Assistant Secretary for Commercial Intertech Corporation, where he had been employed since January 1990 and had been involved extensively with the legal matters affecting CUNO. He holds a Bachelor of Engineering Degree (Mechanical Engineering) from Youngstown State University, and Juris Doctor from the University of Akron, School of Law. He is a licensed Patent Attorney. 51 52 ITEM 11. EXECUTIVE COMPENSATION Reference is made to the information set forth under the caption "Executive Compensation" appearing in the Company's definitive Proxy Statement filed January 21, 1997, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the information contained under the captions "Security Ownership of Board of Directors and Named Executives" and "Security Ownership of Certain Beneficial Owners" in the Company's definitive Proxy Statement filed January 21, 1997, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to the information contained under the caption "Compensation of Directors" in the Company's definitive Proxy Statement filed January 21, 1997, which information is incorporated herein by reference. 52 53 Part IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) DOCUMENTS FILED AS PART OF THIS REPORT: (1) The following consolidated financial statements of CUNO Incorporated and Subsidiaries are included in Item 8: Page Number In This Report -------------- Statements of Consolidated Income - Years ended October 31, 1996, 1995, and 1994............................. 24 Consolidated Balance Sheets as of October 31, 1996 and 1995.................. 25 and 26 Statements of Consolidated Shareholders' Equity - Years ended October 31, 1996, 1995, and 1994....................... 27 Statements of Consolidated Cash Flows - Years ended October 31, 1996, 1995, and 1994................................... 28 Notes to Consolidated Financial Statements... 29 - 47 Report of Independent Auditors............... 48 (2) The following consolidated financial statement schedule of CUNO Incorporated and Subsidiaries are included in Item 14 (d): Schedule II Valuation and Qualifying Accounts............................. S-1 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 53 54 PART IV (Continued) ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (Continued) (3) Exhibits 3.1 -- Articles of Incorporation Filed as of April 17, 1992 Incorporated by reference to Exhibit 3.1 to the Company's Form 10 (as filed with Amendment No. 2 thereto dated August 20, 1996). 10 -- Material Contracts 10.4 Form of Distribution and Interim Services Agreement by and between CUNO Incorporated and Commercial Intertech Corp. 10.5 Form of Tax Sharing Agreement by and between CUNO Incorporated and Commercial Intertech Corp. 10.6 Form of Employee Benefits and Compensation Allocation Agreement by and between CUNO Incorporated and Commercial Intertech Corp. 10.9 Employment Agreement - Mark G. Kachur dated December 3, 1993 10.11 Termination and Change of Control Agreement - Paul J. Powers dated October 1, 1996 10.12 Termination and Change of Control Agreement - Mark G. Kachur dated October 1, 1996 10.13 Termination and Change of Control Agreement - Michael H. Croft dated October 1, 1996 10.14 Termination and Change of Control Agreement - Ronald C. Drabik dated October 1, 1996 10.15 Termination and Change of Control Agreement - Timothy B. Carney dated October 1, 1996 10.16 Termination and Change of Control Agreement - John A. Tomich dated October 1, 1996 Exhibits for "Material Contracts" are incorporated by reference to exhibits filed by the Company on Form 10: Incorporated by Reference ------------------------- Exhibit 10.9 Amendment No. 1 dated August 2, 1996 Exhibit 10.4 Amendment No. 1 dated August 20, 1996 Exhibit 10.5 Amendment No. 2 dated August 20, 1996 Exhibit 10.6 Amendment No. 2 dated August 20, 1996 54 55 PART IV - (Continued) ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (Continued) Additional information relating to management contracts and renumerative plans is contained in Note K - Stock Options and Awards of the Notes to Consolidated Financial Statements on page 45. 21 - Subsidiaries of the registrant 27 - Financial Data Schedule (B) There were no reports on Form 8-K for the quarter ended October 31, 1996. 55 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CUNO Incorporated Date: January 23, 1997 /s/ Paul J. Powers /s/ Ronald C. Drabik - ---------------------------- ---------------------------- Paul J. Powers Ronald C. Drabik Chairman of the Board of Senior Vice President and Directors, and Chief Financial Officer, Chief Executive Officer Assistant Secretary and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated above. Name Title Date ---- ----- ---- Joel B. Alvord Director January 23, 1997 Charles L. Cooney, Ph.D. Director January 23, 1997 Norbert A. Florek Director January 23, 1997 John M. Galvin Director January 23, 1997 Mark G. Kachur Director January 23, 1997 Gerald C. McDonough Director January 23, 1997 C. Edward Midgley Director January 23, 1997 David L. Swift Director January 23, 1997 56 57
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS CUNO INCORPORATED AND SUBSIDIARIES YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 ================================================================================================================= COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------------------------------------------------------------------------------- Balance at Balance at Description Beginning ADDITIONS Deductions End of of Period -------------------------- Period Charged to Charged to Other Costs and Accounts- Expenses Describe ================================================================================================================= Year ended October 31, 1996 Deducted from asset accounts: Allowance for doubtful accounts receivable $ 1,135,916 $ 21,673 $ 0 $ 24,136 (A) $ 1,133,453 ============ =========== ============= =========== =========== Valuation allowance for deferred 435,000 (B) income tax assets $ 1,832,000 $ 0 $ 0 $ 336,000 (C) $ 1,061,000 ============ =========== ============= =========== =========== Year ended October 31, 1995 Deducted from asset accounts: Allowance for doubtful accounts receivable $ 873,259 $ 643,310 $ 0 $ 380,653 (A) $ 1,135,916 ============ =========== ============= =========== =========== Valuation allowance for deferred 764,000 (B) income tax assets $ 3,279,000 $ 0 $ 0 $ 683,000 (C) $ 1,832,000 ============ =========== ============= =========== =========== Year ended October 31, 1994 Deducted from asset accounts: Allowance for doubtful accounts receivable $ 702,025 $ 193,249 $ 0 $ 22,015 (A) $ 873,259 ============ =========== ============= =========== =========== Valuation allowance for deferred income tax assets $ 4,210,000 $ 0 $ $ 931,000 (B) $ 3,279,000 ============ =========== ============= =========== =========== (A) Uncollectible accounts written off, net of recoveries. (B) Increase (decrease) in net operating loss carryforwards for the year. (C) Net operating loss carryforwards utilized or expired.
S-1 EX-10.11 2 EXHIBIT 10.11 1 Exhibit 10.11 CUNO INCORPORATED - -------------------------------------------------------------------------------- TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS - -------------------------------------------------------------------------------- 2 TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.11 ------------------------------------------- THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between CUNO Incorporated, a Delaware corporation (the "Company"), and Paul J. Powers ("Executive") is and shall become effective as of October 1, 1996 (the "Effective Date"). W I T N E S S E T H - - - - - - - - - - After due consideration by the Board of Directors in meetings of the Board of Directors held on July 15 and 25, 1996, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. TERM AND APPLICATION. The Term of this Termination Agreement shall commence on the date hereof and shall terminate, except to the extent that any obligation of the Company under this Termination Agreement remains unpaid as of such time, on the date five (5) years from the date hereof (subject to earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the Extension Date (as defined below), the Term of this Termination Agreement shall be the Extended Employment Period (as defined below). As long as the Extension Date has not occurred, commencing on the date five (5) years after the date of this Termination Agreement and each anniversary date of this Termination Agreement thereafter, the Term of this Termination Agreement shall automatically be extended for one (1) additional year unless not later than on (1) year prior to the date five (5) years after the date of this Termination Agreement or subsequent anniversary date, the Company or Executive shall have given written notice to the other of its intention not to extend this Termination Agreement. If there is a conflict between the Employment Agreement, if any, between the Company and Executive ("Employment Agreement") and this Termination Agreement, this Termination Agreement shall supersede the Employment Agreement; provided the Executive shall receive the more valuable payment, right or benefit under the Employment Agreement (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 effected 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). 3 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, and (iv) serve in any capacity (whether as employee, officer, director or consultant) with respect to Commercial Intertech Corp. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) PLACE OF EMPLOYMENT. During the Extended Employment Period, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Extension Date or any office or location less than thirty-five (35) miles from such location. 3. Salary and Annual Incentive Compensation. ----------------------------------------- (a) BASE SALARY. During the Extended Employment Period, the Executive shall receive an annual base salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Extension Date occurs ("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 Agrement, 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 2 4 Base Salary, the Executive shall be awarded, for each fiscal year ending during the Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest average of the Executive's annual incentive compensation for any two (2) full fiscal years in the most recent five (5) full fiscal years (annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year or the fiscal year consisted of less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement ------------------------------------------------------------- (a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment Period, the compensation plans, practices, policies and programs, in the aggregate, including without limitation the long-term incentive features of the Company's stock option and award plans, shall provide Executive with benefits, options to acquire Company stock and compensation and incentive award opportunities substantially no less favorable than those provided by the Company under such plans and programs to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, be less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Extension Date or if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. For purposes of this Termination Agreement, all references to "performance share plans" and "performance shares" refer to such arrangements under the Company's stock option and award plans and to any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under such plans or other plans of the Company. (b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended Employment Period, benefit plans, practices, policies and programs, in the aggregate, shall provide Executive with benefits substantially no less favorable than those provided by the Company to senior executives in similar capacities provided the Executive shall participate in any plan, practice, policy or program in effect on the Extension Date only to the extent the Executive participated in such plan, practice, policy or program immediately preceding the Extension Date. 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. 3 5 5. Termination of Employment. -------------------------- (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Term of this Termination Agreement. If the Company determines in good faith that the Disability of the Executive has occurred during the Term of this Termination Agreement, it may give to the Executive written notice in accordance with Section 13(d) of this Termination Agreement of its intention to terminate the Executive's employment. In such event, the Executive's Date of Termination is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such Date of Termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, or due to his voluntary decision to retire on or after his Normal Retirement Date other 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 4 6 Section 13(c), the Company will pay Executive (or his beneficiaries or estate), and Executive (or his beneficiaries or estate) will be entitled to receive, the following: (a) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; (b) All vested, nonforfeitable amounts owing and accrued at the Date of Termination under any compensation and benefit plans, programs, and arrangements in which Executive theretofore participated will be paid under the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, including any supplemental retirement plan in which the Executive may have participated; (c) In lieu of any annual incentive compensation under Section 3(b) for the year in which Executive's employment terminated (unless otherwise payable under (b) above), Executive will be paid an amount equal to the average annual incentive compensation paid to Executive in the three years immediately preceding the year of termination (or, if Executive was not eligible to receive or did not receive such incentive compensation for any year in such three year period, the Executive's target annual incentive compensation for such year(s) shall be used to calculate average annual incentive compensation) multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (d) Stock options then held by Executive will be exercisable to the extent and for such periods, and otherwise governed, by the plans and programs and the agreements and other documents thereunder pursuant to which such stock options were granted; and (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 5 7 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: (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; 6 8 (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, 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) 7 9 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) $400,000 ("Referenced Salary") and (2) the Executive's Highest Annual Bonus but not less than 100% of target of his annual incentive compensation based on his Referenced Salary. (Payment of any amount under Section 8(a)(i) shall not constitute a payment or discharge of the Company's obligation under Section 8(a)(ii) and VICE VERSA); (iii) in lieu of any payment in respect of performance shares, or other long term incentive awards granted prior to the Extension Date or in accordance with Section 4(a) hereof, for any performance period not completed at the Executive's Date of Termination, an amount equal to the cash amount payable plus the value of any shares, dividends or other property (valued at the Date of Termination) payable upon the achievement of the then existing performance in respect of each tranche of such performance shares or awards as if the Date of Termination were the end of the performance period, but in no event less than one hundred percent (100%) of target, multiplied by (A) with respect to any tranche as of the Date of Termination for which at least fifty percent (50%) of the performance period has elapsed, one hundred percent (100%), and (B) with respect to any tranche as of the Date of Termination for which less than fifty percent (50%) of the performance period has elapsed, a fraction, the numerator of which is the number of days that have elapsed in the relevant performance period and the denominator of which is the total number of days in the relevant performance period; and (iv) to the extent not covered in (i), (ii), (iii) or (iv), all vested, nonforfeitable amounts owing or accrued at the Date of Termination under any other compensation and benefit plans, programs, and arrangements in which Executive theretofore participated, including any supplemental retirement plan in which the Executive may have participated, including any additional accruals provided under such plan due to the Change of Control, will be paid under the terms and conditions of the plans, programs, 8 10 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 covered by the Company's medical plan on the Date of Termination and 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 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); 9 11 (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 with respect to the Executive on the Extension Date, including, without limitation, fuel, insurance, maintenance and car phone; (f) for one (1) year after Executive's Date of Termination, the provision of exclusive secretarial service unless the Executive is employed or reemployed by another employer that provides the Executive with such services; (g) for three (3) years after Executive's Date of Termination, the provision of reasonable personal tax accounting and financial planning by a firm chosen by Executive and reasonably acceptable to the Company; and (h) for three (3) years after Executive's Date of Termination, the payment of all regular lunch and country club membership dues or fees in respect of any lunch or country club of which Executive is a member on the Executive's Date of Termination but only to the extent of the company policy regarding such clubs and applied to the Executive on the Extension Date. 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). 10 12 (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 11 13 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. (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 12 14 "Extension Date" shall mean the date immediately prior to the date of such termination of employment. (f) "GOOD REASON." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of a Change of Control and following which but not later than the third anniversary of the date of the Change of Control there occurs, without Executive's prior written consent: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Termination Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4 of this Termination Agreement or the Employment Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(b) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Termination Agreement; (v) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Termination Agreement; or (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). 13 15 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 (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 14 16 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 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, 15 17 (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. 16 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), neither shall service (whether as an employee, officer, director, or consultant) with respect to Commercial Intertech Corp., nor shall service as a member of a board of directors on which Executive is serving on the Date of Termination (including any successor board thereto) be deemed, of itself, to be inconsistent with clause (i) of this paragraph (a). The Executive and the Company agree that the value to be assigned to the obligations of the Executive under this paragraph (a) is an amount equal to one hundrd percent (100%) of the Executive's 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 17 19 after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) release of employment claims. Executive agrees, as a condition to receipt of the termination payments and benefits provided hereunder, that he will execute a release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than claims made pursuant to any indemnities provided under the articles or by-laws of the Company, under any directors or officers liability insurance policies maintained by the Company or enforcement of this Termination Agreement). (e) SURVIVAL. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section 11 shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his or her beneficiaries) receiving any amounts payable hereunder. The obligations of Executive under this Section II and any comparable type of obligation under the Employment Agreement are expressly conditioned upon Company's satisfaction of its obligations to Executive under this Termination Agreement and the Employment Agreement. 12. Governing Law; Disputes; Arbitration. ------------------------------------- (a) GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to Connecticut conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is 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 18 20 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: 19 21 If to the Company: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: Secretary With copies to: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: General Counsel If to Executive: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (e) REFORMATION. The invalidity of any portion of this Termination Agreement shall not be deemed to render the remainder of this Termination Agreement invalid. (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 20 22 Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to required withholding taxes and other required deductions. (j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 14. Indemnification. ---------------- All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Articles of Incorporation or Code of Regulations or pursuant to other agreements in effect on or immediately prior to the Extension Date shall continue in full force and effect from the Extension Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; PROVIDED, HOWEVER, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Articles of Incorporation, Code of Regulations, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Articles of Incorporation or Code of Regulations or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the Extension Date. 21 23 IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. CUNO INCORPORATED By: /s/Ronald C. Drabik ---------------------------------- Name: Ronald C. Drabik --------------------------------- Title: Sr. V.P. & C.F.O ---------------------------------- PAUL J. POWERS /s/Paul J. Powers ----------------------------------------- 22 24
CUNO INCORPORATED - -------------------------------------------------------------------------------- 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............................................................ 4 6. Termination Due to Normal Retirement, Death, or Disability........................... 4 7. Termination of Employment For Reasons Other Than Normal Retirement, Death or Disability........................................................................ 6 8. Termination by the Company Without Cause and Termination by Executive for Good Reason During the Extended Employment Period.................................... 7 9. Definitions Relating to Termination Events........................................... 10 10. Excise Tax Gross-Up.................................................................. 14 11. Non-Competition and Non-Disclosure; Executive Cooperation............................ 17 12. Governing Law; Disputes; Arbitration................................................. 18 13. Miscellaneous........................................................................ 19 14. Indemnification...................................................................... 21
EX-10.12 3 EXHIBIT 10.12 1 Exhibit 10.12 CUNO INCORPORATED - -------------------------------------------------------------------------------- TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS - -------------------------------------------------------------------------------- 2 TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.12 ------------------------------------------- THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between CUNO Incorporated, a Delaware corporation (the "Company"), and MARK J. KACHUR ("Executive") is and shall become effective as of October 1, 1996 (the "Effective Date"). W I T N E S S E T H ------------------- After due consideration by the Board of Directors in meetings of the Board of Directors held on July 15 and 25, 1996, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: I. TERM AND APPLICATION. The Term of this Termination Agreement shall commence on the date hereof and shall terminate, except to the extent that any obligation of the Company under this Termination Agreement remains unpaid as of such time, on the date five (5) years from the date hereof (subject to earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the Extension Date (as defined below), the Term of this Termination Agreement shall be the Extended Employment Period (as defined below). As long as the Extension Date has not occurred, commencing on the date five (5) years after the date of this Termination Agreement and each anniversary date of this Termination Agreement thereafter, the Term of this Termination Agreement shall automatically be extended for one (1) additional year unless not later than on (1) year prior to the date five (5) years after the date of this Termination Agreement or subsequent anniversary date, the Company or Executive shall have given written notice to the other of its intention not to extend this Termination Agreement. If there is a conflict between the Employment Agreement, if any, between the Company and Executive ("Employment Agreement") and this Termination Agreement, this Termination Agreement shall supersede the Employment Agreement; provided the Executive shall receive the more valuable payment, right or benefit under the Employment Agreement (including without limitation, the continuation of Medical benefits under the Employment Agreement) and this Termination Agreement. In no event shall any payment, right or benefit under the Employment Agreement be reduced, eliminated or otherwise adversely affected by this Termination Agreement. In no event shall Executive receive any payment, right or benefit under both this Termination Agreement and the Employment Agreement with respect to the same Date of Termination (as defined below). 1 3 1. Office and Duties. ------------------ (a) GENERALLY. During the Extended Employment Period, the Executive's position (including status, offices, titles and reporting requirements), authority, duties and 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 Commercial Intertech Corp. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) PLACE OF EMPLOYMENT. During the Extended Employment Period, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Extension Date or any office or location less than thirty-five (35) miles from such location. 2. Salary and Annual Incentive Compensation. ----------------------------------------- (a) BASE SALARY. During the Extended Employment Period, the Executive shall receive an annual base salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Extension Date occurs ("Annual Base Salary"). During the Extended Employment Period, the Annual Base Salary shall be reviewed no more than twelve (12) months after the last salary increase awarded to the Executive prior to the Extension Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Termination Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Termination Agreement shall refer to Annual Base Salary as so increased. As used in this Termination Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (b) ANNUAL INCENTIVE COMPENSATION. During the Extended Employment Period, any annual incentive compensation payable to Executive shall be paid in accordance with the Company's usual practices with respect to payment of incentive compensation of senior executives, including, without limitation, the Company's Senior Management Target Incentive Plan and Salaried Employee Incentive Plan (except to the extent deferred). In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Extended Employment Period, an annual bonus (the "Annual Bonus") in cash at 2 4 least equal to the highest average of the Executive's annual incentive compensation for any two (2) full fiscal years in the most recent five (5) full fiscal years (annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year or the fiscal year consisted of less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 3. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement ----------------------------------------------------------- (a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment Period, the compensation plans, practices, policies and programs, in the aggregate, including without limitation the long-term incentive features of the Company's stock option and award plans, shall provide Executive with benefits, options to acquire Company stock and compensation and incentive award opportunities substantially no less favorable than those provided by the Company under such plans and programs to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, be less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Extension Date or if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. For purposes of this Termination Agreement, all references to "performance share plans" and "performance shares" refer to such arrangements under the Company's stock option and award plans and to any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under such plans or other plans of the Company. (b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended Employment Period, benefit plans, practices, policies and programs, in the aggregate, shall provide Executive with benefits substantially no less favorable than those provided by the Company to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Extension Date or, if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. 4. Termination of Employment. -------------------------- (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Term of this Termination Agreement. If the Company determines in good faith that the Disability of the Executive has occurred during the Term of this Termination Agreement, it may give to the Executive written notice in accordance with Section 13(d) of this Termination Agreement of its intention to terminate the 3 5 Executive's employment. In such event, the Executive's Date of Termination is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such Date of Termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, or due to his voluntary decision to retire on or after his Normal Retirement Date other than for Good Reason, the Date of Termination shall be the date of death of the Executive, the Disability Effective Date, or the date the Executive notifies the Company that the Executive's employment will terminate, as the case may be. Notwithstanding the foregoing, solely the transfer of an Executive to employment with an affiliated companies shall not constitute a termination of employment with the Company. 5. Termination Due to Normal Retirement, Death, or Disability ---------------------------------------------------------- Upon an Executive's Date of Termination due to his voluntary decision to retire on or after his Normal Retirement Date (other than for Good Reason during the Extended Employment Period), death or Disability, the Term of this Termination Agreement will immediately terminate and all obligations of the Company and Executive under this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company will pay Executive (or his beneficiaries or estate), and Executive (or his beneficiaries or estate) will be entitled to receive, the following: (a) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 3(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; (b) All vested, nonforfeitable amounts owing and accrued at the Date of Termination under any compensation and benefit plans, programs, and arrangements in which Executive theretofore participated will be paid under the terms and conditions of the plans, 4 6 programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, including any supplemental retirement plan in which the Executive may have participated; (c) In lieu of any annual incentive compensation under Section 3(b) for the year in which Executive's employment terminated (unless otherwise payable under (b) above), Executive will be paid an amount equal to the average annual incentive compensation paid to Executive in the three years immediately preceding the year of termination (or, if Executive was not eligible to receive or did not receive such incentive compensation for any year in such three year period, the Executive's target annual incentive compensation for such year(s) shall be used to calculate average annual incentive compensation) multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (d) Stock options then held by Executive will be exercisable to the extent and for such periods, and otherwise governed, by the plans and programs and the agreements and other documents thereunder pursuant to which such stock options were granted; and (e) If Executive's Date of Termination is due to Disability, for the period extending from such Date of Termination until Executive reaches age 65, Executive shall continue to participate in all employee benefit plans, programs, and arrangements providing health, medical, and life insurance in which Executive was participating immediately prior to the Date of Termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if such plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating). Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 6. Termination of Employment For Reasons Other Than Normal Retirement, Death or Disability ------------------------------------------------------- (a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or voluntarily by Executive for reasons other than Good Reason or other than the attainment of the Normal 5 7 Retirement Date, death or Disability, the Term will immediately terminate, and all obligations of the Company under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (i) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; and (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 6 8 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, including any supplemental retirement plan in which the Executive may have participated. Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 7. Termination by the Company Without Cause and Termination by Executive for Good Reason During the Extended Employment Period --------------------------------------------------------------- Upon an Executive's Date of Termination during the Extended Employment Period by the Company without Cause or voluntarily by the Executive for Good Reason, the Term of this Termination Agreement will immediately terminate and all obligations of the Company and Executive under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (a) the Company shall pay to the Executive in a lump sum in cash on the Date of Termination the aggregate of the following amounts: (i) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the higher of (A) the Recent Annual Bonus and (B) the Executive's Annual Bonus paid or payable for the Company's fiscal year in which occurs the Date of Termination, assuming Executive and Company satisfy all conditions to Executive's receiving the full Annual Bonus at target (and annualized for any fiscal year consisting of less than twelve (12) full months or during which the Executive was employed for less than twelve (12) full months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; 7 9 (ii) the amount equal to three (3) times the sum of (1) the Executive's Annual Base Salary and (2) the Highest Annual Bonus. (Payment of any amount under Section 8(a)(i) shall not constitute a payment or discharge of the Company's obligation under Section 8(a)(ii) and VICE VERSA); (iii) in lieu of any payment in respect of performance shares, or other long term incentive awards granted prior to the Extension Date or in accordance with Section 4(a) hereof, for any performance period not completed at the Executive's Date of Termination, an amount equal to the cash amount payable plus the value of any shares, dividends or other property (valued at the Date of Termination) payable upon the achievement of the then existing performance in respect of each tranche of such performance shares or awards as if the Date of Termination were the end of the performance period, but in no event less than one hundred percent (100%) of target, multiplied by (A) with respect to any tranche as of the Date of Termination for which at least fifty percent (50%) of the performance period has elapsed, one hundred percent (100%), and (B) with respect to any tranche as of the Date of Termination for which less than fifty percent (50%) of the performance period has elapsed, a fraction, the numerator of which is the number of days that have elapsed in the relevant performance period and the denominator of which is the total number of days in the relevant performance period; and (iv) to the extent not covered in (i), (ii), (iii) or (iv), all vested, nonforfeitable amounts owing or accrued at the Date of Termination under any other compensation and benefit plans, programs, and arrangements in which Executive theretofore participated, including any supplemental retirement plan in which the Executive may have participated, including any additional accruals provided under such plan due to the Change of Control, will be paid under the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted. (b) Stock options then held by Executive will be exercisable and restricted stock held by the Executive will be vested to the extent and for such periods, 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 8 10 peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive is employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For three (3) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the plan, the Company shall continue tax-qualified defined contribution and supplemental retirement plan accruals for the Executive, including participation and crediting of service, contributions and compensation at least equal to what the Executive would have accrued in accordance with such plans of the Company or affiliated companies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. If such welfare benefit or tax-qualified defined contribution plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service, compensation and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); (d) outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion, provided by the Company at its sole expense as incurred; (e) for three (3) years after Executive's Date of Termination, a continued application of the Company's auto leasing policy in effect on the Extension Date with respect to the Executive, including, without limitation, fuel; (f) for one (1) year after Executive's Date of Termination, the provision of reasonable personal tax accounting and financial planning by a firm chosen by Executive and reasonably acceptable to the Company; (g) for three (3) years after Executive's Date of Termination, the payment of all regular lunch and country club membership dues or fees in respect of any lunch or country club of which Executive is a member on Executive's Date of Termination; and (h) for three (3) years after Executive's Date of Termination, the payment of normal insurance premiums with respect to the insurance policies on the life of Executive under the Group Replacement Insurance Program of Commercial Intertech Corp., or any successor thereto. 8. Definitions Relating to Termination Events. ------------------------------------------- 9 11 (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 10 12 the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such indi vidual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then- outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time 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 11 13 disability as determined by a physician or physicians selected by the Company and reasonably acceptable to Executive, unless, within 30 days after Executive has received written notice from the Company of a proposed Date of Termination due to such absence, Executive shall have returned to the full performance of his duties hereunder and shall have presented to the Company a written certificate of Executive's good health prepared by a physician selected by Company and reasonably acceptable to Executive. (d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing on the Extension Date and ending on the third anniversary of such date. (e) "EXTENSION DATE" shall mean the first date during the Term of this Termination Agreement on which a Change of Control occurs. Anything in this Termination Agreement or the Employment Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of the Employment Agreement the "Extension Date" shall mean the date immediately prior to the date of such termination of employment. (f) "GOOD REASON." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of a Change of Control and following which but not later than the third anniversary of the date of the Change of Control there occurs, without Executive's prior written consent: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Termination Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4 of this Termination Agreement or the Employment Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(b) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; 12 14 (iv) any failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Termination Agreement; (v) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Termination Agreement; or (vi) any failure by the Company to comply with and satisfy Section 12(b) of this Termination Agreement. For purposes of this Section, any good faith determination of "Good Reason" made by the Executive shall be conclusive. (g) "NORMAL RETIREMENT DATE." For purposes of this Termination Agreement, an Executive's Normal Retirement Date is his or her attainment of age sixty-five (65). 9. Excise Tax Gross-Up. -------------------- If Executive becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Termination Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company shall pay to Executive at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by Executive, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 10, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in Executive's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (a) The Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent legal counsel, compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Executive, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services 13 15 actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-up Payment, Executive shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Executive's adjusted gross income); and (C) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in Executive's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment and shall indemnify and hold Executive harmless in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up 14 16 Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income for employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or employment tax (including 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 15 17 contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 10, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of this Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 10, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Non-Competition and Non-disclosure; Executive Cooperation. ---------------------------------------------------------- (a) NON-COMPETITION. Without the consent in writing of the Board, upon the Executive's Date of Termination for any reason, Executive will not, for a period of 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 then conducted by the Company or any of its subsidiaries on the date of the consummation of the Change of Control; (ii) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; or (iii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a), neither shall service (whether as an employee, officer, director or consultant) with respect to Commercial Intertech Corp., nor shall service as a member of a board of directors on which Executive is serving on the Date of Termination (including any successor board thereto) be deemed, of itself, to be inconsistent with clause (i) of this paragraph (a). The Executive and the Company agree that the value to be assigned to the obligations of the Executive under this paragraph (a) is 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 16 18 otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to cooperate with the Company (including following Executive's Date of Termination for any reason), on a reasonable basis when cooperation would not unreasonably interfere with Executive's employment by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board and its representatives or counsel, or representatives or counsel of or to the Company, or any subsidiary or affiliate of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not apply to any action between the Executive and the Company to enforce this Termination Agreement. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a condition to receipt of the termination payments and benefits provided hereunder, that he will execute a release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than claims made pursuant to any indemnities provided under the articles or by-laws of the Company, under any directors or officers liability insurance policies maintained by the Company or enforcement of this Termination Agreement). (e) SURVIVAL. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section 11 shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his or her beneficiaries) receiving any amounts payable hereunder. The obligations of Executive under this Section 11 and any comparable type of obligation under the Employment Agreement are expressly conditioned upon Company's satisfaction of its obligations to Executive under this Termination Agreement and the Employment Agreement. 11. Governing Law; Disputes; Arbitration. ------------------------------------- (a) GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to Connecticut conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is 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 17 19 fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by independent counsel mutually acceptable to Executive and the Company and made without reference to or not related to a Change of Control. Immediately prior to the Extension Date but not less than five (5) days prior thereto, the Company agrees to maintain a minimum amount in a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable letter of credit in an amount equal to such minimum amount (and callable at will by such trustee) sufficient to fund any such litigation and the aggregate present value of all liabilities potentially owed to the Executive under this Agreement as if he or she had incurred a termination of employment by the Company other than for Cause. 12. Miscellaneous. -------------- (a) INTEGRATION. This Termination Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Employment Agreement and contracts relating to compensation under executive compensation and employee benefit plans of the Company and only to the extent enforceable. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit plans of the Company, this Termination Agreement and the Employment Agreement together constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment, right or benefit under this Termination Agreement which duplicates a payment, right or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation plan of the Company. (b) NON-TRANSFERABILITY. Neither this Termination Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c). The Company may assign this Termination Agreement and the Company's rights and obligations hereunder, and shall assign this Termination Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Termination Agreement. For purposes of this Termination Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (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 18 20 or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: Secretary With copies to: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: General Counsel If to Executive: --------------------------------------- --------------------------------------- --------------------------------------- If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (e) REFORMATION. The invalidity of any portion of this Termination Agreement shall not be deemed to render the remainder of this Termination Agreement invalid. (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. 19 21 (i) OFFSETS; WITHHOLDING. The amounts required to be paid by the Company to Executive pursuant to this Termination Agreement shall not be subject to offset, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to required withholding taxes and other required deductions. (j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 13. Indemnification. ---------------- All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Articles of Incorporation or Code of Regulations or pursuant to other agreements in effect on or immediately prior to the Extension Date shall continue in full force and effect from the Extension Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; PROVIDED, HOWEVER, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Articles of Incorporation, Code of Regulations, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Articles of Incorporation or Code of Regulations or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the Extension Date. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. CUNO Incorporated By: /s/ Paul J. Powers ------------------------------ Name: Paul J. Powers ------------------------------ Title: Chairman & CEO ------------------------------ MARK J. KACHUR /s/ M. Kachur ------------------------------------ 20 22 CUNO INCORPORATED - -------------------------------------------------------------------------------- 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.................................... 9 10. Excise Tax Gross-Up........................................................... 13 11. Non-Competition and Non-Disclosure; Executive Cooperation..................... 16 12. Governing Law; Disputes; Arbitration.......................................... 17 13. Miscellaneous................................................................. 18 14. Indemnification............................................................... 20
21 EX-10.13 4 EXHIBIT 10.13 1 Exhibit 10.13 CUNO INCORPORATED - -------------------------------------------------------------------------------- TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS - -------------------------------------------------------------------------------- 2 TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.13 ------------------------------------------- THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between CUNO Incorporated, a Delaware corporation (the "Company"), and MICHAEL H. CROFT ("Executive") is and shall become effective as of October 1, 1996 (the "Effective Date"). W I T N E S S E T H ------------------- After due consideration by the Board of Directors in meetings of the Board of Directors held on July 15 and 25, 1996, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. TERM AND APPLICATION. The Term of this Termination Agreement shall commence on the date hereof and shall terminate, except to the extent that any obligation of the Company under this Termination Agreement remains unpaid as of such time, on the date five (5) years from the date hereof (subject to earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the Extension Date (as defined below), the Term of this Termination Agreement shall be the Extended Employment Period (as defined below). As long as the Extension Date has not occurred, commencing on the date five (5) years after the date of this Termination Agreement and each anniversary date of this Termination Agreement thereafter, the Term of this Termination Agreement shall automatically be extended for one (1) additional year unless not later than on (1) year prior to the date five (5) years after the date of this Termination Agreement or subsequent anniversary date, the Company or Executive shall have given written notice to the other of its intention not to extend this Termination Agreement. If there is a conflict between the Employment Agreement, if any, between the Company and Executive ("Employment Agreement") and this Termination Agreement, this Termination Agreement shall supersede the Employment Agreement; provided the Executive shall receive the more valuable payment, right or benefit under the Employment Agreement (including without limitation, the continuation of Medical benefits under the Employment Agreement) and this Termination Agreement. In no event shall any payment, right or benefit under the Employment Agreement be reduced, eliminated or otherwise adversely affected by this Termination Agreement. In no event shall Executive receive any payment, right or benefit under both this Termination Agreement and the Employment Agreement with respect to the same Date of Termination (as defined below). 1 3 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, and (iv) serve in any capacity (whether as employee, officer, director or consultant) with respect to Commercial Intertech Corp. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) PLACE OF EMPLOYMENT. During the Extended Employment Period, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Extension Date or any office or location less than thirty-five (35) miles from such location. 3. Salary and Annual Incentive Compensation. ----------------------------------------- (a) BASE SALARY. During the Extended Employment Period, the Executive shall receive an annual base salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Extension Date occurs ("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 2 4 least equal to the highest average of the Executive's annual incentive compensation for any two (2) full fiscal years in the most recent five (5) full fiscal years (annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year or the fiscal year consisted of less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement ----------------------------------------------------------------- (a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment Period, the compensation plans, practices, policies and programs, in the aggregate, including without limitation the long-term incentive features of the Company's stock option and award plans, shall provide Executive with benefits, options to acquire Company stock and compensation and incentive award opportunities substantially no less favorable than those provided by the Company under such plans and programs to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, be less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Extension Date or if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. For purposes of this Termination Agreement, all references to "performance share plans" and "performance shares" refer to such arrangements under the Company's stock option and award plans and to any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under such plans or other plans of the Company. (b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended Employment Period, benefit plans, practices, policies and programs, in the aggregate, 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 3 5 Executive's employment. In such event, the Executive's Date of Termination is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such Date of Termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, or due to his voluntary decision to retire on or after his Normal Retirement Date other 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, 4 6 programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, including any supplemental retirement plan in which the Executive may have participated; (c) In lieu of any annual incentive compensation under Section 3(b) for the year in which Executive's employment terminated (unless otherwise payable under (b) above), Executive will be paid an amount equal to the average annual incentive compensation paid to Executive in the three years immediately preceding the year of termination (or, if Executive was not eligible to receive or did not receive such incentive compensation for any year in such three year period, the Executive's target annual incentive compensation for such year(s) shall be used to calculate average annual incentive compensation) multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (d) Stock options then held by Executive will be exercisable to the extent and for such periods, and otherwise governed, by the plans and programs and the agreements and other documents thereunder pursuant to which such stock options were granted; and (e) If Executive's Date of Termination is due to Disability, for the period extending from such Date of Termination until Executive reaches age 65, Executive shall continue to participate in all employee benefit plans, programs, and arrangements providing health, medical, and life insurance in which Executive was participating immediately prior to the Date of Termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if such plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating). Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 7. Termination of Employment For Reasons Other Than Normal Retirement, Death or Disability ------------------------------------------------------- (a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or voluntarily by Executive for reasons other than Good Reason or other than the attainment of the Normal 5 7 Retirement Date, death or Disability, the Term will immediately terminate, and all obligations of the Company under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (i) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; and (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 6 8 thereunder pursuant to which such stock options 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, including any supplemental retirement plan in which the Executive may have participated. Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 8. Termination by the Company Without Cause and Termination by Executive for Good Reason During The Extended Employment Period ---------------------------------------------------------------- Upon an Executive's Date of Termination during the Extended Employment Period by the Company without Cause or voluntarily by the Executive for Good Reason, the Term of this Termination Agreement will immediately terminate and all obligations of the Company and Executive under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (a) the Company shall pay to the Executive in a lump sum in cash on the Date of Termination the aggregate of the following amounts: (i) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the higher of (A) the Recent Annual Bonus and (B) the Executive's Annual Bonus paid or payable for the Company's fiscal year in which occurs the Date of Termination, assuming Executive and Company satisfy all conditions to Executive's receiving the full Annual Bonus at target (and annualized for any fiscal year consisting of less than twelve (12) full months or during which the Executive was employed for less than twelve (12) full months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; 7 9 (ii) the amount equal to three (3) times the sum of (1) the Executive's Annual Base Salary and (2) the Highest Annual Bonus. (Payment of any amount under Section 8(a)(i) shall not constitute a payment or discharge of the Company's obligation under Section 8(a)(ii) and VICE VERSA); (iii) in lieu of any payment in respect of performance shares, or other long term incentive awards granted prior to the Extension Date or in accordance with Section 4(a) hereof, for any performance period not completed at the Executive's Date of Termination, an amount equal to the cash amount payable plus the value of any shares, dividends or other property (valued at the Date of Termination) payable upon the achievement of the then existing performance in respect of each tranche of such performance shares or awards as if the Date of Termination were the end of the performance period, but in no event less than one hundred percent (100%) of target, multiplied by (A) with respect to any tranche as of the Date of Termination for which at least fifty percent (50%) of the performance period has elapsed, one hundred percent (100%), and (B) with respect to any tranche as of the Date of Termination for which less than fifty percent (50%) of the performance period has elapsed, a fraction, the numerator of which is the number of days that have elapsed in the relevant performance period and the denominator of which is the total number of days in the relevant performance period; and (iv) to the extent not covered in (i), (ii), (iii) or (iv), all vested, nonforfeitable amounts owing or accrued at the Date of Termination under any other compensation and benefit plans, programs, and arrangements in which Executive theretofore participated, including any supplemental retirement plan in which the Executive may have participated, including any additional accruals provided under such plan due to the Change of Control, will be paid under the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted. (b) Stock options then held by Executive will be exercisable and restricted stock held by the Executive will be vested to the extent and for such periods, 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 8 10 peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive is employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For three (3) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the plan, the Company shall continue tax-qualified defined contribution and supplemental retirement plan accruals for the Executive, including participation and crediting of service, contributions and compensation at least equal to what the Executive would have accrued in accordance with such plans of the Company or affiliated companies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. If such welfare benefit or tax-qualified defined contribution plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service, compensation and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); (d) outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion, provided by the Company at its sole expense as incurred; (e) for three (3) years after Executive's Date of Termination, a continued application of the Company's auto leasing policy in effect on the Extension Date with respect to the Executive; (f) for one (1) year after Executive's Date of Termination, the provision of reasonable personal tax accounting and financial planning by a firm chosen by Executive and reasonably acceptable to the Company; (g) for three (3) years after Executive's Date of Termination, the payment of all regular lunch and country club membership dues or fees in respect of any lunch or country club of which Executive is a member on Executive's Date of Termination; and (h) for three (3) years after Executive's Date of Termination, the payment of normal insurance premiums with respect to the insurance policies on the life of Executive under the Group Replacement Insurance Program of Commercial Intertech Corp., or any successor thereto. 9. Definitions Relating to Termination Events. ------------------------------------------- 9 11 (a) "CAUSE." For purposes of this Termination Agreement, "Cause" shall mean Executive's gross misconduct (as defined herein). For purposes of this definition, "gross misconduct" shall mean (A) a felony conviction in a court of law under applicable federal or state laws which results in material damage to the Company or any of its subsidiaries or materially impairs the value of Executive's services to the Company, or (B) willfully engaging in one or more acts, or willfully omitting to act in accordance with duties hereunder, which is demonstrably and materially damaging to the Company or any of its subsidiaries, including acts and omissions that constitute gross negligence in the performance of Executive's duties under this Termination Agreement. Notwithstanding the foregoing, Executive may not be terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by a majority affirmative vote of the membership of the Board of Directors of the Company (the "Board") (excluding Executive, if he is then a member) at a meeting of the Board called and held for such purpose (after giving Executive reasonable notice specifying the nature of the grounds for such termination and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive was guilty of conduct which constitutes Cause as set forth in this Section 9(a). (b) "CHANGE OF CONTROL." For the purpose of this Termination Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (A) the then-outstanding shares of com mon stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by a lender to the Company pursuant to a debt restructuring of the Company, or (E) any acquisition by any corporation pursuant to a transaction 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 10 12 the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such indi vidual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then- outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time 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 11 13 disability as determined by a physician or physicians selected by the Company and reasonably acceptable to Executive, unless, within 30 days after Executive has received written notice from the Company of a proposed Date of Termination due to such absence, Executive shall have returned to the full performance of his duties hereunder and shall have presented to the Company a written certificate of Executive's good health prepared by a physician selected by Company and reasonably acceptable to Executive. (d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing on the Extension Date and ending on the third anniversary of such date. (e) "EXTENSION DATE" shall mean the first date during the Term of this Termination Agreement on which a Change of Control occurs. Anything in this Termination Agreement or the Employment Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of the Employment Agreement the "Extension Date" shall mean the date immediately prior to the date of such termination of employment. (f) "GOOD REASON." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of a Change of Control and following which but not later than the third anniversary of the date of the Change of Control there occurs, without Executive's prior written consent: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Termination Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4 of this Termination Agreement or the Employment Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(b) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; 12 14 (iv) any failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Termination Agreement; (v) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Termination Agreement; or (vi) any failure by the Company to comply with and satisfy Section 12(b) of this Termination Agreement. For purposes of this Section, any good faith determination of "Good Reason" made by the Executive shall be conclusive. (g) "NORMAL RETIREMENT DATE." For purposes of this Termination Agreement, an Executive's Normal Retirement Date is his or her attainment of age sixty-five (65). 10. Excise Tax Gross-Up. -------------------- If Executive becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Termination Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company shall pay to Executive at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by Executive, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 10, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in Executive's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (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 13 15 actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-up Payment, Executive shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Executive's adjusted gross income); and (C) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in Executive's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment and shall indemnify and hold Executive harmless in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up 14 16 Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross- Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income for employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or employment tax (including 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 15 17 contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 10, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of this Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 10, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Non-competition and Non-Disclosure; Executive Cooperation. ---------------------------------------------------------- (a) NON-COMPETITION. Without the consent in writing of the Board, upon the Executive's Date of Termination for any reason, Executive will not, for a period of eighteen (18) months thereafter, acting alone or in conjunction with others, directly or indirectly (i) engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director (other than as below)) in any business in the continental United States which is a material business conducted by the Company or any of its subsidiaries on the date of the consummation of a Change of Control in which he has been directly engaged, or has supervised as an executive, on the date of the consummation of the Change of Control and which is directly in competition with a material business then conducted by the Company or any of its subsidiaries on the date of the consummation of the Change of Control; (ii) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; or (iii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a), neither shall service (whether as an employee, officer, director or consultant) with respect to Commercial Intertech Corp., nor shall service as a member of a board of directors on which Executive is serving on the Date of Termination (including any successor board thereto) be deemed, of itself, to be inconsistent with clause (i) of this paragraph (a). The Executive and the Company agree that the value to be assigned to the obligations of the Executive under this paragraph (a) is 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 16 18 otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to cooperate with the Company (including following Executive's Date of Termination for any reason), on a reasonable basis when cooperation would not unreasonably interfere with Executive's employment by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board and its representatives or counsel, or representatives or counsel of or to the Company, or any subsidiary or affiliate of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not apply to any action between the Executive and the Company to enforce this Termination Agreement. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a condition to receipt of the termination payments and benefits provided hereunder, that he will execute a release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than claims made pursuant to any indemnities provided under the articles or by-laws of the Company, under any directors or officers liability insurance policies maintained by the Company or enforcement of this Termination Agreement). (e) SURVIVAL. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section 11 shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his or her beneficiaries) receiving any amounts payable hereunder. The obligations of Executive under this Section 11 and any comparable type of obligation under the Employment Agreement are expressly conditioned upon Company's satisfaction of its obligations to Executive under this Termination Agreement and the Employment Agreement. 12. Governing Law; Disputes; Arbitration. ------------------------------------- (a) GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to Connecticut conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is 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 17 19 fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by independent counsel mutually acceptable to Executive and the Company and made without reference to or not related to a Change of Control. Immediately prior to the Extension Date but not less than five (5) days prior thereto, the Company agrees to maintain a minimum amount in a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable letter of credit in an amount equal to such minimum amount (and callable at will by such trustee) sufficient to fund any such litigation and the aggregate present value of all liabilities potentially owed to the Executive under this Agreement as if he or she had incurred a termination of employment by the Company other than for Cause. 13. Miscellaneous. -------------- (a) INTEGRATION. This Termination Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Employment Agreement and contracts relating to compensation under executive compensation and employee benefit plans of the Company and only to the extent enforceable. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit plans of the Company, this Termination Agreement and the Employment Agreement together constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment, right or benefit under this Termination Agreement which duplicates a payment, right or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation plan of the Company. (b) NON-TRANSFERABILITY. Neither this Termination Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c). The Company may assign this Termination Agreement and the Company's rights and obligations hereunder, and shall assign this Termination Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Termination Agreement. For purposes of this Termination Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (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 18 20 or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: Secretary With copies to: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: General Counsel If to Executive: --------------------------------------- --------------------------------------- --------------------------------------- If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (e) REFORMATION. The invalidity of any portion of this Termination Agreement shall not be deemed to render the remainder of this Termination Agreement invalid. (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. 19 21 (i) OFFSETS; WITHHOLDING. The amounts required to be paid by the Company to Executive pursuant to this Termination Agreement shall not be subject to offset, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to required withholding taxes and other required deductions. (j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 14. Indemnification. ---------------- All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Articles of Incorporation or Code of Regulations or pursuant to other agreements in effect on or immediately prior to the Extension Date shall continue in full force and effect from the Extension Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; PROVIDED, HOWEVER, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Articles of Incorporation, Code of Regulations, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Articles of Incorporation or Code of Regulations or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the Extension Date. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. CUNO Incorporated By: /s/Paul J. Powers ------------------------------ Name: Paul J. Powers ------------------------------ Title: Chairman & Ceo ------------------------------ MICHAEL H. CROFT /s/ M.H. Croft ----------------------------------- 20 22 CUNO INCORPORATED - -------------------------------------------------------------------------------- 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.................................... 9 10. Excise Tax Gross-Up........................................................... 13 11. Non-Competition and Non-Disclosure; Executive Cooperation..................... 16 12. Governing Law; Disputes; Arbitration.......................................... 17 13. Miscellaneous................................................................. 18 14. Indemnification............................................................... 20
21 EX-10.14 5 EXHIBIT 10.14 1 Exhibit 10.14 CUNO INCORPORATED - -------------------------------------------------------------------------------- TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS - -------------------------------------------------------------------------------- 2 TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.14 ------------------------------------------- THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between CUNO Incorporated, a Delaware corporation (the "Company"), and RONALD C. DRABIK ("Executive") is and shall become effective as of October 1, 1996 (the "Effective Date"). W I T N E S S E T H ------------------- After due consideration by the Board of Directors in meetings of the Board of Directors held on July 15 and 25, 1996, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. TERM AND APPLICATION. The Term of this Termination Agreement shall commence on the date hereof and shall terminate, except to the extent that any obligation of the Company under this Termination Agreement remains unpaid as of such time, on the date five (5) years from the date hereof (subject to earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the Extension Date (as defined below), the Term of this Termination Agreement shall be the Extended Employment Period (as defined below). As long as the Extension Date has not occurred, commencing on the date five (5) years after the date of this Termination Agreement and each anniversary date of this Termination Agreement thereafter, the Term of this Termination Agreement shall automatically be extended for one (1) additional year unless not later than on (1) year prior to the date five (5) years after the date of this Termination Agreement or subsequent anniversary date, the Company or Executive shall have given written notice to the other of its intention not to extend this Termination Agreement. If there is a conflict between the Employment Agreement, if any, between the Company and Executive ("Employment Agreement") and this Termination Agreement, this Termination Agreement shall supersede the Employment Agreement; provided the Executive shall receive the more valuable payment, right or benefit under the Employment Agreement (including without limitation, the continuation of Medical benefits under the Employment Agreement) and this Termination Agreement. In no event shall any payment, right or benefit under the Employment Agreement be reduced, eliminated or otherwise adversely affected by this Termination Agreement. In no event shall Executive receive any payment, right or benefit under both this Termination Agreement and the Employment Agreement with respect to the same Date of Termination (as defined below). 1 3 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, and (iv) serve in any capacity (whether as employee, officer, director or consultant) with respect to Commercial Intertech Corp. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) PLACE OF EMPLOYMENT. During the Extended Employment Period, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Extension Date or any office or location less than thirty-five (35) miles from such location. 3. Salary and Annual Incentive Compensation. ----------------------------------------- (a) BASE SALARY. During the Extended Employment Period, the Executive shall receive an annual base salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Extension Date occurs ("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 2 4 least equal to the highest average of the Executive's annual incentive compensation for any two (2) full fiscal years in the most recent five (5) full fiscal years (annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year or the fiscal year consisted of less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement ------------------------------------------------ (a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment Period, the compensation plans, practices, policies and programs, in the aggregate, including without limitation the long-term incentive features of the Company's stock option and award plans, shall provide Executive with benefits, options to acquire Company stock and compensation and incentive award opportunities substantially no less favorable than those provided by the Company under such plans and programs to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, be less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Extension Date or if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. For purposes of this Termination Agreement, all references to "performance share plans" and "performance shares" refer to such arrangements under the Company's stock option and award plans and to any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under such plans or other plans of the Company. (b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended Employment Period, benefit plans, practices, policies and programs, in the aggregate, 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 3 5 Executive's employment. In such event, the Executive's Date of Termination is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such Date of Termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, or due to his voluntary decision to retire on or after his Normal Retirement Date other 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, 4 6 programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, including any supplemental retirement plan in which the Executive may have participated; (c) In lieu of any annual incentive compensation under Section 3(b) for the year in which Executive's employment terminated (unless otherwise payable under (b) above), Executive will be paid an amount equal to the average annual incentive compensation paid to Executive in the three years immediately preceding the year of termination (or, if Executive was not eligible to receive or did not receive such incentive compensation for any year in such three year period, the Executive's target annual incentive compensation for such year(s) shall be used to calculate average annual incentive compensation) multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (d) Stock options then held by Executive will be exercisable to the extent and for such periods, and otherwise governed, by the plans and programs and the agreements and other documents thereunder pursuant to which such stock options were granted; and (e) If Executive's Date of Termination is due to Disability, for the period extending from such Date of Termination until Executive reaches age 65, Executive shall continue to participate in all employee benefit plans, programs, and arrangements providing health, medical, and life insurance in which Executive was participating immediately prior to the Date of Termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if such plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating). Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 7. Termination of Employment For Reasons Other Than Normal Retirement, Death or Disability ------------------------------------------------------- (a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or voluntarily by Executive for reasons other than Good Reason or other than the attainment of the Normal 5 7 Retirement Date, death or Disability, the Term will immediately terminate, and all obligations of the Company under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (i) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; and (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 6 8 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, including any supplemental retirement plan in which the Executive may have participated. Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 8. Termination by the Company Without Cause and Termination by Executive for Good Reason During the Extended Employment Period --------------------------------------------------------------- Upon an Executive's Date of Termination during the Extended Employment Period by the Company without Cause or voluntarily by the Executive for Good Reason, the Term of this Termination Agreement will immediately terminate and all obligations of the Company and Executive under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c) the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (a) the Company shall pay to the Executive in a lump sum in cash on the Date of Termination the aggregate of the following amounts: (i) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the higher of (A) the Recent Annual Bonus and (B) the Executive's Annual Bonus paid or payable for the Company's fiscal year in which occurs the Date of Termination, assuming Executive and Company satisfy all conditions to Executive's receiving the full Annual Bonus at target (and annualized for any fiscal year consisting of less than twelve (12) full months or during which the Executive was employed for less than twelve (12) full months) (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; 7 9 (ii) the amount equal to three (3) times the sum of (1) the Executive's Annual Base Salary and (2) the Highest Annual Bonus. (Payment of any amount under Section 8(a)(i) shall not constitute a payment or discharge of the Company's obligation under Section 8(a)(ii) and VICE VERSA); (iii) in lieu of any payment in respect of performance shares, or other long term incentive awards granted prior to the Extension Date or in accordance with Section 4(a) hereof, for any performance period not completed at the Executive's Date of Termination, an amount equal to the cash amount payable plus the value of any shares, dividends or other property (valued at the Date of Termination) payable upon the achievement of the then existing performance in respect of each tranche of such performance shares or awards as if the Date of Termination were the end of the performance period, but in no event less than one hundred percent (100%) of target, multiplied by (A) with respect to any tranche as of the Date of Termination for which at least fifty percent (50%) of the performance period has elapsed, one hundred percent (100%), and (B) with respect to any tranche as of the Date of Termination for which less than fifty percent (50%) of the performance period has elapsed, a fraction, the numerator of which is the number of days that have elapsed in the relevant performance period and the denominator of which is the total number of days in the relevant performance period; and (iv) to the extent not covered in (i), (ii), (iii) or (iv), all vested, nonforfeitable amounts owing or accrued at the Date of Termination under any other compensation and benefit plans, programs, and arrangements in which Executive theretofore participated, including any supplemental retirement plan in which the Executive may have participated, including any additional accruals provided under such plan due to the Change of Control, will be paid under the terms and conditions of the plans, programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted. (b) Stock options then held by Executive will be exercisable and restricted stock held by the Executive will be vested to the extent and for such periods, 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 8 10 peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive is employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For three (3) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the plan, the Company shall continue tax-qualified defined contribution and supplemental retirement plan accruals for the Executive, including participation and crediting of service, contributions and compensation at least equal to what the Executive would have accrued in accordance with such plans of the Company or affiliated companies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. If such welfare benefit or tax-qualified defined contribution plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service, compensation and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating); (d) outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion, provided by the Company at its sole expense as incurred; (e) for three (3) years after Executive's Date of Termination, a continued application of the Company's auto leasing policy in effect on the Extension Date with respect to the Executive; (f) for one (1) year after Executive's Date of Termination, the provision of reasonable personal tax accounting and financial planning by a firm chosen by Executive and reasonably acceptable to the Company; (g) for three (3) years after Executive's Date of Termination, the payment of all regular lunch and country club membership dues or fees in respect of any lunch or country club of which Executive is a member on Executive's Date of Termination; and (h) for three (3) years after Executive's Date of Termination, the payment of normal insurance premiums with respect to the insurance policies on the life of Executive under the Group Replacement Insurance Program of Commercial Intertech Corp., or any successor thereto. 9. Definitions Relating to Termination Events. ------------------------------------------- 9 11 (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 10 12 the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such indi vidual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then- outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time 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 11 13 disability as determined by a physician or physicians selected by the Company and reasonably acceptable to Executive, unless, within 30 days after Executive has received written notice from the Company of a proposed Date of Termination due to such absence, Executive shall have returned to the full performance of his duties hereunder and shall have presented to the Company a written certificate of Executive's good health prepared by a physician selected by Company and reasonably acceptable to Executive. (d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing on the Extension Date and ending on the third anniversary of such date. (e) "EXTENSION DATE" shall mean the first date during the Term of this Termination Agreement on which a Change of Control occurs. Anything in this Termination Agreement or the Employment Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of the Employment Agreement the "Extension Date" shall mean the date immediately prior to the date of such termination of employment. (f) "GOOD REASON." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of a Change of Control and following which but not later than the third anniversary of the date of the Change of Control there occurs, without Executive's prior written consent: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a) of this Termination Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4 of this Termination Agreement or the Employment Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 2(b) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; 12 14 (iv) any failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Termination Agreement; (v) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Termination Agreement; or (vi) any failure by the Company to comply with and satisfy Section 12(b) of this Termination Agreement. For purposes of this Section, any good faith determination of "Good Reason" made by the Executive shall be conclusive. (g) "NORMAL RETIREMENT DATE." For purposes of this Termination Agreement, an Executive's Normal Retirement Date is his or her attainment of age sixty-five (65). 10. Excise Tax Gross-Up. -------------------- If Executive becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Termination Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company shall pay to Executive at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by Executive, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 10, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in Executive's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (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 13 15 actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-up Payment, Executive shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Executive's adjusted gross income); and (C) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in Executive's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment and shall indemnify and hold Executive harmless in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up 14 16 Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross- Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income for employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or employment tax (including 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 15 17 contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 10, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of this Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section 10, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11. Non-Competition and Non-Disclosure; Executive Cooperation. ---------------------------------------------------------- (a) NON-COMPETITION. Without the consent in writing of the Board, upon the Executive's Date of Termination for any reason, Executive will not, for a period of one year thereafter, acting alone or in conjunction with others, directly or indirectly (i) engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director (other than as below)) in any business in the continental United States which is a material business conducted by the Company or any of its subsidiaries on the date of the consummation of a Change of Control in which he has been directly engaged, or has supervised as an executive, on the date of the consummation of the Change of Control and which is directly in competition with a material business then conducted by the Company or any of its subsidiaries on the date of the consummation of the Change of Control; (ii) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; or (iii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a), neither shall service (whether as an employee, officer, director or consultant) with respect to Commercial Intertech Corp., nor shall service as a member of a board of directors on which Executive is serving on the Date of Termination (including any successor board thereto) be deemed, of itself, to be inconsistent with clause (i) of this paragraph (a). The Executive and the Company agree that the value to be assigned to the obligations of the Executive under this paragraph (a) is 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 16 18 otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to cooperate with the Company (including following Executive's Date of Termination for any reason), on a reasonable basis when cooperation would not unreasonably interfere with Executive's employment by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board and its representatives or counsel, or representatives or counsel of or to the Company, or any subsidiary or affiliate of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not apply to any action between the Executive and the Company to enforce this Termination Agreement. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a condition to receipt of the termination payments and benefits provided hereunder, that he will execute a release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than claims made pursuant to any indemnities provided under the articles or by-laws of the Company, under any directors or officers liability insurance policies maintained by the Company or enforcement of this Termination Agreement). (e) SURVIVAL. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section 11 shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his or her beneficiaries) receiving any amounts payable hereunder. The obligations of Executive under this Section 11 and any comparable type of obligation under the Employment Agreement are expressly conditioned upon Company's satisfaction of its obligations to Executive under this Termination Agreement and the Employment Agreement. 12. Governing Law; Disputes; Arbitration. ------------------------------------- (a) GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to Connecticut conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is 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 17 19 fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by independent counsel mutually acceptable to Executive and the Company and made without reference to or not related to a Change of Control. Immediately prior to the Extension Date but not less than five (5) days prior thereto, the Company agrees to maintain a minimum amount in a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable letter of credit in an amount equal to such minimum amount (and callable at will by such trustee) sufficient to fund any such litigation and the aggregate present value of all liabilities potentially owed to the Executive under this Agreement as if he or she had incurred a termination of employment by the Company other than for Cause. 13. Miscellaneous. -------------- (a) INTEGRATION. This Termination Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Employment Agreement and contracts relating to compensation under executive compensation and employee benefit plans of the Company and only to the extent enforceable. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit plans of the Company, this Termination Agreement and the Employment Agreement together constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment, right or benefit under this Termination Agreement which duplicates a payment, right or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation plan of the Company. (b) NON-TRANSFERABILITY. Neither this Termination Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c). The Company may assign this Termination Agreement and the Company's rights and obligations hereunder, and shall assign this Termination Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Termination Agreement. For purposes of this Termination Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (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 18 20 or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: Secretary With copies to: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: General Counsel If to Executive: --------------------------------------- --------------------------------------- --------------------------------------- If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (e) REFORMATION. The invalidity of any portion of this Termination Agreement shall not be deemed to render the remainder of this Termination Agreement invalid. (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. 19 21 (i) OFFSETS; WITHHOLDING. The amounts required to be paid by the Company to Executive pursuant to this Termination Agreement shall not be subject to offset, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to required withholding taxes and other required deductions. (j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 14. Indemnification. ---------------- All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Articles of Incorporation or Code of Regulations or pursuant to other agreements in effect on or immediately prior to the Extension Date shall continue in full force and effect from the Extension Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; PROVIDED, HOWEVER, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Articles of Incorporation, Code of Regulations, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Articles of Incorporation or Code of Regulations or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the Extension Date. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. CUNO Incorporated By: /s/Paul J. Powers ---------------------------------- Name: Paul J. Powers ---------------------------------- Title: Chairman & CEO ---------------------------------- RONALD C. DRABIK /s/Ronald C. Drabik ----------------------------------------- 20 22 CUNO INCORPORATED - -------------------------------------------------------------------------------- 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..................................... 9 10. Excise Tax Gross-Up............................................................ 13 11. Non-Competition and Non-Disclosure; Executive Cooperation...................... 16 12. Governing Law; Disputes; Arbitration........................................... 17 13. Miscellaneous.................................................................. 18 14. Indemnification................................................................ 20
21 EX-10.15 6 EXHIBIT 10.15 1 Exhibit 10.15 CUNO INCORPORATED - -------------------------------------------------------------------------------- TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS - -------------------------------------------------------------------------------- 2 TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.15 ------------------------------------------- THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between CUNO Incorporated, a Delaware corporation (the "Company"), and TIMOTHY B. CARNEY ("Executive") is and shall become effective as of October 1, 1996 (the "Effective Date"). W I T N E S S E T H - - - - - - - - - - After due consideration by the Board of Directors in meetings of the Board of Directors held on July 15 and 25, 1996, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. TERM AND APPLICATION. The Term of this Termination Agreement shall commence on the date hereof and shall terminate, except to the extent that any obligation of the Company under this Termination Agreement remains unpaid as of such time, on the date five (5) years from the date hereof (subject to earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the Extension Date (as defined below), the Term of this Termination Agreement shall be the Extended Employment Period (as defined below). As long as the Extension Date has not occurred, commencing on the date five (5) years after the date of this Termination Agreement and each anniversary date of this Termination Agreement thereafter, the Term of this Termination Agreement shall automatically be extended for one (1) additional year unless not later than on (1) year prior to the date five (5) years after the date of this Termination Agreement or subsequent anniversary date, the Company or Executive shall have given written notice to the other of its intention not to extend this Termination Agreement. If there is a conflict between the Employment Agreement, if any, between the Company and Executive ("Employment Agreement") and this Termination Agreement, this Termination Agreement shall supersede the Employment Agreement; provided the Executive shall receive the more valuable payment, right or benefit under the Employment Agreement (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). 3 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, and (iv) serve in any capacity (whether as employee, officer, director or consultant) with respect to Commercial Intertech Corp. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) PLACE OF EMPLOYMENT. During the Extended Employment Period, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Extension Date or any office or location less than thirty-five (35) miles from such location. 3. Salary and Annual Incentive Compensation. ----------------------------------------- (a) BASE SALARY. During the Extended Employment Period, the Executive shall receive an annual base salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Extension Date occurs ("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 2 4 least equal to the highest average of the Executive's annual incentive compensation for any two (2) full fiscal years in the most recent five (5) full fiscal years (annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year or the fiscal year consisted of less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement ---------------------------------------------------------- (a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment Period, the compensation plans, practices, policies and programs, in the aggregate, including without limitation the long-term incentive features of the Company's stock option and award plans, shall provide Executive with benefits, options to acquire Company stock and compensation and incentive award opportunities substantially no less favorable than those provided by the Company under such plans and programs to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, be less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Extension Date or if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. For purposes of this Termination Agreement, all references to "performance share plans" and "performance shares" refer to such arrangements under the Company's stock option and award plans and to any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under such plans or other plans of the Company. (b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended Employment Period, benefit plans, practices, policies and programs, in the aggregate, 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 3 5 Executive's employment. In such event, the Executive's Date of Termination is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such Date of Termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, or due to his voluntary decision to retire on or after his Normal Retirement Date other 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, 4 6 programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, including any supplemental retirement plan in which the Executive may have participated; (c) In lieu of any annual incentive compensation under Section 3(b) for the year in which Executive's employment terminated (unless otherwise payable under (b) above), Executive will be paid an amount equal to the average annual incentive compensation paid to Executive in the three years immediately preceding the year of termination (or, if Executive was not eligible to receive or did not receive such incentive compensation for any year in such three year period, the Executive's target annual incentive compensation for such year(s) shall be used to calculate average annual incentive compensation) multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (d) Stock options then held by Executive will be exercisable to the extent and for such periods, and otherwise governed, by the plans and programs and the agreements and other documents thereunder pursuant to which such stock options were granted; and (e) If Executive's Date of Termination is due to Disability, for the period extending from such Date of Termination until Executive reaches age 65, Executive shall continue to participate in all employee benefit plans, programs, and arrangements providing health, medical, and life insurance in which Executive was participating immediately prior to the Date of Termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if such plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating). Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 7. Termination of Employment For Reasons Other Than Normal Retirement, Death or Disability ------------------------------------------------------- (a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or voluntarily by Executive for reasons other than Good Reason or other than the attainment of the Normal 5 7 Retirement Date, death or Disability, the Term will immediately terminate, and all obligations of the Company under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (i) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; and (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 6 8 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, 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; 7 9 (ii) the amount equal to two (2) times the sum of (1) the Executive's Annual Base Salary and (2) the Highest Annual Bonus. (Payment of any amount under Section 8(a)(i) shall not constitute a payment or discharge of the Company's obligation under Section 8(a)(ii) and VICE VERSA); (iii) in lieu of any payment in respect of performance shares, or other long term incentive awards granted prior to the Extension Date or in accordance with Section 4(a) hereof, for any performance period 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 8 10 peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive is employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For two (2) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the plan, the Company shall continue tax-qualified defined contribution and supplemental retirement plan accruals for the Executive, including participation and crediting of service, contributions and compensation at least equal to what the Executive would have accrued in accordance with such plans of the Company or affiliated companies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally 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 Group Replacement Insurance Program of Commercial Intertech Corp., or any successor thereto. 9. Definitions Relating to Termination Events. ------------------------------------------- (a) "CAUSE." For purposes of this Termination Agreement, "Cause" shall mean Executive's gross misconduct (as defined herein). For purposes of this definition, "gross misconduct" shall mean (A) a felony conviction in a court of law under applicable federal or state laws which results in material damage to the Company or any of its subsidiaries or 9 11 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 this purpose, any such individual whose initial assumption of office occurs as a result of an 10 12 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 11 13 Company a written certificate of Executive's good health prepared by a physician selected by Company and reasonably acceptable to Executive. (d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing on the Extension Date and ending on the third anniversary of such date. (e) "EXTENSION DATE" shall mean the first date during the Term of this Termination Agreement on which a Change of Control occurs. Anything in this Termination Agreement or the Employment Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of the Employment Agreement the "Extension Date" shall mean the date immediately prior to the date of such termination of employment. (f) "GOOD REASON." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of a Change of Control and following which but not later than the 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; 12 14 (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 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 13 15 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 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 14 16 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 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 then conducted by the Company or any of its subsidiaries on the date of the consummation of the Change of Control; (ii) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; or (iii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a), neither shall service (whether as an employee, officer, director or consultant) with respect to Commercial Intertech Corp., nor shall service as a member of a board of directors on which Executive is serving on the Date of Termination (including any successor board thereto) be deemed, of itself, to be inconsistent with clause (i) of this paragraph (a). The Executive and the Company agree that the value to be assigned to the obligations of the Executive under this paragraph (a) is an amount equal to fifty percent (50%) 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 15 17 otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to cooperate with the Company (including following Executive's Date of Termination for any reason), on a reasonable basis when cooperation would not unreasonably interfere with Executive's employment by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board and its representatives or counsel, or representatives or counsel of or to the Company, or any subsidiary or affiliate of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not apply to any action between the Executive and the Company to enforce this Termination Agreement. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a condition to receipt of the termination payments and benefits provided hereunder, that he will execute a release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than claims made pursuant to any indemnities provided under the articles or by-laws of the Company, under any directors or officers liability insurance policies maintained by the Company or enforcement of this Termination Agreement). (e) SURVIVAL. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section 11 shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his or her beneficiaries) receiving any amounts payable hereunder. The obligations of Executive under this Section II and any comparable type of obligation under the Employment Agreement are expressly conditioned upon Company's satisfaction of its obligations to Executive under this Termination Agreement and the Employment Agreement. 12. Governing Law; Disputes; Arbitration. ------------------------------------- (a) GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to Connecticut conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is 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 16 18 fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by independent counsel mutually acceptable to Executive and the Company and made without reference to or not related to a Change of Control. Immediately prior to the Extension Date but not less than five (5) days prior thereto, the Company agrees to maintain a minimum amount in a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable letter of credit in an amount equal to such minimum amount (and callable at will by such trustee) sufficient to fund any such litigation and the aggregate present value of all liabilities potentially owed to the Executive under this Agreement as if he or she had incurred a termination of employment by the Company other than for Cause. 13. Miscellaneous. -------------- (a) INTEGRATION. This Termination Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Employment Agreement and contracts relating to compensation under executive compensation and employee benefit plans of the Company and only to the extent enforceable. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit plans of the Company, this Termination Agreement and the Employment Agreement together constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment, right or benefit under this Termination Agreement which duplicates a payment, right or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation plan of the Company. (b) NON-TRANSFERABILITY. Neither this Termination Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c). The Company may assign this Termination Agreement and the Company's rights and obligations hereunder, and shall assign this Termination Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Termination Agreement. For purposes of this Termination Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (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 17 19 or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: Secretary With copies to: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: General Counsel If to Executive: ------------------------------------- ------------------------------------- ------------------------------------- If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (e) REFORMATION. The invalidity of any portion of this Termination Agreement shall not be deemed to render the remainder of this Termination Agreement invalid. (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. 18 20 (i) OFFSETS; WITHHOLDING. The amounts required to be paid by the Company to Executive pursuant to this Termination Agreement shall not be subject to offset, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to required withholding taxes and other required deductions. (j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 14. Indemnification. ---------------- All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Articles of Incorporation or Code of Regulations or pursuant to other agreements in effect on or immediately prior to the Extension Date shall continue in full force and effect from the Extension Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; PROVIDED, HOWEVER, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Articles of Incorporation, Code of Regulations, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Articles of Incorporation or Code of Regulations or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the Extension Date. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. CUNO Incorporated By: /s/Paul J. Powers ----------------------------------- Name: Paul J. Powers ----------------------------------- Title: Chairman & CEO ----------------------------------- TIMOTHY B. CARNEY /s/ T.B. Carney ---------------------------------------- 19 21
CUNO INCORPORATED - -------------------------------------------------------------------------------- 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.......................................... 9 10. Excise Tax Limit.................................................................... 13 11. Non-Competition and Non-Disclosure; Executive Cooperation........................... 15 12. Governing Law; Disputes; Arbitration................................................ 16 13. Miscellaneous....................................................................... 17 14. Indemnification..................................................................... 19
20 EX-10.16 7 EXHIBIT 10.16 1 Exhibit 10.16 CUNO INCORPORATED - -------------------------------------------------------------------------------- TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR CORPORATE OFFICERS - -------------------------------------------------------------------------------- 2 TERMINATION AND CHANGE OF CONTROL AGREEMENT Exhibit 10.16 ------------------------------------------- THIS TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between CUNO Incorporated, a Delaware corporation (the "Company"), and JOHN A. TOMICH ("Executive") is and shall become effective as of October 1, 1996 (the "Effective Date"). W I T N E S S E T H ------------------- After due consideration by the Board of Directors in meetings of the Board of Directors held on July 15 and 25, 1996, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. TERM AND APPLICATION. The Term of this Termination Agreement shall commence on the date hereof and shall terminate, except to the extent that any obligation of the Company under this Termination Agreement remains unpaid as of such time, on the date five (5) years from the date hereof (subject to earlier termination in accordance with Section 5 below); PROVIDED, HOWEVER, that on or after the Extension Date (as defined below), the Term of this Termination Agreement shall be the Extended Employment Period (as defined below). As long as the Extension Date has not occurred, commencing on the date five (5) years after the date of this Termination Agreement and each anniversary date of this Termination Agreement thereafter, the Term of this Termination Agreement shall automatically be extended for one (1) additional year unless not later than on (1) year prior to the date five (5) years after the date of this Termination Agreement or subsequent anniversary date, the Company or Executive shall have given written notice to the other of its intention not to extend this Termination Agreement. If there is a conflict between the Employment Agreement, if any, between the Company and Executive ("Employment Agreement") and this Termination Agreement, this Termination Agreement shall supersede the Employment Agreement; provided the Executive shall receive the more valuable payment, right or benefit under the Employment Agreement (including without limitation, the continuation of medical benefits under the Employment Agreement) and this Termination Agreement. In no event shall any payment, right or benefit under the Employment Agreement be reduced eliminated or otherwise adversely affected by this Termination Agreement. In no event shall Executive receive any payment, right or benefit under both this Termination Agreement and the Employment Agreement with respect to the same Date of Termination (as defined below). 1 3 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, and (iv) serve in any capacity (whether as employee, officer, director or consultant) with respect to Commercial Intertech Corp. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) PLACE OF EMPLOYMENT. During the Extended Employment Period, the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Extension Date or any office or location less than thirty-five (35) miles from such location. 3. Salary and Annual Incentive Compensation. ----------------------------------------- (a) BASE SALARY. During the Extended Employment Period, the Executive shall receive an annual base salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Extension Date occurs ("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 2 4 least equal to the highest average of the Executive's annual incentive compensation for any two (2) full fiscal years in the most recent five (5) full fiscal years (annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year or the fiscal year consisted of less than twelve (12) months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement -------------------------------------------------------------- (a) EXECUTIVE COMPENSATION PLANS. During the Extended Employment Period, the compensation plans, practices, policies and programs, in the aggregate, including without limitation the long-term incentive features of the Company's stock option and award plans, shall provide Executive with benefits, options to acquire Company stock and compensation and incentive award opportunities substantially no less favorable than those provided by the Company under such plans and programs to senior executives in similar capacities. During the Extended Employment Period, in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), in each case, be less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Extension Date or if more favorable to the Executive, those provided generally at any time after the Extension Date to other peer executives of the Company and its affiliated companies. For purposes of this Termination Agreement, all references to "performance share plans" and "performance shares" refer to such arrangements under the Company's stock option and award plans and to any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under such plans or other plans of the Company. (b) EMPLOYEE AND EXECUTIVE BENEFIT PLANS. During the Extended Employment Period, benefit plans, practices, policies and programs, in the aggregate, 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 3 5 Executive's employment. In such event, the Executive's Date of Termination is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (c) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such Date of Termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, or due to his voluntary decision to retire on or after his Normal Retirement Date other 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, 4 6 programs, and arrangements (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, including any supplemental retirement plan in which the Executive may have participated; (c) In lieu of any annual incentive compensation under Section 3(b) for the year in which Executive's employment terminated (unless otherwise payable under (b) above), Executive will be paid an amount equal to the average annual incentive compensation paid to Executive in the three years immediately preceding the year of termination (or, if Executive was not eligible to receive or did not receive such incentive compensation for any year in such three year period, the Executive's target annual incentive compensation for such year(s) shall be used to calculate average annual incentive compensation) multiplied by a fraction the numerator of which is the number of days Executive was employed in the year of termination and the denominator of which is the total number of days in the year of termination; (d) Stock options then held by Executive will be exercisable to the extent and for such periods, and otherwise governed, by the plans and programs and the agreements and other documents thereunder pursuant to which such stock options were granted; and (e) If Executive's Date of Termination is due to Disability, for the period extending from such Date of Termination until Executive reaches age 65, Executive shall continue to participate in all employee benefit plans, programs, and arrangements providing health, medical, and life insurance in which Executive was participating immediately prior to the Date of Termination, the terms of which allow Executive's continued participation, as if Executive had continued in employment with the Company during such period or, if such plans, programs, or arrangements do not allow Executive's continued participation, a cash payment equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such employee benefit plans, programs, and arrangements in which Executive was participating immediately prior to the Date of Termination, as if Executive had received credit under such plans, programs, and arrangements for service and age with the Company during such period following Executive's Date of Termination, with such benefits payable by the Company at the same times and in the same manner as such benefits would have been received by Executive under such plans (it being understood that the value of any insurance-provided benefits will be based on the premium cost to Executive, which shall not exceed the highest risk premium charged by a carrier having an investment grade or better credit rating). Amounts which are immediately payable above will be paid as promptly as practicable after Executive's Date of Termination; PROVIDED, HOWEVER, to the extent that or the Company would not be entitled to deduct any such payments under Internal Revenue Code Section 162(m), such payments shall be made at the earliest time that the payments would be deductible by the Company without limitation under Section 162(m) (unless this provision is waived by the Company). Any deferred payment shall be credited with the interest at a rate applied to prevent the imputation of taxable income under the Code. 7. Termination of Employment For Reasons Other Than Normal Retirement, Death or Disability ------------------------------------------------------- (a) TERMINATION BY THE COMPANY FOR CAUSE AND TERMINATION BY EXECUTIVE. Upon an Executive's Date of Termination by the Company for Cause, or voluntarily by Executive for reasons other than Good Reason or other than the attainment of the Normal 5 7 Retirement Date, death or Disability, the Term will immediately terminate, and all obligations of the Company under Sections 1 through 4 of this Termination Agreement will immediately cease; PROVIDED, HOWEVER, that subject to the provisions of Section 13(c), the Company shall pay Executive (or his or her beneficiaries), and Executive (or his or her beneficiaries) shall be entitled to receive, the following: (i) The unpaid portion of Annual Base Salary at the rate payable, in accordance with Section 4(a) hereof, at the Date of Termination, pro rated through such Date of Termination, will be paid; and (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 6 8 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, 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; 7 9 (ii) the amount equal to two (2) times the sum of (1) the Executive's Annual Base Salary and (2) the Highest Annual Bonus. (Payment of any amount under Section 8(a)(i) shall not constitute a payment or discharge of the Company's obligation under Section 8(a)(ii) and VICE VERSA); (iii) in lieu of any payment in respect of performance shares, or other long term incentive awards granted prior to the Extension Date or in accordance with Section 4(a) hereof, for any performance period 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 8 10 peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive is employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For two (2) years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the plan, the Company shall continue tax-qualified defined contribution and supplemental retirement plan accruals for the Executive, including participation and crediting of service, contributions and compensation at least equal to what the Executive would have accrued in accordance with such plans of the Company or affiliated companies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally 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 Group Replacement Insurance Program of Commercial Intertech Corp., or any successor thereto. 9. Definitions Relating to Termination Events. ------------------------------------------- (a) "CAUSE." For purposes of this Termination Agreement, "Cause" shall mean Executive's gross misconduct (as defined herein). For purposes of this definition, "gross misconduct" shall mean (A) a felony conviction in a court of law under applicable federal or state laws which results in material damage to the Company or any of its subsidiaries or 9 11 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 this purpose, any such individual whose initial assumption of office occurs as a result of an 10 12 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 11 13 Company a written certificate of Executive's good health prepared by a physician selected by Company and reasonably acceptable to Executive. (d) "EXTENDED EMPLOYMENT PERIOD" shall mean the period commencing on the Extension Date and ending on the third anniversary of such date. (e) "EXTENSION DATE" shall mean the first date during the Term of this Termination Agreement on which a Change of Control occurs. Anything in this Termination Agreement or the Employment Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of the Employment Agreement the "Extension Date" shall mean the date immediately prior to the date of such termination of employment. (f) "GOOD REASON." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of a Change of Control and following which but not later than the 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; 12 14 (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 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 13 15 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 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 14 16 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 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 then conducted by the Company or any of its subsidiaries on the date of the consummation of the Change of Control; (ii) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; or (iii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a), neither shall service (whether as an employee, officer, director or consultant) with respect to Commercial Intertech Corp., nor shall service as a member of a board of directors on which Executive is serving on the Date of Termination (including any successor board thereto) be deemed, of itself, to be inconsistent with clause (i) of this paragraph (a). The Executive and the Company agree that the value to be assigned to the obligations of the Executive under this paragraph (a) is an amount equal to fifty percent (50%) 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 15 17 otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (c) COOPERATION WITH REGARD TO LITIGATION. Executive agrees to cooperate with the Company (including following Executive's Date of Termination for any reason), on a reasonable basis when cooperation would not unreasonably interfere with Executive's employment by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board and its representatives or counsel, or representatives or counsel of or to the Company, or any subsidiary or affiliate of the Company, as requested; PROVIDED, HOWEVER, this subsection (c) shall not apply to any action between the Executive and the Company to enforce this Termination Agreement. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. (d) RELEASE OF EMPLOYMENT CLAIMS. Executive agrees, as a condition to receipt of the termination payments and benefits provided hereunder, that he will execute a release agreement, in a form satisfactory to the Company, releasing any and all claims arising out of Executive's employment (other than claims made pursuant to any indemnities provided under the articles or by-laws of the Company, under any directors or officers liability insurance policies maintained by the Company or enforcement of this Termination Agreement). (e) SURVIVAL. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section 11 shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his or her beneficiaries) receiving any amounts payable hereunder. The obligations of Executive under this Section II and any comparable type of obligation under the Employment Agreement are expressly conditioned upon Company's satisfaction of its obligations to Executive under this Termination Agreement and the Employment Agreement. 12. Governing Law; Disputes; Arbitration. ------------------------------------- (a) GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Connecticut, without regard to Connecticut conflicts of law principles, except insofar as federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 11 is 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 16 18 fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no reimbursement shall be made of such expenses relating to any unsuccessful assertion of rights if and to the extent that Executive's assertion of such rights was in bad faith or frivolous, as determined by independent counsel mutually acceptable to Executive and the Company and made without reference to or not related to a Change of Control. Immediately prior to the Extension Date but not less than five (5) days prior thereto, the Company agrees to maintain a minimum amount in a rabbi trust (or to provide to the trustee of such rabbi trust) an irrevocable letter of credit in an amount equal to such minimum amount (and callable at will by such trustee) sufficient to fund any such litigation and the aggregate present value of all liabilities potentially owed to the Executive under this Agreement as if he or she had incurred a termination of employment by the Company other than for Cause. 13. Miscellaneous. -------------- (a) INTEGRATION. This Termination Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Employment Agreement and contracts relating to compensation under executive compensation and employee benefit plans of the Company and only to the extent enforceable. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit plans of the Company, this Termination Agreement and the Employment Agreement together constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment, right or benefit under this Termination Agreement which duplicates a payment, right or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation plan of the Company. (b) NON-TRANSFERABILITY. Neither this Termination Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 13(c). The Company may assign this Termination Agreement and the Company's rights and obligations hereunder, and shall assign this Termination Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Termination Agreement. For purposes of this Termination Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (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 17 19 or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: Secretary With copies to: CUNO Incorporated 400 Research Parkway Meriden, Connecticut 06450 Attention: General Counsel If to Executive: --------------------------------------- --------------------------------------- --------------------------------------- If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (e) REFORMATION. The invalidity of any portion of this Termination Agreement shall not be deemed to render the remainder of this Termination Agreement invalid. (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. 18 20 (i) OFFSETS; WITHHOLDING. The amounts required to be paid by the Company to Executive pursuant to this Termination Agreement shall not be subject to offset, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to required withholding taxes and other required deductions. (j) SUCCESSORS AND ASSIGNS. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 14. Indemnification. ---------------- All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Articles of Incorporation or Code of Regulations or pursuant to other agreements in effect on or immediately prior to the Extension Date shall continue in full force and effect from the Extension Date (including all periods after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; PROVIDED, HOWEVER, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Articles of Incorporation, Code of Regulations, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). After the date hereof, the Company shall not amend its Articles of Incorporation or Code of Regulations or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the Extension Date. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. CUNO Incorporated By: /s/Paul J. Powers ----------------------------- Name: Paul J. Powers ----------------------------- Title: Chairman & CEO ----------------------------- John A. Tomich /s/John A. Tomich ----------------------------------- 19 21 CUNO INCORPORATED - -------------------------------------------------------------------------------- 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.................................... 9 10. Excise Tax Limit.............................................................. 13 11. Non-Competition and Non-Disclosure; Executive Cooperation..................... 15 12. Governing Law; Disputes; Arbitration.......................................... 16 13. Miscellaneous................................................................. 17 14. Indemnification............................................................... 19
20 EX-21 8 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Listed below, as of January 2, 1997, are the significant subsidiaries of the Company and their jurisdictions of organization. All of such subsidiaries are either directly or indirectly wholly owned by the Company. Other subsidiaries of the Company have been omitted because, considered in the aggregate, they would not constitute a significant subsidiary. Jurisdiction of Name of Subsidiary Organization ------------------ ---------------- 100% Owned - ---------- CUNO Europe S.A. France CUNO Pacific, Pty. Ltd. Australia CUNO Filtration Asia Pte. Ltd. Singapore CUNO K.K. Japan CUNO Latina Ltda Brazil CUNO SarL Italy CUNO GmbH Germany CUNO Ltd. United Kingdom EX-27 9 EXHIBIT 27
5 1,000 YEAR OCT-31-1996 NOV-01-1995 OCT-31-1996 5,244 0 38,077 1,133 19,149 68,154 96,150 47,949 138,756 56,597 33,772 14 0 0 43,134 138,756 179,068 179,068 104,848 104,848 0 22 820 11,011 5,418 5,593 0 0 0 5,593 .41 .41
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