EXHIBIT 10.32

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made effective, nunc pro tunc, of June 1,
2004, by and between CUNO INCORPORATED, a Delaware corporation (the “Company”),
and TIMOTHY B. CARNEY (“Executive”).

RECITALS

     WHEREAS, Executive has been promoted to Senior Vice President — Worldwide
Water Group of the Company and is an integral part of its management;

     WHEREAS, Executive and the Company desire to continue their relationship
with each other under the terms of this Agreement;

     WHEREAS, the Company wishes to ensure that Executive will not compete with
the Company for a period of two years after the last date on which he is either
an employee of the Company or a member of the Board; and

     WHEREAS, Executive is prepared to enter into this employment agreement with
the Company and to give the Company assurances it desires;

     NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:

     1. Employment, Contract Period. During the period specified in this
Section 1, the Company shall employ Executive, and Executive shall serve the
Company, on the term and subject to the conditions set forth herein. The term of
Executive’s employment hereunder shall commence as of June 1, 2004 (the
“Effective Date”) and, subject to prior termination as provided in Section 5
hereof, shall continue through November 30, 2008. The term of Executive’s
employment hereunder is sometimes hereinafter referred to as the “Contract
Period.”

     2. Responsibility. At all times during the Contract Period, Executive shall
serve the Company as the Company’s Senior Vice President — Worldwide Water Group
and shall (a) devote his full business time and effort exclusively to the
performance of duties as assigned to him by the Chief Executive Officer that are
normally incident to the offices of Senior Vice President — Worldwide Water
Group, and (b) use his best efforts to promote the interests of the Company and
its affiliates.

 

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     3. Remuneration. At all times during the Contract Period, the Company shall
pay to Executive compensation as provided in this Section 3.

     (a) Base Salary. The Corporation shall pay Executive a base salary at an
annual rate of not less than $225,000 paid at least on a monthly basis. The
annual rate of base salary may be increased at the discretion of the
Compensation Committee of the Board (the “Committee”). If increased, the annual
rate of base salary may not thereafter be decreased during the term of this
Agreement.

     (b) Annual Incentive Compensation. The Corporation may pay Executive an
annual bonus under the provisions of the Company’s Management Incentive Plan and
the Executive Management Incentive Plan or any successor plans but only if and
when authorized by the Committee. The Executive’s combined annual incentive
compensation target shall be 60% of his base salary (effective for the Fiscal
Year beginning November 1, 2004).

     (c) Restricted Shares. Provided the Executive remains in the employ of the
Company, the Company shall grant to Executive, a total of 12,000 restricted
shares of the Company’s Common Stock, to be issued in four equal awards of 3,000
shares each — the first award to be made on December 1, 2004, the second award
to be made on December 1, 2005, the third award to be made on December 1, 2006,
and the final award to be made on December 1, 2007. Each award shall be made
pursuant to the Company’s 1996 Stock Incentive Plan, as amended, (with 4-year
vesting) or any successor plan.

     (d) Options.

Provided Executive remains in the employ of the Company, the Company shall grant
to Executive options to purchase shares of the Company’s Common Stock in the
form of non-qualified stock options pursuant to the Company’s 1996 Stock
Incentive Plan, as amended, or any successor plan. The option awards shall be as
follows:

      Date

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  NQSOs

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December 1, 2004
December 1, 2005
December 1, 2006
December 1, 2007
  10,000
10,000
12,000
12,000

The Option Price for options granted pursuant to this paragraph 3(d) shall be
the closing price of the Company’s Common Stock on the day of the grant. If the
grant date falls on Saturday, Sunday or any other day when the Company’s Common
Stock is not publicly traded, the Option Price for such grant shall be the
closing price of the Company’s Common Stock on the next day when the Stock is
publicly traded.

The options awards listed above are consistent with the Company’s current
compensation strategy. This strategy may be revised in the future based on new
accounting rules for options and other factors. The Company reserves the right
to grant the Executive equivalent value in other forms of long term incentive
compensation during the course of this Agreement.

     4. Employee Benefits. Executive shall be included, to the extent eligible
thereunder with respect to the requirements applicable to all employees eligible
thereunder, under any and all existing plans (and any plans that later may be
adopted) providing benefits for the Company’s employees. These plans, include,
but are not limited to:

 

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     (a) The Company’s group life insurance plan, under which Executive shall be
eligible for life insurance equal to four times his then-current base salary as
defined in the Plan or the Group Replacement Insurance plan, at Executive’s
option.

     (b) The Company’s hospitalization and medical plans, as provided to all
Company employees.

     (c) The Company’s long-term disability plan, as provided to all Company
employees.

     (d) Any pension, thrift plans, profit-sharing plans, stock purchase plans,
and any and all other similar or comparable benefits.

Executive shall also be provided with a suitable automobile allowance of $1,100
per month under the terms of the Company’s executive automobile program,
automobile insurance, gas and maintenance, paid vacation of at least four weeks
per year, and officers’ and directors’ liability insurance coverage in an amount
reasonably available. Executive shall also be provided tax preparation and
estate planning counsel up to $10,000 per year, not to exceed a total of $25,000
during the term of this Agreement.

5     Termination.

     (a) Death or Disability. Executive’s employment hereunder will terminate
immediately upon Executive’s death. The Company may terminate Executive’s
employment hereunder immediately upon giving notice of termination if Executive
is disabled, by reason of physical or mental impairment, to such an extent that
he has been unable to substantially perform his duties under this Agreement for
an aggregate of 180 days (whether business or non-business days and whether or
not consecutive) during any period of twelve consecutive calendar months.

     (b) For “Cause.” The Company may terminate Executive’s employment under
this Agreement for “Cause” only on the basis of:

     (i) Executive’s willful failure substantially to perform his duties with
the Company, after a written demand for substantial performance is delivered to
Executive by the Board, which written demand specifically identifies the manner
in which the Board believes Executive has not substantially performed his
duties, or

     (ii) Executive’s willful engagement in conduct materially injurious to the
Company.

For purposes of this Agreement, no act or failure to act on Executive’s part
shall be considered “willful” unless done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or omission was
in the best interest of the Company. Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than two-thirds of the entire membership of the Board at a meeting of the
Board called and held for that purpose, finding that in good faith opinion of
the Board, Executive was guilty of conduct set forth in clause (i) or clause
(ii) of this subsection 5(b) and specifying the particulars thereof in detail.
No termination of Executive’s employment by the Company for “Cause” shall be
effective unless and until it is communicated by the Company to Executive by a
written notice that refers to either or both of clause (i) and clause (ii) of
this subsection 5(b) as the specific termination provision or provisions relied
upon by the Company and that sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive’s
employment under the provision or provisions so indicated.

 

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     (c) Without “Cause.” The Company may terminate Executive’s employment under
this Agreement without “Cause” at any time, effective at such time as the Board
may specify in a motion duly adopted by the affirmative vote of two-thirds of
the members of the Board then in office.

          6. Compensation and Benefits Following Termination Without “Cause.” If
the Company terminates Executive’s employment under this Agreement without
“Cause:”

     (a) the Company shall pay to Executive, in immediately available funds,
within 10 days of the date of termination of Executive’s employment, a lump sum
amount that is equal to the sum of (A) 24 months’ of base salary at the highest
rate paid to Executive before the termination, plus (B) two times the average of
the annual cash bonuses, if any, received by Executive under the provisions of
the Company’s Incentive plans or any successor plan with respect to each of the
two most recent fiscal years of the Company ended before the termination;

     (b) the restrictions on any restricted shares held by Executive immediately
before the termination of his employment shall expire simultaneously with the
termination of his employment;

     (c) any options to purchase shares in the Company held by Executive
immediately before the termination of his employment that were not otherwise
exercisable by Executive shall be exercisable by Executive at any time during
the 90-day period beginning immediately after the date of termination of his
employment; and

     (d) with the exception of health and medical benefits, which the Company
will provide for a period of one year after termination, the Company shall not
be obligated to pay any compensation, benefits, or perquisites to Executive by
reason of this Agreement after the termination of his employment.

If Executive receives any payments under this Agreement as a result of
termination of his employment following a termination without Cause, those
payments shall be in lieu of any and all other claims or rights that Executive
may have for severance, separation, and/or salary continuation pay upon that
termination of his employment.

          7. Compensation and Benefits Following Termination on Account of
Disability. If the Company terminates Executive’s employment under subsection
6(a) of this Agreement by reason of Executive’s disability:

     (a) the Company shall pay and provide to Executive, not later than 75 days
after the end of the fiscal year in which the termination occurs, that portion
of the total bonus, if any, to which he would have been entitled had he
continued to be employed under this Agreement through the end of the fiscal year
in which the termination occurs, equal to the total bonus multiplied by a
fraction, the numerator of which is the number of days in the fiscal year ending
on or before the date of Executive’s termination and the denominator of which is
365;

     (b) the restrictions on any restricted shares held by Executive immediately
before the termination of his employment shall terminate simultaneously with the
termination of his employment.

          8. Miscellaneous Services following Termination of Employment.
Following termination of his full-time employment under this Agreement,
Executive shall make himself available at all reasonable times for consultation
by and with the Company’s officers and directors. If Executive is called upon to
render services of this nature, he shall, in consideration therefor and as a
condition thereto, receive

 

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reasonable compensation for the services rendered and reimbursement for any
travel or other out-of-pocket expenses incurred in connection therewith.

          9. Benefit. This Agreement shall inure to the benefit of and be
enforceable by Executive’s personal and legal representatives, executors,
administrators, successors, heirs, distributed, devisees, and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein shall be paid in accordance
with the terms of this Agreement to Executive’s devisee, legatee, or other
designee or, if there be no such designee, to Executive’s estate.

          10. Successor to the Company. The Company shall require any successor
or assign (whether direct or indirect by purchase, merger. consolidation or
otherwise) to all or substantially all the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.

          11. Confidential Information and Noncompetition. Executive agrees and
acknowledges that Executive’s talents, skills, and experience are unique, and
that Company has invested considerable efforts and money in developing and
compiling customer lists, supplier lists, and trade and market information, in
developing business techniques and practices, and in maintaining valuable market
relationships; that such items and all other information that relates to the
business of the Company, the business of any customer or supplier of the
Company, or the business of any person, firm, or corporation that consults with
or is affiliated with the Company, constitute for purposes hereof the
“Confidential Information” of the Company; and that the Confidential Information
is valuable property of the company and is vital to the operation and
continuation of the Company’s business. Confidential Information shall not
include information so generally known as to be part of the public domain.
Executive acknowledges that the Company has and will disclose Confidential
Information to Executive and afford him access to Confidential Information in
connection with his employment with the Company. Executive agrees that he shall
use such Confidential Information solely for the benefit of the Company.
Executive further acknowledges that the grant of restricted shares referred to
in section 3(c) is being made by the Company in order to induce Executive to
agree to the restrictions contained in this Section 11 and that

     Executive has received valuable consideration commensurate with those
restrictions. Accordingly, Executive agrees and acknowledges that:

     (a) Except as required in the performance of his duties as an employee of
the Company, Executive shall not at any time, either directly or indirectly,
use, divulge, disclose. or communicate to any person, firm, or corporation in
any manner whatsoever any Confidential Information.

     (b) Executive shall be given access to the Company’s Confidential
Information solely for purposes relating to his employment by the Company.
Executive shall have no rights in such Confidential Information or any letters
patent, copyrights, or other proprietary rights relating thereto, and Executive
hereby assigns to the Company any supplemental or additional information
relating to the Confidential Information acquired by Executive, whether solely
or in collaboration with others, that relates in any manner to either the
subject of Executive’s work for the Company or any business of the Company
during the Contract Period (“Improvements”). Executive will disclose promptly in
writing to the Company all such Improvements or information supplemental or
related thereto, and such Improvements shall be treated for all purposes as
Confidential Information hereunder.

 

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     (c) During the Contract Period and thereafter, at the request of the
Company and without expense to Executive, Executive shall cooperate in the
procurement of any patent, copyright, trademark, or trade name protection in the
Company’s name that may be necessary or desirable to vest, or to perfect the
record of, title to the Confidential Information in the Company. Executive
agrees to execute all documents and do all things necessary or desirable in any
controversy or otherwise to aid Company in obtaining and enforcing proper
protection of its Confidential Information.

     (d) During the period commencing on the Effective Date and ending on the
second anniversary of the first date on which Executive is neither employed by
the Company nor a member of the Board (the “Restriction Period”), Executive
shall not, directly or indirectly, own, operate, have any other than a minor
financial interest in, be employed by, or in any other manner take part in or
consult with any business that is the same as, similar to, or competitive with
the business of the Company as such business is conducted during the Contract
Period. During the Restriction Period, Executive shall not solicit (other than
for the benefit of the Company during the Contract Period) any sale or purchase
to or from any person who is or was a customer or supplier of the Company during
the term of Executive’s employment by the Company, either as an employee, agent,
consultant, licensee, independent contractor; owner, or otherwise. Furthermore,
during the Restriction Period, Executive shall not, directly or indirectly, hire
or solicit any employee of the Company.

     (e) At any time upon request of the Company and upon termination of his
employment by the Company, Executive shall deliver to the Company, and shall not
retain for his own or another’s Use, any and all lists, information, notes,
memoranda, documents, devices, and any other material, and all copies thereof,
relating to Executive’s work or the products or business of the company of which
Executive had knowledge.

     (e) If any provision of this Section 11is determined by any court of
competent jurisdiction to be unenforceable by reason of its extending for too
great a period of time or over too great a geographical area, it shall be
interpreted to extend only over the maximum period of time for which it may be
enforceable, or over the maximum geographical area to which it may be
enforceable, or both; and such partial unenforceability shall not affect any
other provision of this Agreement. Executive acknowledges that, in light of the
proprietary interest of the Company in the Confidential Information, the
restrictions set forth herein are reasonable and that the remedies at law for
the breach of any provision of this Section 11 are inadequate. Accordingly, in
the event of any breach, or reasonable belief as to the existence or imminence
of a breach, of the provisions hereof, the Company shall be entitled to
injunctive relief to enjoin the breach (in addition to any other legal and
equitable remedies that the Company may have, including an equitable accounting
of gain to Executive resulting from the breach), together with all costs and
expenses, including reasonable attorney’s fees, related to the enforcement by
the Company of its rights hereunder.

          12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

          13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

          14. Legal Fees and Expenses. Except for fees and expenses related to
the Company’s enforcement of the provisions of Section 11, the Company shall pay
all legal fees and expenses that Executive may incur as a result of the
Company’s contesting the validity, enforceability, or Executive’s interpretation
of, or determinations under, this Agreement.

 

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          15. Notice. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person, or three days after deposit
thereof in the official U.S. mails, postage prepaid, for delivery as registered
or certified mail, addressed as follows:

          If to the Company:

CUNO Incorporated
Attention: Corporate Secretary
400 Research Parkway
Meriden, Connecticut 06450

          If to the Executive:

Timothy B. Carney
120 Field Brook Road
Madison, CT 06443

In lieu of personal notice or notice by deposit in the official U.S. mails, a
party may give notice by confirmed telegram or fax. Either party may change the
address to which notice to that party may be mailed by notifying the other party
of the change in the
manner contemplated in this section.

          16. Effect on Termination and Change of Control Agreement.

               (a) Executive and the Company have entered into a Termination and
Change of Control Agreement dated as of October 31, 1997, pursuant to which
Executive may become entitled to severance compensation if Executive’s
employment is terminated under certain circumstances following a Change in
Control, as defined in that agreement (the “Change in Control Agreement’).
Executive and the Company intend that if a Change in Control, as defined in the
Change in Control Agreement, occurs and thereafter Executive receives any
payments pursuant to Section 6 of this Agreement (any “Section 6 Payments”), the
entire amount of such Section 6 Payments will be treated as damages paid to the
Executive by the Company as a result of the Company’s breach of an employment
contract with the Executive with the result that the payments otherwise due
under the Change in Control Agreement will be reduced by the full amount of the
Section 6 Payments.

               (b) Notwithstanding the foregoing, in the event of a Change of
Control resulting in a termination of Executive’s employment without “Cause”, to
the extent not then issued, Executive immediately shall be issued the balance of
the non-qualified stock options eligible to be issued pursuant to
Paragraph 3(d). In addition, all Restricted Shares issued pursuant to Paragraph
3(c) and all non-qualified stock options issued pursuant to Paragraph 3(d) shall
fully vest and be fully exercisable immediately upon termination of the
Executive’s employment without “Cause” following the change of Control.

               (c) The provisions of this Section 16 shall prevail over any
inconsistent language in the Change in Control Agreement and, to the extent
necessary to be effective shall be deemed to be an amendment to the Change in
Control Agreement.

 

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     17. Entire Agreement. This Agreement expresses the entire agreement of the
parties with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements, and prior agreements are merged
herein and superseded hereby. No person, other than pursuant to a resolution of
the Board, shall have any authority on behalf of the Company to agree to modify
or change this Agreement or anything in reference thereto, and any such
modification or change must be in writing and signed by both parties.

     18. Governing Law. This Agreement has been entered into in, and is Intended
to be performed primarily within, the State of Connecticut and shall be
construed, interpreted, and governed in accordance with the laws of the State of
Connecticut.

     IN WITNESS WHEREOF, the parties have executed this Agreement, as of the
date first written above.

      EXECUTIVE   CUNO INCORPORATED /s/ Timothy B. Carney

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TIMOTHY B. CARNEY   /s/ Mark G. Kachur

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MARK G. KACHUR
Chairman, President and CEO