Exhibit 10.3
COLLATERAL ASSIGNMENT
SPLIT DOLLAR INSURANCE AGREEMENT
     This Split Dollar Agreement (the “Agreement”) is established and effective
between ARGO-TECH CORPORATION, organized and existing under the laws of the
State of Delaware (the “Company”), and Michael S. Lipscomb, a key employee and
executive of the Company (the “Participant”), as of the 1st day of January,
1996.
W I T N E S S E T H:
     WHEREAS, the Participant has been employed by the Company since October 21,
1986, in the capacity of President and Chief Executive Officer and by reason
thereof has acquired experience and knowledge of considerable value to the
Company; and,
     WHEREAS, the Company wishes to continue this employment relationship and,
as an inducement thereto, is willing to assist the Participant in the payment of
premiums on a life insurance policy (the “Policy”) issued by Pacific Mutual Life
Insurance Company (the “Insurer”) as an additional benefit to the Participant as
its employee; and,
     WHEREAS, the Participant is willing to purchase and own a life insurance
policy on the Participant’s life; and,
     WHEREAS, the Participant shall freely undertake such reasonable steps
necessary to institute this Agreement, including the assigning to the Company of
an interest in the Policy as provided herein.
     NOW THEREFORE, the Company and the Participant mutually agree that:
ARTICLE I
PURPOSE
     This Agreement is intended to qualify as a “split dollar” arrangement as
described in Revenue Ruling 64-328, C.B. 1964-2. This Agreement, together with
any other similar

 

--------------------------------------------------------------------------------

 

agreement between the Company and an employee of the Company, is established for
the purpose of providing life insurance protection and is intended to be an
employee welfare benefit plan which covers fewer than 100 participants within
the meaning of the Employee Retirement Income Security Act of 1974 (“ERISA”).
ARTICLE II
POLICY
     The Participant shall purchase the Policy on his life (the “Insured”) from
the Insurer in an amount equal to three times the Participant’s Total Cash
Compensation with respect to the Company’s immediately preceding fiscal year, as
identified in Exhibit “A” attached hereto and made a part hereof.
ARTICLE III
POLICY INTERESTS
     3.1 The Participant shall be the owner of the Policy and shall assign to
the Company an interest as determined in Paragraph 3.3 (the “Company’s Policy
Interest”).
     3.2 For the purposes of this Agreement, the term “Cash Value” shall mean
the cash surrender value of the Policy as defined in the Insurer’s policy form
(the “Insurer’s Policy/Contract”) as identified in Exhibit “B” attached hereto
and made a part hereof.
     3.3 For purposes of this Agreement, the Company’s Policy Interest shall be
the lesser of an amount of Cash Value proportionate to the Company’s premium
payments, or an amount of Cash Value equal to cumulative premium payments by the
Company.
     3.4 The existence of the Company’s Policy Interest shall be evidenced by
filing with the Insurer an assignment in a form accepted and required by the
Insurer (the “Assignment”), substantially in the form in Exhibit “C” attached
hereto and made a part hereof. The Participant

2

--------------------------------------------------------------------------------

 

shall execute such Assignment and take such other action necessary or desirable
to perfect and/or maintain such assignment as may be reasonably requested by the
Company.
     3.5 The Participant’s Policy Interest shall be the Cash Value and death
benefit in excess of the Company’s Policy Interest.
ARTICLE IV
INCIDENTS OF OWNERSHIP
     4.1 Except as specified below and/or in the Assignment, the Participant
shall have full incidents of ownership over the Participant’s Policy Interest,
as provided in the Insurer’s Policy/Contract. Anything in this Agreement and/or
the Assignment to the contrary notwithstanding, neither the Company nor the
Participant shall obtain any loan on the Policy or surrender the Policy or
effect any withdrawal from the Policy during the term of this Agreement.
     4.2 The Company shall have the incidents of ownership over its Policy
Interest as provided in the Assignment, including the right to name the
beneficiary and to receive a portion of the death benefit equal to its Policy
Interest, so long as those incidents of ownership are not in contradiction to,
or in addition to, the incidents of ownership provided in the Insurer’s
Policy/Contract.
     4.3 Neither the Company nor the Participant shall take any action that
would jeopardize the interests of the other party under this Agreement.
ARTICLE V
PAYMENT OF PREMIUMS
     5.1 The Company and the Participant agree to remit to the Insurer the
entire annual premium due on the Policy in a timely manner at the beginning of
each policy year occurring during the term of this Agreement and before the
expiration of the grace period.

3

--------------------------------------------------------------------------------

 

           5.2 Each such annual premium on the Policy shall be paid as follows:

    (a)   The Participant shall pay a portion of each premium equal to the
current term rate for the insured’s age multiplied by the excess of the current
death benefit over the Company’s Policy Interest. The Company shall pay to the
Participant as a “Bonus Payment” an amount equal to Participant’s portion of the
premium due from the Participant. Such Bonus Payment shall be in addition to any
other “bonus” or “incentive payment” payable to the Participant. Such Bonus
Payment shall be subject to any tax or other withholding required by law or
authorized by the Participant. For purposes of this subparagraph, the “current
term rate” shall mean the lesser of the insurer’s annual term insurance rate or
the rates specified in Revenue Rulings 64-328, C.B. 1964-2, 11 and 66-110, C.B.
1966-1, 12.       (b)   The Company shall pay a portion of the premium in excess
of the portion of the premium paid by the Participant but in no event less than
that amount necessary to keep the Policy in force as determined by the Insurer
or greater than an amount which, when combined with the Participant’s portion of
the premium, will not exceed the total premium allowable under the Policy
pursuant to subparagraph (c) of this Article.       (c)   Subparagraphs (a) and
(b) combined of Paragraph 5.2, together with Article VI, shall not result in a
total premium equal to an amount that would make the Policy a Modified Endowment
Contract pursuant to Section 7702A of the Internal Revenue Code of 1986, as
amended, or that would cause this Policy to fail the definition of life
insurance pursuant to Section 7702 of the Internal Revenue Code of 1986, as
amended.

ARTICLE VI
ADDITIONAL POLICY BENEFITS AND RIDERS
            Subject to subparagraph (c) of Paragraph 5.2, the Participant may
add any other rider to the Policy for his own benefit. Upon written request by
the Company, the Participant shall add any rider to the Policy for the benefit
of the Company. Any additional premium for any rider which is added to the
Policy shall be paid by the party entitled to receive the benefits resulting
from such rider, the provisions of subparagraphs (a) and (b) of Paragraph 5.2 to
the contrary notwithstanding.

4

--------------------------------------------------------------------------------

 

ARTICLE VII
NO ASSIGNMENT
     Neither of the parties to this Agreement may assign their rights, interest
and/or obligations under this Agreement. Any attempt by either party to assign
its rights, interest and/or obligations under this Agreement shall be void ab
initio.
ARTICLE VIII
AMENDMENT
     This Agreement may be amended only by mutual agreement of the Participant
and the Company by a written instrument signed by the Participant and the
Company.
ARTICLE IX
MERGER AND REORGANIZATION OF COMPANY
     The Company will not merge, consolidate or reorganize its business
activities with any other company or organization unless and until the other
company or organization agrees to assume all obligations of the Company under
this Agreement.
ARTICLE X
TERMINATION
     10.1 This Agreement shall terminate upon the earliest to occur of: (i) the
date specified in a written instrument signed by the Participant and the
Company; (ii) the date specified by the Participant in a written notice
delivered to the Company, which date shall be not less than 30 days following
the delivery of such notice to the Company; (iii) the date on which the
Participant’s employment with the Company terminates for any reason other than
the Participant’s death; or (iv) the date of the Participant’s death.

  (a)   In the event of termination of this Agreement as provided in clauses
(i), (ii), or (iii) of this Paragraph 10.1, above, the

5

--------------------------------------------------------------------------------

 

      Participant shall pay the Company within 60 days of the date of
termination an amount equal to the Company’s Policy Interest. If the Participant
pays the Company as provided in the immediately preceding sentence, the Company
shall take all steps necessary to release the Assignment such that the Company’s
Policy Interest comes under the full control of the Participant, and the Company
shall thereafter no longer have any rights, interest, and/or obligations,
whatsoever, under the Policy.

  (b)   If the Participant fails to pay the Company within 60 days of the date
of termination of this Agreement pursuant to the provisions of subparagraph
10.1(a), above, the Participant shall have no further rights or ownership
interests in the Policy, but the Participant shall execute any and all
instruments that may be required to vest ownership of said Policy in the
Company; and thereupon the Company shall refund to the Participant that part of
any payment made by the Participant under Article V for the premium payment
period in which termination occurred representing the unexpired portion of that
period.     (c)   In the event of termination of this Agreement as provided in
clause (iv) of this Paragraph 10.1 above, or in the event this Agreement has
terminated as provided in clauses (i), (ii), or (iii) of this Paragraph 10.1
above and 60 days from the date of termination have not elapsed and the
Participant has not paid the Company pursuant to the provisions of subparagraph
10.1(a) above but within such 60 day period Participant dies, the Company shall
be entitled to receive an amount of the death benefit of the Policy equal to the
Company’s Policy Interest, and the remainder (if any) of the death benefit of
the Policy (the Participant’s Policy Interest) shall be paid to the beneficiary
thereof in accordance with the Policy and the Assignment.     (d)   Any payments
under the Policy to the Company in connection with the rights or ownership
interests assigned to the Company in the Assignment referred to in Paragraph 3.4
herein shall first be made from the Cash Value. The Participant shall have no
rights or ownership interests in the Cash Value except to the extent the Cash
Value thereof exceeds the total Company’s Policy Interest.

     10.2 In all matters regarding this Agreement after the death of the
Participant, the Participant shall be represented solely by the executor or
administrator or other personal representative of the Participant’s estate.

6

--------------------------------------------------------------------------------

 

ARTICLE XI
ERISA PROVISIONS
     11.1 The following provisions are intended to meet the requirements of
Part 4 of Title I of ERISA to the extent applicable to this Agreement:

  (a)   The named fiduciary and Plan Administrator: The Argo-Tech Corporation
Benefits Committee.     (b)   The funding policy is that all premiums on the
Policy be remitted to the Insurer when due.     (c)   Direct payment by the
Insurer is the basis of payment of benefits, with those benefits in turn being
based on the payment of premiums as provided herein.

     11.2 The following provisions are intended to meet the requirements of
Part 5 of Title I of ERISA to the extent applicable to this Agreement:

  (a)   If for any reason a claim for benefits under the Plan is denied by the
Company, the Plan Administrator shall deliver to the claimant a written
explanation setting forth the specific reasons for the denial, pertinent
references to the Plan section on which the denial is based, such other data as
may be pertinent and information on the procedures to be followed by the
claimant in obtaining a review of his claim, all written in a manner calculated
to be understood by the claimant. For this purpose:

  (i)   the claimant’s claim shall be deemed filed when presented orally or in
writing to the Plan Administrator; and     (ii)   the Plan Administrator’s
explanation shall be in writing delivered to the claimant within 90 days of the
date the claim is filed.

  (b)   The claimant shall have 60 days following his receipt of the denial of
the claim to file with the Plan Administrator a written request for review of
the denial. For such review, the claimant or his representative may submit
pertinent documents and written issues and comments.     (c)   The Plan
Administrator shall decide the issue on review and furnish the claimant with a
copy within 60 days following his receipt of the claimant’s request for review
of his claims. The decision on review shall be in writing and shall include
specific

7

--------------------------------------------------------------------------------

 

      reasons for the decision written in a manner calculated to be understood
by the claimant, as well as specific references to the pertinent plan provisions
on which the decision is based. If a copy of the decision is not furnished to
the claimant within such 60 days, the claim shall be deemed denied on review.

     11.3 The following provisions are intended, when taken in conjunction with
Paragraph 11.4 and the other terms and provisions of this Agreement, including
the Assignment and the computer-prepared illustration, to meet the requirements
of a summary plan description for the benefit of the Participant and the
beneficiaries pursuant to Part I of Title I of ERISA to the extent applicable.

  (a)   The plan is a single employer plan sponsored by Argo-Tech Corporation.  
  (b)   The Company’s employer identification number (“EIN”) assigned by the
Internal Revenue Service is 06 1100916 and the Plan number assigned by the
Company is 010.     (c)   The Plan Administrator is The Argo-Tech Benefits
Committee, c/o Argo-Tech Corporation, 23555 Euclid Avenue, Cleveland, Ohio 44117
(216/692-5259). The Plan Administrator shall also be the agent for the service
of process at the above address.     (d)   The end of the Plan year for purposes
of keeping Plan records is December 31st of each year.     (e)   In order to be
eligible to participate in the plan, an employee must be selected by the
Company.

     11.4 The following is intended to meet the “Statement of ERISA Rights”
requirement of Part I of Title I of ERISA to the extent applicable.

  As a participant in this plan you are entitled to certain rights and
protection under ERISA. ERISA provides that all plan participants shall be
entitled to:

  (a)   Examine, without charge, at the Plan Administrator’s office all plan
documents, including insurance contracts.     (b)   Obtain copies of all plan
documents and other plan information upon written request to the Plan
Administrator. The Plan Administrator may make a reasonable charge for the
copies.

8

--------------------------------------------------------------------------------

 

  (c)   In addition to creating rights for plan participants, ERISA imposes
duties upon the people who are responsible for the operation of this employee
benefit plan. The people who operate your plan are called “fiduciaries” of the
plan, and have a duty to do so prudently and in the interest of you and other
plan participants and beneficiaries. No one, including your employer or any
other person, may fire you or otherwise discriminate against you in any way to
prevent you from obtaining your benefits or exercising your rights under ERISA.
    (d)   You are entitled to receive a written explanation for the denial of
your claims and you have the right to have the plan review and reconsider your
claim. If you do not receive the material requested within 30 days of the
request, you may file suit in Federal Court. The court may require the Plan
Administrator to pay you up to $100 a day until you receive the requested
materials.     (e)   If you are improperly denied a claim for benefits you may
file suit in Federal Court. If it should happen that plan fiduciaries misuse the
Plan’s money, or if you are discriminated against, you may seek assistance from
the U.S. Department of Labor or you may file suit in Federal Court. If you are
successful in your suit, the court may, if it so decides, require the other
party to pay your legal costs, including attorney’s fees.     (f)   If you have
any questions about this plan, you should contact the Plan Administrator. If you
have any questions about this statement or about your rights under ERISA, you
should contact the nearest office of the U.S. Labor-Management Services
Administration, Department of Labor.

ARTICLE XII
NOT AN EMPLOYMENT CONTRACT
            This Agreement is strictly a voluntary undertaking on the part of
the Company and shall not be deemed to constitute an employment contract between
the Company and the Participant. No provision of this Agreement shall affect any
employment agreement entered into between the Company and the Participant
whether now or in the future. No provision of this Agreement shall be deemed to
give the Participant the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge the Participant or change
the

9

--------------------------------------------------------------------------------

 

terms and conditions of the Participant’s employment at any time. No provision
of this Agreement shall interfere with the right of the Participant to terminate
his employment with the Company.
ARTICLE XIII
INSURER PROTECTION
     13.1 The Insurer shall be bound only by the terms and provisions of its
Policy/Contract and by the terms and provisions of the Assignment, but only if
that Assignment is made in a form acceptable and required by the Insurer and
duly filed with the Insurer. Any payments made or actions taken by the Insurer
in accordance with the Policy/Contract and the Assignment shall fully discharge
it from all claims, suits and demands of all persons whatsoever. The Insurer
shall in no way be bound by or be deemed to have notice of the terms and
provisions, or any other rights, duties, obligations, or conditions of this
Agreement.
     13.2 No term or provision herein shall be construed or deemed to grant any
right to the Insurer to demand payment of any premium as a third-party
beneficiary or otherwise.
ARTICLE XIV
PAROL EVIDENCE AND GOVERNING LAW
            This Agreement sets forth the entire agreement of the Company and
the Participant. Any and all prior and contemporaneous agreements, to the extent
inconsistent herewith, are superseded. Where not superseded by federal law, the
law of the State of Ohio shall govern this Agreement.

10

--------------------------------------------------------------------------------

 

ARTICLE XV
INTERPRETATION
     Words and phrases herein shall be construed as in the singular or plural as
masculine, feminine or neuter gender as appropriate. The Article titles used
herein are for organizational purposes only and shall have no determinative
effect upon the rights, interests, and/or duties created in this Agreement.
ARTICLE XVI
MISCELLANEOUS
     16.1 Enforceability. This Agreement shall inure to the benefit of and be
enforceable by the executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees and/or legatees.
     16.2 Notices. For all purposes of this Agreement, all communications
including without limitation notices, consents, requests or approvals, provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to the Participant at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
     16.3 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 agreement.

11

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereof on the 27th day of June,
1996, and that, upon execution, each has received a confirming copy.

              ARGO-TECH CORPORATION
 
       
/s/ Carol J. Forre
  By:   /s/ Paul R. Keen
 
       
(Witness)
  Its:   Vice President, General Counsel and Secretary

     
[illegible]
            /s/ Michael S. Lipscomb
 
   
(Witness)
  Michael S. Lipscomb

12

--------------------------------------------------------------------------------

 

EXHIBIT “A”
PART I — LIFE INSURANCE POLICY

     
Insurer:
  Pacific Mutual Insurance Company
 
   
Face Amount:
  $1,173,791.00 
 
   
Policy Number:
  1A2302127-0 
 
   
Date of Policy:
  December 28, 1995

PART II — BENEFICIARY
Jeanne Lipscomb
     This Exhibit “A” is a part of the agreement covering the Participant’s
insurance entered into between Argo-Tech Corporation and Michael S. Lipscomb on
January 1, 1996.