**EMPLOYMENT AGREEMENT**

 

**Exhibit 10.4**

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of January 1, 2004, is between NUMATICS, INCORPORATED, a Michigan corporation with itsprincipal offices at 1450 North Milford Road, Highland, Michigan 48031 (the “Company”), and JOHN H. WELKER, an individual residing at 4340 Chevron, Highland, Michigan 48356 (“Employee”). 

 

**Background:**

 

A. Employee is employed by the Company as its President and Chief Executive Officer. The term of the previous employmentagreement between the Company and Employee dated as of January 3, 1996 (the “Previous Agreement”) expired on December 31, 2003. 

 

B. The Company desires to continue to employ Employee, and wishes to have available and to be assured of his continued services, on the terms andconditions set forth in this Agreement, and Employee wishes to continue to be employed by the Company and to provide his services on those terms and conditions. 

 

C. The Company would be severely injured if Employee should directly or indirectly, for himself or in the service of others, engage in certainactivities in competition with the Company, and the Company desires certain covenants to protect its reasonable competitive business interests. 

 

**Agreement:**

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements of the parties, and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 

 

 

The Company hereby agrees to employ Employee as the President and Chief Executive Officer of the Company, and Employee hereby agrees to serve the Companyin such capacity, during the term of the Agreement. Employee shall have the duties, responsibilities, and authority commensurate with and normally attending such position, as well as such additional powers and administrative duties as may bereasonably designated from time to time by the Board of Directors of the Company. Employee shall be in charge of the day-to-day operations of the business of the Company, and all personnel shall report to Employee or his designees. 

**2.****Extent and Place of Services.**
 

Employee shall, subject to the reasonable vacation periods compatible with his position (the duration of which shall be determined from time to time bythe Board of Directors of the Company but shall not be less than one month each year), periods of illness, and the like, devote substantially full time and attention to his duties under this Agreement. Employee shall perform his duties at such aplace or places as the Board of Directors shall reasonably request from time to time; *provided, however*, Employee shall not be required to perform any services under this Agreement which will necessitate moving his residence from themetropolitan area of Highland, Michigan. 

 
**3.****Term of Employment; Compensation.**
 

3.1 Term. The term of Employee’s employment hereunder shall be effective from the date of this Agreement, and shall continue until andincluding December 31, 2008, unless his employment is terminated earlier as hereinafter provided. 

 

3.2 Salary. During the period from the date of this Agreement to December 31, 2004, Employee will receive as compensation for his services a salaryequal to an annualized salary of $440,000, payable twice each month, or as the Company normally pays, subject to normal federal, state, and local tax withholding. After December 31, 2004, Employee shall receive the following annual salaries payableas above: 

 

(a) Salary effective January 1,2005 shall be $462,000; 

 

(b) Salary effectiveJanuary 1, 2006 shall be $485,000; 

 

(c) Salaryeffective January 1, 2007 shall be $510,000; and 

 

(d) Salary effective January 1, 2008 shall be $535,000. 

 

3.3 Incentive Bonus. Employee shall be eligible to receive additional compensation (over and above and in addition to the salary specified in Section 3.2 and any additional discretionary bonus awarded pursuant to Section 3.4) inrespect of each fiscal year of the Company during the term of this Agreement, commencing with the fiscal year ending December 31, 2004, determined accordance with the Company’s Executive Incentive Bonus Plan, as the same may be modified fromtime to time, except that, notwithstanding any contrary provisions of the Executive Incentive Bonus Plan which may be applicable to other executive employees: 

 

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(a) Employee’s bonus for each fiscal year shall be calculated based on a targetbonus (*i.e.,* the bonus amount to be awarded if the Company achieves 100% of the applicable financial goals for that fiscal year) equal to 60% of his salary for that fiscal year rather than the 50%-of-salary target currently used forcalculating bonuses for other executive employees; and 

 

(b) The maximum bonus to which Employee shall be entitled under this Section 3.3. for any given fiscal year shall be an amount equal to 125% of his salary for that fiscal year. 

 

The incentive bonus for any fiscal year shall be paid within 75 days after the close of that fiscal year; *provided,however*, that in the event of termination of the employment of Employee for any reason or in the event the Company’s fiscal year is changed during the term of this Agreement and an incentive bonus is thereby based on less than a full fiscalyear, then the incentive bonus shall be prorated (on a monthly basis) for the portion of the fiscal year during which Employee was employed based upon actual performance through the end of the most recently-completed fiscal month ending on or beforethe date of termination or the end of the short fiscal year. 

 

3.4 Discretionary Bonus. At the end of each fiscal year of the Company, Employee shall be considered by the Board of Directors for additional discretionary bonus compensation. In reaching its decision as to the amount of any suchdiscretionary bonus, the Board of Directors shall take into account the performance of the Company and the Employee. The amount of any such discretionary bonus payment shall be within the sole discretion of the Board of Directors acting by unanimousconsent of all of its members. The Board of Directors will take into account the state of the economy in the previous fiscal year in deciding whether or not to award a bonus under this Section 3.4. 

 

3.5 Business Expenses. Upon proper substantiation and documentation(for all items over $25.00) by Employee, the Company shall reimburse Employee promptly and not less frequently than once each month for all reasonable travel, lodging, food, entertainment, and other related business expenses incurred by him in theperformance of his duties under this Agreement pursuant to the Company’s normal and customary policy. 

 

3.6 Benefits. During the term of this Agreement, Employee shall be eligible to participate in any and all medical and dental reimbursement, wagecontinuation, profit-sharing, pension, stock option, stock purchase, and other 

 

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similar plans or fringe benefits of the Company, as the same may be amended from time to time, on the same basis as otherexecutive officers of the Company. During the term of this Agreement, the Company agrees to purchase or lease for the sole use of Employee an automobile at least comparable to that presently being provided Employee by the Company, which shall bereplaced at least every two years. During the term of this Agreement, the Company agrees to obtain and keep in force public liability and property damage insurance on the automobile, in amounts and with insurers reasonably satisfactory to Employee,with Employee named as party insured. 

 

3.7 Salary andBenefit Continuation in the Event of Disability. In the event of any disability, illness, or incapacity during the term of this Agreement which does not constitute “permanent disability” as defined in Section 4(b), Employee shallcontinue to receive the salary and all benefits then in effect during the continuance of the disability, illness, or incapacity. 

 

3.8 Maximum Salary. In any given calendar year, the Employee’s total compensation under this Section 3 shall not exceed 300% of that year’s basesalary. 

 
**4.****Termination of Employment.**
 

Notwithstanding the provisions of Section 3, Employee’s employment under this Agreement and all salary and benefits referred to in Section 3, unlessotherwise expressly provided in this Agreement, shall terminate on the earliest of the following dates: 

 

(a) The date of the death of Employee, provided that payments of Employee’s regular salary in effect in the year of his death asprovided in Section 3.2. shall continue to be paid twice a month for 60 days after Employee’s death; 

 

(b) Not less than 30 days after the date on which the Company gives Employee notice of the termination of his employment by reason offailure to perform his duties under this Agreement due to permanent disability; *provided, however*, the Company shall only be allowed to exercise this termination option if the Company shall have obtained and shall have kept in full force andeffect a disability insurance policy which will pay Employee 50% of his then current salary until his normal retirement date or until the disability or incapacity shall cease, whichever shall occur earlier. The term “permanent disability”for purposes of this Agreement shall mean that Employee is substantially incapable, as 

 

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established on the basis of a written medical opinion from a physician acceptable to Employee, of performing the duties required of him under this Agreementbecause of physical or mental impairment for a continuous period of one 180 days; 

 

(c) 60 days after the date on which the Company gives Employee written notice of the termination of his employment for any reason(including, without limitation, permanent disability with respect to which the insurance referred to in Section 4(b) is not maintained) other than for “cause” as defined below. If Employee’s employment is terminated pursuant to thisSection 4(c), Employee’s regular salary (less the proceeds of disability insurance payable, if any, to Employee) for the year in which Employee is terminated, as provided in Section 4(b) shall be paid for a one-year period (payable twice amonth) beginning on the effective date of the Employee’s termination of employment; 

 

(d) The date on which the Company gives Employee a written notice of termination, terminating his employment for cause. The term“cause” as used in this Agreement shall mean: (1) Employee’s conviction of a felony; (2) the willful and gross neglect by Employee of his duties; or (3) serious misconduct involving dishonesty in the course of employment. In the eventthat a member of the Board of Directors believes that “cause” for Employee’s termination exists, the Board member shall give a written statement of his belief to Employee, the Company, and all other members of the Board. A reasonabledetermination of whether “cause” for termination exists shall then be made by the Board of Directors (excluding Employee) after reasonable notice of not less than ten days to Employee and an opportunity for Employee to be heard by theBoard of Directors. Except as provided hereafter, if following the hearing the Board of Directors determines that cause exists, it may then send a written notice of termination to Employee. In the event cause is based solely on an item falling underclause (2) above, Company agrees that, after the hearing, Employee shall be given written notice of the event or activity warranting termination hereunder for cause and shall be given 30 days after the Board of Directors’ determination thatcause exists to cure the event or cease the activity delineated in the notice. If the grounds for cause have not then been ceased or cured, the Board may then send a written notice of termination to Employee, but in the event of a such cure orcessation, the Company shall no longer be able to terminate Employee on the basis that that event or activity constituted cause; or 

 

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(e) The date of Employee’s voluntary resignation or retirement. 

 
**5.****Conventions and Meetings.**
 

Employee shall be entitled to attend, at Company’s expense, such conventions, seminars, and similar business meetings which, in his reasonablejudgment, he deems necessary or desirable in connection with the performance of his duties for the Company. 

 
**6.****Competitive Activities.**
 

6.1 Noncompetition Agreement. Except as provided in Section 6.3, Employee shall not, during his employment with the Company and for a period of oneyear from the date of the termination of his employment with the Company, either directly or indirectly, as an employee, director, officer, co-venturer, co-marketer, shareholder, partner, advisor, or consultant of or to any business, engage in anycommercial activity or participate in any venture of any kind that competes with the Company with respect to the Fluid Power Products Business or with respect to any other business in which the Company shall be engaged at any time within two yearsbefore termination of the Employee’s employment with the Company, within the United States, Canada, Germany, the United Kingdom, or any other country, territory, or jurisdiction in which the Company shall have conducted business at any timewithin two years before termination of the Employee’s employment with the Company. For purposes of this Agreement, “Fluid Power Products Business” shall mean the manufacture, marketing, and distribution of air valves, actuators, airpreparation equipment, filters, lubricators, regulators, and other fluid power products (as they pertain to compressed air systems) to customers, including original equipment manufacturers and end users. 

 

6.2 Reasonableness of Restrictions. Employee acknowledges that theCompany has expended substantial time and expense in the research and development of processes, technology, techniques, and products which are unique to the Company or not generally known to others and which could be unfairly taken or used by othersin competition with the Company, and he further acknowledges that competition with the Company is not based on geographical location. Accordingly, Employee agrees that the restrictions contained in this Agreement are reasonable and appropriate toprotect the Company’s reasonable competitive business interests. 

 

6.3 Exceptions. Notwithstanding anything herein stated: 

 

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(a) Section ****6.1 shall not prohibit Employee from owning, with respect to anycorporation, not more than 1% of any class of its securities listed on a national securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System; and 

 

(b) Section ****6.1 shall apply only if theEmployee’s employment with the Company or a subsidiary is terminated by Resignation. Resignation means the voluntary termination of employment with the Company or a subsidiary, including without limitation such termination after the age of 65.

 

6.4 Equitable Relief. Employee acknowledges and understandsthat a breach by him of any of the provisions of Section 6.1 or 6.2 may cause the Company irreparable injury and damage that cannot be reasonably or adequately compensated by damages at law. Employee therefore agrees that the Company shall beentitled, in addition to any other remedies legally available, to injunctive and/or other equitable relief to prevent a breach of any of the provisions of Section 6.1 or 6.2 and reasonable attorneys’ fees in enforcing the provisions of Sections6.1 and 6.2. 

 
**7.****Confidential Information.**
 

7.1 Agreement Not to Disclose. Except by written permission from the Company, Employee shall not disclose or use any Confidential Information ofthe Company or any of its subsidiaries of which Employee becomes informed during, or within five years after termination of, his employment, whether or not generated by Employee, except as required by his duties to the Company. The term“Confidential Information” for purposes of this Agreement shall mean any information of the Company or any of its subsidiaries or customers of any of the foregoing, including any formula, pattern, compilation, program, device, method,technique, or process that derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other persons who can derive economic value from its disclosure or use. Information does notlose its confidential status merely because it was known by a limited number of persons or entities or because it was not entirely originated by the Company or its subsidiaries. Without limiting the generality of the foregoing, Employee shall not,during the period covered by this Section 7.1, publish, disclose, or use, or authorize anyone else to publish, disclose or use, any Confidential Information. 

 

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7.2 Return of Information to Company. Upon termination of his employment with the Company,Employee agrees to deliver to the Company all materials that include Confidential Information, including without limitation customer cards or lists, product formulations, instruction sheets, drawings, manuals, letters, notes, notebooks, reports, andcopies thereof, and all other materials which are under his control and which relate to the Fluid Power Products Business or to any other aspect of the business of the Company or its subsidiaries, including any product, apparatus, or process owned,manufactured, used, developed, or investigated by the Company or any subsidiary of the Company during the course of his employment. Employee agrees and understands that the same and all information contained therein shall be at all times theproperty of the Company. Further, upon termination of his employment with the Company, Employee agrees to make available to any person designated by the Company all information concerning pending or preceding transactions that may affect theoperation of the Company or any subsidiary of the Company about which Employee has knowledge. The obligations of Employee contained in this Section 7.2are in addition to the obligation of Employee to return to the Company, upon the termination ofhis employment, all property of the Company then in his possession. 

 
**8.****Assignment of Inventions.**
 

Employee shall promptly disclose to the Company all inventions, discoveries, improvements, designs, processes, techniques, equipment, trademarks, andcopyrightable matter conceived or made by him during his employment and related to the Fluid Power Products Business or any other aspect of the business of the Company, and Employee hereby assigns all of his interest therein, including the good willof the business symbolized by any trademarks, to the Company. Employee further agrees to execute any applications, assignments, and other instruments that the Company deems necessary to obtain letters patent, trademark registrations, or copyrightregistrations in the United States or any foreign country or otherwise to protect the Company’s interests in intellectual property. Nothing contained in this provision shall apply to any invention for which no equipment, supplies, facilities,or trade secret information of the Company or any subsidiary of the Company was used, that was developed entirely on Employee’s own time, and that does not relate (1) to the Fluid Power Products Business or to any other aspect of the businessof the Company or any subsidiary of the Company or (2) to the actual or anticipated research or development of the Company or any subsidiary of the Company. 

 

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9.Miscellaneous. 
 

9.1 Governing Law. This Agreement shall be construed in accordance with, and shall be governed by, the laws of the State of Michigan other than itschoice of law rules. 

 

9.2 Entire Agreement; BindingEffect. This instrument contains the entire understanding and agreement between the parties relating to the subject matter of this Agreement and supersedes the Previous Agreement and any other prior employment agreement between the parties,whether written or oral. Employee acknowledges that he is not entitled to any compensation under the Previous Agreement beyond that which has been paid. Neither this Agreement nor any of its provisions may be waived, modified, amended, changed,discharged, or terminated except by an agreement in writing signed by the party against whom enforcement of any waiver, modification, change, amendment, discharge, or termination is sought. This Agreement shall inure to the benefit of and shall bebinding upon the parties and their respective successors and assigns, and in the case of Employee, Employee’s heirs and/or personal representatives. 

 

9.3 Assignment. Employee shall not assign any of his obligations under this Agreement. 

 

9.4 Counterparts. This Agreement may be executed in counterparts, eachof which shall be deemed an original, and such counterparts shall together constitute a single agreement. 

 

9.5 Provisions Severable. To the extent that any one or more of the provisions of this Agreement shall be invalid, illegal, or unenforceable in anyrespect, the validity, legality, and enforceability of its remaining provisions shall not in any way be affected or impaired. 

 

9.6 Construction. Whenever possible, each provision of this Agreement shall be interpreted so that it is valid under applicable law. If anyprovision of this Agreement is to any extent found to be invalid, illegal or unenforceable in any respect under applicable law, that provision shall still be effective to the extent it remains valid, and the remainder of this Agreement also willcontinue to be valid. If any restriction contained in this Agreement is found to be too broad to permit its enforcement to its fullest extent, then the restriction shall be construed or re-written so as to be enforceable to the maximum extentpermitted by law. 

 

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9.7 Headings. The section headings in this Agreement are for convenience only and shall not beused in interpreting or construing this Agreement. 

 

9.8Notices. Any notice required or permitted to be given under the provisions of this Agreement shall be deemed properly given if in writing and delivered personally or if mailed certified or registered mail, return receipt requested, sufficientpostage prepaid, to the following persons at the following addresses, or to such other person or other address as either party may designate by notice in writing to the other party to this Agreement: 

 

To Employee: 

 

John H. Welker 

7296 Rabbit Ears Pass 

Clarkston, Michigan 48346 

 

To the Company: 

 

Numatics, Incorporated 

1450 North Milford Road 

Highland, Michigan 48357 

Attn.: Chief Financial Officer 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the dayand year shown in the first paragraph. 

 

NUMATICS, INCORPORATED
    By:     /s/    Robert P. Robeson             
    /s/    John H. Welker        
         
Robert P. Robeson

Vice President
     
JOHN H. WELKER

 

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