<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
[APPLIED LOGO]
ONE APPLIED PLAZA
CLEVELAND, OHIO 44115
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of the Shareholders of
Applied Industrial Technologies, Inc. will be held at The Forum Conference and
Education Center, One Cleveland Center, 1375 E. 9th Street, Cleveland, Ohio, on
Tuesday, October 21, 1997, at 1:30 p.m., local time, for the purpose of
considering and acting on the following:
1. Election of four (4) persons to be directors of Class I for a term of
three (3) years.
2. Amendment of the Amended and Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock, without par
value, from 30,000,000 to 50,000,000.
3. Amendment of the Code of Regulations to delete a provision fixing the
time of day at which the Annual Meeting of Shareholders is to be held.
4. Amendment of the 1990 Long-Term Performance Plan to continue to qualify
certain awards thereunder as "performance-based" compensation under
Section 162(m) of the Internal Revenue Code.
5. Ratification of the appointment by management of independent auditors
for the fiscal year ending June 30, 1998.
6. Transaction of such other business as may properly come before the
meeting and all adjournments thereof.
The Board of Directors has fixed August 29, 1997 as the record date for the
determination of the shareholders entitled to notice of and to vote at the
meeting. The transfer books will not be closed. A list of the shareholders as of
the record date will be available for examination at the meeting.
By order of the Board of Directors.
ROBERT C. STINSON
Secretary
September , 1997
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 3
[APPLIED LOGO]
PROXY STATEMENT
------------------
SOLICITATION AND REVOCATION OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Applied Industrial Technologies, Inc., One Applied Plaza,
Cleveland, Ohio 44115 ("Applied") for use at Applied's Annual Meeting of
Shareholders to be held at 1:30 p.m., local time, on Tuesday, October 21, 1997,
at The Forum Conference and Education Center, One Cleveland Center, 1375 E. 9th
Street, Cleveland, Ohio.
Applied will bear the cost of solicitation of proxies. This statement and
the accompanying proxy will be sent to shareholders by mail on or about
September , 1997. Applied will also pay the standard charges and expenses of
brokerage houses, or other nominees or fiduciaries, for forwarding these
instruments to and obtaining proxies from securities holders and beneficiaries
for whose account they hold registered title to Applied shares. In addition to
using the mail, directors, officers and other Applied employees, acting on its
behalf, may also solicit proxies, and Georgeson & Company Inc. has been
retained, at an estimated cost of $6,500 plus expenses, to aid in the
solicitation of proxies from brokers and institutional holders. Proxies may be
solicited personally, by telephone, telegram, facsimile and other means.
Any shareholder giving a proxy has the right to revoke it at any time
before it is voted by giving notice of revocation to Applied's Secretary in
writing or in open meeting. Presence at the meeting does not in and of itself
revoke a proxy.
VOTING AT THE MEETING
Only shareholders of record at the close of business on August 29, 1997
will be entitled to vote at the meeting. As of the record date there were
outstanding shares of Applied Common Stock, without par value. On
September 15, 1997, a three-for-two stock split was paid to shareholders of
record as of August 29, 1997. Because the number of shares to be voted at the
meeting is determined on a pre-split basis, share totals and per share prices
shown in this statement do not give effect to the stock split.
Each share is entitled to one vote. Abstentions and broker non-votes are
counted in determining the votes present at a meeting. An abstention or a broker
non-vote has the practical effect of a vote against a proposal, as each
abstention or broker non-vote is one less vote in favor of the proposal.
ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. At the Annual
Meeting, directors of Class I are to be elected for a term of three years
expiring in 2000. The properly nominated candidates receiving the greatest
number of votes for the positions to be filled shall be elected to those
positions. The persons presently serving as directors of Class II for a term
expiring in 1998 and as directors of Class III for a term expiring in 1999 will
continue in office.
The nominees for directors of Class I are John C. Dannemiller, J. Michael
Moore, John C. Robinson and Dr. Jerry Sue Thornton. Messrs. Dannemiller and
Robinson and Dr. Thornton presently serve as directors of Applied and were
elected to their positions at an annual meeting of the shareholders. The proxies
named in the accompanying proxy intend to vote for the election of the four
nominees unless authority is withheld. If any of the nominees should be unable
or unwilling to serve as a director, the proxies reserve full discretion to vote
for such
3
<PAGE> 4
other person or persons as may be nominated at the meeting and/or to vote to
reduce the number of directors to ten. Management is not aware of any existing
circumstances that would cause any of the nominees to be unwilling or unable to
serve as directors.
Certain information concerning the nominees and the directors continuing in
office is given below. Unless otherwise stated, the nominees and directors have
held the positions indicated for the last five years.
<TABLE>
<CAPTION>
NAME AND YEAR INFORMATION ABOUT
FIRST ELECTED NOMINEES AND
A DIRECTOR DIRECTORS
- ---------------------------------- ------------------------------------------------------------
<S> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS OF CLASS I FOR A TERM EXPIRING IN 2000
John C. Dannemiller(a)(b) Mr. Dannemiller is Chairman (since January 1992), Chief
1985 Executive Officer (since January 1992) and President (since
October 1996) of Applied. He is 59 years of age and also
serves as a director of The Lamson & Sessions Co. and Star
Banc Corporation.
J. Michael Moore Mr. Moore is President (since July 1997) of Oak Grove
Consulting Group, Inc. He was Chairman (from 1989 to July
1997) and Chief Executive Officer (from 1981 to July 1997)
of INVETECH Company, a distributor of bearings, mechanical
and electrical drive system products, industrial rubber
products and specialty maintenance and repair products
manufactured by others. INVETECH Company was acquired by
Applied in July 1997. Pursuant to the Plan and Agreement of
Merger dated April 29, 1997, whereby Applied agreed to
acquire INVETECH Company, Applied also agreed to recommend
to the Director Nominating Committee of its Board of
Directors that Mr. Moore be nominated for election as a
director at this meeting. Mr. Moore is 54 years of age.
John C. Robinson(a) Mr. Robinson is Vice Chairman of Applied (since October
1991 1996). He has also served as President (from January 1992 to
October 1996). He is 55 years of age.
Dr. Jerry Sue Thornton(d)(e) Dr. Thornton is President of Cuyahoga Community College, the
1994 largest community college in Ohio with 22,000 students and
77 career and technical programs. She is 50 years of age.
PERSONS SERVING AS DIRECTORS OF CLASS II FOR A TERM EXPIRING IN 1998
William G. Bares(b)(c)(e) Mr. Bares is Chairman (since April 1996), President (since
1986 1982) and Chief Executive Officer (since January 1996) of
The Lubrizol Corporation, a specialty chemical company.
Lubrizol specializes in products created through the
application of advanced chemical, mechanical and biological
technologies for use in specialty additive systems for
gasoline and diesel engine oils, automatic transmission
fluids, gear oils, marine and tractor lubricants, and
specialty products for industrial fluids, fuel additives and
process chemicals. He was Chief Operating Officer (from 1987
to December 1995) and has served as a director of Lubrizol
since 1981. He is 56 years of age and also serves as a
director of Oglebay Norton Company and KeyCorp.
Dr. Roger D. Blackwell Dr. Blackwell is a Professor of Marketing at the Ohio State
1996 University College of Business and President of Blackwell
Associates, Inc., a consulting firm in Columbus, Ohio. He is
57 years of age and also serves as a director of Abercrombie
& Fitch, Inc., Airnet Systems, Inc., Checkpoint Systems,
Inc., Cheryl & Co., Inc., Intimate Brands, Inc., Max &
Erma's Restaurants, Inc. and Worthington Foods, Inc., and as
a trustee of The Flex-funds.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
NAME AND YEAR INFORMATION ABOUT
FIRST ELECTED NOMINEES AND
A DIRECTOR DIRECTORS
- ---------------------------------- ------------------------------------------------------------
<S> <C>
Russel B. Every(c)(d) Mr. Every has been a business consultant since his
1986 retirement as Chairman of The Lamson & Sessions Co. in 1989.
He served as a director of The Lamson & Sessions Co. from
1979 to April 1995. The Lamson & Sessions Co. is a supplier
of a variety of fabricated and machined metal components and
parts for use by original equipment manufacturers princi-
pally in the transportation equipment industry. Its Carlon
Division is a leading domestic producer of thermoplastic
conduit, ducts, fittings, enclosures and accessories used
principally in electrical applications. He is 72 years of
age.
John J. Kahl(b)(d) Mr. Kahl is Chairman and Chief Executive Officer of Manco,
1992 Inc., a manufacturer of pressure sensitive tapes for
household and automotive repair, including Duck(R) Brand
Tapes, mailing and shipping supplies for both home and
office under the CareMail(R) brand, weatherstripping and
related home energy products for the "do-it-yourselfer" and
labels for both home and office. He is 56 years of age and
also serves as a director of Royal Appliance Mfg. Co.
PERSONS SERVING AS DIRECTORS OF CLASS III FOR A TERM EXPIRING IN 1999
William E. Butler(b)(c) Mr. Butler was Chairman, from January 1992 until his retire-
1987 ment in December 1995, of Eaton Corporation, a global manu-
facturer of highly engineered products which serve vehicle,
industrial, construction, commercial, aerospace and marine
markets. Principal products include truck transmissions and
axles, engine components, hydraulic products, electrical
power distribution and control equipment, ion implanters and
a wide variety of controls. He was Chief Executive Officer
(from 1991 to September 1995), and served as a director of
that company from 1989 until his retirement. He is 66 years
of age and also serves as a director of Borg-Warner Automo-
tive, Inc., Ferro Corporation, The Goodyear Tire & Rubber
Co., Pitney Bowes, Inc. and Zurn Industries, Inc.
Russell R. Gifford(d)(e) Mr. Gifford was President of CNG Energy Services Corp., a
1992 subsidiary of Consolidated Natural Gas Company, from Sep-
tember 1994 until his retirement in January 1997. CNG En-
ergy Services Corp. is an unregulated energy services
marketing company. He was also President and Chief Execu-
tive Officer (from 1989 to September 1994) of The East Ohio
Gas Company, the largest distribution subsidiary of Consoli-
dated Natural Gas Company. Mr. Gifford is 58 years of age
and serves as a trustee of First Union Real Estate Equity
and Mortgage Investments.
L. Thomas Hiltz(a)(b)(c)(e) Mr. Hiltz is an attorney in Covington, Kentucky and is one
1981 of five trustees of the H.C.S. Foundation, a charitable
trust which has sole voting and dispositive power with
respect to 553,500 shares of Applied Common Stock (without
giving effect to the three-for-two stock split paid on
September 15, 1997). He is 51 years of age.
</TABLE>
- ---------------
(a) Member of the Executive Committee.
(b) Member of the Director Nominating Committee.
(c) Member of the Executive Organization & Compensation Committee.
(d) Member of the Audit Committee.
(e) Member of the Corporate Governance Committee.
5
<PAGE> 6
BENEFICIAL OWNERSHIP OF CERTAIN APPLIED SHAREHOLDERS AND MANAGEMENT
The following table shows the beneficial ownership of Applied Common Stock,
as of June 30, 1997, by (i) each person known by Applied to own beneficially
more than 5% of the outstanding shares of Applied Common Stock, (ii) all current
directors and nominees, (iii) each executive officer named in the Summary
Compensation Table on page 7 and (iv) all current directors, nominees and
executive officers as a group.
<TABLE>
<CAPTION>
COMMON SHARES
BENEFICIALLY OWNED
ON JUNE 30, PERCENT OF
NAME OF BENEFICIAL OWNER 1997(1) CLASS(2)
- ------------------------------------------------- ------------------ ----------
<S> <C> <C>
The Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071.................. 890,000(3) 7.2%
The Prudential Insurance Company
of America
Three Gateway Center
Newark, New Jersey 07102-4077.................. 737,125(4) 5.9%
William G. Bares................................. 14,311(5)
Dr. Roger D. Blackwell........................... 6,410(6)
William E. Butler................................ 1,350
John C. Dannemiller.............................. 210,055(7) 1.7%
Russel B. Every.................................. 14,605
Russell R. Gifford............................... 3,978(8)
L. Thomas Hiltz.................................. 571,572(9) 4.6%
John J. Kahl..................................... 15,013
Francis A. Martins............................... 26,075(10)
J. Michael Moore................................. 0(11)
John C. Robinson................................. 109,215(7)
Robert C. Stinson................................ 53,198(7)
Dr. Jerry Sue Thornton........................... 1,339
John R. Whitten.................................. 52,850(7)
All current directors, nominees and executive
officers as a group (17 individuals)........... 1,117,563(12) 8.5%
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. Beneficial ownership may be disclaimed for
other purposes. Except as otherwise indicated, the beneficial owner has
sole voting and dispositive power over the number of shares indicated. The
number of shares listed as beneficially owned does not give effect to the
three-for-two stock split paid on September 15, 1997.
(2) Percent of class is not indicated if less than 1%.
(3) The Capital Group Companies, Inc. filed a Schedule 13G dated February 12,
1997 indicating it has sole voting power for 275,950 shares and sole
dispositive power for 890,000 shares.
(4) By letter dated August 4, 1997, The Prudential Insurance Company of America
confirmed that at June 30, 1997 it had sole voting and dispositive power
for 294,000 shares, and shared voting and dispositive power for 443,125
shares.
(5) Includes 1,500 shares owned by Mr. Bares' wife, who has sole voting and
dispositive power.
(6) Includes 150 shares owned by Dr. Blackwell's wife, who has sole voting and
dispositive power.
(7) Includes shares that could be acquired within 60 days after June 30, 1997,
pursuant to the exercise of stock options as follows: Mr.
Dannemiller -- 82,050; Mr. Robinson -- 41,589; Mr. Stinson -- 23,576; and
Mr. Whitten -- 23,276.
(8) Includes 100 shares owned by Mr. Gifford's wife, who has sole voting and
dispositive power.
(9) Includes 553,500 shares held by the H.C.S. Foundation, a charitable trust
of which L. Thomas Hiltz is one of five trustees, with sole voting and
dispositive power. Pursuant to a Schedule 13D filed by the H.C.S.
Foundation dated December 20, 1989, the trustees, including Mr. Hiltz,
disclaimed beneficial ownership of those shares.
(10) Includes 375 shares owned by Mr. Martins' son, who has sole voting and
dispositive power.
(11) In connection with Applied's acquisition of INVETECH Company on July 31,
1997, J. Michael Moore acquired beneficial ownership of 387,308 shares.
(12) Includes 171,241 shares that could be acquired within 60 days after June
30, 1997, pursuant to the exercise of stock options. In determining the
percentage of share ownership, the 171,241 stock option shares are added to
both the denominator and the numerator, pursuant to Instruction 1 to Item
403 of Regulation S-K and Rule 13d-3(d)(1) under the Securities Exchange
Act of 1934.
6
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes compensation earned during the fiscal years
ended June 30, 1997, 1996 and 1995, by those persons who were, during the fiscal
year ended June 30, 1997, the Chief Executive Officer and the four other most
highly compensated executive officers of the Corporation.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------
--------------------- RESTRICTED NUMBER ALL OTHER
NAME AND BONUS STOCK AWARD(S) OF COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1) (2) OPTIONS (3)
- ---------------------------------- ----- -------- -------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C. Dannemiller 1997 $470,050 $297,821 $ 0 0 $ 22,058
Chairman, Chief Executive 1996 439,167 435,960 0 0 42,057
Officer & President 1995 411,117 451,153 952,500 0 42,168
John C. Robinson 1997 310,300 140,309 0 0 19,259
Vice Chairman 1996 303,533 241,444 0 0 27,308
1995 283,333 241,027 476,250 0 21,651
John R. Whitten 1997 197,665 115,565 0 0 14,970
Vice President -- 1996 186,830 131,680 0 0 16,520
Finance & Treasurer 1995 175,667 117,429 238,125 0 11,379
Robert C. Stinson 1997 191,200 113,069 0 0 15,129
Vice President -- 1996 179,067 131,572 0 0 16,789
Administration, 1995 165,000 132,874 238,125 0 12,189
Human Resources,
General Counsel &
Secretary
Francis A. Martins 1997 189,653 74,642 0 0 8,570
Vice President -- 1996 170,640 126,903 0 0 9,937
Sales & Field Operations 1995 158,000 114,704 238,125 0 14,111
</TABLE>
- ---------------
(1) Amounts reported in this column are earnings pursuant to the annual
Management Incentive Plan, described in the Execution Organization &
Compensation Committee Report on pages 9 and 10. Pursuant to the Deferred
Compensation Plan, described on pages 14 and 15, the following named
executive officers deferred, and had invested in Applied Common Stock in
August 1997, the corresponding percentages of their earnings under the 1997
Management Incentive Plan: Mr. Dannemiller, 50%; Mr. Robinson, 64%; Mr.
Whitten, 50%; Mr. Stinson, 50%; and Mr. Martins, 20%.
(2) Amounts reported in this column represent Performance-Accelerated Restricted
Stock awards ("PARS") under the 1990 Long-Term Performance Plan described in
the Executive Organization & Compensation Committee Report on pages 10 and
11, valued at the closing market price of Applied Common Stock on the dates
of grant. Dividends are paid on PARS at the same rate paid to all
shareholders. At June 30, 1997, the persons listed above held the following
number of unvested PARS (without giving effect to the three-for-two stock
split paid on September 15, 1997), valued at the closing market price of
Common Stock on that date: Mr. Dannemiller, 22,500 shares, $810,000; Mr.
Robinson, 11,250 shares, $405,000; Mr. Whitten, 5,625 shares, $202,500; Mr.
Stinson, 5,625 shares, $202,500; and Mr. Martins, 5,625 shares, $202,500.
These PARS vested on July 14, 1997, except for those held by Messrs.
Dannemiller and Robinson; the vesting of their PARS has been deferred to
maintain the deductibility of the resulting compensation under Section
162(m) of the Internal Revenue Code.
(3) Amounts reported in this column for fiscal 1997 include the following:
(a) The contributions made by Applied and credited to the individual
accounts of the named executive officers under Applied's Retirement
Savings Plan, as follows: Mr. Dannemiller, $7,167; Mr. Robinson, $7,333;
Mr. Whitten, $9,191; Mr. Stinson, $9,475; and Mr. Martins, $8,570. These
totals are estimated and subject to year-end adjustment.
(b) Pursuant to the Deferred Compensation Plan, the accounts of certain
participants were credited with additional Applied Common Stock equal to
10% of the amount of earnings deferred into Applied Common Stock. The
values of the additional shares credited to the accounts of the named
executive officers are as follows: Mr. Dannemiller, $14,891; Mr.
Robinson, $11,926; Mr. Whitten, $5,779; Mr. Stinson, $5,654; and Mr.
Martins, $0.
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<PAGE> 8
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning stock option
exercises by the Chief Executive Officer and Applied's four other most highly
compensated executive officers in the fiscal year ended June 30, 1997, and the
values of in-the-money options held by those individuals on June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF VALUE OF UNEXERCISED IN-
SECURITIES UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT FISCAL
UNDERLYING OPTIONS AT FISCAL YEAR END(1) YEAR END
OPTIONS VALUE ----------------------------- -----------------------------
NAME EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Dannemiller.... 0 $ 0 82,050 0 $1,979,576 $ 0
John C. Robinson....... 0 0 41,589 0 976,392 0
John R. Whitten........ 0 0 23,276 0 568,723 0
Robert C. Stinson...... 0 0 23,576 0 575,411 0
Francis A. Martins..... 0 0 0 0 0 0
</TABLE>
- ---------------
(1) The number of stock option shares shown does not give effect to the
three-for-two stock split paid on September 15, 1997.
ESTIMATED RETIREMENT BENEFITS
UNDER SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN(1)
The following table shows estimated annual benefits payable at retirement
to certain selected executive officers under Applied's Supplemental Executive
Retirement Benefits Plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
----------------------------------------------
REMUNERATION(3) 5 10 15 20
- --------------- ------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 150,000 16,875 33,750 50,625 67,500
200,000 22,500 45,000 67,500 90,000
250,000 28,125 56,250 84,375 112,500
300,000 33,750 67,500 101,250 135,000
350,000 39,375 78,750 118,125 157,500
400,000 45,000 90,000 135,000 180,000
450,000 50,625 101,250 151,875 202,500
500,000 56,250 112,500 168,750 225,000
600,000 67,500 135,000 202,500 270,000
700,000 78,750 157,500 236,250 315,000
800,000 90,000 180,000 270,000 360,000
900,000 101,250 202,500 303,750 405,000
1,000,000 112,500 225,000 337,500 450,000
1,100,000 123,750 247,500 371,250 495,000
</TABLE>
- ---------------
(1) Amounts shown in the table are computed on the basis of a straight life
annuity and are not subject to deduction for Social Security or other offset
amounts.
(2) Mr. Robinson has in excess of 20 years of service with Applied and is,
therefore, entitled to a full retirement benefit under the plan. Messrs.
Dannemiller, Martins and Stinson have in excess of five years of service
with Applied and Mr. Whitten has in excess of 15 years of service.
(3) Amounts in this column represent, and benefits are based on, highest average
total cash compensation for three consecutive years. The cash compensation
for the Chief Executive Officer and the four other most highly compensated
executive officers for the past three fiscal years is found in the Summary
Compensation Table.
8
<PAGE> 9
REPORT OF THE EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
OVERVIEW
The Executive Organization & Compensation Committee (the "Committee") is
comprised entirely of independent outside directors. The Committee is
responsible for setting Applied's executive officer compensation policies. The
purpose of the executive officer compensation program is to attract and retain
qualified executives and to provide appropriate incentives, both monetary and
stock-based, to achieve Applied's business strategies and ultimately enhance
shareholder value over the long term.
The major components of Applied's executive officer compensation program
applicable to the Chief Executive Officer and the other executive officers,
including those named in the Summary Compensation Table appearing on page 7
hereof, are:
(a) Annual base salary; and,
(b) The 1990 Long-Term Performance Plan.
ELEMENTS OF COMPENSATION PROGRAM
(a) ANNUAL BASE SALARY
The Committee uses an annual competitive pay analysis compiled by an
independent nationally recognized compensation and benefits consulting firm (the
"Independent Consultant") which provides data on similar positions. The analysis
provides the Committee with the market base salary at the 25th, 50th and 75th
percentiles for each executive officer position, together with the market total
cash compensation. The competitive pay analysis is based on survey data
primarily from the industrial distribution industry and is more
industry-specific to Applied than the published industry index shown in the
stock performance graph appearing on page 12 hereof. In addition to the
competitive pay analysis, the Committee generally considers time and level of
experience in the position in setting the annual base salary. Generally, annual
base salaries have been set by the Committee below the 50th percentile; however,
the Committee would consider setting annual base salaries at higher levels
coincident with sustained corporate earnings improvement. The Committee's
overall executive compensation philosophy is to place greater weight on the
performance-driven portions of the compensation package -- namely the awards
under Applied's 1990 Long-Term Performance Plan.
(b) 1990 LONG-TERM PERFORMANCE PLAN
(1) MANAGEMENT INCENTIVE PLAN
The annual Management Incentive Plan, adopted under the 1990 Long-Term
Performance Plan, is Applied's program for compensating executive officers for
the achievement of goals set for a particular fiscal year. Under the Management
Incentive Plan, each executive officer, including the Chief Executive Officer
and the other executive officers named in the Summary Compensation Table,
presents the Committee with individual goals for the fiscal year. Corporate
goals for the fiscal year are also presented to the Committee. The Committee
reviews and discusses the goals with the executive officers and then sets the
goals for the year. Both the individual and the corporate goals are expressed in
terms of threshold, target (midpoint) and maximum levels of required
performance.
In fiscal 1997, Messrs. Dannemiller and Robinson had the corporate goals as
their individual goals. The corporate goals for fiscal 1997 included objectives
based on Applied's pre-tax return on assets, pre-tax income, and sales,
distribution and administrative expenses as a percentage of net sales. These
goals were weighted 45%, 45% and 10%, respectively. The other executive
officers, including Messrs. Whitten, Stinson and Martins, had individual goals
(in addition to the corporate goals) relating specifically to their job
responsibilities. These goals may vary in
9
<PAGE> 10
relative weight. The size of the Management Incentive Plan payment for any of
the executive officers depends on the amount of performance achieved on both the
individual and the corporate goals.
Assuming that corporate and individual goals are met, the amount of the
individual award is based on a formula, the components of which are the assigned
market base salary and a responsibility percentage assigned to the executive
officer. The responsibility percentages are set by the Committee. For example,
the Chief Executive Officer target incentive payment set by the Committee in
fiscal 1997 was $338,450, being 70% (the responsibility percentage) multiplied
by the assigned market base salary. Responsibility percentages for the other
executive officers during fiscal 1997, including those named in the Summary
Compensation Table, ranged from 36% to 50%.
For Mr. Dannemiller, the market total cash compensation at the 50th
percentile was $737,400 effective for the twelve-month period commencing
November 1, 1996, the date on which executive compensation changes are made each
year. Mr. Dannemiller's actual annual base salary for fiscal 1997 was $470,050,
his target incentive was $338,450, and total cash compensation assuming target
performance under the Management Incentive Plan was $808,500. Because overall
performance on the corporate goals was slightly below the target level in fiscal
1997, Mr. Dannemiller received total cash compensation of $767,871 ($470,050
base salary, plus $297,821 under the Management Incentive Plan).
The Deferred Compensation Plan (described on pages 14 and 15) was adopted
in part to encourage increased investment in Applied Common Stock by the
executive officers. All but two of the participants in the 1997 Management
Incentive Plan elected under the Deferred Compensation Plan to defer a portion
of their Management Incentive Plan awards, with deferral percentages ranging
from 20% to 85%. All but one of those persons elected to have their deferred
awards invested solely in Applied Common Stock, with the remaining participant
electing to invest more than one-half of his total award in Common Stock.
(2) STOCK-BASED AWARDS
Until fiscal 1993, the only types of awards under the 1990 Long-Term
Performance Plan were stock options. In order to align more closely the
executive officers with the interests of the shareholders and to compensate the
executive officers based on performance measures that directly enhance
shareholder value, the Committee chose in October 1992 to make awards of
Performance-Accelerated Restricted Stock ("PARS") under the Plan. The awards
were intended to replace ongoing stock option grants to executive officers, but
would not affect past stock option grants. The PARS were awards of restricted
shares of Applied Common Stock, which shares would vest six years from the date
of grant; however, the PARS could vest automatically at an earlier date if
certain performance hurdles based on stock price and pre-tax return on assets
were met. No new stock option or PARS awards could be made to the executive
officers until 100% of the PARS had vested, either by meeting the performance
hurdles or by passage of the six-year term, and in no event could a new award be
made during the two-year period immediately following the date of grant of the
previous awards. The initial PARS awards vested in fiscal 1994 as a result of
the achievement of stock price performance hurdles.
In October 1994 new PARS awards were made to the executive officers. At the
time the awards were made, the stock price was $21.17 (per share prices have
been adjusted for the three-for-two stock split paid in December 1995, but have
not been adjusted for the three-for-two split paid in September 1997). Once
again, the shares would automatically vest six years from the date of grant,
although they could vest at an earlier date if certain performance hurdles were
met; provided further, with respect to the awards made to Messrs. Dannemiller
and Robinson, such awards would not vest early to the extent vesting would
result in the non-deductibility of the resulting compensation under Section
162(m) of the Internal Revenue Code (the "Code"). In April 1996, 50% of the PARS
awards vested on reaching a stock price of $30.67
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<PAGE> 11
per share for ten consecutive trading days. The remaining PARS awards vested in
July 1997 on reaching a stock price of $36.00 per share for ten consecutive
days.
Following the vesting of the fiscal 1995 awards, new PARS awards were made
in August 1997. Fifty percent of the PARS vest on reaching either a pre-tax
return on assets ("ROA") of 13.5%, or a stock price of $50.00 per share for
twenty consecutive trading days. The remaining fifty percent vest on reaching
either a ROA of 17.5%, or a stock price of $56.00 per share for twenty
consecutive trading days. According to the Independent Consultant's survey of
other companies, if the PARS vest within the first two years, the resulting
total compensation would equal approximately the 75th percentile of competitive
compensation. If, however, the performance hurdles are not achieved and the PARS
instead vest after the full six years, the resulting total compensation would be
considerably below the 50th percentile.
The total amount of all stock-based awards is limited by the annual
limitation set forth in the 1990 Long-Term Performance Plan of 2% of shares
outstanding on the first day of the fiscal year in which the awards are made.
(c) BENEFITS
Benefits provided to the executive officers are those generally provided to
Applied's other associates with variations consistent with executive benefits in
the competitive marketplace.
FEDERAL INCOME TAX DEDUCTIBILITY
Section 162(m) of the Code limits the amount of compensation a
publicly-held corporation may deduct as a business expense for federal income
tax purposes. That limit, which applies to the Chief Executive Officer and the
four other most highly compensated executive officers, is $1 million per
individual per year, subject to certain exceptions. One of the exceptions is for
compensation that is performance-based.
The Committee has taken steps to qualify the awards made to the executive
officers under the Management Incentive Plan as performance-based under Internal
Revenue Service regulations. Shareholder approval of the proposed amendment to
the 1990 Long-Term Performance Plan (described on pages 18 and 19) will also be
necessary to qualify the awards as performance-based. In the future, the
Committee will continue to seek ways to preserve the full deductibility of
compensation paid to Applied's executive officers without compromising the
Committee's flexibility in designing an effective and competitive compensation
program.
EXECUTIVE ORGANIZATION &
COMPENSATION COMMITTEE
William E. Butler
William G. Bares
Russel B. Every
L. Thomas Hiltz
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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
OF APPLIED INDUSTRIAL TECHNOLOGIES, INC., S&P 500 INDEX AND PEER INDUSTRY GROUP
The graph set forth below compares the five-year cumulative total return
from investing $100 on June 30, 1992 in each of Applied Common Stock, the
Standard and Poor's 500 Index and the Value Line Machinery Industry Index,
assuming dividend reinvestment.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD MACHINERY
(FISCAL YEAR COVERED) APPLIED S&P 500 INDUSTRY
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 125.81 113.94 121.38
1994 190.02 115.77 136.72
1995 187.57 146.01 158.45
1996 253.28 184.14 175.16
1997 344.64 248.14 235.99
</TABLE>
Source: Value Line, Inc.
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<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Michael Moore, a nominee for election as a director, was Chairman and
Chief Executive Officer of INVETECH Company ("Invetech"), which was acquired by
Applied in July 1997. In connection with the acquisition, Applied entered into a
Consulting, Noncompetition and Confidentiality Agreement dated July 31, 1997,
with Mr. Moore and Oak Grove Consulting Group, Inc. ("Oak Grove"), which Mr.
Moore owns and of which he is president.
Under this agreement, (i) Oak Grove will perform certain business
consulting services for Applied for a period of five years in exchange for an
annual fee of $70,000; (ii) Mr. Moore agreed not to compete with Applied until
the later of (x) July 31, 2002 and (y) the end of the one year period following
the date of termination of all of Mr. Moore's relationships with Applied (other
than as a shareholder) in exchange for $2,550,000 payable in five equal annual
installments of $510,000 beginning on July 31, 1997; (iii) Mr. Moore and Oak
Grove agreed to maintain the confidentiality of all non-public information
pertaining to Applied during the five year period following the date of
termination of any of Mr. Moore's and Oak Grove's relationships with Applied
(other than as a shareholder); (iv) Mr. Moore and Applied agreed to amend the
Salary Continuation Agreement between Mr. Moore and Invetech as described below;
and (v) Applied agreed to pay to Oak Grove, during the term of Mr. Moore's and
his spouse's lives, $700 per month for the cost of health insurance to be
obtained and maintained by Oak Grove for Mr. Moore, his spouse and his eligible
children.
Mr. Moore had been party to a Salary Continuation Agreement with Invetech
dated as of March 28, 1991. Under this agreement, Mr. Moore (presently 54 years
of age) was to be paid $200,000 per year, in equal monthly installments, for a
period of 15 years following his 65th birthday. If, however, Mr. Moore suffered
a permanent disability or died before age 65, then payments would be made to Mr.
Moore (or his designated beneficiary in the event of death) beginning at that
earlier date. As a result of Applied's acquisition of Invetech, Mr. Moore became
vested in his rights, and Applied assumed Invetech's obligations, under the
agreement. As noted above, Applied also agreed to amend the Salary Continuation
Agreement to (i) provide that the benefits would be payable to Mr. Moore
beginning at age 60, and (ii) increase the aggregate benefits payable thereunder
by $500,000.
Under the Plan and Agreement of Merger dated April 29, 1997, whereby
Applied acquired Invetech, Applied agreed, at the request of any Invetech
shareholder who was the insured under a life insurance policy acquired by
Applied in the transaction, to sell and transfer that policy to the shareholder
at a cash price equal to the value of the policy as reflected on Invetech's June
30, 1997 balance sheet. A policy with a cash value of $461,938 was sold to Mr.
Moore in September 1997.
COMPENSATION OF DIRECTORS
Corporate officers do not receive any additional compensation for service
as a director. Non-employee directors receive a quarterly retainer of $4,500, a
fee of $1,500 for the first directors' meeting or committee meeting attended on
a given day, and $500 for each additional meeting attended on the same day, up
to a maximum of $2,500 per day. The directors may be similarly compensated if
they attend other meetings or conferences at the request of the Chairman or
President. In addition, the directors receive $500 for any action taken by
unanimous written consent or via telephone conference of less than 30 minutes in
duration, and directors who serve as chairmen of committees receive an
additional quarterly retainer of $400. All non-employee directors are eligible
to participate in the Deferred Compensation Plan for Non-employee Directors
described below. Participants in the plan may elect to receive their director
compensation in the form of Applied Common Stock, in which case they receive an
additional amount equal to 25% of the compensation so deferred. The amount of
compensation received by non-employee directors is reviewed from time to time by
Applied's management. If management believes that a change in the amount of
non-employee director compensation is required to make
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<PAGE> 14
the level of such compensation competitive relative to the size and nature of
Applied's business, management recommends the change to the Board of Directors
and approval of any such change requires the affirmative vote of a majority of
the directors then serving in office. The directors participate in Applied's
travel accident plan and may also elect to participate in Applied's contributory
health insurance plan.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The purposes of Applied's Deferred Compensation Plan for Non-employee
Directors (the "Plan") are to allow non-employee directors to defer the receipt
of compensation payable for services as a director and to promote loyalty to
Applied through increased investment in Applied Common Stock.
Pursuant to the Plan, a non-employee director may elect, prior to any
calendar quarter, to defer payment of his or her compensation for future
services as a director. Once an election is made, it is irrevocable with respect
to compensation earned. Directors may change their election to receive or defer
receipt of compensation for future services commencing with the calendar quarter
following the election. Amendments that serve only to change a director's
beneficiary are permitted at any time and as often as necessary.
As directors' compensation would otherwise become due and payable, Applied
transfers an amount equal to the compensation deferred pursuant to the Plan to a
trust maintained by Key Trust Company of Ohio, N.A., as Trustee. Deferred fees
are invested by the Trustee, at a director's option, in a money market fund
and/or Applied Common Stock. If a director elects to have his compensation
invested in Common Stock, then Applied contributes to the trust an additional
amount equal to 25% of the amount so deferred.
The Plan is administered by a committee consisting of not less than three
members, not necessarily members of the Board of Directors, which is authorized
to interpret and administer the Plan, but has no discretion with respect to Plan
contributions, investment direction or distributions.
Distribution of a director's account commences as designated by the
director in his or her election on a date that is not more than thirty days
after (i) the director's termination as a director due to resignation,
retirement, death or otherwise, or (ii) the director's attainment of the age
(not younger than age 55) specified in his or her deferral election form; or
upon a change of control (as defined in the Plan) of Applied.
Applied presently has eight non-employee directors. Of those individuals,
Messrs. Bares, Every, Gifford, Hiltz and Kahl and Drs. Blackwell and Thornton
presently defer all of their retainer and meeting fees and invest those fees in
Applied Common Stock.
DEFERRED COMPENSATION PLAN
The Applied Industrial Technologies Deferred Compensation Plan (the "Plan")
permits participants in an annual Management Incentive Plan to defer a portion
or all of the awards payable under the Management Incentive Plan. The Plan's
purpose is to promote increased efforts on behalf of Applied through increased
investment in Applied Common Stock.
The Plan gives each participant in a Management Incentive Plan the
opportunity to elect to defer payment of his or her cash award from the
Management Incentive Plan. Any participant who elects to make such a deferral
may have such amounts invested in Applied Common Stock and/or in a money market
fund. In the event a participant elects to have an amount equal to at least 50%
of a Management Incentive Plan award invested in Applied Common Stock, an
additional ten percent of that amount will be credited to that participant under
the Plan. These deferral and investment opportunities and the incentive for
investment in Applied Common Stock are similar to the opportunities and
incentives available to non-employee directors under
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<PAGE> 15
the Deferred Compensation Plan for Non-employee Directors and are part of an
overall effort to align management with the interests of Applied's shareholders.
The Plan is administered by the Executive Organization & Compensation
Committee of the Board of Directors, which is authorized to interpret and
administer the Plan, but has no discretion with respect to participant-elected
deferrals or investments under the Plan.
Distribution of a participant's deferrals under the Plan will be made in a
lump sum or in installments over a period not in excess of ten years, as
specified in the participant's deferral election form. Other than dates
specified in the deferral election forms, a withdrawal is permitted while
employed only due to a severe financial and unexpected hardship.
All but two of the executive officers elected to participate in the Plan in
1997.
SEVERANCE PAYMENT AGREEMENTS
AND OTHER CHANGE IN CONTROL ARRANGEMENTS
Applied has severance payment agreements (the "Agreements") with each of
its executive officers. The Agreements obligate Applied to provide certain
severance benefits, described below, to any of those officers whose employment
is terminated for any reason other than death if such termination of employment
occurs within two years (three years for Messrs. Dannemiller and Robinson) after
a change in control, as defined in the Agreements. The principal benefits to be
provided to the named officers under the Agreements are (a) a lump sum severance
payment equal to three times annual base salary (at the highest rate in effect
since the change in control) for Messrs. Dannemiller and Robinson, and two times
for the other executive officers, reduced proportionately if the officer would
reach age 65 within the respective three and two year periods after the
termination; (b) a cash payment, in lieu of exercising any stock options held by
the officer on the date of termination, equal to the difference between the
exercise price thereunder, and the higher of (i) the mean of the high and low
trading prices on the New York Stock Exchange on the date of termination, and
(ii) the highest price paid for Applied Common Stock in connection with the
change in control; and (c) continued participation in Applied's employee benefit
plans, programs and arrangements, or equivalent benefits for two years (three
years for Messrs. Dannemiller and Robinson) after the termination at the levels
in effect immediately prior to termination. Under the terms of the Agreements,
escrow funds have been established with Key Trust Company of Ohio, N.A., to
secure payment of the benefits. Applied has deposited in the escrow funds a
percentage of the amounts that would be payable to each of the officers under
the Agreements. Additional deposits may be made in future years. No officer has
any right to make a claim on the escrow funds unless Applied is in default of
its obligations under the Agreements. All earnings on the escrow funds are
payable to Applied. The Agreements also provide that in the event any covered
executive is required to pay the excise tax imposed by Section 4999 of the
Internal Revenue Code, Applied shall make an additional payment to such
executive in an amount sufficient (after payment of any taxes on the additional
payment) to pay the excise tax.
The Agreements are intended to reinforce and encourage the continued
attention and dedication of these officers to their assigned duties without
distraction in the face of the potentially disturbing circumstances arising from
the possibility of a change in control of Applied. The Agreements may make it
more expensive to accomplish a change in control and could under certain
circumstances adversely affect the ability of shareholders to benefit from a
change in control. The Board of Directors approved the Agreements, however,
because it believes that the continued attention and dedication of the officers
to their duties under adverse circumstances are ultimately in the best interests
of Applied and its shareholders, and can under some circumstances result in a
higher price being paid to the shareholders in connection with a change in
control.
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<PAGE> 16
In addition to the benefits provided by the Agreements, the 1990 Long-Term
Performance Plan provides the following benefits to executive officers in the
event of a change in control, except as otherwise provided by the Board: (a) all
stock options outstanding will become fully exercisable as of the date of the
change in control, whether or not otherwise exercisable; (b) all restrictions
and conditions of stock awards will be deemed satisfied as of the date of the
change in control; and (c) all cash awards (including payments made under a
Management Incentive Plan) will be deemed to have been fully earned as of the
date of the change in control.
Also, pursuant to the Supplemental Executive Retirement Benefits Plan
("SERP"), if a participant is terminated for any reason, other than death,
within three years after a change in control or a participant is receiving or is
eligible to receive a retirement benefit payable under the SERP at the time of
the change in control, then the participant shall receive the actuarial
equivalent of the retirement benefit (or remaining portion thereof) in a lump
sum. In addition, upon a change in control, active participants will be credited
with additional years of service and age (up to a maximum of 10 years) for
benefit calculation purposes, equal to one half of the difference between the
participant's age at the time of the change in control and age 65.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended June 30, 1997, the Board of Directors had
seven meetings, four of which were regularly scheduled quarterly meetings. Each
of the directors attended at least 75% of the aggregate number of meetings of
the Board of Directors and all committees of the Board on which he or she
served, except for Dr. Jerry Sue Thornton.
The Board of Directors has established an Audit Committee, an Executive
Organization & Compensation Committee and a Director Nominating Committee.
The Audit Committee recommends the appointment of independent auditors,
reviews with the independent auditors the scope of the examination to be made,
reviews the scope of non-audit services performed by the independent auditors
and considers the effect of such non-audit services upon the independence of the
independent auditors, reviews with management and the independent auditors the
results of the audit after the audit has been completed, reviews with management
the adequacy of Applied's internal accounting controls and reviews with
management and the independent auditors the auditors' letter report on internal
accounting control and other recommendations. Russel B. Every, Russell R.
Gifford, John J. Kahl and Dr. Jerry Sue Thornton serve as members of the
committee. The Audit Committee met three times during the fiscal year ended June
30, 1997.
The Executive Organization & Compensation Committee reviews and makes
recommendations to the Board of Directors regarding both compensation of
executives and planning for executive organization and succession. The committee
also administers the 1990 Long-Term Performance Plan, including the Management
Incentive Plan. William E. Butler, William G. Bares, Russel B. Every and L.
Thomas Hiltz, all of whom are non-employee directors, serve as members of the
committee. The Executive Organization & Compensation Committee met four times
during the fiscal year ended June 30, 1997.
The Director Nominating Committee considers and reviews possible nominees
for the Board to fill vacancies which arise from time to time and makes
appropriate recommendations to the Board. L. Thomas Hiltz, William G. Bares,
William E. Butler, John C. Dannemiller and John J. Kahl serve as members of the
committee. There are no procedures established for submissions by shareholders;
the committee would, however, consider a qualified nominee submitted by
shareholders. The Director Nominating Committee did not meet during the fiscal
year ended June 30, 1997.
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ITEM 2 -- AMENDMENT OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Article FOURTH of Applied's Amended and Restated Articles of Incorporation
currently fixes the authorized number of shares of Applied Common Stock at
30,000,000 and the authorized number of shares of Preferred Stock at 2,500,000.
For the reasons discussed below, the Board of Directors has approved and
recommends for shareholder approval an amendment to increase the number of
authorized shares of Common Stock by 20,000,000 (the "Additional Shares") to
50,000,000. No change is being proposed in the authorized number of shares of
Preferred Stock.
Of the 30,000,000 currently authorized shares of Common Stock, at August
29, 1997 there were shares issued, of which approximately
shares were outstanding and shares were held in
Applied's treasury. This left approximately authorized but
unissued shares available for future use. An additional shares
were issued on September 15, 1997 as a result of the three-for-two stock split
declared on August 15, 1997.
The amendment would increase the available number of authorized but
unissued shares to approximately . While Applied does not have
any commitment or understanding at this time for the issuance of the Additional
Shares, the Board believes that it is desirable to have them available for
possible stock splits or other stock distributions, acquisitions, financings,
employee benefit plans or other purposes not currently foreseeable. The
amendment would allow the Board to authorize the issuance of the Additional
Shares without further shareholder approval, unless required for a particular
transaction by applicable law, regulation or the rules of any stock exchange on
which Applied's securities are listed.
The authorization of the Additional Shares would not, by itself, have any
effect on the rights of Applied shareholders. The issuance of the Additional
Shares for corporate purposes other than a stock split could have, among other
things, a dilutive effect on earnings per share and on the equity and voting
power of shareholders at the time of the issuance. In addition, the increase in
authorized shares could render more difficult under certain circumstances or
discourage an attempt to obtain control of Applied, whether through a tender
offer or otherwise, by, for example, allowing the issuance of shares that would
dilute the share ownership of a person attempting to obtain control. This
proposal is not, however, being made in response to any effort of which Applied
is aware to accumulate shares or obtain control of Applied.
The amendment requires the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock. If the amendment were approved, Article
FOURTH would be amended to read as follows:
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Fifty Million (50,000,000) shares of Common
Stock, without par value, and Two Million Five Hundred Thousand (2,500,000)
shares of Preferred Stock, without par value.
The Board of Directors recommends that the shareholders vote FOR the
amendment.
ITEM 3 -- AMENDMENT OF CODE OF REGULATIONS
TO DELETE PROVISION FIXING TIME OF DAY FOR
ANNUAL MEETING OF SHAREHOLDERS
Section 2 of Applied's Code of Regulations currently requires that the
annual meeting of shareholders be held at 1:30 p.m. on the first Tuesday after
the fifteenth day of October in each year, if not a legal holiday, but if a
legal holiday, then on the next succeeding business day or such other time and
date as may be determined by the Board of Directors. For the reasons
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<PAGE> 18
discussed below, the Board has approved and recommends for shareholder approval
an amendment to delete the provision fixing the time of day at which the meeting
must be held.
Applied desires the flexibility to plan events for shareholders and other
guests before and after the time at which the annual meeting is held. Although
the Ohio Revised Code, to which Applied is subject, requires that a
corporation's articles of incorporation or code of regulations designate the
date of the meeting or the manner in which the date is determined, it does not
require that those governing documents fix the time for the meeting.
Accordingly, the proposed amendment removes an unnecessary restriction on
Applied's planning for events surrounding the annual meeting.
The amendment requires the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock. If the amendment were approved, the
first sentence of Section 2 of the Code of Regulations would be amended to read
as follows:
The annual meeting of shareholders of the Corporation shall be held on the
first Tuesday after the fifteenth day of October in each year, if not a
legal holiday, but if a legal holiday, then on the next succeeding business
day or such other time and date as may be determined by the Board of
Directors.
The Board of Directors recommends that the shareholders vote FOR the
amendment.
ITEM 4 -- AMENDMENT OF THE 1990 LONG-TERM PERFORMANCE PLAN
TO CONTINUE TO QUALIFY CERTAIN AWARDS THEREUNDER AS
"PERFORMANCE-BASED" COMPENSATION UNDER SECTION 162(M)
OF THE INTERNAL REVENUE CODE
BACKGROUND
Section 162(m) of the Code prohibits a publicly held corporation, such as
Applied, from claiming a deduction on its federal income tax return for
compensation in excess of $1 million paid for a given fiscal year to the chief
executive officer (or person acting in that capacity) at the end of the
corporation's fiscal year and the four most highly compensated officers of the
corporation, other than the chief executive officer, at the end of the
corporation's fiscal year. The $1 million compensation deduction limitation does
not apply to "performance-based" compensation under Section 162(m) of the Code.
The final regulations promulgated by the Internal Revenue Service under
Section 162(m) (the "Final Regulations") set forth a number of requirements
which must be satisfied in order for compensation paid under the 1990 Long-Term
Performance Plan to qualify as "performance-based" for purposes of Section
162(m). Applied is seeking shareholder approval of the amendment in order to
qualify certain compensation awarded under the 1990 Long-Term Performance Plan
as "performance-based" for purposes of Section 162(m).
SUMMARY OF MATERIAL TERMS OF THE AMENDMENT
On August 7, 1997, the Executive Organization & Compensation Committee (the
"Committee") of the Board of Directors approved an amendment to the 1990
Long-Term Performance Plan (the "Plan"), the material terms of which were
previously approved by shareholders. The amendment provides (i) that the plan be
renamed "APPLIED INDUSTRIAL TECHNOLOGIES, INC. 1997 LONG-TERM PERFORMANCE PLAN"
and restated in full, as amended; (ii) that the maximum number of shares of
Applied Common Stock with respect to which options, stock appreciation rights or
stock awards could be granted to any individual could not exceed 300,000 shares
in any calendar year; (iii) that the maximum amount of any cash awards that
could be granted to any individual could not exceed $2,000,000 in any calendar
year; (iv) that the business criteria upon which performance goals shall be
established by the Committee at the time an award is granted shall include one
or more of the following: earnings per share, market
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<PAGE> 19
share, stock price, sales, costs, net operating income, cash flow, retained
earnings, return on capital, return on equity, return on assets, total
shareholder return, results of customer satisfaction surveys, aggregate product
price and other price measures, operating and maintenance cost management, or
changes in one or more of the preceding; provided however, that all performance
goals shall be objective performance goals satisfying the requirements for
"performance-based compensation" within the meaning of section 162(m)(4) of the
Code and that performance goals may also be based on the attainment of levels of
performance of Applied and/or any of its affiliates under one or more of the
measures described above relative to the performance of other businesses; (v)
for an expanded definition of "Change in Control"; and (vi) for certain
technical amendments not required in order for the Plan to satisfy the
requirements under the Final Regulations.
Persons eligible to participate in and receive awards under the Plan
include employees of Applied and its direct or indirect subsidiaries who hold
responsible managerial or professional positions and outside directors whose
performance, in the judgment of the Committee, can contribute to the continued
growth and success of the Applied. The selection of participants shall be within
the sole discretion of the Committee.
A complete copy of the Plan, as amended and restated, marked to show
changes from the plan as previously approved by shareholders, appears as
Appendix A to this Proxy Statement.
The affirmative vote of the holders of a majority of the shares of Applied
Common Stock present and entitled to vote at the meeting is required to approve
the amendment.
The Board of Directors recommends that the shareholders vote FOR the
amendment.
ITEM 5 -- RATIFICATION OF AUDITORS
The firm of Deloitte & Touche LLP, certified public accountants, has been
Applied's independent auditor since 1966 and has been appointed by management,
subject to ratification by the shareholders, to serve Applied as independent
auditor for the fiscal year ending June 30, 1998. Applied has been advised by
Deloitte & Touche LLP that no partner of the firm has had any direct financial
interest or any material indirect financial interest in Applied or its
subsidiaries or any connection during the past three years with Applied or any
of its subsidiaries in the capacity of promoter, underwriter, voting trustee,
director, officer or employee.
Unless otherwise indicated, the accompanying proxy will be voted in favor
of the ratification of the appointment of Deloitte & Touche LLP. The affirmative
vote of a majority of the shares represented at the meeting is sufficient to
constitute ratification. In the event that Deloitte & Touche LLP should withdraw
or otherwise become unavailable for reasons not presently known, the persons
named as proxies will vote for such other independent auditors as they may deem
appropriate.
A representative of Deloitte & Touche LLP is expected to be present at the
meeting. He will be given the opportunity to make a statement if he so desires,
and will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Applied's
executive officers and directors, and persons who beneficially own more than ten
percent of Applied Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission and
the New York Stock Exchange. Executive officers, directors and greater than ten
percent beneficial owners are required by SEC regulations to furnish Applied
with copies of all Section 16(a) forms they file.
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Based solely on a review of the copies of such forms furnished to Applied
and written representations from Applied's executive officers and directors,
Applied believes that during fiscal 1997 all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than ten percent
beneficial owners were complied with, except that an acquisition of 150 shares
of Applied Common Stock by Dr. Blackwell's wife was inadvertently omitted from
his Form 5 filed in August 1997. When the error was discovered, an amended Form
5 was filed.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals by shareholders for inclusion in the 1998 Annual Meeting Proxy
Statement must be received by Applied's Secretary at its executive offices, One
Applied Plaza, Cleveland, Ohio 44115, no later than May , 1998. All such
proposals are subject to the applicable rules and requirements of the Securities
and Exchange Commission.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
meeting other than those set forth in Items 1, 2, 3, 4 and 5 of the attached
Notice of Annual Meeting of Shareholders, but should any other matters requiring
a vote of shareholders arise, including the question of adjourning the meeting,
the persons named in the accompanying proxy will vote according to their best
judgment in the interests of Applied.
By order of the Board of Directors.
ROBERT C. STINSON
Secretary
Dated: September , 1997
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APPENDIX A
[BEARINGS, INC.]
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
[1990] 1997 LONG-TERM PERFORMANCE PLAN
1. OBJECTIVES
The [Bearings, Inc. 1990] Applied Industrial Technologies, Inc. 1997
Long-Term Performance Plan (the "Plan") is designed to foster and promote the
long-term growth and performance of the Company by: (a) strengthening the
Company's ability to develop and retain an outstanding management team, (b)
motivating superior performance by means of long-term performance related
incentives and (c) enabling key management employees and outside directors to
participate in the long-term growth and financial success of the Company. These
objectives will be promoted by awarding to such persons performance-based stock
awards, restricted stock, stock options, stock appreciation rights and/or other
performance or stock-based awards.
2. DEFINITIONS
(a) "Award" -- The grant of stock or any form of stock option, stock
appreciation right, performance share, restricted stock, other stock-based award
or cash whether granted singly, in combination or in tandem, to a Plan
Participant pursuant to such terms, conditions and limitations as the Committee
may establish in order to fulfill the objectives of the Plan.
(b) "Award Agreement" -- An agreement between the Company and a Participant
that sets forth the terms, conditions and limitations applicable to an Award.
(c) "Board" -- The Board of Directors of the Company.
(d) "Common Shares" or "shares" -- Authorized and issued or unissued shares
of common stock without par value of the Company.
(e) "Code" -- The Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" -- The Executive Organization and Compensation Committee of
the Company's Board, or such other committee of the Board that is designated by
the Board to administer the Plan. The Committee shall be constituted so as to
satisfy any applicable legal requirements including the requirements of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")
or any similar rule which may subsequently be in effect ("Rule 16b-3"). The
members shall be appointed by, and serve at the pleasure of, the Board and any
vacancy on the Committee shall be filled by the Board.
(g) "Company" -- [Bearings] Applied Industrial Technologies, Inc., an Ohio
corporation, and its direct and indirect subsidiaries.
(h) "Fair Market Value" -- The average of the high and low prices of Common
Shares as reported on the composite tape for securities listed on the New York
Stock Exchange for the date in question, provided that if no sales of Common
Shares were made on said exchange on that date, the average of the high and low
prices of Common Shares as reported on said composite tape for the preceding day
on which sales of Common Shares were made on said Exchange.
(i) "Participant" -- Any employee of the Company, or other person whose
selection the Committee determines to be in the best interests of the Company,
to whom an Award has been made under the Plan.
(j) "Section 162(m) Employee" -- Any employee with respect to which
compensation paid is subject to the restrictions imposed by Section 162(m) of
the Code, or any similar or successor restrictions.
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3. ELIGIBILITY
Persons eligible to be selected as Participants shall include employees of
the Company who hold responsible managerial or professional positions and
outside directors whose performance, in the judgment of the Committee, can
contribute to the continued growth and success of the Company. The selection of
Participants shall be within the sole discretion of the Committee. Grants may be
made to the same Participant on more than one occasion.
4. COMMON SHARES AVAILABLE FOR AWARDS
The aggregate number of Common Shares which may be awarded under the Plan
in each fiscal year of the Company, subject to adjustment as provided in Section
15 hereof, shall be two percent (2%) of the total outstanding Common Shares as
of the first day of such year for which the Plan is in effect; provided that
such number shall be increased in any year by the number of Common Shares
available for grant hereunder in previous years but not the subject of Awards
granted hereunder in such year; and provided further, that no more than two
hundred thousand (200,000) Common Shares shall be cumulatively available for the
grant of incentive stock options under the Plan and that no more than three
hundred thousand (300,000) Common Shares will be available for the grant of
Stock Options, Stock Appreciation Rights, and Stock Awards to any individual
Participant in any one calendar year. In addition, any Common Shares issued by
the Company through the assumption or substitution of outstanding grants from an
acquired corporation or entity shall not reduce the Common Shares available for
grants under the Plan. Such Shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
From time to time, the Board and appropriate officers of the Company shall
take whatever actions are necessary to file required documents with governmental
authorities and stock exchanges to make Common Shares available for issuance
pursuant to Awards. Any Common Shares subject to an Option which for any reason
is canceled (excluding shares subject to an Option canceled upon the exercise of
a related stock appreciation right ("SAR") to the extent shares are issued upon
exercise of such SAR) or terminated without having been exercised, or any shares
of Restricted Stock or Performance Shares which are forfeited, shall again be
available for Awards under the Plan. No fractional shares shall be issued, and
the Committee shall determine the manner in which fractional share value shall
be treated.
5. ADMINISTRATION
The Plan shall be administered by the Committee which shall have full and
exclusive power and authority to interpret the Plan, to grant waivers of Plan
restrictions and to adopt such rules, regulations and guidelines for carrying
out the Plan as it may deem necessary or proper, all of which powers shall be
executed in the best interests of the Company and in keeping with the objectives
of the Plan. In particular, the Committee shall have the authority to: (i)
select eligible Participants as recipients of Awards; (ii) determine the number
and type of Awards to be granted; (iii) determine the terms and conditions, not
inconsistent with the terms hereof, of any Award granted; (iv) adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable; (v) interpret the terms and
provisions of the Plan and any Award granted; (vi) prescribe the form of any
agreement or instrument executed in connection with any Award; and (vii)
otherwise supervise the administration of the Plan. In addition, the Board shall
have authority, without amending the Plan, to grant Awards hereunder to
Participants who are foreign nationals or employed outside the United States or
both, on terms and conditions different from those specified herein as may in
the sole judgment and discretion of the Board, be necessary or desirable to
further the purpose of the Plan. All decisions made by the Committee pursuant to
the provisions hereof shall be made in the Committee's sole discretion and shall
be final and binding on all persons.
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6. DELEGATION OF AUTHORITY
The Committee may to the extent that any such action will not prevent the
Plan from complying with Rule 16b-3, delegate any of its authority hereunder to
such persons as it deems appropriate.
7. AWARDS
The Committee shall determine the type or types of Award(s) to be made to
each Participant and shall set forth in the related Award Agreement the terms,
conditions and limitations applicable to each Award. Awards may include but are
not limited to those listed in this Section 7. Awards may be granted singly, in
combination or in tandem or in exchange for a previously granted Award; provided
that the exercise price for stock options shall not be less than the Fair Market
Value on the date of grant of the new Award. Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under any other employee plan of the Company, including the plan of
any acquired entity.
(a) Stock Option -- A grant of a right to purchase a specified number of
Common Shares during a specified period and at a specified price not less than
the Fair Market Value on the date of grant, as determined by the Committee. A
stock option may be in the form of an incentive stock option ("ISO") which, in
addition to being subject to applicable terms, conditions and limitations
established by the Committee, complies with Section 422A of the Code which,
among other limitations, currently provides that the aggregate Fair Market Value
(determined at the time the option is granted) of Common Shares exercisable for
the first time by a Participant during any calendar year shall not exceed
$100,000 (or such other limit as may be required by the Code); that the exercise
price shall be not less than 100% of Fair Market Value on the date of the grant;
that such options shall be exercisable for a period of not more than ten years
and may be granted no later than ten years after the effective date of this
Plan.
(b) Stock Appreciation Right or SAR -- A right to receive a payment, in
cash and/or Common Shares, equal to the excess of the Fair Market Value or other
specified valuation of a specified number of Common Shares on the date the SAR
is exercised over the Fair Market Value or other specified valuation on the date
of grant of the SAR as set forth in the applicable Award Agreement, except that
where the SAR is granted in tandem with a stock option, the grant and exercise
valuations must be no less than Fair Market Value.
(c) Stock Award -- An Award made in Common Shares and other Awards that are
valued in whole or in part by reference to, or are otherwise based on, Common
Shares. All or part of any stock award may be subject to conditions established
by the Committee, and set forth in the Award Agreement[, which may include, but
are not limited to, continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining growth rates and
other comparable measurements of Company performance. Such awards may be based
on Fair Market Value or other specified valuation].
(d) Cash Award -- An Award denominated in cash with the eventual payment
amount subject to future service and such other restrictions and conditions as
may be established by the Committee, and as set forth in the Award Agreement[,
including, but not limited to, continuous service with the Company, achievement
of specific business objectives, increases in specific indices, attaining growth
rates and other comparable measurements of Company performance.]. The maximum
amount of any Cash Award payable to any Participant in any one calendar year
shall be two million dollars ($2,000,000).
(e)(1) With respect to grants of Awards to any Section 162(m) Employee, the
Stock Awards and Cash Awards made pursuant to paragraphs (c) and (d) shall be
based on the satisfaction of performance goals established by the Committee at
the time an Award is granted, which goals shall include one or more of the
following: earnings per share, market share, stock price, sales, costs, net
operating income, cash flow, retained earnings, return on capital, return
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<PAGE> 24
on equity, return on assets, total shareholder return, results of customer
satisfaction surveys, aggregate product price and other price measures,
operating and maintenance cost management, or changes in one or more of the
preceding, provided however, that all performance goals shall be objective
performance goals satisfying the requirements for "performance-based
compensation" within the meaning of section 162(m)(4) of the Code. Such
performance goals may also be based on the attainment of levels of performance
of the Company and/or any of its affiliates under one or more of the measures
described above relative to the performance of other businesses.
(2) With respect to grants of Awards to any Participant who is not a
Section 162(m) Employee, the Awards may be based on any of the goals described
in paragraph (1) and on such other conditions as may be established by the
Committee.
8. PAYMENT OF AWARDS
Payment of Awards may be made in the form of cash, Common Shares or
combinations thereof and may include such restrictions as the Committee shall
determine, including in the case of Common Shares, restrictions on transfer and
forfeiture provisions. When transfer of shares is so restricted or subject to
forfeiture provisions, such shares are referred to as "Restricted Stock."
Further, with Committee approval, payments may be deferred, either in the form
of installments or a future lump sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards in
accordance with procedures established by the Committee to assure that such
deferrals comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for payment
after retirement. Any deferred payment, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may require the payment to
be forfeited in accordance with the provisions of Section 13 of the Plan.
Dividends or dividend equivalent rights may be extended to and made part of any
Award denominated in shares or units of Shares, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payments denominated in
shares or units of shares. At the discretion of the Committee, a Participant may
be offered an election to substitute an Award for another Award or Awards of the
same or different type; provided that Awards may not be made to substitute for
previously granted stock options having higher exercise prices.
9. STOCK OPTION EXERCISE
The price at which shares may be purchased under a stock option shall be
paid in full at the time of the exercise in cash or, if permitted by the
Committee, by means of tendering Common Shares or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of exercise,
or by any other means which the Committee determines to be consistent with the
Plan's objectives and applicable law and regulations. The Committee shall
determine acceptable methods for tendering Common Shares or other Awards and may
impose such conditions on the use of Common Shares or other Awards to exercise a
stock option as it deems appropriate. In the event shares of Restricted Stock
are tendered as consideration for the exercise of a stock option, a number of
the shares issued upon the exercise of the stock option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be subject to
the same restrictions as the Restricted Stock so submitted plus any additional
restrictions that may be imposed by the Committee.
10. TAX WITHHOLDING
The Corporation shall have the authority to withhold, or to require a
Participant to remit to the Corporation, prior to issuance or delivery of any
shares or cash hereunder, an amount sufficient to satisfy federal, state and
local tax withholding requirements associated with any
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Award. In addition, the Corporation may, in its sole discretion, permit a
Participant to satisfy any tax withholding requirements, in whole or in part, by
(i) delivering to the Corporation shares of Common stock held by such
Participant having a Fair Market Value equal to the amount of the tax or (ii)
directing the Corporation to retain Common Shares otherwise issuable to the
Participant under the Plan. If Common Shares are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value when the
tax withholding is required to be made.
11. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THIS PLAN
The Board may amend, modify, suspend or terminate the Plan for the purpose
of meeting or addressing any changes in legal requirements or for any other
purpose permitted by law. Subject to changes in law or other legal requirements
which would permit otherwise, the Plan may not be amended without consent of the
holders of the majority of the Common Shares then outstanding, to (i) increase
the aggregate number of Common Shares that may be issued under the Plan (except
for adjustments pursuant to the Plan), (ii) materially modify the requirements
as to eligibility for participation in the Plan, or (iii) withdraw
administration of the Plan from the Committee.
The Board may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent and no such amendment shall have the
effect, with respect to any Section 162(m) Employee, of increasing the amount of
any Award from the amount that would otherwise be payable pursuant to the
formula and/or goals previously established for such Participant. The Board may
also make Awards hereunder in replacement of, or as alternatives to, Awards
previously granted to Participants, except for previously granted options having
higher exercise prices, but including without limitation grants or rights under
any other plan of the Company or of any acquired entity.
12. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred and unpaid Awards shall be exercisable or paid in
accordance with the applicable Award Agreement, which may provide that the
Committee may authorize, as it deems appropriate, the acceleration and/or
continuation of all or any part of Awards granted prior to such termination.
13. CANCELLATION AND RESCISSION OF AWARDS
Unless the Award Agreement specifies otherwise, the Committee may cancel
any unexpired, unpaid, or deferred Awards at any time if the Participant is not
in compliance with all other applicable provisions of the Award Agreement, the
Plan and with the following conditions:
(a) A Participant shall not render services for any organization or
engage directly or indirectly in any business which, in the judgment of the
Chief Executive Officer of the Company or other senior officer designated
by the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization
or business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For Participants whose employment has terminated,
the judgment of the Chief Executive Officer shall be based on the
Participant's position and responsibilities while employed by the Company,
the Participant's [postemployment] post-employment responsibilities and
position with the other organization or business, the extent of past,
current and potential competition or conflict between the Company and the
other organization or business, the effect on the Company's customers,
suppliers and competitors of the Participant's assuming the
[postemployment] post-employment position, and such other considerations
as are deemed relevant given the applicable facts and circumstances. A
Participant who has retired shall be free, however, to purchase as an
investment or
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otherwise, stock or other securities of such organization or business so
long as they are listed upon a recognized securities exchange or traded
over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than one percent (1%) equity
interest in the organization or business.
(b) A Participant shall not, without prior written authorization from
the Company, disclose to anyone outside the Company, or use in other than
the Company's business, any confidential information or material relating
to the business of the Company, acquired by the Participant either during
or after employment with the Company.
(c) Upon exercise, payment or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he or
she is in compliance with the terms and conditions of the Plan. Failure to
comply with the provisions of paragraph (a), (b) or (c) of this Section 13
prior to, or during the six months after, any exercise, payment or delivery
pursuant to an Award (except in the event of an intervening Change in
Control as defined below) shall cause such exercise, payment or delivery to
be rescinded. The Company shall notify the Participant in writing of any
such rescission within two years after such exercise, payment or delivery.
Within ten days after receiving such a notice from the Company, the
Participant shall pay to the Company the amount of any gain realized or
payment received as a result of the rescinded exercise, payment or delivery
pursuant to an Award. Such payment shall be made either in cash or by
returning to the Company the number of Common Shares that the Participant
received in connection with the rescinded exercise, payment or delivery.
14. NONASSIGNABILITY
Except as may be otherwise provided in the relevant Award Agreement, no
Award or any benefit under the Plan shall be assignable or transferable, or
payable to or exercisable by, anyone other than the Participant to whom it was
granted.
15. ADJUSTMENTS; WAIVER OF RESTRICTIONS
(a) In the event of any change in capitalization of the Company by reason
of a stock split, stock dividend, combination, reclassification of shares,
recapitalization, merger, consolidation, exchange of shares, spin-off, spin-out
or other distribution of assets to shareholders, or similar event, the Committee
may adjust proportionally (i) the Common Shares (1) reserved under the Plan, (2)
available for ISOs and (3) covered by outstanding Awards denominated in stock or
units of stock; (ii) the stock prices related to outstanding Awards; and (iii)
the appropriate Fair Market Value and other price determinations for such
Awards. In the event of any other change affecting the Common Shares or any
distribution (other than normal cash dividends) to holders of capital stock,
such adjustments as may be deemed equitable by the Committee, shall be made to
give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to issue or assume stock options,
whether or not in a transaction to which Section 425(a) of the Code applies, by
means of substitution of new options for previously issued options or an
assumption of previously issued options.
(b) The Board may, in its sole discretion, based on such factors as the
Board or the Award Agreement may deem appropriate, waive in whole or in part,
any remaining restrictions or vesting requirements in connection with any Award
hereunder.
16. CHANGE IN CONTROL
(a) In the event of a Change in Control (as defined below) of the Company,
and except as the Board may expressly provide otherwise, (i) all Stock Options
or Stock Appreciation Rights then outstanding shall become fully exercisable as
of the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all Stock Awards then outstanding
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shall be deemed satisfied as of the date of the Change in Control, and (iii) all
Cash Awards shall be deemed to have been fully earned as of the date of the
Change in Control.
(b) A "Change in Control" of the Company shall have occurred when any
[Acquiring Person, alone or together with its Affiliates and Associates, shall
become the beneficial owner of twenty percent (20%) or more of the Common Shares
then outstanding or the Continuing Directors no longer constitute a majority of
the Board.] of [(c) "Acquiring Person" means any person (any individual, firm,
corporation or other entity), other than the Company, any Subsidiary or parent
of the Company, any employee benefit plan of the Company or of any Subsidiary or
parent of the Company, or any person or entity organized, appointed or
established by the Company or any Subsidiary for or pursuant to the terms of any
such plans.] the following events shall occur:
[(d) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b 2 of the General Rules and Regulations
under the Exchange Act.] (i) The Company is merged, consolidated or
reorganized into or with another corporation or other legal person, and
immediately after such merger, consolidation or reorganization less than a
majority of the combined voting power of the then-outstanding securities of
such corporation or person immediately after such transaction are held in
the aggregate by the holders of Voting Stock (as that term is hereafter
defined) of the Company immediately prior to such transaction;
[(e) "Continuing Direct" means a member of the Board of Directors of
the Company who either was a member of the Board of Directors of the
Company on the effective date of this Plan or who subsequently became a
director of the Company and whose initial election or initial nomination.]
(ii) The Company sells all or substantially all of its assets to any other
corporation or other legal person, less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such sale are held in the aggregate by the holders
of Voting Stock of the Company immediately prior to such sale;
(iii) There is a report filed or required to be filed on Schedule 13D
on Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner, is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing 20% or more of the combined voting
power of the then-outstanding securities entitled to vote generally in the
election of directors of the Company ("Voting Stock");
(iv) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors of the Company
cease for any reason to constitute at least a majority thereof, provided,
however, that for purposes of this clause (v), each Director who is first
elected, or first nominated for election by the Company's [shareholders
subsequent to such date was approved by a vote of a majority of the
Continuing Directors then on] stockholders by a vote of at least two-thirds
of the Directors of the Company (or a committee thereof) then still in
office who were Directors of the Company at the beginning of any such
period will be deemed to have been a Director of the Company at the
beginning of such period.
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Notwithstanding the foregoing provisions of Section 16(b)(iii) or (iv)
hereof, unless otherwise determined in a specific case by majority vote of the
Board of Directors of the Company (the "Board"), a "Change in Control" shall
not be deemed to have occurred for purposes of the Plan solely because (i) the
Company, (ii) an entity in which the Company directly or indirectly beneficially
owns 50% or more of the voting securities or interest (a "Subsidiary"), or (iii)
any Company-sponsored employee stock ownership plan or any other employee
benefit plan of the Company, either files or becomes obligated to file a report
or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
8-K or Schedule 14A (or any successor schedule, form or report or item therein)
under the Exchange Act, disclosing beneficial ownership by it of shares of
Voting Stock, whether in excess of 20% or otherwise, or because the Company
reports that a change in control of the Company has or may have occurred or will
or may occur in the future by reason of such beneficial ownership.
17. NOTICE
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Chief Financial Officer or to the Chief Executive
Officer of the Company, and shall become effective when it is received by the
office of the Chief Financial Officer or the Chief Executive Officer.
18. UNFUNDED PLAN
Insofar as it provides for Awards of cash and Common Shares, the Plan shall
be unfunded. Although bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Common Shares or rights hereto under the
Plan, any such accounts shall be used merely as a bookkeeping convenience. The
Company shall not be required to segregate any assets that may at any time be
represented by cash, Common Shares or rights thereto, nor shall the Plan be
construed as providing for such segregation, nor shall the Company nor the Board
nor the Committee be deemed to be a trustee of any cash, Common Shares or rights
thereto to be granted under the Plan. Any liability of the Company to any
Participant with respect to a grant of cash, Common Shares or rights thereto
under the Plan shall be based solely upon any contractual obligations that may
be created by the Plan and any Award Agreement; no such obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by the Plan.
19. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto, to
the extent no otherwise governed by the Code or the securities laws of the
Untied States, shall be governed by the law of the State of Ohio and construed
accordingly.
20. RIGHTS OF EMPLOYEES
Nothing in the Plan shall interfere with or limit in any way the right of
the Company or any subsidiary to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continued employment with the
Corporation or any subsidiary.
21. STATUS OF AWARDS
Awards hereunder shall not be deemed compensation for purposes of computing
benefits under any retirement plan of the Company and shall not affect any
benefits under any other benefit plan now or hereafter in effect under which the
availability or amount of benefits is related to the level of compensation.
22. EFFECTIVE AND TERMINATION DATES
The Plan shall become effective on the date it is approved by the holders
of a majority of the Common Shares then outstanding. The Plan shall continue in
effect until terminated by the Board pursuant to Section 11.
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PROXY
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. C. Dannemiller, J. R. Whitten and R. C.
Stinson and each of them, as Proxies, with full power of substitution, to
attend the Annual Meeting of Shareholders of Applied Industrial Technologies,
Inc., an Ohio corporation, on October 21, 1997, and any adjournments, and to
represent and vote the shares which the undersigned is entitled to vote thereat
on the following matters as directed on the reverse side: (The Board of
Directors recommends a vote FOR Items 1, 2, 3, 4 and 5.)
<TABLE>
<S> <C>
1. Election of Directors of Class I
(for a term of 3 years). The nominees are:
John C. Dannemiller, J. Michael Moore,
John C. Robinson and Dr. Jerry Sue Thornton.
2. Amendment of the Articles of Incorporation (change of address)
to increase the number of authorized shares
of Common Stock to 50,000,000. ----------------------------------------------
3. Amendment of the Code of Regulations to
delete a provision fixing the time of ----------------------------------------------
day at which the Annual Meeting of
Shareholders is to be held.
----------------------------------------------
4. Amendment of the 1990 Long-Term Performance Plan.
5. Ratification of the appointment of Deloitte ----------------------------------------------
& Touche LLP as independent auditors of the (If you have written in the above space, please
current fiscal year. mark the corresponding oval on the reverse side
of this card.)
6. In their discretion, the Proxies are authorized
to vote on such other business as may properly
come before the meeting.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON [SEE REVERSE]
THE REVERSE SIDE OF THIS CARD; IF NO DIRECTION IS MADE, THIS PROXY WILL BE [ SIDE ]
VOTED FOR ITEMS 1, 2, 3, 4 AND 5.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
3617-APPLIED INDUSTRIAL TECHNOLOGIES, INC.-PROXY
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For Withhold For Against Abstain
1. Election of Directors of Class I- All All For All 3. Amendment of Code of Regulations [ ] [ ] [ ]
(see reverse) Nominees Nominees Except* to delete provision regarding
[ ] [ ] [ ] time of day of Annual Meeting.
---------------------------------
*Except nominee(s) written above
For Against Abstain
2. Amendment of Articles of [ ] [ ] [ ] 4. Amendment of 1990 Long-Term
Incorporation to increase number of Performance Plan. [ ] [ ] [ ]
authorized shares of Common Stock.
5. Ratification of appointment of [ ] [ ] [ ]
independent auditors.
Change of Address [ ]
Dated: , 1997
-----------------------------
Signature(s)
-----------------------------
-----------------------------------------
NOTE: Please sign exactly as your name
appears on this card.
- -----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
3617--Applied Industrial Technologies, Inc. (Common Page)
</TABLE>
<PAGE> 31
CONFIDENTIAL VOTING INSTRUCTIONS
TO: KEY TRUST COMPANY OF OHIO, N.A., TRUSTEE (THE "TRUSTEE") FOR
APPLIED INDUSTRIAL TECHNOLOGIES, INC. SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
(THE "PLAN")
I, the undersigned, as a Participant in the Plan hereby instruct the Trustee to
vote (in person or by proxy) all shares of Common Stock of Applied Industrial
Technologies, Inc. allocated to my account under the Plan on the record date
for the Annual Meeting of Shareholders to be held on October 21, 1997.
(The Board of Directors recommends a vote FOR
Items 1, 2, 3, 4 and 5.)
1. Election of Directors of Class I (for a
term of 3 years). The nominees are:
John C. Dannemiller, J. Michael Moore,
John C. Robinson and Dr. Jerry Sue Thornton. (change of address)
2. Amendment of the Articles of Incorporation ____________________________
to increase the number of authorized shares
of Common Stock to 50,000,000. ____________________________
____________________________
3. Amendment of the Code of Regulations to
delete a provision fixing the time of day ____________________________
at which the Annual Meeting of Shareholders (If you have written in the
is to be held. above space, please mark the
corresponding oval on the
4. Amendment of the 1990 Long-Term reverse side of this card.)
Performance Plan.
5. Ratification of the appointment of Deloitte & [ SEE REVERSE ]
Touche LLP as independent auditors for the [ SIDE ]
current fiscal year.
6. In its discretion, the Trustee is authorized
to vote on such other business as may properly
come before this meeting.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE ON THIS CARD; IF NO DIRECTION IS MADE, THIS CARD WILL BE
VOTED FOR ITEMS 1, 2, 3, 4 AND 5.
- --------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
3618--APPLIED INDUSTRIAL TECHNOLOGIES, INC.--
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For Withhold For Against Abstain
1. Election of Directors of Class I- All All For All 3. Amendment of Code of Regulations [ ] [ ] [ ]
(see reverse) Nominees Nominees Except* to delete provision regarding
[ ] [ ] [ ] time of day of Annual Meeting.
---------------------------------
*Except nominee(s) written above
For Against Abstain
2. Amendment of Articles of [ ] [ ] [ ] 4. Amendment of 1990 Long-Term
Incorporation to increase number of Performance Plan. [ ] [ ] [ ]
authorized shares of Common Stock.
5. Ratification of appointment of [ ] [ ] [ ]
independent auditors.
Change of Address [ ]
Dated: , 1997
-----------------------------
Signature(s)
-----------------------------
-----------------------------------------
NOTE: Please sign exactly as your name
appears on this card.
- -----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
3617--Applied Industrial Technologies, Inc. (Common Page)
</TABLE>
<PAGE> 33
CONFIDENTIAL VOTING INSTRUCTIONS
TO: KEY TRUST COMPANY OF OHIO, N.A., TRUSTEE (THE "TRUSTEE") FOR
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN (THE "PLAN")
I, the undersigned, as a Participant in the Plan hereby instruct the Trustee to
vote (in person or by proxy) all shares of Common Stock of Applied Industrial
Technologies, Inc. allocated to my account and any shares not otherwise
directed under the Plan on the record date for the Annual Meeting of
Shareholders to be held on October 21, 1997.
(The Board of Directors recommends a vote FOR
Items 1, 2, 3, 4 and 5.)
1. Election of Directors of Class I (for a
term of 3 years). The nominees are:
John C. Dannemiller, J. Michael Moore,
John C. Robinson and Dr. Jerry Sue Thornton. (change of address)
2. Amendment of the Articles of Incorporation ____________________________
to increase the number of authorized shares
of Common Stock to 50,000,000. ____________________________
____________________________
3. Amendment of the Code of Regulations to
delete a provision fixing the time of day ____________________________
at which the Annual Meeting of Shareholders (If you have written in the
is to be held. above space, please mark the
corresponding oval on the
4. Amendment of the 1990 Long-Term reverse side of this card.)
Performance Plan.
5. Ratification of the appointment of Deloitte & [ SEE REVERSE ]
Touche LLP as independent auditors for the [ SIDE ]
current fiscal year.
6. In its discretion, the Trustee is authorized
to vote on such other business as may properly
come before this meeting.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE ON THIS CARD; IF NO DIRECTION IS MADE, THIS CARD WILL BE
VOTED FOR ITEMS 1, 2, 3, 4 AND 5.
- --------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
3619--APPLIED INDUSTRIAL TECHNOLOGIES, INC.--RETIREMENT SAVINGS PLAN
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For Withhold For Against Abstain
1. Election of Directors of Class I- All All For All 3. Amendment of Code of Regulations [ ] [ ] [ ]
(see reverse) Nominees Nominees Except* to delete provision regarding
[ ] [ ] [ ] time of day of Annual Meeting.
---------------------------------
*Except nominee(s) written above
For Against Abstain
2. Amendment of Articles of [ ] [ ] [ ] 4. Amendment of 1990 Long-Term
Incorporation to increase number of Performance Plan. [ ] [ ] [ ]
authorized shares of Common Stock.
5. Ratification of appointment of [ ] [ ] [ ]
independent auditors.
Change of Address [ ]
Dated: , 1997
-----------------------------
Signature(s)
-----------------------------
-----------------------------------------
NOTE: Please sign exactly as your name
appears on this card.
- -----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
3617--Applied Industrial Technologies, Inc. (Common Page)
</TABLE>
