<PAGE> 1
FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997.
---------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-2299
------
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0117420
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Applied Plaza, Cleveland, Ohio 44115
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 426-4000
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Shares of common stock outstanding on October 31, 1997 21,868,806
-----------------------------------------
(No par Value)
<PAGE> 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
-------------------------------------
INDEX
- --------------------------------------------------------------------------
Page No.
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Statements of Consolidated Income - 2
Three Months
Ended September 30, 1997 and 1996
Consolidated Balance Sheets - 3
September 30, 1997 and June 30, 1997
Statements of Consolidated Cash Flows 4
Three Months Ended September 30, 1997 and 1996
Statements of Consolidated Shareholders' Equity - 5
Three Months Ended September 30, 1997 and
Year Ended June 30, 1997
Notes to Consolidated Financial Statements 6 - 8
Item 2: Management's Discussion and Analysis of 9 - 12
Financial Condition and Results of Operations
Part II: OTHER INFORMATION 13
Item 1: Legal Proceedings 13
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 15
Cautionary Statement Under Private Securities 17
Litigation Reform Act of 1995
Signatures 18
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: Financial Statements
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30
1997 1996
--------- ---------
<S> <C> <C>
Net Sales $ 344,726 $ 282,249
--------- ---------
Cost and Expenses
Cost of sales 256,426 208,775
Selling, distribution and
administrative 78,492 62,749
--------- ---------
334,918 271,524
--------- ---------
Operating Income 9,808 10,725
--------- ---------
Interest
Interest expense 2,464 1,561
Interest income (278) (318)
--------- ---------
2,186 1,243
--------- ---------
Income Before Income Taxes 7,622 9,482
--------- ---------
Income Taxes
Federal 2,730 3,255
State and local 395 822
--------- ---------
3,125 4,077
--------- ---------
Net Income $ 4,497 $ 5,405
========= =========
Net Income per share $ 0.22 $ 0.29
========= =========
Cash dividends per common
share $ 0.11 $ 0.09
========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
--------- ---------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and temporary investments $ 13,292 $ 22,405
Accounts receivable, less allowance
of $3,259 and $2,400 186,622 153,080
Inventories (at LIFO) 167,962 103,069
Other current assets 18,647 6,905
--------- ---------
Total current assets 386,523 285,459
--------- ---------
Property - at cost
Land 13,340 12,281
Buildings 73,158 66,157
Equipment 87,898 81,132
--------- ---------
174,396 159,570
Less accumulated depreciation 70,778 68,809
--------- ---------
Property - net 103,618 90,761
--------- ---------
Goodwill 46,857 5,604
Other assets 16,727 12,290
--------- ---------
TOTAL ASSETS $ 553,725 $ 394,114
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 41,711 $ 25,415
Current portion of long-term debt 11,505 11,429
Accounts payable 92,407 49,469
Compensation and related benefits 26,268 19,025
Other accrued liabilities 27,197 15,398
--------- ---------
Total current liabilities 199,088 120,736
Long-term debt 59,999 51,428
Other liabilities 28,790 14,366
--------- ---------
TOTAL LIABILITIES 287,877 186,530
--------- ---------
Shareholders' Equity
Preferred Stock - no par value; 2,500
shares authorized; none issued or
outstanding
Common stock - no par value; 30,000
shares authorized; 24,095 and 20,931 shares issued 10,000 10,000
Additional paid-in capital 78,926 10,311
Income retained for use in the business 218,782 216,642
Less 2,256 and 2,366 treasury shares -
at cost (27,420) (22,983)
Less shares held in trust for
deferred compensation plans (8,484) (5,436)
Less unearned restricted common
stock compensation (5,956) (950)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 265,848 207,584
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 553,725 $ 394,114
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30
----------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 4,497 $ 5,405
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation 3,995 3,418
Provision for losses on accounts receivable 447 524
Gain on sale of property (99) (113)
Amortization of restricted common stock
compensation and goodwill 1,289 184
Treasury shares contributed to employee
benefit plans 1,898 1,404
Changes in current assets and liabilities, net of
effects from acquisition and disposal of
businesses:
Accounts receivable 6,336 11,301
Inventories (14,768) (8,238)
Other current assets 1,644 (192)
Accounts payable and accrued expenses 12,782 (2,061)
Other - net 506 768
- ------------------------------------------------------------------------------------------------------
Net Cash provided by Operating Activities 18,527 12,400
- ------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property purchases (6,034) (3,736)
Proceeds from property sales 180 1,222
Net cash paid for acquisition of businesses (27,815)
Proceeds from sale of Aircraft Division 9,090
Deposits and other (494) 1,064
- ------------------------------------------------------------------------------------------------------
Net Cash provided by (used in) Investing Activities (34,163) 7,640
- ------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net borrowings (repayments) under
Line-of-credit agreements 16,296 (13,486)
Exercise of stock options 374 198
Dividends paid (2,357) (1,734)
Purchase of treasury shares (7,790) (120)
- ------------------------------------------------------------------------------------------------------
Net Cash provided by (used in) Financing Activities 6,523 (15,142)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and temporary investments (9,113) 4,898
Cash and temporary investments
at beginning of period 22,405 9,243
- ------------------------------------------------------------------------------------------------------
Cash and Temporary Investments
at End of Period $ 13,292 $ 14,141
======================================================================================================
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $ 96 $ 701
Interest $ 2,376 $ 1,637
Significant noncash investing activity:
Issuance of common stock for the acquisition of Invetech Company $ 63,374
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
APPLIED INDUSTIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
-----------------------------------------------------
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
For the Three Months Ended September 30, 1997 (Unaudited)
and Year Ended June 30, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Income
Shares of Additional Retained Treasury
Common Stock Common Paid-in for Use in Shares
Outstanding Stock Capital the Business - at Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1996 18,566 $10,000 $7,528 $197,232 ($21,260)
Net income 27,092
Cash dividends - $.41 per share (7,682)
Purchase of common stock
for treasury (249) (4,568)
Treasury shares issued for:
Retirement Savings Plan contributions 164 1,809 1,568
Exercise of stock options 78 342 747
Deferred compensation plans 53 532 463
Restricted common stock awards 9 68 67
Amortization of restricted common
stock compensation 32
Increase in fair value of shares
held in trust
- -------------------------------------------------------------------------------------------------
Balance at June 30, 1997 18,621 10,000 10,311 216,642 (22,983)
Net income 4,497
Cash dividends - $.11 per share (2,357)
Purchase of common stock
for treasury (276) (7,790)
Issuance of common stock for the
acquisition of Invetech Company 3,165 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 62 1,224 674
Exercise of stock options 35 19 355
Deferred compensation plans 20 322 184
Restricted common stock awards 212 3,676 2,140
Amortization of restricted common
stock compensation
Increase in fair value of shares
held in trust
- -------------------------------------------------------------------------------------------------
Balance at September 30, 1997 21,839 $10,000 $78,926 $218,782 ($27,420)
=================================================================================================
<CAPTION>
Shares Held in Unearned
Trust for Restricted Total
Deferred Common Stock Shareholders'
Compensation Plans Compensation Equity
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at July 1, 1996 ($3,008) ($1,200) $189,292
Net income 27,092
Cash dividends - $.41 per share (7,682)
Purchase of common stock
for treasury (4,568)
Treasury shares issued for:
Retirement Savings Plan contributions 3,377
Exercise of stock options 1,089
Deferred compensation plans (995)
Restricted common stock awards (135)
Amortization of restricted common
stock compensation 385 417
Increase in fair value of shares
held in trust (1,433) (1,433)
- --------------------------------------------------------------------------------------------
Balance at June 30, 1997 (5,436) (950) 207,584
Net income 4,497
Cash dividends - $.11 per share (2,357)
Purchase of common stock
for treasury (7,790)
Issuance of common stock for the
acquisition of Invetech Company 63,374
Treasury shares issued for:
Retirement Savings Plan contributions 1,898
Exercise of stock options 374
Deferred compensation plans (506)
Restricted common stock awards (5,816)
Amortization of restricted common
stock compensation 810 810
Increase in fair value of shares
held in trust (2,542) (2,542)
- --------------------------------------------------------------------------------------------
Balance at September 30, 1997 ($8,484) ($5,956) $265,848
============================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 7
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position as of September 30, 1997 and June 30, 1997, and the results of
operations for the three months ended September 30, 1997 and 1996, and
cash flows for the three months ended September 30, 1997 and 1996.
The results of operations for the three month period ended September
30, 1997 are not necessarily indicative of the results to be expected
for the fiscal year.
Cost of sales for interim financial statements are computed using
estimated gross profit percentages which are adjusted throughout the
year based upon available information. Adjustments to actual cost are
made based on the annual physical inventory and the effect of year-end
inventory quantities on LIFO costs.
2. NET INCOME PER SHARE
Net income per share was computed using the weighted average number of
common shares outstanding for the period.
All share and per share data has been restated to reflect a three for
two stock split effective September 15, 1997.
Average shares outstanding for the computation of net income per share
were 20,843 and 18,609 for the three months ended September 30, 1997
and 1996, respectively.
3. BUSINESS COMBINATIONS
Effective August 1, 1997, the Company completed the acquisition of
Invetech Company (Invetech), a distributor of bearings, mechanical and
electrical drive system products, industrial rubber products and
specialty maintenance and repair products. The aggregate purchase price
including the issuance of 2,110 shares of Company common stock, was
$93,900. The cash portion of the purchase price of $23,400 was financed
through available short-term lines of credit.
6
<PAGE> 8
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
The Company accounted for the acquisition as a purchase and has
included Invetech's results of operations from the effective date of
the acquisition. The Company incurred a pre-tax nonrecurring charge of
$4,000 in the quarter ending September 30, 1997 for consolidation
expenses and costs associated with disposal of duplicative property and
other assets. The purchase price was allocated based on estimated fair
values at the date of acquisition. Goodwill representing the excess of
the purchase price over assets acquired of $35,840 is being amortized
on a straight-line basis over 30 years.
The following table summarizes the unaudited consolidated pro forma
results of operations, as if the acquisition had occurred at the
beginning of the following periods:
<TABLE>
<CAPTION>
Three Months Ended September 30
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Net sales $369,865 $360,755
Income before income taxes 6,707 11,180
Net income 3,948 6,716
Net income per share .18 .31
</TABLE>
The unaudited pro forma amounts include the pre-tax nonrecurring charge
of $4,000 for the three months ended September 30, 1997.
This pro forma information is not necessarily indicative of the results
that actually would have been obtained if the operations had been
combined during the periods presented and is not intended to be a
projection of future results.
On August 29, 1997 the Company acquired certain assets of Midwest
Rubber and Supply Company, a rubber fabrication and repair shop for
$2,377 in cash. The Company accounted for the acquisition as a purchase
and has included their results of operations in the accompanying
consolidated financial statements from the acquisition date. Results of
operations are not material for all periods presented. Goodwill
recognized in connection with the acquisition is being amortized over
15 years.
4. LONG-TERM DEBT
In connection with the Invetech acquisition, the Company assumed an
$8,000 bank term loan, at an interest rate of 5.97%, payable in
December, 1998.
7
<PAGE> 9
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands) (Unaudited)
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
On October 21, 1997 the Board of Directors declared a quarterly
dividend of $.12 per share payable November 28, 1997 to shareholders of
record on November 14, 1997.
At the annual meeting on October 21, 1997 the shareholders of the
Company voted to increase the number of authorized shares of common
stock from 30,000 to 50,000.
8
<PAGE> 10
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's: (1) financial condition at September
30, 1997 and June 30, 1997, and (2) results of operations during the periods
included in the accompanying statements of Consolidated Income and Consolidated
Cash Flows.
FINANCIAL CONDITION
Liquidity and Working Capital
- -----------------------------
Cash provided by operating activities was $18.5 million in the three months
ended September 30, 1997. This compares to $12.4 million provided by operating
activities in the same period a year ago.
Cash flow from operations depends primarily upon generating operating income and
controlling the investment in inventory and receivables, and managing the timing
of payments to suppliers. The company has continuing programs to monitor and
control these investments. During the three month period ended September 30,
1997 inventories (excluding inventories purchased with the acquisition of
Invetech and Midwest Rubber) increased approximately $14.8 million due to timing
of purchases. Accounts receivable decreased by $6.3 million due to improved
collections.
Investments in property totaled $6.0 million and $3.7 million in the three
months ended September 30, 1997 and 1996 respectively. These capital
expenditures were primarily made for building and upgrading branch and
distribution center facilities, and acquiring data processing equipment and
vehicles.
Working capital at September 30, 1997 was $187.4 million compared to $164.7
million at June 30, 1997. This increase is primarily due to an increase in cash
provided from operations, and the integration of the acquisitions of Invetech
and Midwest Rubber.
Capital Resources
- -----------------
Capital resources are obtained from income retained in the business,
indebtedness under the Company's lines of credit and long-term debt agreements,
and operating lease arrangements.
9
<PAGE> 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Average combined short-term and long-term borrowing was $100.0 million for the
three months ended September 30, 1997 and $89.4 million during the year ended
June 30, 1997. The average effective interest rate on the short-term borrowings
for the three months ended September 30, 1997 decreased to 6.2% from an average
rate of 6.6% for the three months ended September 30, 1996 due to lower interest
rates on short-term debt. The Company has $155 million of short-term lines of
credit with commercial banks which provide for payment of interest at various
interest rate options, none of which are in excess of the banks' prime rate. The
Company has an agreement with the Prudential Insurance Company of America for an
uncommitted shelf facility to borrow up to $50 million in additional long-term
financing, at its sole discretion, with terms ranging from seven to twenty
years. The Company had $41.7 million of borrowings outstanding under short-term
bank lines of credit and none under the shelf facility agreement at September
30, 1997. Unused lines of credit totaling $113.3 million are available for
future short-term financing needs.
The Board of Directors has authorized an ongoing program to purchase shares of
the Company's common stock to fund employee benefit programs and stock option
and award programs. These purchases are made in open market and negotiated
transactions, from time to time, depending upon market conditions. The Company
acquired 276,000 shares of its common stock for $7.8 million during the three
months ended September 30, 1997.
Management expects that capital resources provided from operations, available
lines of credit and long-term debt and operating leases will be sufficient to
finance normal working capital needs, business acquisitions, enhancement of
facilities and equipment and the purchase of additional Company common stock.
Management also believes that additional long-term debt and line of credit
financing could be obtained if desired.
10
<PAGE> 12
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
A summary of the period-to-period changes in principal items included in the
statements of consolidated income follows:
<TABLE>
<CAPTION>
Increase (Decrease)
(Dollars in Thousands)
Three Months Ended
September 30
1997 and 1996
Amount Change
------ ------
<S> <C> <C>
Net sales $ 62,477 22.1%
Cost of sales 47,651 22.8%
Selling,distribution and
administrative expenses 15,743 25.1%
Operating income (917) (8.6)%
Interest expense - net 943 75.9%
Income before income taxes (1,860) (19.6)%
Income taxes (952) (23.4)%
Net income (908) (16.8)%
</TABLE>
Three Months Ended September 30, 1997 and 1996
- ----------------------------------------------
The Company acquired Invetech effective August 1, 1997. Invetech's operations
were consolidated with those of the Company as of the acquisition date. The
increase in net sales, cost of sales and selling, distribution and
administrative expenses from the prior year relate primarily to the operations
of Invetech. During the quarter ended September 30, 1997, the Company incurred a
pre-tax nonrecurring charge of $4,000 included in selling, distribution and
administrative expenses for consolidation expenses and costs associated with
disposal of duplicative property and other assets related to the Invetech
acquisition.
11
<PAGE> 13
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Interest expense-net for the quarter increased by 75.9% primarily as a result of
an increase in average borrowings related to the Invetech acquisition.
Income taxes as a percentage of income before taxes were 41.0% in the three
months ended September 30, 1997 and 43.0% in the three months ended September
30, 1996. The decrease is primarily attributed to tax savings from lower
effective state and local income tax rates.
As a result of the above factors, net income decreased by 16.8% compared to the
same quarter of last year.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
------------------
(a) The Company incorporates by reference herein the description of the
case captioned In RE: ROBERT LEE BICKHAM, ET AL. V. METROPOLITAN LIFE
INS. CO., ET AL., 22nd Judicial District Court for the Parish of
Washington, State of Louisiana, Case No. 70,760-E; and two related
cases pending in the same court -- IDA MAE WILLIAMS, ET AL. V.
METROPOLITAN LIFE INS. CO., ET AL., Case No. 72,986-F and BENNIE L.
ADAMS, ET AL. V. METROPOLITAN LIFE INS. CO., ET AL., Case No. 72,154-B,
-- found in Item 3 "Pending Legal Proceedings" contained in the
Company's Form 10-K for the fiscal year ended June 30, 1997. In
November 1997, the Company was dismissed without prejudice from all of
these cases.
(b) The Company also incorporates by reference herein the description of
the case captioned KING BEARING, INC. V. CARYL EDMUND ORANGES, ET AL.,
Superior Court of the State of California, County of Orange, Case No.
53-42-31 found in Item 3 "Pending Legal Proceedings" contained in the
Company's Form 10-K for the fiscal year ended June 30, 1997. The
Company believes that this case will have no material adverse effect on
its business or financial condition.
(c) Applied Industrial Technologies, Inc. and/or one of its subsidiaries is
a defendant in several product-related lawsuits. Based on circumstances
presently known, the Company believes that these cases are not material
to its business or financial condition.
ITEM 5. Other Information.
------------------
(a) Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
At the Annual Meeting of Shareholders of the Company held on October
21, 1997, there were 14,680,016 shares of common stock entitled to
vote. The Shareholders voted on the matters submitted to the meeting as
follows:
1. Election of four persons to be directors of Class I
for a term of three years:
For Withheld
--- --------
John C. Dannemiller 12,268,090 172,938
J. Michael Moore 12,138,287 302,741
John C. Robinson 12,268,388 172,640
Dr. Jerry Sue Thornton 12,137,306 303,722
13
<PAGE> 15
Directors of Class II, consisting of William G.
Bares, Roger D. Blackwell, Russel B. Every and John
J. Kahl, serve until the expiration of their term of
office in 1998 and Directors of Class III, consisting
of William E. Butler, Russell R. Gifford and L.
Thomas Hiltz, serve until the expiration of their
term of office in 1999. The Board of Directors had
previously increased the authorized number of
Directors constituting the entire Board from 10 to
11.
2. Amendment of the Company's Amended and Restated
Articles of Incorporation to increase the number of
authorized shares of Common Stock from 30,000,000 to
50,000,000.
For Withheld Abstain
--- -------- -------
11,977,740 440,373 22,915
3. 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.
For Withheld Abstain
--- -------- -------
11,117,284 1,266,991 56,753
4. Ratification of the appointment by management of
Deloitte & Touche LLP as independent auditors of the
Company for the fiscal year ending June 30, 1998.
For Withheld Abstain
--- -------- -------
12,410,441 8,388 22,199
Discretionary voting was authorized as to all matters
submitted. There were no broker non-votes.
(b) Election of Officers.
---------------------
At its Organizational Meeting held on October 21, 1997, the Board of
Directors elected the following officers of the Company:
John C. Dannemiller Chairman, Chief Executive Officer & President
John C. Robinson Vice Chairman
14
<PAGE> 16
Mark O. Eisele Vice President & Controller
James T. Hopper Vice President-Information Systems
Francis A. Martins Vice President-Sales & Field Operations
Bill L. Purser Vice President-Marketing &
National Accounts
Jeffrey A. Ramras Vice President-Logistics
Richard C. Shaw Vice President-Communications,
Organizational Learning &
Quality Standards
Robert C. Stinson Vice President-Chief Administrative Officer,
General Counsel & Secretary
John R. Whitten Vice President-Chief Financial Officer &
Treasurer
Fred D. Bauer Assistant Secretary
Jody A. Chabowski Assistant Controller
Michael L. Coticchia Assistant Secretary
Alan M. Krupa Assistant Treasurer
(c) 3-for-2 Stock Split.
--------------------
On August 15, 1997, the Company's Board of Directors approved a
three-for-two stock split payable on September 15, 1997 to shareholders
of record on August 29, 1997.
(d) Acquisition of INVETECH Company.
--------------------------------
As reported in the Company's Form 8-K filed on August 14, 1997, the
Company completed the acquisition, through merger, on July 31, 1997, of
INVETECH Company ("Invetech"), a Michigan corporation. In connection
with the merger, all of the outstanding common stock of Invetech was
exchanged for aggregate stock and cash consideration of 2,109,550
shares of Company Common Stock, without par value, and $23,444,996.
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
Exhibit No. Description
4(a) Amended and Restated Articles of Incorporation
of Applied Industrial Technologies, Inc. (filed
as Exhibit 3(a) to the Company's Registration
Statement on Form S-4 filed May 23,
15
<PAGE> 17
1997, Registration No. 333-27801, and
incorporated here by reference).
4(b) Code of Regulations of Applied Industrial
Technologies, Inc. adopted September 6, 1988
(filed as Exhibit 3(b) to the Company's
Registration Statement on Form S-4 filed May
23, 1997, Registration No. 333-27801, and
incorporated here by reference).
4(c) Certificate of Merger of Bearings, Inc. (Ohio)
and Bearings, Inc. (Delaware) filed with the
Ohio Secretary of State on October 18, 1988,
including an Agreement and Plan of
Reorganization dated September 6, 1988 (filed
as Exhibit 4(a) to the Company's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated
here by reference).
4(d) $80,000,000 Maximum Aggregate Principal Amount
Note Purchase and Private Shelf Facility dated
October 31, 1992 between the Company and The
Prudential Insurance Company of America (filed
as Exhibit 4(b) to the Company's Registration
Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated
here by reference).
4(e) Amendment to $80,000,000 Maximum Aggregate
Principal Amount Note Purchase and Private
Shelf Facility dated October 31, 1992 between
the Company and The Prudential Insurance
Company of America (filed as Exhibit 4(g) to
the Company's Form 10-Q for the quarter ended
March 31, 1996, SEC File No. 1-2299, and
incorporated here by reference).
10(a) Supplemental Executive Retirement Benefits Plan
covering all of the Company's executive
officers (July 1, 1997 Restatement).
10(b) Salary Continuation Agreement between J.
Michael Moore and INVETECH Company dated March
28, 1991.
10(c) Consulting, Noncompetition and Confidentiality
Agreement between Oak Grove Consulting Group,
Inc., J. Michael Moore and the Company dated
July 31, 1997.
16
<PAGE> 18
11 Computation of Net Income Per Share.
27 Financial Data Schedule.
(b) The Company filed a report on Form 8-K with the Securities and
Exchange Commission on August 14, 1997 with respect to the
Company's acquisition, through merger, of Invetech. The
financial statements filed with the Form 8-K were incorporated
by reference from the Company's Registration Statement on Form
S-4 (File No. 333-27801), effective July 22, 1997, and are
listed therein.
Cautionary Statement under Private Securities Litigation Reform Act of 1995
- ---------------------------------------------------------------------------
This report, including Part I, Item 2 -- Management's
Discussion and Analysis, may contain statements that are forward-looking, as
that term is defined by the Private Securities Litigation Reform Act of 1995 or
by the Securities and Exchange Commission in its rules, regulations and
releases. The Company intends that such forward-looking statements be subject to
the safe harbors created thereby. All forward-looking statements are based on
current expectations regarding important risk factors. Accordingly, actual
results may differ materially from those expressed in the forward-looking
statements, and the making of such statements should not be regarded as a
representation by the Company or any other person that the results expressed
therein will be achieved.
Important risk factors include, but are not limited to, the
following: changes in the economy; changes in customer procurement policies and
practices; changes in product manufacturer sales policies and practices; the
availability of product; changes in operating expenses; the effect of price
increases; the variability and timing of business opportunities including
acquisitions, customer agreements, supplier authorizations and other business
strategies; the Company's ability to realize the anticipated benefits of
acquisitions; the incurrence of additional debt and contingent liabilities in
connection with acquisitions; changes in accounting policies and practices; the
effect of organizational changes within the Company; adverse results in
significant litigation matters; adverse state and federal regulation and
legislation; and the occurrence of extraordinary events (including prolonged
labor disputes, natural events and acts of God, fires, floods and accidents).
17
<PAGE> 19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Company)
Date: November 13, 1997 By: /s/ John C. Dannemiller
-------------------------------
John C. Dannemiller
Chairman, Chief Executive
Officer & President
Date: November 13, 1997 By: /s/ John R. Whitten
-------------------------------
John R. Whitten
Vice President-Chief Financial
Officer & Treasurer
18
<PAGE> 20
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
EXHIBIT INDEX
TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
EXHIBIT NO. DESCRIPTION PAGE
4(a) Amended and Restated Articles of Incorporation of
Applied Industrial Technologies, Inc. (filed as
Exhibit 3(a) to the Company's Registration Statement
on Form S-4 filed May 23, 1997, Registration No.
333-27801, and incorporated here by reference).
4(b) Code of Regulations of Applied Industrial
Technologies, Inc., adopted September 6, 1988 (filed
as Exhibit 3(b) to the Company's Registration
Statement on Form S-4 filed May 23, 1997, Registration
No. 333-27801, and incorporated here by reference).
4(c) Certificate of Merger of Bearings, Inc. (Ohio) and
Bearings, Inc. (Delaware) filed with the Ohio
Secretary of State on October 18, 1988, including an
Agreement and Plan of Reorganization dated September
6, 1988 (filed as Exhibit 4(a) to the Company's
Registration Statement on Form S-4 filed May 23, 1997,
Registration No. 333-27801, and incorporated here by
reference).
4(d) $80,000,000 Maximum Aggregate Principal Amount Note
Purchase and Private Shelf Facility dated October 31,
1992 between the Company and The Prudential Insurance
Company of America (filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-4 filed May
23, 1997, Registration No. 333-27801, and incorporated
here by reference).
4(e) Amendment to $80,000,000 Maximum Aggregate Principal
Amount Note Purchase and Private Shelf Facility dated
October 31, 1992 between the Company and The
Prudential Insurance Company of America (filed as
Exhibit 4(g) to the Company's Form 10-Q for the
quarter ended March 31, 1996, SEC File No. 1-2299, and
incorporated here by reference).
<PAGE> 21
10(a) Supplemental Executive Retirement Benefits Plan
covering all of the Company's executive officers
(July 1, 1997 Restatement). Attached
10(b) Salary Continuation Agreement between J. Michael
Moore and INVETECH Company dated March 28, 1991. Attached
10(c) Consulting, Noncompetition and Confidentiality
Agreement between Oak Grove Consulting Group, Inc.,
J. Michael Moore and the Company dated July 31,
1997. Attached
11 Computation of Net Income Per Share. Attached
27 Financial Data Schedule. Attached
<PAGE> 1
Exhibit 10(a)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(JULY 1, 1997 RESTATEMENT)
<PAGE> 2
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(JULY 1, 1997 RESTATEMENT)
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
ARTICLE I
DEFINITIONS
1.1 Definitions.........................................................2
1.2 Construction........................................................4
ARTICLE II
PARTICIPATION
2.1 Participants........................................................5
2.2 Designation of Participants.........................................5
ARTICLE III
SUPPLEMENTAL NORMAL RETIREMENT BENEFITS
3.1 Eligibility.........................................................6
3.2 Amount..............................................................6
3.3 Payment.............................................................6
ARTICLE IV
SUPPLEMENTAL EARLY RETIREMENT BENEFITS
4.1 Eligibility.........................................................7
4.2 Amount..............................................................7
4.3 Payment.............................................................7
ARTICLE V
SUPPLEMENTAL DISABILITY BENEFITS
5.1 Eligibility.........................................................8
5.2 Amount..............................................................8
5.3 Payment.............................................................8
5.4 Termination of Supplemental Disability Benefits.....................8
5.5 Medical Examinations................................................8
ARTICLE VI
PAYMENT OF BENEFITS
6.1 Optional Methods of Payment........................................10
6.2 Effect of Various Circumstances Upon an Option.....................11
6.3 Payment Under an Option............................................12
6.4 Cessation of Payments Due to Competition...........................12
6.5 Competition........................................................12
- i -
<PAGE> 3
ARTICLE VII
CHANGE IN CONTROL
7.1 Eligibility for Supplemental Retirement Benefit....................14
7.2 Computation of Benefits Upon a Change of Control...................14
7.3 Payment of Benefits Upon a Change of Control.......................14
ARTICLE VIII
DEATH BENEFITS
8.1 Designation of Beneficiary.........................................15
8.2 Death Benefit......................................................15
ARTICLE IX
ADMINISTRATION
9.1 Authority of the Company...........................................16
9.2 Claims Procedure...................................................16
ARTICLE X
AMENDMENT AND TERMINATION 18
ARTICLE XI
MISCELLANEOUS
11.1 Non-Alienation of Benefits.........................................19
11.2 Payment of Benefits to Others......................................19
11.3 Plan Non-Contractual...............................................19
11.4 Trust..............................................................19
11.5 Interest of a Participant..........................................20
11.6 Claims of Other Persons............................................20
11.7 Actuarial Factors..................................................20
11.8 Severability.......................................................20
11.9 Governing Law......................................................20
- ii -
<PAGE> 4
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(JULY 1, 1997 RESTATEMENT)
WHEREAS, the Bearings, Inc. Supplemental Executive Retirement Benefits
Plan (hereinafter referred to as the "Plan") was established by Bearings, Inc.
on January 21, 1988, for the benefit of certain officers and key executives; and
WHEREAS, the Plan was restated as of July 1, 1993 and was subsequently
amended on one occasion; and
WHEREAS, effective as of January 1, 1997, Bearings, Inc. changed its
name to Applied Industrial Technologies, Inc. (hereinafter referred to as the
"Company") and restructured certain of its operations; and
WHEREAS, the Board of Directors of the Company (hereinafter referred
to as the "Board") has decided to revise certain benefits under the Plan; and
WHEREAS, the Board desires that the Plan be amended and restated to
reflect such name change, corporate restructuring, and benefit changes;
NOW, THEREFORE, effective as of July 1, 1997, unless specifically
provided otherwise, the Bearings, Inc. Supplemental Executive Retirement
Benefits Plan is hereby renamed the Applied Industrial Technologies, Inc.
Supplemental Executive Retirement Benefits Plan and is amended and restated as
hereinafter set forth.
<PAGE> 5
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. For purposes of the Plan, each of the
following words and phrases shall have the meaning hereinafter set forth unless
a different meaning is clearly required by the context:
(1) The term "ACCRUED PORTION" of a Participant's
monthly supplemental normal retirement benefit determined as of any
given date occurring prior to his Normal Retirement Date shall mean the
amount of such Participant's monthly supplemental normal retirement
benefit determined pursuant to the provisions of Section 3.2, based
upon his Highest Monthly Final Average Compensation and years of
Service on such date.
(2) The term "AFFILIATE" shall mean any member of a
controlled group of corporations (as determined under Section 414(b) of
the Code) of which the Company is a member; any member of a group of
trades or businesses under common control (as determined under Section
414(c) of the Code) with the Company; any member of an affiliated
service group (as determined under Section 414(m) of the Code) of which
the Company is a member; and any other entity which is required to be
aggregated with the Company pursuant to the provisions of Section
414(o) of the Code.
(3) The term "AFFILIATED GROUP" shall mean the group
of entities which are Affiliates.
(4) The term "BENEFICIARY" shall mean the person or
persons who is designated by a Participant to receive a death benefit
under the Plan pursuant to the provisions of Article VIII.
(5) The term "BOARD" shall mean the Board of
Directors of the Company.
(6) The term "CHANGE OF CONTROL" shall mean the
occurrence of one of the following events:
(a) The Company is merged, consolidated or
reorganized into or with another entity and,
immediately after such merger, consolidation
or reorganization, the holders of Company
voting stock immediately prior to the
transaction hold, in the aggregate, less
than a majority of the combined voting power
of the then outstanding securities of the
new entity;
(b) The Company sells substantially all of its
assets to another entity and, immediately
after such sale, the holders of Company
voting stock immediately prior to the sale
hold, in the aggregate, less than a majority
of the combined voting power of the then
outstanding securities of the purchaser;
-2-
<PAGE> 6
(c) A report is filed, or is required to be
filed, on Schedule 13D or Schedule 14D-1 (or
any successor form) disclosing that
any "person" has become a "beneficial owner"
(as those terms are defined by the
Securities Exchange Act of 1934) of Company
securities representing 20% or more of the
combined voting power of then outstanding
securities of the Company;
(d) The Company files, or is required to file, a
report or proxy statement with the
Securities and Exchange Commission
disclosing in response to Form 8-K or
Schedule 14A (or any successor form) that a
change in control of the Company has or may
have occurred, or will or may occur in the
future, pursuant to a then-existing contract
or transaction; or
(e) If during any two-year period, the
individuals who comprise all of the members
of the Board cease, for any reason, to
constitute at least three-fourths of the
Board, except in the case in which the
election of a director, or the nomination
for election of a director by shareholders
of the Company, was approved by a two-thirds
vote of the directors then still in office
who were directors at the beginning of such
two-year period; provided, however, that no
director shall be treated as being so
approved, if such director was designated by
an entity that has entered into an agreement
with the Company to effectuate a merger,
consolidation, reorganization, or sale of
Company assets.
Notwithstanding events set forth in subparagraphs (c) and (d) above,
unless otherwise determined by a majority vote of the Board, a Change
of Control shall not be deemed to have occurred solely because (i) the
Company, (ii) an entity of which the Company directly or indirectly
beneficially owns 50% or more of the entity's voting stock, or (iii)
any employee stock ownership plan or any other employee benefit plan
sponsored by the Company, either files or becomes obligated to file a
report or proxy statement in response to Schedules 13D, 14D-1 or 14A,
or Form 8-K (or any successor form), disclosing beneficial ownership by
it of voting stock, whether in excess of 20% or otherwise, or because
the Company reports that a change of control of the Company has or may
have occurred, or will or may occur in the future, by reason of such
beneficial ownership.
(7) The term "CODE" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(8) The term "COMPANY" shall mean, for any period
prior to January 1, 1997, Bearings, Inc., and for any period after
December 31, 1996, Applied Industrial Technologies, Inc., its corporate
successors, and the surviving corporation resulting from any merger of
Applied Industrial Technologies, Inc. with any other corporation or
corporations.
(9) The term "COMPENSATION" shall mean the total
wages which are paid to or on behalf of a Participant during a calendar
year by an Affiliate for services rendered as a common law employee,
including base salary, incentive
-3-
<PAGE> 7
compensation, commissions, bonuses, amounts deferred under any
non-qualified deferred compensation program of an Affiliate, and any
elective contributions that are made on behalf of such Participant
under any plan maintained by an Affiliate and that are not includible
in gross income under Section 125 or 402(e)(3) of the Code, but
excluding moving or educational reimbursement expenses, amounts
realized from the exercise of stock options, and imputed income
attributable to any fringe benefit.
(10) The term "DISABILITY" shall mean the incapacity
of a Participant due to any physical or mental condition which is
incurred while an employee of an Affiliate and which results in the
Participant being unable to perform the duties of his most recent
position with the Affiliated Group and thereafter shall mean such
continued incapacity so that the Participant is prevented from resuming
the duties and responsibilities of his most recent position with the
Affiliated Group or from obtaining a comparable position with another
employer.
(11) The term "HIGHEST MONTHLY FINAL AVERAGE
COMPENSATION" shall mean 1/12th of the average of the Compensation of a
Participant for any three calendar years during the last ten calendar
years of his employment with the Affiliated Group in which the
Participant had the greatest Compensation; provided, however, that if a
Participant did not receive Compensation for at least three calendar
years, his Highest Monthly Final Average Compensation shall be
determined by dividing his average Compensation for the calendar years
in which he was employed by the Affiliated Group by 12.
(12) The term "NORMAL RETIREMENT DATE" shall mean the
date on which a Participant attains 65 years of age.
(13) The term "PARTICIPANT" shall mean a key
executive of the Company designated to participate in the Plan pursuant
to the provisions of Article II of the Plan.
(14) The term "PLAN" shall mean the Applied
Industrial Technologies, Inc. Supplemental Executive Retirement
Benefits Plan (formerly known as the Bearings, Inc. Supplemental
Executive Retirement Benefits Plan) as amended and restated herein
effective as of July 1, 1997, with all amendments, modifications, and
supplements hereafter made.
(15) The term "SERVICE" shall mean the aggregate
period of time that a Participant is employed as an employee by any
Affiliate or for which he is given credit pursuant to Section 2.2.
1.2 CONSTRUCTION. Where necessary or appropriate to the meaning hereof,
the singular shall be deemed to include the plural, the plural to include the
singular, the masculine to include the feminine, and the feminine to include the
masculine.
-4-
<PAGE> 8
ARTICLE II
PARTICIPATION
-------------
2.1 PARTICIPANTS. The Participants in the Plan shall be such
officers and other key executives of the Company designated as Participants from
time to time pursuant to the provisions of Section 2.2.
2.2 DESIGNATION OF PARTICIPANTS. The designation of an
individual as a Participant shall be made by action of the Board or the
Executive Organization & Compensation Committee of the Board. In addition, the
Board or the Executive Organization & Compensation Committee of the Board may,
at the time of any such designation, award Service credit for prior employment,
not in excess of five years, to any individual who becomes a Participant after
July 1, 1997.
-5-
<PAGE> 9
ARTICLE III
SUPPLEMENTAL NORMAL RETIREMENT BENEFITS
---------------------------------------
3.1 ELIGIBILITY. Any Participant who terminates his employment
with the Affiliated Group on or after his Normal Retirement Date shall be
eligible for a monthly supplemental normal retirement benefit determined in
accordance with the provisions of Section 3.2.
3.2 AMOUNT. The monthly supplemental normal retirement benefit
payable to an eligible Participant shall be equal to 45 percent of his Highest
Monthly Final Average Compensation reduced by 1/20th for each full year that his
years of Service are less than 20.
3.3 PAYMENT. Subject to the provisions of Articles VI and VII,
a monthly supplemental normal retirement benefit shall be paid to an eligible
Participant commencing with the month next following the month in which he
becomes eligible and applies for such benefit or, if later, the month he
designates and shall be payable monthly thereafter during his lifetime.
-6-
<PAGE> 10
ARTICLE IV
SUPPLEMENTAL EARLY RETIREMENT BENEFITS
--------------------------------------
4.1 ELIGIBILITY. Any Participant who terminates his employment
with the Affiliated Group after attainment of age 55 and the completion of 10
years of Service but prior to his Normal Retirement Date shall be eligible for a
monthly supplemental early retirement benefit determined in accordance with the
provisions of Section 4.2.
4.2 AMOUNT. The monthly supplemental early retirement benefit
payable to an eligible Participant shall be equal to the Accrued Portion of his
monthly supplemental normal retirement benefit on the date of his termination of
employment, reduced by .4166% for each full month that commencement of such
benefit precedes his Normal Retirement Date.
4.3 PAYMENT. Subject to the provisions of Articles VI and VII,
a monthly supplemental early retirement benefit shall be paid to an eligible
Participant commencing with the month next following the month in which he
becomes eligible and applies for such benefit or, if later, the month he
designates in writing, and shall be payable monthly thereafter during his
lifetime.
-7-
<PAGE> 11
ARTICLE V
SUPPLEMENTAL DISABILITY BENEFITS
--------------------------------
5.1 ELIGIBILITY. Any Participant whose employment with the
Affiliated Group is terminated due to Disability shall be eligible for a monthly
supplemental disability benefit determined in accordance with the provisions of
Section 5.2.
5.2 AMOUNT. The monthly supplemental disability benefit of an
eligible Participant shall be an amount which when added to any long term
disability benefits payable to such Participant under any other plan or program
maintained by an Affiliate (regardless of the source of contributions and
converted, if necessary, into a monthly benefit for purposes hereunder) equals
60% of a Participant's Highest Monthly Final Average Compensation.
5.3 PAYMENT. Subject to the provisions of Section 5.4 and
Articles VI and VII, a monthly supplemental disability benefit shall be paid to
an eligible Participant commencing 180 days after the onset of a Participant's
Disability and shall be payable monthly thereafter until the earlier of (i) the
Participant's Normal Retirement Date, or (ii) the Participant's death. Upon
attaining his Normal Retirement Date, any such Participant shall be entitled to
receive a monthly supplemental normal retirement benefit determined in
accordance with the provisions of Section 3.2, based upon his years of service
and Highest Monthly Final Average Compensation as of the time of the onset of
his Disability, and payable in accordance with the provisions of Section 3.3.
5.4 TERMINATION OF SUPPLEMENTAL DISABILITY BENEFITS. Monthly
supplemental disability benefit payments shall terminate if prior to a
Participant's Normal Retirement Date (i) he engages in any gainful employment or
occupation, other than for purposes of rehabilitation or purposes not
incompatible with the finding of Disability; or (ii) if it is determined that he
no longer has a Disability.
5.5 MEDICAL EXAMINATIONS. The Company may, in its discretion,
require a Participant who is applying for a monthly supplemental disability
benefit or who is receiving a monthly supplemental disability benefit to submit
to such medical examinations as it may deem reasonably necessary; provided,
however, that no Participant shall be required to undergo such
-8-
<PAGE> 12
examinations more than once a year. In the event a Participant refuses to submit
to any such examination, his monthly supplemental disability benefit may be
suspended by the Company.
-9-
<PAGE> 13
ARTICLE VI
PAYMENT OF BENEFITS
-------------------
6.1 OPTIONAL METHODS OF PAYMENT. Subject to the provisions of
Article VII, any Participant who becomes eligible under the Plan for a
supplemental normal or early retirement benefit may, in lieu of any benefits
otherwise payable under the Plan, elect to receive payment of such benefit in
accordance with any one of the following options:
OPTION A A reduced monthly supplemental retirement
benefit payable to such Participant for his lifetime following
his termination of employment with the continuance of a
monthly benefit equal to one-half of such reduced amount after
his death to his Contingent Annuitant during the lifetime of
the Contingent Annuitant, provided that such Contingent
Annuitant is living at the time such Participant's benefit
commences.
OPTION B A reduced monthly supplemental retirement
benefit payable to such Participant for his lifetime following
his termination of employment with the continuance of a
monthly benefit equal to three-quarters of such reduced amount
after his death to his Contingent Annuitant during the
lifetime of the Contingent Annuitant, provided such Contingent
Annuitant is living at the time such Participant's benefit
commences.
OPTION C A reduced monthly supplemental retirement
benefit payable to such Participant for his lifetime following
his termination of employment with the continuance of a
monthly benefit equal to such reduced amount after his death
to his Contingent Annuitant during the lifetime of the
Contingent Annuitant, provided such Contingent Annuitant is
living at the time such Participant's benefit commences.
OPTION D A reduced monthly supplemental retirement
benefit payable to such Participant for his lifetime following
his termination of employment with the continuance to the
person or persons designated by him as his Term-Certain
Beneficiary of such reduced amount after his death for the
remainder, if any, of the ten-year period commencing with the
date as of which the first payment of such monthly benefit is
made, and with any monthly benefits remaining unpaid upon the
death of the survivor of the Participant and his Term-Certain
Beneficiary to be made to the estate of such survivor.
OPTION E A commercial annuity in the form of a single
life annuity for the life of such Participant.
OPTION F A commercial annuity in the form of a cash
refund annuity.
OPTION G A commercial annuity for a term certain of
ten years and continuous for the life of the Participant if he
survives such term certain and with the continuance to the
persons designated by him of any benefits remaining unpaid
upon his death.
OPTION H A commercial annuity payable for the life of
such Participant with a survivor annuity for the life of his
Contingent Annuitant which shall be
-10-
<PAGE> 14
equal to 50%, 75%, or 100% of the annuity payable during the
joint lives of the Participant and his Contingent Annuitant.
The Contingent Annuitant of a Participant under Option A, B,
C, or H, or the Term-Certain Beneficiary under Option D or G shall be any person
so designated by such Participant. The monthly payments to be made under any
such option shall be in amounts the actuarial value of which, on the date of
commencement thereof or, if earlier, as of the Participant's Normal Retirement
Date, shall be the actuarial equivalent of the monthly benefits otherwise
payable to the Participant under the Plan, in lieu of which the option was
elected, taking into account the age of his Contingent Annuitant and determined
in accordance with the provisions of Section 11.7. A Participant may revoke or
elect to change any option made by him at any time prior to commencement of
benefit payments. In any case where a benefit payable under the Plan is to be
paid in the form of a commercial annuity, a commercial annuity contract shall be
purchased from an insurance company selected by the Participant and distributed
to such Participant. Upon the distribution of any amount used to purchase the
annuity contract, the insurance company issuing such contract shall be solely
responsible to the recipient of the contract for the annuity payments
thereunder. All certificates for commercial annuity benefits shall be
nontransferable, and no benefit thereunder may be sold, assigned, discounted, or
pledged. Any commercial annuity purchased under the Plan shall contain such
terms and provisions as may be necessary to satisfy the requirements under the
Plan.
6.2 EFFECT OF VARIOUS CIRCUMSTANCES UPON AN OPTION. The
election of an option under Section 6.1 shall become effective for all purposes
only upon the commencement of monthly payments to an eligible Participant
thereunder, as provided in Section 6.3. If such Participant dies before any
monthly benefit payment commences under such option, his election shall become
inoperative and ineffective, and no payment shall become due to his Contingent
Annuitant or Term-Certain Beneficiary under such option. If a Contingent
Annuitant or Term-Certain Beneficiary dies prior to the commencement of any
monthly benefit payment to such Participant under such option, his election
shall become inoperative and ineffective and benefit payments, if any, shall be
made under the Plan as if no such election had been made.
-11-
<PAGE> 15
6.3 PAYMENT UNDER AN OPTION. A monthly benefit payment shall
be made to an eligible Participant who has elected under Section 6.1 an option
commencing at the same time as the monthly benefit payment otherwise payable to
him under the Plan would have commenced. Monthly benefit payments which become
payable to a Contingent Annuitant of a Participant under Option A, B, or C shall
commence with the month following the month in which the death of such
Participant occurs and shall be payable monthly thereafter during the life of
the Contingent Annuitant, the last payment being for the month in which the
death of the Contingent Annuitant occurs. Monthly payments which become payable
hereunder to a Term-Certain Beneficiary of a Participant under Option D shall
commence with the month following the month in which the death of such
Participant occurs, and the last such monthly payment shall be made for the last
month in the term certain; provided, however, that should any such monthly
payments become payable to the estate of any person or to a trust, a lump-sum
amount shall be paid to such estate or trust in lieu thereof. Such lump-sum
amount shall be equal to the present actuarial value of the aggregate monthly
payments otherwise payable to such estate or trust in accordance with the
provisions of Section 11.7.
6.4 CESSATION OF PAYMENTS DUE TO COMPETITION. Except in the
event of a Change of Control, each payment of monthly supplemental retirement
benefits under the Plan to a Participant shall be subject to the condition that
the Participant has not engaged in Competition with the Affiliated Group, as
defined in Section 6.5 below, at any time prior to the date of such payment.
6.5 COMPETITION. Competition for purposes of the Plan shall
mean assuming an ownership position or a position as an employee, consultant,
agent, or director with a business engaged in the manufacture, processing,
purchase, sale, design, or distribution of the same products manufactured, sold,
designed, or distributed by an Affiliate during the calendar year prior to the
date of termination of the Participant's employment; provided, however, that in
no event shall ownership of less than two percent of the outstanding capital
stock entitled to vote for the election of directors of a corporation with a
class of equity securities held of record by
-12-
<PAGE> 16
more than 500 persons in itself be deemed Competition; and provided further,
that all of the following events shall have taken place:
(i) The Board shall have given written notice to the
Participant that, in the opinion of the Board, the Participant
is engaged in Competition within the meaning of the foregoing
provisions of this Section 6.5, specifying the details
thereof;
(ii) The Participant shall have been given a
reasonable opportunity, upon receipt of such notice, to appear
before and to be heard by the Board with respect to his views
regarding the opinion of the Board that the Participant
engaged in competition;
(iii) The Board shall have given written notice to
the Participant that the Board determined that the Participant
is engaged in Competition; and
(iv) The Participant neither shall have ceased to
engage in such Competition within 30 days from his receipt of
notice of such determination nor shall have taken all
reasonable steps to that end during such 30-day period and
thereafter.
-13-
<PAGE> 17
ARTICLE VII
CHANGE IN CONTROL
-----------------
7.1 ELIGIBILITY FOR SUPPLEMENTAL RETIREMENT BENEFIT. In the
event of a Change of Control and regardless of Service or age, each Participant
who is employed by an Affiliate or who has incurred a Disability shall be
eligible to receive a monthly supplemental retirement benefit determined in
accordance with the provisions of Section 7.2 and paid pursuant to the
provisions of Section 7.3 in lieu of any other benefit under the Plan.
7.2 COMPUTATION OF BENEFITS UPON A CHANGE OF CONTROL. In the
event of a Change of Control, the monthly supplemental retirement benefit of an
eligible Participant shall be equal to the Accrued Portion of his monthly
supplemental normal retirement benefit; provided, however that for purposes of
calculating such benefit, each Participant who has not yet attained age 65 shall
be credited with additional years of Service and age equal to one-half of the
difference between 65 and his age on the date of such Change of Control, but not
in excess of 10.
7.3 PAYMENT OF BENEFITS UPON A CHANGE OF CONTROL. Any monthly
supplemental retirement benefit determined pursuant to the provisions of Section
7.2 shall not be paid monthly but instead shall be paid in a lump sum determined
using the actuarial factors and interest rate set forth in Section 11.7.
Moreover, in the event of a Change of Control, each Participant and each
Contingent Annuitant of a deceased Participant who is receiving monthly
supplemental retirement benefits under the Plan shall receive the actuarial
present value of future payments of such monthly benefits in a lump sum
determined pursuant to the provisions of Section 11.7. Any such lump sum payment
payable under this Section 7.3 shall be made to an eligible Participant or
eligible Contingent Annuitant as soon as reasonably practicable but in no event
later than 60 days of such Change of Control.
-14-
<PAGE> 18
ARTICLE VIII
DEATH BENEFITS
--------------
8.1 DESIGNATION OF BENEFICIARY. Each Participant may designate
a Beneficiary to whom death benefits determined in accordance with the
provisions of Section 8.2 may be payable. In the event a Participant does not
designate a Beneficiary or the designated Beneficiary of a Participant does not
survive the Participant, then the Beneficiary of such Participant shall be the
estate of such Participant. If any Beneficiary designated hereunder dies after
becoming entitled to receive a distribution from the Plan and before such
distribution is made to him in full, and if no other person or persons have been
designated to receive such distribution upon the happening of such contingency,
the estate of such deceased Beneficiary shall become the Beneficiary as to such
distribution.
8.2 DEATH BENEFIT. Upon the death of a Participant to whom
supplemental normal or early retirement benefits under the Plan have not yet
commenced to be paid or upon the later of (i) the death of a Participant to whom
supplemental normal or early retirement benefits under the Plan have commenced
to be paid or (ii) the death of such a Participant's Contingent Annuitant or
Term Certain Beneficiary, if any, as the case may be, the Beneficiary of such
Participant shall receive the present actuarial equivalent of the Accrued
Portion of the Participant's supplemental normal retirement benefit as of the
earlier of the date benefits under the Plan commenced to be paid to the
Participant or his death minus the aggregate benefit payments, if any, made to
such Participant and, if applicable, his Contingent Annuitant or Term Certain
Beneficiary under the Plan. Notwithstanding the foregoing provisions of this
Article VIII, no death benefit shall be payable with respect to any deceased
Participant who elected to receive his supplemental normal or early retirement
benefit in the form of a commercial annuity and no death benefit shall be
reduced due to the payment of supplemental disability benefits under the Plan.
-15-
<PAGE> 19
ARTICLE IX
ADMINISTRATION
--------------
9.1 AUTHORITY OF THE COMPANY. The Company shall be responsible
for the general administration of the Plan, for carrying out the provisions
hereof, and for making, or causing a grantor trust to make, any required
supplemental benefit payments under the Plan. The Company shall have all such
powers as may be necessary to carry out the provisions of the Plan, including
the power to determine all questions relating to eligibility for and the amount
of any supplemental retirement benefit and all questions pertaining to claims
for benefits and procedures for claim review; to resolve all other questions
arising under the Plan, including any questions of construction; and to take
such further action as the Company shall deem advisable in the administration of
the Plan. The Company may delegate any of its powers, authorities, or
responsibilities for the operation and administration of the Plan to any person
or committee so designated in writing by it and may employ such attorneys,
agents, and accountants as it may deem necessary or advisable to assist it in
carrying out its duties hereunder. The actions taken and the decisions made by
the Company hereunder shall be final and binding upon all interested parties.
9.2 CLAIMS PROCEDURE. If a claim for benefits under the Plan
is denied in whole or in part by the Company, the claimant shall be notified in
writing within 90 days of filing of the claim with the Company of (i) the
specific reasons of such denial, (ii) the pertinent Plan provisions on which the
denial is based, (iii) any additional material or information necessary for the
claimant to perfect his claim (with an explanation as to the reason such
material or information is necessary), and (iv) further steps which the claimant
can take in order to have his claim reviewed (including a statement that the
claimant or his duly authorized representative may review Plan documents and
submit issues and comments regarding the claim to the Company). If the claimant
wishes further consideration of his position, he may request a review of his
claim by filing a written request with the Company within 90 days after receipt
of the written notification provided for in the preceding sentence. The
claimant's request for review
-16-
<PAGE> 20
may, but need not, include a request for a hearing on the claim by the Company.
If such a hearing is requested, it will be held within 30 days after the receipt
of such request for review. A final decision on the claim shall be made by the
Company and communicated to the claimant within 60 days after the receipt of the
request for review; provided, however, that if a hearing has been requested, the
Company may extend said 60 day period by up to 30 additional days. Written
notice of any such extension shall be furnished to the claimant prior to the
commencement of the extension. The final decision hereunder shall be
communicated in writing to the claimant with a statement of the specific reasons
for any denial and the pertinent Plan provisions on which any such denial is
based. If a final decision on review is not furnished to the claimant within the
required time period, the claim shall be deemed to be denied on review.
-17-
<PAGE> 21
ARTICLE X
AMENDMENT AND TERMINATION
-------------------------
The Company reserves the right to amend or terminate the Plan
at any time by action of the Board; provided, however, that no such action shall
adversely affect any Participant or Contingent Annuitant who is receiving
retirement benefits or supplemental disability benefits under the Plan or who
has accrued a supplemental retirement benefit under the Plan, unless an
equivalent benefit is provided under another plan sponsored by the Company.
-18-
<PAGE> 22
ARTICLE XI
MISCELLANEOUS
-------------
11.1 NON-ALIENATION OF BENEFITS. No benefit under the Plan
shall at any time be subject in any manner to alienation or encumbrance. If any
Participant, Contingent Annuitant, or Term-Certain Beneficiary shall attempt to,
or shall, alienate or in any way encumber his rights or benefits under the Plan,
or any part thereof, or if by reason of his bankruptcy or other event happening
at any time any such benefits would otherwise be received by anyone else or
would not be enjoyed by him, his interest in all such benefits shall
automatically terminate and the same shall be held or applied to or for the
benefit of such person, his spouse, children, or other dependents as the Company
may select.
11.2 PAYMENT OF BENEFITS TO OTHERS. If any Participant,
Contingent Annuitant, or Term-Certain Beneficiary to whom a benefit is payable
under the Plan is unable to care for his affairs because of illness or accident,
any payment due (unless prior claim therefor shall have been made by a duly
qualified guardian or other legal representative) may be paid to the spouse,
parent, brother, sister, adult child, or any other individual deemed by the
Company to be maintaining or responsible for the maintenance of such person. Any
payment made in accordance with the provisions of this Section 11.2 shall be a
complete discharge of any liability of the Plan with respect to the benefit so
paid.
11.3 PLAN NON-CONTRACTUAL. Nothing herein contained shall be
construed as a commitment or agreement on the part of any Participant to
continue his employment with the Company, and nothing herein contained shall be
construed as a commitment on the part of the Company to continue the employment
or the annual rate of compensation of any Participant for any period, and all
Participants shall remain subject to discharge to the same extent as if the Plan
had never been established.
11.4 TRUST. In order to provide a source of payment for its
obligations under the Plan, the Company may establish a grantor trust.
-19-
<PAGE> 23
11.5 INTEREST OF A PARTICIPANT. The obligation of the Company
under the Plan to provide a Participant with supplemental retirement benefits
supplemental disability benefits constitutes the unsecured promise of the
Company to make payments as provided herein, and no person shall have any
interest in, or a lien or prior claim upon, any property of the Company.
11.6 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall
in no event be construed as giving any person, firm or corporation any legal or
equitable right against the Company, its officers, employees, or directors,
except any such rights as are specifically provided for in the Plan or are
hereafter created in accordance with the terms and provisions of the Plan.
11.7 ACTUARIAL FACTORS. Supplemental retirement benefits of a
Participant that are payable in a single sum form pursuant to the provisions of
Sections 6.3, 7.3, or 8.2 shall be determined by using the interest rate on
30-year U.S. Treasury bonds for the January of the calendar year in which the
supplemental retirement benefit of a Participant under the Plan is to be paid in
a lump sum form and the 1983 Group Annuity Mortality Table (without projection
and a fixed blend of 50 percent of the male mortality and 50 percent of the
female mortality rates).
11.8 SEVERABILITY. The invalidity or unenforceability of any
particular provision of the Plan shall not affect any other provision hereof,
and the Plan shall be construed in all respects as if such invalid or
unenforceable provision were omitted herefrom.
11.9 GOVERNING LAW. The provisions of the Plan shall be
governed and construed in accordance with the laws of the State of Ohio.
Executed at Cleveland, Ohio, this 10th day of November, 1997.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
By: /s/ John C. Dannemiller
-------------------------------------------------
Title: Chairman, Chief Executive Officer &
President
And: /s/ Robert C. Stinson
-------------------------------------------------
Title: Vice President-Chief Administrative
Officer, General Counsel & Secretary
-20-
<PAGE> 1
Exhibit 10(b)
SALARY CONTINUATION AGREEMENT
-----------------------------
THIS SALARY CONTINUATION AGREEMENT (the "Agreement"), made as
of the 28th day of March, 1991, by and between INVETECH Company, a Michigan
corporation (hereinafter called the "Company"), and J. Michael Moore
(hereinafter called "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires that Employee remain in its
service to receive the benefit of Employee's knowledge, experience, reputation
and contacts after his retirement, and is willing to provide Employee an
incentive to do so in the form of compensation upon his death, permanent
disability or retirement; and
WHEREAS, the Company and Employee entered into a certain
Salary Continuation Agreement dated as of September 9, 1981, which was
superseded and replaced in its entirety by a Salary Continuation Agreement,
dated as of August 27, 1987 (the "Former Agreement"); and
WHEREAS, the Company and Employee desire to terminate the
Former Agreement and to replace it in its entirety by this Agreement; and
NOW, THEREFORE, in consideration of Employee's extensive past
service to the Company and contributions to the Company's accomplishments to the
date hereof and of the mutual promises of the parties hereto, the parties agree
as follows:
1. TERMINATION OF SALARY CONTINUATION AGREEMENT. The Former
Agreement is hereby terminated and this Agreement shall supersede and replace
the Former Agreement in its entirety.
<PAGE> 2
2. CONTINUATION OF EMPLOYMENT. This Agreement and all rights
of the Employee hereunder shall terminate on the date upon which Employee ceases
to be an active employee of the Company, (except by reason of Employee's death,
Retirement Date or Disability Date as hereinafter defined). In addition,
Employee shall not be deemed to have ceased to be an active employee of the
Company within the meaning of this paragraph and Employee shall be entitled to
all benefits of this Agreement if the Employee's employment is terminated by the
Employee or by the Company for any reason whatsoever at any time following any
"change in control" (as hereinafter defined).
For purposes of this Agreement, a "change in control" shall be
deemed to have occurred on:
(a) The date on which title or voting rights with respect to
more than fifty percent (50%) of the voting securities of the Company
become owned by any parties or entities other than the existing holders
of record of the Company's voting common stock as of the date hereof
(provided that transfer of shares to one or more members of a
shareholder's immediate family by INTER VIVOS or testamentary
disposition shall not be deemed a change in ownership); or
(b) The date on which the Company is either acquired by and/or
merged with another organization or corporate entity owned or
controlled by parties or entities other than the existing holders of
record of the Company's voting common stock as of the date hereof,
resulting in the Company's voting common stock not being the surviving
voting common stock subsequent to the establishment of the merged
organization; or
<PAGE> 3
(c) The date on which more than fifty percent (50%) in value
of the assets of the Company are disposed of by the Company pursuant to
a partial or complete liquidation, a sale of assets or otherwise.
3. PAYMENTS UPON DEATH, RETIREMENT OR DISABILITY.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) RETIREMENT DATE. Employee's Retirement Date
hereunder shall be the first day of the first month following
his sixty-fifth (65th) birthday or, if he remains in the
employ of the Company after such date (as may be mutually
agreed upon by Employee and Company), the first day of the
first month following Employee's official retirement.
(ii) DISABILITY DATE. Employee's Disability Date
hereunder shall be the first date that Employee suffers a
Permanent Disability as defined in the Company's disability
insurance policy then in effect. If no disability insurance
policy is then in effect, Permanent Disability means the
inability of Employee to perform the principal duties of his
occupation. Employee's occupation means his regular occupation
at the time such disability began. Employee shall not be
considered totally disabled unless he establishes that he is
under the care and attendance of a licensed physician during
any period of claimed disability.
(b) BENEFITS FOLLOWING DEATH. If Employee dies prior to
reaching his Retirement Date or Disability Date, the Company agrees to
pay to the trustee or trustees under any revocable living trust
agreement executed by Employee as grantor or any other beneficiary
designated by Employee in writing and approved by the board of
directors of
<PAGE> 4
the Company the sum of Two Hundred Thousand Dollars ($200,000) per
year, for a period of fifteen (15) years, in equal monthly installments
of $16,666.67 payable upon the first business day of each calendar
month commencing the first business day of the month following the
month in which Employee dies and continuing until a total of one
hundred eighty (180) installments have been paid.
(c) BENEFITS FOLLOWING RETIREMENT OR PERMANENT DISABILITY.
Commencing on Employee's Retirement Date or Disability Date, the
Company shall pay to Employee or to the trustee or trustees under any
revocable living trust agreement executed by Employee as grantor and as
to which Employee is the beneficiary during his lifetime, the sum of
Two Hundred Thousand Dollars ($200,000) per year, for a period of
fifteen (15) years, in equal monthly installments of $16,666.67 payable
on the first business day of each calendar month following Employee's
Retirement Date or Disability Date, as the case may be, and continuing
until a total of one hundred eighty (180) monthly installments have
been paid. If Employee shall die prior to receiving on hundred eighty
(180) such monthly payments, the Company shall continue to make such
payments to the trustee or trustees under any revocable living trust
agreement executed by Employee as grantor or any other beneficiary
designated by Employee in writing and approved by the board of
directors of the Company until a total of one hundred eighty (180) such
monthly payments have been made.
Notwithstanding anything contained herein to the contrary, the
Company's payment obligations under this Agreement shall be reduced by
the amount of any disability income insurance proceeds received or
receivable by Employee, resulting from any policy or policies paid for
by the Company. Furthermore, in the event that Employee
<PAGE> 5
is no longer deemed to suffer a Permanent Disability as determined
above, all further payments under this Agreement shall cease
immediately; provided, however, upon Employee's subsequent death,
Retirement Date or new Disability Date, no reduction against the one
hundred eighty (180) maximum monthly payments shall be made to reflect
those payments made during the prior period or periods of Permanent
Disability.
4. SERVICES AFTER RETIREMENT. Following Employee's Retirement
Date or Disability Date, Employee shall, to the extent his physical and mental
condition reasonably permits, consult, or by available to consult, with the
officers of the Company in an advisory capacity at such times and places as the
parties hereto shall mutually agree.
5. RESTRICTIVE COVENANT. During any period in which Employee
receives payments pursuant to this Agreement, Employee shall not directly
compete with the Company nor shall the Employee consult with or be employed by a
direct competitor of the Company which does business in any state in which the
Company is qualified to do business.
6. FORFEITURE OF PAYMENTS. In the event that Employee violates
the provision set forth in Section 4 of this Agreement, and such violation
remains uncured for thirty (30) days following receipt by Employee of notice to
perform by the board of directors of the Company, or in the event that Employee
violates the condition set forth in Section 5 of this Agreement, and such
violation remains uncured for fifteen (15) days following receipt by Employee of
notice of such violation from the board of directors of the Company, then such
violation shall constitute a breach of this Agreement, and no further payments
shall be due or payable by the Company thereafter and the Company shall have no
further liability whatsoever.
7. NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed to be duly given when
personally delivered to
<PAGE> 6
the principal office of the Company or to Employee, as appropriate, or when
delivered by registered or certified mail, postage prepaid, to such address as
the respective party may by notice direct.
8. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all other agreements, written or otherwise. This Agreement may not be
changed or extended (including additions and deletions) orally or otherwise,
except by an agreement or consent in writing signed by both parties hereto.
8. SUCCESSORS AND ASSIGNS. The duties and obligations of
Employee under this Agreement are personal unto Employee and may not be assigned
or otherwise transferred, but the rights of Employee under this Agreement shall
inure to the benefit of Employee, his heirs, executors, administrators, personal
representatives, successors and assigns. The rights and duties of the Company
under this Agreement shall be binding upon and inure to the benefit of the
Company's successors and assigns. The Company shall require any successor
(whether direct or indirect, by operation of law or by purchase, merger,
consolidation or otherwise) to all or substantially all of the business, stock
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
10. ENFORCEABILITY. If any term or provision of this
Agreement, or the application thereof to any circumstances, shall, to any extent
and for any reason, be held invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to circumstances other
than those to which it is held to be invalid or unenforceable, shall not be
affected thereby and shall be construed as if such invalid or unenforceable term
or provision had
<PAGE> 7
never been contained herein, and each term and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law. If any portion
of this Agreement is held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed by limiting or
reducing the provision as required so that the provision as limited or reduced
is enforceable under applicable law.
11. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with laws of the State of Michigan.
12. ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement, including, but not limited to, any claim by
the Employee that a determination by the board of directors of the Company
pursuant to Section 6 hereof is incorrect, shall be submitted to, and settled
exclusively by, arbitration in Detroit, Michigan in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that
Employee shall be entitled to be paid during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
EMPLOYEE INVETECH COMPANY
/s/ J. Michael Moore By: /s/ J. T. Moore, II
- ---------------------------- ----------------------------------
J. Michael Moore
Its: President
<PAGE> 1
Exhibit 10(c)
CONSULTING, NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
This CONSULTING, NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (this
"Agreement") is entered into as of July 31, 1997 by and among APPLIED INDUSTRIAL
TECHNOLOGIES, INC., an Ohio corporation (the "Company"), OAK GROVE CONSULTING
GROUP, INC. (the "Consultant") and J. MICHAEL MOORE ("Moore").
WITNESSETH:
WHEREAS, prior to the acquisition of INVETECH Company ("INVETECH") by
the Company, Moore served as a senior executive officer of INVETECH and made
major contributions to the profitability, growth and financial strength of
INVETECH; and
WHEREAS, Moore has formed a consulting company to provide business
consulting services through which Moore will act as the primary advisor; and
WHEREAS, the Company desires to assure itself of both present and
future consulting services of Consultant and anticipates Consultant will make
significant contributions to the profitability, growth and financial strength of
the Company; and
WHEREAS, the Consultant and Moore are willing to render services to the
Company on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, the Company, Moore and Consultant agree as follows:
1. DUTIES AND COMPENSATION.
(a) During the term of this Agreement, Consultant agrees to cause Moore
to be available to the Company during normal business hours to provide
consulting services with respect to the business and affairs of the Company and
its affiliates for up to a maximum of ten business days per year and to use his
best efforts to promote the interests of the Company and its affiliates.
(b) During the term of this Agreement, the Company shall pay to
Consultant an annual consulting fee of $70,000 on the date hereof and thereafter
annually on the anniversary date hereof for the four succeeding years. In
addition, in consideration of Moore's covenants under Sections 2 and 3 of this
Agreement, the Company shall also pay to Moore $2,550,000 in five equal annual
installments of $510,000, the first of which shall be payable on the date hereof
and the remainder of which shall be payable annually on the anniversary date
hereof during the four succeeding years.
2. NONCOMPETITION COVENANT. During the longer of (i) the five year
period following the
<PAGE> 2
date hereof and (ii) the one year period following the date
of termination of any and all of Moore's relationships with the Company (other
than as a shareholder), including any and all relationships as a director,
officer, employee or consultant of the Company or its affiliates, Moore
covenants and agrees that he will not, directly or indirectly, with or through
another individual or organization, whether as a shareholder (other than as the
holder of less than 1% of the outstanding shares of a publicly held company),
partner, member, director, officer, employee, agent, or consultant, or in any
other capacity, manufacture, provide, sell, design or distribute products or
services that are the same or similar to products or services now, heretofore or
hereafter provided, sold, designed or distributed by the Company or any of its
affiliates anywhere within the United States or Canada.
3. CONFIDENTIAL INFORMATION. In addition, during the five year period
following the date of termination of any and all of Consultant's and Moore's
relationships with the Company (other than as a shareholder), including any and
all relationships as a director, officer, employee or consultant of the Company
or its affiliates, Consultant and Moore severally covenant and agree to keep
confidential and not to disclose to others information relating to the Company
or any of its affiliates, or their respective businesses, including, but not
limited to, information regarding (i) customers or potential customers; (ii)
vendors or suppliers; (iii) pricing structure and profit margins; (iv) employees
and payroll policies; (v) computer systems; (vi) facilities or properties; and
(vii) other proprietary, confidential or secretary information relating to the
Company or any of its affiliates, or their respective businesses, products,
activities or operating aspects (hereafter "Confidential Information").
Consultant and Moore shall use all reasonable care to protect, and prevent
unauthorized disclosure of, any Confidential Information unless such information
(a) is now or becomes generally known or available to the public without any
violation of this Agreement; or (b) is required to be disclosed by applicable
law or by court or governmental order.
4. TERM; EFFECT OF TERMINATION. The term of this Agreement shall
continue for five years following the date hereof; provided, however, no such
termination shall affect or otherwise limit or reduce Consultant's or Moore's
obligations under Sections 2 and 3 of this Agreement or the Company's obligation
to make the payments called for under the last sentence of Section 1(b) of this
Agreement or to provide the benefits specified in Section 5.
5. SALARY CONTINUATION; HEALTH INSURANCE.
(a) Promptly following the date hereof, the Company and Moore agree to
amend the salary continuation agreement between Moore and INVETECH to (i)
provide that the benefits payable thereunder shall be payable to Moore beginning
at an age not earlier than age 55 designated by Moore and (ii) adjust the
aggregate benefits payable thereunder to reflect the payment of the amounts
accrued on INVETECH's Closing Balance Sheet (as defined in the Merger Agreement)
plus $500,000 during the benefits payment period specified therein, as amended
pursuant to clause (i) of this Section 5(a) and using a present value discount
rate of 7.7%.
<PAGE> 3
(b) During the term of Moore's and his spouse's lives, the Company
shall pay Consultant $700 per month for the cost of health insurance to be
obtained and maintained by Consultant for Moore, his wife and his eligible
children. The obligation to obtain and maintain any such health insurance
benefits shall be solely the responsibility of Consultant and shall not be the
responsibility of the Company.
6. REMEDIES; IRREPARABLE HARM. Consultant and Moore acknowledge that a
breach of its or his obligations under Section 2 or 3 of this Agreement would
result in irreparable injury to the Company for which monetary damages alone
would not be an adequate remedy. Therefore, Consultant and Moore consent to the
issuance of injunctive relief in the event of a breach of its or his obligations
under Section 2 or 3, in addition to any other remedies to which the Company may
be entitled at law or in equity.
7. SEVERABILITY; NO SET-OFF. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, including without limitation, as to
time, geographic area, or scope of activity, such provision shall be severable
from the other provisions of this Agreement and the remainder of this Agreement
and the application of such provision to any other person or circumstances shall
not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal shall be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid and legal. The Company shall have no
right of set-off under this Agreement for any breach (or alleged breach) of any
provision of the Plan and Agreement of Merger dated April 29, 1997 between the
Company and INVETECH or the related Escrow Agreement.
8. SUCCESSORS; ASSIGNMENT. This Agreement shall inure to the benefit of
and be enforceable by the Consultant's and Moore's successors, personal
representatives, executors, administrators, heirs, distributees and/or legatees.
This Agreement is personal in nature and no party hereto may, assign, transfer
or delegate this Agreement or any rights or obligations hereunder except the
Company may assign its rights but not its obligations hereunder to any of its
wholly owned affiliates.
9. NOTICE. For all purposes of this Agreement, all communications
including without limitation notices, consents,requests or approvals, provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to the Consultant or Moore at Moore's
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of change
of address shall be effective only upon receipt.
10. GOVERNING LAW. The validity, interpretation,construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the
<PAGE> 4
principles of conflict of laws of such State.
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
By /s/ John C. Dannemiller
---------------------------------
Its Chairman, Chief Executive
Officer & President
---------------------------------
OAK GROVE CONSULTING GROUP, INC.
/s/ J. Michael Moore
- ------------------------------------
By: J. Michael Moore, President
/s/ J. Michael Moore
- ------------------------------------
J. Michael Moore
<PAGE> 1
EXHIBIT 11
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(Unaudited)
(Thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30
1997 1996
----------- -----------
<S> <C> <C>
Average Shares Outstanding
--------------------------
1. Average common shares
outstanding 20,843 18,609
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 441 360
----------- -----------
3. Adjusted average common
shares outstanding for
fully diluted computation 21,284 18,969
=========== ===========
Net Income
----------
4. Net income as reported in
statements of consolidated
income $ 4,497 $ 5,405
=========== ===========
Net Income Per Share
--------------------
5. Net income per average
common share outstanding
(4/1) $ 0.22 $ 0.29
=========== ===========
6. Net income per common
share on a fully
dilutive basis (4/3) $ 0.21(A) $ 0.28(A)
=========== ===========
<FN>
(A) Fully diluted net income per share is not presented as the dilutive
effect is less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 13,292
<SECURITIES> 0
<RECEIVABLES> 189,881
<ALLOWANCES> 3,259
<INVENTORY> 167,962
<CURRENT-ASSETS> 386,523
<PP&E> 174,396
<DEPRECIATION> 70,778
<TOTAL-ASSETS> 553,725
<CURRENT-LIABILITIES> 199,088
<BONDS> 59,999
0
0
<COMMON> 10,000
<OTHER-SE> 255,848
<TOTAL-LIABILITY-AND-EQUITY> 553,725
<SALES> 344,726
<TOTAL-REVENUES> 344,726
<CGS> 256,426
<TOTAL-COSTS> 256,426
<OTHER-EXPENSES> 78,492
<LOSS-PROVISION> 447
<INTEREST-EXPENSE> 2,464
<INCOME-PRETAX> 7,622
<INCOME-TAX> 3,125
<INCOME-CONTINUING> 4,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,497
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
