<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
[APPLIED INDUSTRIAL TECHNOLOGIES LOGO]
ONE APPLIED PLAZA
CLEVELAND, OHIO 44115
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
We are pleased to invite you to the 2000 Annual Meeting of the Shareholders
of Applied Industrial Technologies, Inc. The meeting will be held at our
corporate headquarters, One Applied Plaza, East 36th Street and Euclid Avenue,
Cleveland, Ohio, on Tuesday, October 17, 2000, at 10:00 a.m., local time, for
the purposes of:
1. Electing three persons to be directors for a term of three years; and
2. Ratifying the appointment of independent auditors for the fiscal year
ending June 30, 2001.
If you were a shareholder of record at the close of business on August 28,
2000, you are entitled to notice of and to vote at the meeting. The transfer
books will not be closed. A list of the shareholders as of the record date will
be available for examination at the meeting.
By order of the Board of Directors.
ROBERT C. STINSON
Secretary
September 12, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
VOTE ELECTRONICALLY -- BY TELEPHONE OR VIA THE INTERNET -- OR BY EXECUTING AND
RETURNING PROMPTLY THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID ENVELOPE
PROVIDED.
<PAGE> 3
[APPLIED INDUSTRIAL TECHNOLOGIES LOGO]
PROXY STATEMENT
------------------
SOLICITATION OF PROXIES
The Board of Directors of Applied Industrial Technologies, Inc. is
soliciting your proxy to vote at our Annual Meeting of Shareholders. The meeting
will be held at 10:00 a.m., local time, on Tuesday, October 17, 2000, at
Applied's corporate headquarters, One Applied Plaza, East 36th Street and Euclid
Avenue, Cleveland, Ohio. This proxy statement summarizes information you need to
know to vote at the meeting. In this statement, "we," "our," "us," and "Applied"
all refer to Applied Industrial Technologies, Inc.
We will pay the cost of soliciting proxies. This statement and the
accompanying proxy card will be mailed to shareholders on or about September 12,
2000. We will also pay the standard charges and expenses of brokers, or other
nominees or fiduciaries, for forwarding these materials to and obtaining proxies
from registered holders of Applied Common Stock and beneficial owners for whose
accounts they hold shares. Directors, officers, and other Applied employees,
acting on our behalf, may also solicit proxies, and Morrow & Co., Inc. has been
retained, at an estimated fee of $6,500 plus expenses, to aid in soliciting
proxies from brokers and institutional holders. In addition to using the mail,
proxies may be solicited personally, by telephone, facsimile, and electronic
means.
VOTING AT THE MEETING
Only shareholders of record at the close of business on August 28, 2000,
may vote at the meeting. As of the record date there were outstanding 19,812,784
shares of Applied Common Stock, without par value. The holders of a majority of
those shares will constitute a quorum to hold the meeting.
Each share is entitled to one vote. Abstentions and broker non-votes are
counted in determining the votes present at a meeting. A broker non-vote occurs
when a broker votes on some matters on the proxy card but not on others because
the broker does not have the authority to do so. An abstention or a broker
non-vote has the practical effect of a vote against a proposal, because each
abstention or broker non-vote is one less vote in favor of the proposal.
Whether or not you expect to attend the meeting, WE URGE YOU TO VOTE. You
may vote by telephone, via the Internet, or by mailing your signed proxy card in
the envelope provided. The card indicates the number of shares that you own.
Instructions for each voting method are also indicated on the card. Votes
submitted by telephone or via the Internet must be received by Sunday, October
15, 2000.
You may revoke your proxy before it is voted at the meeting by giving
notice of revocation to Applied's Secretary in writing, in open meeting, or by
other verifiable communication. Your presence at the meeting will not by itself
revoke your proxy.
If you plan to attend the meeting and vote in person, a ballot will be
available when you arrive. If, however, your shares are held in the name of your
broker, bank, or other nominee, you must bring an account statement or other
evidence that you were the beneficial owner of the shares on August 28, 2000.
3
<PAGE> 4
ITEM 1 -- ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes. At the Annual
Meeting, directors of Class I are to be elected for a term of three years
expiring in 2003. The properly nominated candidates receiving the greatest
number of votes will be elected. The persons serving as directors of Class II
for a term expiring in 2001 and as directors of Class III for a term expiring in
2002 will continue in office.
The nominees for directors of Class I are Thomas A. Commes, J. Michael
Moore, and Dr. Jerry Sue Thornton. Dr. Thornton and Mr. Moore currently serve as
Applied directors and were elected to their positions at an annual meeting of
shareholders. Mr. Commes also serves as a director, having been elected by the
Board in April 1999. John C. Dannemiller, our Chairman and a Class I director
since 1985, is retiring and will not be standing for reelection. Consequently,
the Board has reduced the size of Class I to three directors.
The proxies named in the accompanying proxy card intend to vote for the
three nominees unless authority is withheld. If any of the nominees becomes
unavailable to serve as a director, the proxies reserve full discretion to vote
for any other person or persons that may be nominated at the meeting and/or to
vote to reduce the number of directors. We are not aware of any existing
circumstances that would cause a nominee to be unavailable to serve.
Information concerning the nominees and the directors continuing in office
is shown below. Unless otherwise stated, the nominees and directors have held
the positions indicated for the last five years.
NOMINEES FOR ELECTION AS DIRECTORS OF CLASS I FOR A TERM EXPIRING IN 2003
THOMAS A. COMMES
Director since 1999, member of Audit Committee
BUSINESS EXPERIENCE: Mr. Commes, age 58, was President and Chief Operating
Officer of The Sherwin-Williams Company, a manufacturer, distributor, and
retailer of paints and painting supplies, from 1986 until his retirement in
March 1999. He was a Sherwin-Williams director from 1980 to March 1999. His
career also includes service as that company's Chief Financial Officer.
OTHER DIRECTORSHIPS: Generac Portable Products, Inc., KeyCorp, Pioneer-Standard
Electronics, Inc.
J. MICHAEL MOORE
Director since 1997, member of Futures Committee
BUSINESS EXPERIENCE: Mr. Moore, age 57, is President (since July 1997) of Oak
Grove Consulting Group, Inc. He was Chairman (from 1989 to July 1997) and Chief
Executive Officer (from 1981 to July 1997) of Invetech Company, a distributor of
bearings, mechanical and electrical drive system products, industrial rubber
products, and specialty maintenance and repair products. Applied acquired
Invetech in August 1997.
DR. JERRY SUE THORNTON
Director since 1994, member of Audit and Corporate Governance Committees
BUSINESS EXPERIENCE: Dr. Thornton, age 53, is President of Cuyahoga Community
College, the largest community college in Ohio, serving 60,000 students annually
with 70 career and technical programs.
OTHER DIRECTORSHIPS: American Greetings Corporation, OfficeMax, Inc., RPM, Inc.
4
<PAGE> 5
PERSONS SERVING AS DIRECTORS OF CLASS II FOR A TERM EXPIRING IN 2001
WILLIAM G. BARES
Director since 1986, member of Corporate Governance, Director Nominating, and
Executive Organization & Compensation Committees
BUSINESS EXPERIENCE: Mr. Bares, age 59, is Chairman (since April 1996),
President (since 1982), and Chief Executive Officer (since January 1996) of The
Lubrizol Corporation. Lubrizol is a $1.7 billion fluid technology company
concentrating on high performance chemicals, systems, and services for industry
and transportation. He was Lubrizol's Chief Operating Officer from 1987 to
December 1995 and has served as a Lubrizol director since 1981.
OTHER DIRECTORSHIPS: KeyCorp, The Lubrizol Corporation, Oglebay Norton Company
DR. ROGER D. BLACKWELL
Director since 1996, member of Futures Committee
BUSINESS EXPERIENCE: Dr. Blackwell, age 60, is a Professor of Marketing at The
Ohio State University College of Business and President of Blackwell Associates,
Inc., a marketing consulting firm.
OTHER DIRECTORSHIPS: Airnet Systems, Inc., Anthony & Sylvan Pools Corporation,
The Banc Stock Group, Inc., Checkpoint Systems, Inc., Cheryl & Co., Inc., The
Flex-funds, Intimate Brands, Inc., Max & Erma's Restaurants, Inc., Symix
Systems, Inc.
RUSSEL B. EVERY
Director since 1986, member of Audit and Executive Organization & Compensation
Committees
BUSINESS EXPERIENCE: Mr. Every, age 75, has been a business consultant since his
retirement as Chairman of The Lamson & Sessions Co. in 1989. Lamson & Sessions
is a diversified manufacturer and distributor of a broad line of thermoplastic
electrical, consumer, telecommunications, and fluid drainage products for major
domestic markets.
JOHN J. KAHL
Director since 1992, member of Audit, Director Nominating, and Futures
Committees
BUSINESS EXPERIENCE: Mr. Kahl, age 59, is Chief Executive Officer of Manco,
Inc., a subsidiary of Henkel Corporation, the North American operating company
of the Henkel Group. Manco is a manufacturer of pressure sensitive tapes for
household and automotive repair, including Duck(R) Brand Tapes, mailing and
shipping supplies for both home and office under the CareMail(R) brand, weather-
stripping and related home energy products for the "do-it-yourselfer," and
labels for both home and office.
OTHER DIRECTORSHIPS: Royal Appliance Mfg. Co., Tandycrafts, Inc.
PERSONS SERVING AS DIRECTORS OF CLASS III FOR A TERM EXPIRING IN 2002
WILLIAM E. BUTLER
Director since 1987, member of Director Nominating and Executive Organization &
Compensation Committees
BUSINESS EXPERIENCE: Mr. Butler, age 69, was Chairman, from 1992 until his
retirement in December 1995, of Eaton Corporation, a global manufacturer of
highly engineered products which serve vehicle, industrial, construction,
commercial, aerospace, and marine markets. Eaton's principal products include
truck transmissions, engine components, hydraulic products, electrical power
distribution and control equipment, ion implanters, and a wide variety of
controls. He was Chief Executive Officer (from 1991 to September 1995), and
served as a director of Eaton from 1989 until his retirement.
5
<PAGE> 6
OTHER DIRECTORSHIPS: Borg-Warner Automotive, Inc., Ferro Corporation, The
Goodyear Tire & Rubber Co., Pitney Bowes, Inc., U. S. Industries, Inc.
RUSSELL R. GIFFORD
Director since 1992, member of Audit, Corporate Governance, Executive, and
Futures Committees
BUSINESS EXPERIENCE: Mr. Gifford, age 61, is a partner with The Gifford Group, a
corporate and customer relations consulting company. He was Chief Operating
Officer of the City of Cleveland Public School District from June 1998 to March
1999. He was also President of CNG Energy Services Corp., a subsidiary of
Consolidated Natural Gas Company, from 1994 until his retirement in January
1997.
L. THOMAS HILTZ
Director since 1981, member of Corporate Governance, Director Nominating,
Executive, and Executive Organization & Compensation Committees
BUSINESS EXPERIENCE: Mr. Hiltz, age 54, is an attorney in Covington, Kentucky
and is one of five trustees of the H.C.S. Foundation, a charitable trust which
has sole voting and dispositive power with respect to 830,250 shares of Applied
Common Stock.
DAVID L. PUGH
Director since January 2000, member of Executive Committee
BUSINESS EXPERIENCE: Mr. Pugh, age 51, is Applied's President (since January
1999) and Chief Executive Officer (since January 2000). He was Chief Operating
Officer of Applied from January 1999 to January 2000. Prior to joining Applied,
he was Senior Vice President of the Industrial Control Group (from February 1996
to June 1998) of Rockwell Automation, a division of Rockwell International
Corporation. He was also Rockwell Automation's Senior Vice President of Global
Operations (from 1994 to February 1996).
6
<PAGE> 7
BENEFICIAL OWNERSHIP OF CERTAIN APPLIED SHAREHOLDERS AND MANAGEMENT
The following table shows the beneficial ownership of Applied Common Stock,
as of June 30, 2000, by: (a) each person known by us to own beneficially more
than 5% of Applied's outstanding shares; (b) all directors and nominees; (c)
each executive officer named in the Summary Compensation Table on page 8; and
(d) all directors, nominees, and executive officers as a group.
<TABLE>
<CAPTION>
COMMON SHARES
BENEFICIALLY OWNED PERCENT OF
NAME OF BENEFICIAL OWNER ON JUNE 30, 2000(1) CLASS(2)
------------------------ ------------------- ----------
<S> <C> <C>
National Rural Electric
Cooperative Association
4301 Wilson Blvd.
Arlington, Virginia 22203.............................. 1,705,855(3) 8.5%
Applied Industrial Technologies, Inc.
Retirement Savings Plan
c/o Key Trust Company of Ohio, N.A., Trustee
127 Public Square
Cleveland, Ohio 44114.................................. 1,604,548(4) 8.0%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, California 90401......................... 1,584,742(5) 7.9%
William G. Bares......................................... 34,476(6)
Dr. Roger D. Blackwell................................... 20,335(7)
William E. Butler........................................ 6,025
Donald L. Chargin........................................ 27,177
Thomas A. Commes......................................... 15,966
John C. Dannemiller...................................... 412,921 2.0%
Russel B. Every.......................................... 34,851
Russell R. Gifford....................................... 25,603(8)
L. Thomas Hiltz.......................................... 871,404(9) 4.3%
John J. Kahl............................................. 34,426
J. Michael Moore......................................... 314,461(10) 1.6%
David L. Pugh............................................ 90,173
Robert C. Stinson........................................ 99,666
Dr. Jerry Sue Thornton................................... 12,843
John R. Whitten.......................................... 99,884
All directors, nominees, and executive officers as a
group (22 individuals)................................. 2,267,416(11) 11.1%
</TABLE>
---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC"). Beneficial ownership may be
disclaimed for other purposes. Except as otherwise indicated, the
beneficial owner has sole voting and dispositive power over the shares. The
directors' and named executive officers' totals include shares that could
be acquired within 60 days after June 30, 2000, by exercising stock options
as follows: Mr. Chargin -- 5,758; Mr. Dannemiller -- 154,325; Mr.
Pugh -- 15,000; Mr. Stinson -- 21,858; Mr. Whitten -- 24,914; and the
directors other than Messrs. Dannemiller and Pugh -- 4,000 per director.
(2) Percent of class is not indicated if less than 1%.
(3) National Rural Electric Cooperative Association reported its share
ownership in a Form 13F filed with the SEC on August 15, 2000.
(4) The Applied Industrial Technologies, Inc. Retirement Savings Plan holds
these shares for the benefit of plan participants. The shares are held in
custody by Key Trust Company of Ohio, N.A., the plan's trustee. The plan's
participants and the trustee possess shared voting power with respect to
the shares. Participants may vote all shares allocated to their accounts
and act as named fiduciaries with respect to unallocated shares. If no
voting direction is received from participants or if legally required, the
trustee has authority to vote the allocated and unallocated shares.
(5) Dimensional Fund Advisors, Inc. reported its share ownership in a letter
dated August 21, 2000.
(6) Includes 2,250 shares owned by Mr. Bares' wife, who has sole voting and
dispositive power.
(7) Includes 225 shares owned by Dr. Blackwell's wife, who has sole voting and
dispositive power.
(8) Includes 300 shares owned by Mr. Gifford's wife, who has sole voting and
dispositive power.
(9) Includes 830,250 shares held by the H.C.S. Foundation, a charitable trust
of which Mr. Hiltz is one of five trustees, with sole voting and
dispositive power. Pursuant to a Schedule 13D filed by the H.C.S.
Foundation dated December 20, 1989, the trustees, including Mr. Hiltz,
disclaimed beneficial ownership of those shares.
(10) Includes 31,648 shares held by Mr. Moore's wife with sole voting and
dispositive power. Also includes 38,773 shares held in trusts for the
benefit of Mr. Moore's children. Mr. Moore's wife is trustee, with sole
voting and dispositive power.
(11) Includes 290,472 shares that could be acquired within 60 days after June
30, 2000, by exercising stock options. In determining the percentage of
share ownership, these stock option shares are added to both the
denominator and the numerator.
7
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes compensation earned during the fiscal years
ended June 30, 2000, 1999, and 1998, by those persons who were, for the fiscal
year ended June 30, 2000, Applied's Chief Executive Officer and the four other
most highly compensated executive officers.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ---------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND BONUS COMPENSATION STOCK AWARD(S) UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1) (2) (3) OPTIONS (4)
------------------ ---- ------ ----- ------------ -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John C. Dannemiller 2000 $600,000 $830,200 $ 8,209 $ 0 0 $ 5,405
Chairman 1999 532,500 0 0 0 125,000 10,018
1998 500,650 0 0 1,884,375 0 6,065
David L. Pugh(5) 2000 403,845 474,000 40,205 0 60,000 19,808
President & Chief 1999 174,519 100,000 0 1,150,000 60,000 28,846
Executive Officer
John R. Whitten 2000 254,807 243,900 350 0 36,000 5,675
Vice President -- 1999 224,500 0 0 0 20,000 22,527
Chief Financial 1998 211,000 0 0 418,750 0 8,734
Officer & Treasurer
Robert C. Stinson 2000 224,231 208,800 327 0 32,000 6,010
Vice President -- 1999 208,462 0 0 0 16,333 4,542
Chief 1998 201,667 0 0 418,750 0 8,961
Administrative
Officer, General
Counsel & Secretary
Donald L. Chargin(5) 2000 187,692 179,960 7,273 0 40,000 25,738
Vice President -- 1999 169,422 0 3,624 217,500 11,333 26,201
Unit President,
Industrial Products
</TABLE>
---------------
(1) Amounts in this column are earnings under the annual Management Incentive
Plan, described in the Executive Organization & Compensation Committee
Report on page 11.
(2) Amount in this column for fiscal 2000 reflect gross-up payments to cover
taxes related to relocation expense reimbursements, club initiation fees,
travel awards, and spousal travel.
(3) Amounts in this column represent restricted stock awards under the Long-Term
Performance Plan described in the Executive Organization & Compensation
Committee Report on pages 11 and 12, valued at the closing market price of
Applied Common Stock on the dates of grant. Dividends are paid on restricted
stock at the same rate paid to all shareholders. At June 30, 2000, the
persons listed above held the following number of unvested shares of
restricted stock, valued at $16.375 per share, the closing market price of
Applied Common Stock on that date: Mr. Dannemiller, 67,500 shares,
$1,105,313; Mr. Pugh, 70,000 shares, $1,146,250; Mr. Whitten, 15,000 shares,
$245,625; Mr. Stinson, 15,000 shares, $245,625; and Mr. Chargin, 15,000
shares, $245,625. All of the shares of restricted stock are
Performance-Accelerated Restricted Stock awards (described on pages 11 and
12), except for 30,000 shares awarded to Mr. Pugh, one-third of which shares
will vest on each of the second through fourth anniversaries of the grant
date, subject to his continuous employment with Applied.
(4) Amounts in this column for fiscal 2000 are (a) contributions made by Applied
and credited to the accounts of the named executive officers under Applied's
Retirement Savings Plan, and (b) with respect to Messrs. Pugh and Chargin,
relocation expense reimbursements of $14,372 and $19,292, respectively.
(5) Mr. Pugh joined Applied in January 1999 and Mr. Chargin was elected an
executive officer in August 1998 (both during fiscal 1999).
8
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES
NUMBER OF % OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
---- ---------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John C. Dannemiller...... 0 0% $ -- -- $ -- $ --
David L. Pugh............ 60,000 13.1 16.719 1/20/10 630,840 1,598,760
John R. Whitten.......... 36,000 7.9 16.719 1/20/10 378,504 959,256
Robert C. Stinson........ 32,000 7.0 16.719 1/20/10 336,448 852,672
Donald L. Chargin........ 40,000 8.8 16.719 1/20/10 420,560 1,065,840
</TABLE>
---------------
(1) The options' exercise price is the market price of Applied Common Stock on
the date the options were granted. The options vest 25% on each of the first
through fourth anniversaries of the grant date, subject to continuous
employment with Applied.
(2) The assumed rates of appreciation were selected by the SEC for illustrative
purposes and are not intended to predict or forecast future stock prices.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table shows information concerning stock option exercises in
fiscal 2000 by the Chief Executive Officer and Applied's four other most highly
compensated executive officers, and the values of in-the-money options held by
those individuals on June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SECURITIES UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
UNDERLYING OPTIONS AT FISCAL YEAR END FISCAL YEAR END
OPTIONS VALUE --------------------------- ---------------------------
NAME EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Dannemiller...... 0 $ 0 154,325 93,750 $1,141,715 $301,753
David L. Pugh............ 0 0 15,000 105,000 32,348 97,043
John R. Whitten.......... 0 0 24,914 51,000 167,546 48,281
Robert C. Stinson........ 0 0 21,858 44,250 141,780 39,429
Donald L. Chargin........ 0 0 5,758 48,875 49,505 27,359
</TABLE>
9
<PAGE> 10
ESTIMATED RETIREMENT BENEFITS
UNDER SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN(1)
The following table shows estimated annual benefits payable upon retirement
at age 65 to participating executive officers under Applied's Supplemental
Executive Retirement Benefits Plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
-----------------------------------------
REMUNERATION(3) 5 10 15 20
--------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$200,000 $ 22,500 $ 45,000 $ 67,500 $ 90,000
300,000 33,750 67,500 101,250 135,000
400,000 45,000 90,000 135,000 180,000
500,000 56,250 112,500 168,750 225,000
600,000 67,500 135,000 202,500 270,000
700,000 78,750 157,500 236,250 315,000
800,000 90,000 180,000 270,000 360,000
900,000 101,250 202,500 303,750 405,000
1,000,000 112,500 225,000 337,500 450,000
1,100,000 123,750 247,500 371,250 495,000
1,200,000 135,000 270,000 405,000 540,000
1,300,000 146,250 292,500 438,750 585,000
</TABLE>
---------------
(1) Amounts shown in the table are computed on the basis of a straight life
annuity and are not subject to deduction for Social Security or other offset
amounts.
(2) Mr. Chargin has more than 20 years of service with Applied, Mr. Whitten has
more than 15 years, Messrs. Dannemiller and Stinson have more than 10 years,
and Mr. Pugh has less than five years. Plan benefits are fully accrued after
20 years of service. Under Mr. Pugh's employment agreement, described on
page 15, his annual straight life benefit at age 65 is guaranteed to be at
least $50,000. Also, if, while employed by Applied, he dies prior to the end
of his fifth year of service with Applied, he will be deemed to have five
years of service.
(3) Amounts in this column represent, and benefits are based on, average total
cash compensation for the highest three of the last 10 calendar years. The
cash compensation for the Chief Executive Officer and the four other most
highly compensated executive officers for the past three fiscal years is
found in the Summary Compensation Table.
REPORT OF THE EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
OVERVIEW
The Executive Organization & Compensation Committee consists entirely of
independent outside directors. The Committee is responsible for setting
Applied's executive officer compensation policies. The purposes of the executive
officer compensation program are to attract and retain qualified executives and
to provide appropriate incentives, both monetary and stock-based, to achieve
Applied's business strategies and enhance shareholder value over the long term.
The major components of Applied's executive officer compensation program
are:
(a) Annual base salary; and,
(b) The 1997 Long-Term Performance Plan.
ELEMENTS OF COMPENSATION PROGRAM
(a) ANNUAL BASE SALARY
In setting base salaries, the Committee uses an annual competitive pay
analysis compiled by an independent, nationally recognized compensation and
benefits consulting firm (the "Independent Consultant"). This analysis shows the
market base salary and total cash compensation at the average, median (50th
percentile), and 75th percentile levels for each executive officer position. The
analysis is based on data from a variety of published and private surveys. The
analysis also presents
10
<PAGE> 11
data from certain publicly held industrial distribution companies, including
companies from the peer group shown in the graph on page 13. In addition to the
analysis, the Committee considers an officer's performance and levels of
experience and responsibility in the position in setting the base salary. In
general, the Committee has set base salaries at or below median levels.
(b) 1997 LONG-TERM PERFORMANCE PLAN
(1) MANAGEMENT INCENTIVE PLAN
The annual Management Incentive Plan, adopted under the 1997 Long-Term
Performance Plan, is Applied's program for compensating executive officers for
the achievement of fiscal year goals. The Committee reviews and discusses
proposed corporate and individual officer goals and then sets the goals for the
year. Both the individual and the corporate goals for fiscal 2000 were expressed
in terms of threshold, target (midpoint), and maximum levels of required
performance.
In fiscal 2000, the Committee assigned certain executive officers,
including Messrs. Dannemiller and Pugh, the corporate goal (achievement of
earnings per share objectives) as their individual goal. The other executive
officers had individual goals (in addition to the corporate goal) relating
specifically to their job responsibilities. These goals varied in relative
weight. The size of the Management Incentive Plan payments depends on the level
of performance achieved on both individual and corporate goals. If, as was the
case in fiscal 1998 and 1999, Applied does not achieve threshold levels of
performance on the corporate goal, no incentive payments are made to the
executive officers (even if individual goals are attained).
Assuming that corporate and individual goals are met, the amount of the
individual incentive payment is based on a formula, the components of which are
the market base salary and responsibility percentage assigned to the executive
officer by the Committee. For example, Mr. Dannemiller's target incentive
payment in fiscal 2000 was $415,100, being 70% (the responsibility percentage)
multiplied by the assigned market base salary. Mr. Pugh's target incentive
payment was $237,000, representing 60% multiplied by the assigned market base
salary. Responsibility percentages for the other executive officers during
fiscal 2000 varied based on position.
Payments can range from 0% to 200% (for outstanding achievement levels) of
the target incentive, depending on performance. Applied achieved maximum
performance on its corporate goal in fiscal 2000, earning $1.50 per share, 61%
higher than in 1999. As a result of this accomplishment, Mr. Dannemiller earned
an incentive award of $830,200 and Mr. Pugh earned an award of $474,000. When
combined with base salary, their resulting total cash compensation exceeded the
mid-level market range. By comparison, in 1998 and 1999, total cash compensation
was, in general, substantially below median market levels.
The Deferred Compensation Plan (described on page 15) was adopted in part
to encourage increased investment in Applied Common Stock by the executive
officers. Three of the named executive officers elected under the Deferred
Compensation Plan to defer at least half of their 2000 incentive awards into
Applied Common Stock.
(2) STOCK-BASED AWARDS
In order to align more closely the executive officers with shareholder
interests and to compensate the officers based on performance measures that
directly enhance shareholder value, the Committee has in recent years awarded
Performance-Accelerated Restricted Stock ("PARS") to the officers. PARS are
awards of restricted shares of Applied Common Stock which vest six years from
the date of grant; however, PARS can vest automatically at an earlier date if
performance hurdles based on stock price and pre-tax return on assets ("ROA")
are met.
The Committee last made PARS awards to the executive officer team in August
1997. Fifty percent of those PARS will vest if Applied achieves either a fiscal
year ROA of 13.5%, or a stock
11
<PAGE> 12
price of $33.33 per share for 20 consecutive days. The remaining 50% will vest
on the achievement of either an ROA of 17.5%, or a stock price of $37.33 per
share for 20 consecutive days.
In the past two years, the Committee has also awarded non-qualified stock
options to the executive officers. These grants were made based on the
Independent Consultant's recommendation to be competitive in the marketplace and
as a means to retain officers. The options' exercise price is the market price
of Applied Common Stock on the date the options were granted. The options vest
25% on each of the first through fourth anniversaries of the grant date, subject
to continuous employment with Applied, and expire on the tenth anniversary.
The total number of stock-based awards that may be made under the Long-Term
Performance Plan in a fiscal year is 2% of the shares outstanding on the first
day of the year. In addition, available shares not awarded in a fiscal year may
be carried forward into future years.
(c) BENEFITS
Benefits provided to the executive officers are those generally provided to
Applied's other associates with variations consistent with executive benefits in
the competitive marketplace.
FEDERAL INCOME TAX DEDUCTIBILITY
The Internal Revenue Code limits the amount of compensation a publicly held
corporation may deduct as a business expense for federal income tax purposes.
That limit, which applies to the Chief Executive Officer and the four other most
highly compensated executive officers, is $1 million per individual per year,
subject to certain exceptions. One of the exceptions is for compensation that is
performance-based.
The Committee has taken steps to qualify awards made to the executive
officers under the Management Incentive Plan as performance-based. In general,
the Committee seeks to preserve the deductibility of compensation paid to
Applied's executive officers, but without compromising the Committee's
flexibility in designing an effective and competitive compensation program.
EXECUTIVE ORGANIZATION &
COMPENSATION COMMITTEE
William E. Butler
William G. Bares
Russel B. Every
L. Thomas Hiltz
12
<PAGE> 13
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN OF APPLIED,
S&P 500 INDEX, VALUE LINE MACHINERY INDUSTRY INDEX, AND PEER COMPANY GROUP
The graph below compares the five-year cumulative total return from
investing $100 on June 30, 1995 in each of Applied Common Stock, the Standard
and Poor's 500 Index, the Value Line Machinery Industry Index (of which Applied
Common Stock is a component), and a group of eight peer companies: Airgas, Inc.,
Federal-Mogul Corporation, Genuine Parts Company, W.W. Grainger, Inc., Kaman
Corporation, Lawson Products, Inc., MSC Industrial Direct Co., Inc., and The
Timken Company. We benchmark our financial performance against these companies,
which we believe, as a group, to be more representative of our industry than is
the Value Line Machinery Industry Index.
Cumulative total return assumes that all dividends are reinvested when
received. The returns of the companies in the peer group are weighted based on
the companies' relative stock market capitalization.
[LINE GRAPH]
<TABLE>
<CAPTION>
APPLIED S&P 500 MACHINERY INDUSTRY PEER GROUP
------- ------- ------------------ ----------
<S> <C> <C> <C> <C>
1995 $100.00 $100.00 $100.00 $100.00
1996 $135.03 $126.12 $123.09 $120.30
1997 $182.85 $169.95 $190.70 $146.13
1998 $159.39 $220.83 $223.80 $169.04
1999 $152.10 $271.36 $239.67 $150.66
2000 $135.00 $287.55 $242.45 $ 85.05
</TABLE>
Source: Value Line, Inc.
13
<PAGE> 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Michael Moore, an Applied director, was Chairman and Chief Executive
Officer of Invetech Company, which we acquired in August 1997. In connection
with the acquisition, Applied entered into a Consulting, Non-competition and
Confidentiality Agreement with Mr. Moore and Oak Grove Consulting Group, Inc.,
which Mr. Moore owns and of which he is president.
Oak Grove and Mr. Moore received payments from Applied during fiscal 2000
as a consequence of the following provisions of the 1997 agreement: (a) Oak
Grove agreed to perform certain business consulting services for Applied for a
period of five years in exchange for an annual fee of $70,000; (b) Mr. Moore
agreed not to compete with Applied until the later of (1) July 31, 2002 and (2)
the end of the one-year period following the date of termination of all of Mr.
Moore's relationships with Applied (other than as a shareholder) in exchange for
$2,550,000 payable in five equal annual installments of $510,000 beginning on
July 31, 1997; and (c) Applied agreed to pay to Oak Grove, during Mr. Moore's
and his spouse's lives, $700 per month for the cost of health insurance to be
obtained and maintained by Oak Grove for Mr. Moore, his spouse, and eligible
children.
COMPENSATION OF DIRECTORS
Messrs. Dannemiller and Pugh, who are executive officers of Applied, do not
receive additional compensation for service as directors. Non-employee directors
receive a quarterly retainer of $4,500, a fee of $1,500 for the first Board or
committee meeting attended per day, and $500 for each additional meeting
attended on the same day, up to a maximum of $2,500 per day. Directors may be
similarly compensated if they attend other meetings or conferences at the
Chairman's request. In addition, Applied pays directors $500 for any action
taken by unanimous written consent or via telephone conference of less than 30
minutes, and directors who serve as committee chairmen receive an additional
quarterly retainer of $400. All non-employee directors are eligible to
participate in the Deferred Compensation Plan for Non-employee Directors
described below. If participants elect to receive their director compensation in
the form of Applied Common Stock, they receive an additional amount equal to 25%
of the compensation so deferred.
Annual stock option awards have been made to the non-employee directors
since 1999, based on recommendations by an outside compensation consultant. The
awards improve the competitiveness of our director compensation program and are
expected to assist in recruiting and retaining directors. In 2000, each
non-employee director was awarded 2,000 options with an exercise price equal to
the market price for Applied Common Stock on the date of grant. The options are
exercisable immediately and expire on the tenth anniversary of the grant date.
The compensation received by non-employee directors is reviewed from time
to time by Applied's management. If management believes that a change is
necessary to make the level of compensation competitive relative to the size and
nature of our business, management will present a recommendation to the Board.
Approval of the change requires the affirmative vote of a majority of the
directors. The directors also participate in our travel accident plan and may
elect to participate in our contributory health insurance plan.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The purposes of our Deferred Compensation Plan for Non-employee Directors
are to allow non-employee directors to defer the receipt of compensation payable
for director services and to promote loyalty to Applied through increased
investment in Applied Common Stock.
Pursuant to the plan, a non-employee director may elect, prior to any
calendar quarter, to defer payment of his or her compensation for future
services as a director. Once an election is made, it is irrevocable with respect
to compensation earned. Directors may change their election to receive or defer
receipt of compensation for future services commencing with the calendar quarter
following the election.
14
<PAGE> 15
As directors' compensation would otherwise become due and payable, Applied
transfers the amount deferred to a trust maintained by Key Trust Company of
Ohio, N.A., as Trustee. Deferred fees are invested by the Trustee, at a
director's option, in a money market fund and/or Applied Common Stock. If a
director elects to have his or her compensation invested in Common Stock, then
Applied contributes an additional amount equal to 25% of the amount so deferred.
Distribution of a director's account commences as designated by the
director in his or her election on a date that is not more than 30 days after
(a) the director's termination due to resignation, retirement, death, or
otherwise, or (b) the director's attainment of the age (not younger than 55)
specified in his or her deferral election form; or upon a change in control (as
defined in the plan) of Applied.
Of our ten non-employee directors, eight currently defer all of their
retainer and meeting fees and invest those fees in Applied Common Stock.
DEFERRED COMPENSATION PLAN
The Applied Industrial Technologies Deferred Compensation Plan (the "Plan")
permits executives to defer a portion or all of the awards payable under the
annual Management Incentive Plan. The Plan's purpose is to promote increased
efforts on behalf of Applied through increased investment in Applied Common
Stock.
The Plan gives each Management Incentive Plan participant the opportunity
to defer payment of his or her cash award. Any participant who elects to make a
deferral may have the amounts invested in Applied Common Stock and/or in a money
market fund. If a participant elects to have an amount equal to at least 50% of
a Management Incentive Plan award invested in Applied Common Stock, an
additional 10% of that amount will be credited to the participant. These
deferral and investment opportunities and the incentive for investing in Applied
Common Stock, like those available to directors under the Deferred Compensation
Plan for Non-employee Directors, are part of an overall effort to align
management with the interests of Applied's shareholders.
Distribution of deferrals will be made in a lump sum or in installments
over a period not in excess of ten years, as specified in the participant's
deferral election form. Other than dates specified in the deferral election
forms, a withdrawal is permitted while employed only due to a severe financial
and unexpected hardship.
Three of the executive officers named in the Summary Compensation table on
page 8 elected to participate in the Plan in 2000, deferring at least half of
their 2000 Management Incentive Plan awards and investing the funds in Applied
Common Stock.
EMPLOYMENT AGREEMENT
In fiscal 1999, Applied entered into an employment agreement with Mr. Pugh
in connection with his hiring as President & Chief Operating Officer. Under that
agreement, Mr. Pugh was named a participant in Applied's Supplemental Executive
Retirement Benefits Plan and guaranteed an annual straight life retirement
benefit at age 65 of at least $50,000. In addition, if, while employed by
Applied, he dies before the end of his fifth year of service, he will be deemed
to have five years of service for purposes of that plan. Mr. Pugh also agreed,
following the termination of any of his relationships with Applied (other than
as a shareholder), not to compete with Applied for two years and to maintain the
confidentiality of all non-public information pertaining to Applied for five
years.
15
<PAGE> 16
CHANGE IN CONTROL AGREEMENTS
AND OTHER RELATED ARRANGEMENTS
Applied has change in control agreements with its executive officers. The
agreements obligate Applied to provide severance benefits to any executive
officer whose employment is terminated either by the officer for "good reason"
or by Applied "without cause" (each as defined in the agreements) if the
termination occurs within three years after a change in control, as defined in
the agreements. The officer, in turn, is obligated not to compete with Applied
for one year following the termination. The principal benefits to be provided
under the agreements to the executive officers are as follows:
(a) a lump sum severance payment equal to three times annual base
salary plus incentive pay (each as calculated pursuant to the
agreements), reduced proportionately if the officer reaches age 65
within three years after termination;
(b) a cash payment, instead of exercising any stock options held by
the officer on the date of termination, equal to the difference
between the exercise price and the higher of (i) the mean of the
high and low trading prices on the New York Stock Exchange on the
date of termination, and (ii) the highest price paid for Applied
Common Stock in connection with the change in control;
(c) continued participation in Applied's employee benefit plans,
programs, and arrangements, or equivalent benefits for three years
after termination at the levels in effect immediately before
termination; and
(d) outplacement services.
An escrow account has been established with Key Trust Company of Ohio,
N.A., to secure payment of the benefits. Applied has deposited a percentage of
the amounts that would be payable to the officers under the agreements.
Additional deposits may be made in future years. No officer may make a claim on
the escrow assets unless Applied is in default under the agreement. All earnings
on the escrow assets are payable to Applied. The agreements also provide that if
any covered executive is required to pay a "parachute" excise tax, Applied will
make an additional payment to the executive in an amount sufficient (after
payment of any taxes on the additional payment) to pay the excise tax.
The agreements are intended to reinforce and encourage the continued
attention and dedication of Applied's officers to their assigned duties without
distraction in the face of the potentially disturbing circumstances arising from
the possibility of a change in control. The agreements may make it more
expensive to accomplish a change in control and could under certain
circumstances adversely affect the shareholders' ability to benefit from a
change in control. The Board of Directors approved the agreements, however,
because it believes that the continued attention and dedication of the officers
to their duties under adverse circumstances are ultimately in the best interests
of Applied and its shareholders, and can under some circumstances result in a
higher price being paid to shareholders in connection with a change in control.
In addition to the benefits provided by the agreements, the Long-Term
Performance Plan provides the following benefits to executive officers if a
change in control occurs: (a) all stock options outstanding will become fully
exercisable; (b) all restrictions and conditions of stock awards will be deemed
satisfied; and (c) all cash awards (including payments made under a Management
Incentive Plan) will be deemed to have been fully earned.
Also, under the Supplemental Executive Retirement Benefits Plan, if a
participant is terminated following a change in control or is receiving or is
eligible to receive a retirement benefit at the time of the change in control,
the participant is entitled to receive the actuarial equivalent of the
participant's retirement benefit in a lump sum. In addition, upon a change in
control, actively employed participants will be credited with additional years
of service and age (up to 10 years) for benefit calculation purposes, equal to
half of the difference between the participant's age and age 65.
16
<PAGE> 17
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 2000, the Board of Directors had eight meetings, six of which
were regularly scheduled. Each director attended at least 75% of the total
number of meetings of the Board and all committees on which he or she served.
Among the Board's standing committees are the Audit, Executive Organization &
Compensation, and Director Nominating Committees.
The AUDIT COMMITTEE recommends the appointment of independent auditors,
reviews with the independent auditors the scope of their examination, reviews
the scope of non-audit services performed by the independent auditors and
considers the effect of those services on the auditors' independence, reviews
with management and the independent auditors the results of the audit, reviews
with management the adequacy of our internal accounting controls, and reviews
with management and the independent auditors the auditors' report on internal
accounting controls and other recommendations. A copy of the committee's charter
is attached as an Appendix to this statement. Russell R. Gifford, Thomas A.
Commes, Russel B. Every, John J. Kahl, and Dr. Jerry Sue Thornton, all of whom
are independent directors, serve on the committee. The Audit Committee met three
times during fiscal 2000.
The EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE reviews and makes
recommendations to the Board regarding both compensation of executives and
planning for executive organization and succession. The committee also
administers the Long-Term Performance Plan, including the Management Incentive
Plan. William E. Butler, William G. Bares, Russel B. Every, and L. Thomas Hiltz,
all of whom are independent directors, serve on the committee. The Executive
Organization & Compensation Committee met twice during fiscal 2000.
The DIRECTOR NOMINATING COMMITTEE considers and reviews possible nominees
for the Board to fill vacancies and makes recommendations to the Board. L.
Thomas Hiltz, William G. Bares, William E. Butler, John C. Dannemiller, and John
J. Kahl serve on the committee. There are no procedures established for
submissions by shareholders; the committee would, however, consider a qualified
nominee submitted by shareholders. The Director Nominating Committee met three
times during fiscal 2000.
The Board of Directors also has standing Corporate Governance, Executive,
and Futures Committees.
ITEM 2 -- RATIFICATION OF AUDITORS
Deloitte & Touche LLP, certified public accountants, has served as our
independent auditor for many years and has been appointed by the Board of
Directors, upon the Audit Committee's and management's recommendations and
subject to ratification by the shareholders, to serve again in fiscal 2001.
Applied has been advised by Deloitte & Touche LLP that no partner of the firm
has had any direct financial interest or any material indirect financial
interest in Applied or its subsidiaries or any connection during the past three
years with Applied or its subsidiaries in the capacity of promoter, underwriter,
voting trustee, director, officer, or employee.
Unless otherwise indicated, the accompanying proxy will be voted in favor
of ratifying the appointment of Deloitte & Touche LLP. The affirmative vote of a
majority of the shares represented at the meeting is sufficient to constitute
ratification. If Deloitte & Touche LLP withdraws or otherwise becomes
unavailable for reasons not presently known, the persons named as proxies will
vote for other independent auditors as they deem appropriate.
One or more representatives of Deloitte & Touche LLP are expected to be
present at the meeting. They will have the opportunity to make a statement if
they desire and will be available to respond to appropriate questions.
17
<PAGE> 18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Applied's executive officers and directors, and persons who beneficially
own more than 10% of Applied Common Stock, must file initial reports of
ownership and reports of changes in ownership with the SEC and the New York
Stock Exchange. Copies of the reports must be furnished to Applied.
Based solely on a review of copies of forms furnished to us and written
representations from Applied's executive officers and directors, we believe that
during fiscal 2000 all filing requirements were complied with on a timely basis.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Proposals by shareholders for inclusion in our 2001 Annual Meeting Proxy
Statement must be received by Applied's Secretary at One Applied Plaza,
Cleveland, Ohio 44115, no later than May 15, 2001. Under Ohio law, only
proposals included in the notice of meeting may be raised at a meeting of
shareholders. If you wish to nominate a candidate for director or bring any
other business from the floor of the 2001 annual meeting, you must notify
Applied's Secretary in writing by August 17, 2001.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at the meeting. If any other matters requiring a shareholder vote arise,
including the question of adjourning the meeting, the persons named in the
accompanying proxy will vote your shares according to their judgment in the
interests of Applied.
By order of the Board of Directors.
ROBERT C. STINSON
Secretary
Dated: September 12, 2000
18
<PAGE> 19
APPENDIX
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
AUDIT COMMITTEE CHARTER
Primary responsibility for the Corporation's financial reporting and
internal control structure vests in senior operating management as overseen by
the Board of Directors (the "Board"). The Audit Committee (the "Committee") is a
standing committee of the Board composed of not fewer than three independent
outside directors. "Independence" of Committee members will be determined by the
Board according to its guidelines set from time to time and according to
applicable rules of the New York Stock Exchange, with the goal of assuring that
Committee members have no relationship to the Corporation that may interfere
with the exercise of their independence from management and the Corporation. The
primary purpose of the Committee is to assist the Board in overseeing financial
reporting and the Corporation's internal control structure. The Committee is
also responsible for maintaining a direct line of communication with the
Corporation's independent auditors, chief financial officer and the internal
audit department.
The Committee shall have unrestricted access to the Corporation's personnel
and documents and will be given the resources necessary to discharge its
responsibilities, including, as appropriate, additional training in basic
finance and accounting principles to assure the financial literacy of its
members. The Committee shall meet at least three times per year, and may
establish a schedule of additional regular meetings, as it considers
appropriate. The Committee may also call special meetings as required. The
Committee's specific responsibilities include the following:
A. INDEPENDENT AUDITORS
1. The independent auditors shall be accountable to the Committee and the
Board. The Committee, in consultation with management, shall be
responsible for making recommendations to the Board regarding the
selection, retention or dismissal of the independent auditors.
2. The continued independence of the independent auditors in accordance
with professional auditing standards and Securities and Exchange
Commission ("SEC") requirements shall be reviewed periodically with
management, as well as with the independent auditors. The Committee
shall require annually a written statement and letter from the
independent auditors disclosing relationships between the Corporation
and the independent auditors, consistent with Independence Standards
Board Standard No. 1, shall discuss with the independent auditors their
independence in fact, as well as consulting and other non-audit services
provided by the independent auditors, to determine any potential impact
on independence.
3. The Committee shall meet with the independent auditors before the audit
examination to discuss the audit plan, including the scope, staffing and
timing of the audit, extent of coordination with management and with
internal audit, and review significant audit areas. These discussions
shall also focus on the Corporation's electronic data processing
procedures and controls and the specific security programs to protect
against computer fraud or misuse from both within and outside the
Corporation.
4. Subsequent to each audit, the Committee shall meet with the independent
auditors to review and discuss accounting and audit matters, including,
but not limited to:
- Significant auditing or accounting areas of concern,
- New or unusual transactions, balances or financial statement
disclosures of significance,
- The auditors' judgments about the quality of the Corporation's
accounting principles as applied,
- The representation letter provided to the independent auditors by the
Corporation,
<PAGE> 20
- The level of support provided by the Corporation's management,
accounting and internal audit personnel, and
- Any other matters required to be discussed by SAS 61 and other
concerns the independent auditors have with respect to positions taken
by the Corporation in its financial statements.
The Committee shall also review and discuss any matters that the independent
auditors are required under professional auditing standards to communicate
to the Committee, such as:
- Significant audit adjustments,
- Disagreements with management,
- Reportable conditions in the internal control structure, and
- Any irregularities or illegal acts detected during the audit.
The Committee will also review the responses of management with regard to
these matters.
B. OVERSIGHT OF FINANCIAL REPORTING
Prior to release to the public, the annual audited financial statements of
the Corporation shall be reviewed by the Committee and discussed with management
and the independent auditors. The purpose of the review shall be to determine
whether to recommend to the Board that the audited financial statements be
included in the Corporation's annual report on Form 10-K. The Committee shall
inquire about the following:
- Significant variations in financial information between reporting
periods.
- Consistency of the Management's Discussion and Analysis section of the
annual report with information reflected in the financial statements.
- Changes or proposed changes in accounting standards or rules issued by
the Financial Accounting Standards Board or the SEC that have an
impact on the financial statements.
- Significant reporting or operational issues affecting the financial
statements.
- Accounting accruals, reserves and estimates made (or failed to be
made) by management having a material impact on the financial
statements.
C. INTERIM REPORTS
Prior to release to the public of quarterly earnings, the Committee or its
Chairman shall have such communication with management and/or the independent
auditors, as deemed appropriate by the Chairman of the Committee.
D. INTERNAL AUDIT
1. At least annually, the Committee shall review with management and the
manager of internal audit:
- A summary of the results and recommendations of activities performed
by the internal audit department.
- The activities, plans, responsibilities and capabilities of the
internal audit function.
2. The Committee shall review management's appointment or dismissal of the
manager of internal audit.
2
<PAGE> 21
E. INTERNAL CONTROLS
The Committee shall be responsible for overseeing the internal control
structure established by management. The internal control structure should be
designed to assure that assets are safeguarded, transactions are authorized, and
that transactions are properly recorded. Such oversight would include but not be
limited to the following:
- Review of the Report of Management included in the Annual Report to
Shareholders.
- Review of significant recommendations by internal and independent
auditors regarding the Corporation's internal control structure.
- Inquiry of senior management, the manager of internal audit and the
independent auditors regarding significant elements in the internal
control structure.
F. CHARTER REVIEW
The Committee shall, on an annual basis, review and reassess the adequacy
of the Charter.
G. OTHER
The Committee may use the Corporation's internal or independent auditors to
assist in accomplishing the following responsibilities:
1. The Committee shall inquire annually of management's plan for
determining compliance with the Corporation's policies on business
ethics and practices.
2. The Committee shall inquire of senior management of known or potential
instances of non-compliance with applicable laws, regulatory policies,
including SEC reporting requirements, and guidelines as they relate to
the functions and responsibilities of the Committee.
3. The Committee shall be informed by the Corporation's general counsel of
material litigation in which the Corporation is involved or in which
management believes involvement of the Corporation is reasonably likely.
4. The Committee shall periodically inquire about the Corporation's
policies and procedures regarding the review of officers' expense
reports and perquisites for compliance with proper reporting, accounting
and tax treatment.
LINES OF COMMUNICATION
The manager of internal audit and the independent auditors shall have the
ability to communicate directly with the Chairman of the Committee, if necessary
or desired. The Committee shall provide sufficient opportunity at its meetings
for the independent auditors and the manager of internal audit to meet with the
members of the Committee without members of management present.
The general counsel shall report directly to the Committee about legal
compliance. The Committee may directly contact any employee in the Corporation
and any employee may inform the Committee of matters involving questionable,
illegal or improper practices or transactions.
The Committee shall report at least annually to the Board on the
fulfillment of its duties under the mandate delegated to it by the Board.
3
<PAGE> 22
PROXY PROXY
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints DAVID L. PUGH, JOHN R. WHITTEN, and ROBERT C. STINSON,
and each of them, as Proxies, with full power of substitution, to attend the
Annual Meeting of Shareholders of Applied Industrial Technologies, Inc., on
October 17, 2000, and any adjournments, and to represent and vote the shares
which the undersigned is entitled to vote on the following matters as directed
on the reverse side:
(The Board of Directors recommends a vote FOR Items 1 and 2.)
1. Election of Directors of Class I (for a term of
3 years). The nominees are
Thomas A. Commes, J. Michael Moore, and Dr.
Jerry Sue Thornton.
2. Ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the
current fiscal year.
3. In their discretion, the Proxies are authorized
to vote on such other business as may properly
come before the meeting.
(change of address)
---------------------------
---------------------------
---------------------------
---------------------------
(If you have written in the
above space, please mark
the corresponding box on
the reverse side of this
card.)
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS PROXY
WILL BE VOTED FOR ITEMS 1 AND 2.
SEE REVERSE
SIDE
............................................................................
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE
REVERSE SIDE.
<PAGE> 23
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
[ ]
<TABLE>
<CAPTION>
FOR WITHHELD FOR ALL
ALL ALL EXCEPT FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of Directors / / / / / / 2. Ratification of / / / / / /
01 - Thomas A. Commes appointment of independent
02 - J. Michael Moore auditors.
03 - Dr. Jerry Sue Thornton
For all, except vote withheld from the following
nominee(s):
-----------------------------------------------
</TABLE>
Change of Address [ ]
Date: , 2000
-------------------
------------------------------
Signature(s)
------------------------------
Signature(s)
Note: Please sign exactly as
name appears on this card.
Joint owners should each sign.
When signing as attorney,
executor, administrator,
trustee, or guardian, please
give full title.
...........................................................................
CONTROL NUMBER FOLD AND DETACH HERE
[APPLIED LOGO]
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
We encourage you to take advantage of the new and convenient ways to vote your
shares. If voting by proxy, this year you may vote by mail, or choose one of the
two methods described below. Your telephone or Internet vote has the same effect
as if you marked, signed, and returned your voting instructions card. Votes by
telephone or the Internet must be received by Sunday, October 15, 2000. To vote
by telephone or the Internet, read the accompanying proxy statement and then
follow these easy steps:
TO VOTE BY PHONE Call toll-free 1-877-210-3552 in the United
States or Canada any time on a touch tone
telephone. There is NO CHARGE to you for
the call.
Enter the 6-digit CONTROL NUMBER located
above.
Option #1: To vote as the Board of
Directors recommends on
ALL Proposals: Press 1
When asked, please confirm
your vote by pressing 1.
Option #2: If you choose to vote on
each proposal separately,
press 0 and follow the
simple recorded
instructions.
TO VOTE BY INTERNET Go to the following website:
WWW.COMPUTERSHARE.COM/US/PROXY
Enter the information requested on your
computer screen, including your 6-digit
CONTROL NUMBER located above.
Follow the simple instructions on the
screen.
If you vote by telephone or the Internet, DO NOT mail back the voting
instructions card.
THANK YOU FOR VOTING!
<PAGE> 24
CONFIDENTIAL VOTING INSTRUCTIONS
TO: KEY TRUST COMPANY OF OHIO, N.A., TRUSTEE (THE "TRUSTEE") FOR
APPLIED INDUSTRIAL TECHNOLOGIES, INC. SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
(THE "PLAN")
I, the undersigned, as a Participant in the Plan, instruct the Trustee to vote
(in person or by proxy) all shares of Common Stock of Applied Industrial
Technologies, Inc. allocated to my account under the Plan on the record date for
the Annual Meeting of Shareholders to be held on October 17, 2000.
(The Board of Directors recommends a vote FOR Items 1 and 2.)
1. Election of Directors of Class I (for a term of
3 years). The nominees are:
Thomas A. Commes, J. Michael Moore, and Dr.
Jerry Sue Thornton.
2. Ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the
current fiscal year.
3. In its discretion, the Trustee is authorized to
vote on such other business as may properly come
before the meeting.
(change of address)
---------------------------
---------------------------
---------------------------
---------------------------
(If you have written in the
above space, please mark
the corresponding box on
the reverse side of this
card.)
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS CARD
WILL BE VOTED FOR ITEMS 1 AND 2.
SEE REVERSE
SIDE
...............................................................................
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE, AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE
REVERSE SIDE.
<PAGE> 25
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
[ ]
<TABLE>
<CAPTION>
FOR WITHHELD FOR ALL
ALL ALL EXCEPT FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of Directors / / / / / / 2. Ratification of / / / / / /
01 - Thomas A. Commes appointment of independent
02 - J. Michael Moore auditors.
03 - Dr. Jerry Sue Thornton
For all, except vote withheld from the following
nominee(s):
-----------------------------------------------
</TABLE>
Change of Address [ ]
Date: , 2000
-------------------
------------------------------
Signature(s)
------------------------------
Signature(s)
Note: Please sign exactly as
name appears on this card.
Joint owners should each sign.
When signing as attorney,
executor, administrator,
trustee, or guardian, please
give full title.
................................................................................
CONTROL NUMBER FOLD AND DETACH HERE
[APPLIED LOGO]
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
We encourage you to take advantage of the new and convenient ways to vote your
shares. This year you may vote by mail, or choose one of the two methods
described below. Your telephone or Internet vote has the same effect as if you
marked, signed, and returned your voting instructions card. Votes by telephone
or the Internet must be received by Sunday, October 15, 2000. To vote by
telephone or the Internet, read the accompanying proxy statement and then follow
these easy steps:
TO VOTE BY PHONE Call toll-free 1-877-210-1416 in the United
States or Canada any time on a touch tone
telephone. There is NO CHARGE to you for
the call.
Enter the 6-digit CONTROL NUMBER located
above.
Option #1: To vote as the Board of
Directors recommends on
ALL Proposals: Press 1
When asked, please confirm
your vote by pressing 1.
Option #2: If you choose to vote on
each proposal separately,
press 0 and follow the
simple recorded
instructions.
TO VOTE BY INTERNET Go to the following website:
WWW.COMPUTERSHARE.COM/US/PROXY
Enter the information requested on your
computer screen, including your 6-digit
CONTROL NUMBER located above.
Follow the simple instructions on the
screen.
If you vote by telephone or the Internet, DO NOT mail back the voting
instructions card.
THANK YOU FOR VOTING!
<PAGE> 26
CONFIDENTIAL VOTING INSTRUCTIONS
TO: KEY TRUST COMPANY OF OHIO, N.A., TRUSTEE (THE "TRUSTEE") FOR
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN (THE "PLAN")
I, the undersigned, as a Participant in the Plan, instruct the Trustee to vote
(in person or by proxy) all shares of Common Stock of Applied Industrial
Technologies, Inc. allocated to my account and any shares not otherwise directed
under the Plan on the record date for the Annual Meeting of Shareholders to be
held on October 17, 2000.
(The Board of Directors recommends a vote FOR Items 1 and 2.)
1. Election of Directors of Class I (for a term of
3 years). The nominees are:
Thomas A. Commes, J. Michael Moore, and Dr.
Jerry Sue Thornton.
2. Ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the
current fiscal year.
3. In its discretion, the Trustee is authorized to
vote on such other business as may properly come
before the meeting.
(change of address)
---------------------------
---------------------------
---------------------------
---------------------------
(If you have written in the
above space, please mark
the corresponding box on
the reverse side of this
card.)
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS CARD
WILL BE VOTED FOR ITEMS 1 AND 2.
SEE REVERSE
SIDE
.............................................................................
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE, AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE
REVERSE SIDE.
<PAGE> 27
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
[ ]
<TABLE>
<CAPTION>
FOR WITHHELD FOR ALL
ALL ALL EXCEPT FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of Directors / / / / / / 2. Ratification of / / / / / /
01 - Thomas A. Commes appointment of independent
02 - J. Michael Moore auditors.
03 - Dr. Jerry Sue Thornton
For all, except vote withheld from the following
nominee(s):
-----------------------------------------------
</TABLE>
Change of Address [ ]
Date: , 2000
-------------------
------------------------------
Signature(s)
------------------------------
Signature(s)
Note: Please sign exactly as
name appears on this card.
Joint owners should each sign.
When signing as attorney,
executor, administrator,
trustee, or guardian, please
give full title.
................................................................................
CONTROL NUMBER FOLD AND DETACH HERE
[APPLIED LOGO]
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
We encourage you to take advantage of the new and convenient ways to vote your
shares. This year you may vote by mail, or choose one of the two methods
described below. Your telephone or Internet vote has the same effect as if you
marked, signed, and returned your voting instructions card. Votes by telephone
or the Internet must be received by Sunday, October 15, 2000. To vote by
telephone or the Internet, read the accompanying proxy statement and then follow
these easy steps:
TO VOTE BY PHONE Call toll-free 1-877-210-2638 in the United
States or Canada any time on a touch tone
telephone. There is NO CHARGE to you for
the call.
Enter the 6-digit CONTROL NUMBER located
above.
Option #1: To vote as the Board of
Directors recommends on
ALL Proposals: Press 1
When asked, please confirm
your vote by pressing 1.
Option #2: If you choose to vote on
each proposal separately,
press 0 and follow the
simple recorded
instructions.
TO VOTE BY INTERNET Go to the following website:
WWW.COMPUTERSHARE.COM/US/PROXY
Enter the information requested on your
computer screen, including your
6-digit CONTROL NUMBER located above.
Follow the simple instructions on the
screen.
If you vote by telephone or the Internet, DO NOT mail back the voting
instructions card.
THANK YOU FOR VOTING!
