AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997.
OHIO
(State or other jurisdiction of
incorporation or organization)
5085
(Primary Standard Industrial
Classification Code No.)
34-0117420
(IRS Employer Identification No.)
As promptly as practicable after this Registration Statement becomes effective and the effective time of the proposed merger of INVETECH Company ("INVETECH") with and into a subsidiary of the Registrant (the "Merger Sub"), as described in the enclosed Prospectus.
CALCULATION OF REGISTRATION FEE
==================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES PROPOSED AMOUNT MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Common Stock, without par
value.................... 2,300,000 $31.5625(1) $72,593,750 $21,999
==================================================================================================
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(1) Pursuant to Rule 457(f), the proposed maximum offering price per unit and proposed maximum aggregate offering price were computed in accordance with Rule 457(c) on the basis of the average of the high and low prices per share of the Common Stock of the Registrant on May 21, 1997.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND PROSPECTUS
PURSUANT TO ITEM 501(b) OF REGULATION S-K
ITEM NO. FORM S-4 CAPTION HEADING IN PROSPECTUS
- -------- --------------------------------------------- -------------------------------------
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or
Authorizations are to be Solicited........... *
Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Summary; The Merger; Invetech Special
Meeting; Information Regarding
Beneficial Ownership of Principal
Applied Shareholders and Management;
Management of Applied; Compensation
of Directors and Executive Officers;
Information Regarding Beneficial
Ownership of Principal Invetech
Shareholders and Management
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* Omitted because inapplicable or answer is in the negative.
PROSPECTUS
2,300,000 SHARES
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
COMMON STOCK
This Prospectus relates to up to 2,300,000 shares of common stock (the "Applied Common Stock"), without par value, of Applied Industrial Technologies, Inc. ("Applied") that may be issued in connection with the merger (the "Merger") of INVETECH Company ("Invetech") with and into I.C. Acquisition Corp. ("Merger Sub") in accordance with the terms of the Plan and Agreement of Merger dated as of April 29, 1997 by and among Applied, Invetech and Merger Sub attached as Annex A hereto (the "Merger Agreement"). Applied Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "APZ." On May 21, 1997, the closing sale price for Applied Common Stock as reported on the NYSE Composite Tape was $31.625 per share.
In the Merger, all of the outstanding shares of Class A common stock, $0.10
par value, of Invetech (the "Invetech Class A Common Stock") and Class B common
stock, $0.10 par value, of Invetech (the "Invetech Class B Common Stock"; the
Invetech Class A Common Stock and the Invetech Class B Common Stock shall be
referred to herein collectively as the "Invetech Common Stock") will be
converted into the right to receive shares of Applied Common Stock and cash, in
the proportion designated by Invetech based upon preference specification forms
solicited by Invetech from the holders of Invetech Common Stock (the "Invetech
Shareholders"). The aggregate value of Applied Common Stock and cash to be paid
to Invetech Shareholders will be Eighty-Three Million Dollars ($83,000,000) (the
"Merger Consideration"); provided, however, in no event shall more than Two
Million Three Hundred Thousand (2,300,000) shares of Applied Common Stock be
issuable in connection with the Merger. The Merger Consideration is allocable
(i) 15% to the holders of Invetech Class A Common Stock and (ii) 85% to the
holders of Invetech Class B Common Stock, on a pro rata basis to each holder's
percentage interest in each class of Invetech Common Stock. Ten Million Dollars
($10,000,000) (the "Escrow Amount") of the Merger Consideration will be
deposited and held in escrow pursuant to the terms of an escrow agreement
substantially in the form of Annex B hereto (the "Escrow Agreement") to be
entered into as of the Closing Date (as hereinafter defined) of the Merger for
the purpose of funding the indemnification obligations of Invetech under the
Merger Agreement. Assuming no claims for indemnification are asserted by
Applied, the Escrow Amount shall be distributed to the Invetech Shareholders
over a five-year period following the Effective Time (as hereinafter defined) in
accordance with the terms of the Escrow Agreement. For purposes of computing the
Merger Consideration, each share of Applied Common Stock will be assigned a
value of Twenty-Eight Dollars and Sixty-Two Cents ($28.62) per share. The Merger
Consideration is subject to adjustment on a dollar for dollar basis to the
extent that the shareholders' equity of Invetech as reflected on the Closing
Balance Sheet (as hereinafter defined), reduced as provided in the Merger
Agreement for all transaction costs and certain other expenses incurred by
Invetech in connection with the Merger, is greater than or less than Forty-Six
Million Dollars ($46,000,000). In addition, Applied shall pay interest on the
Merger Consideration, as adjusted, in an amount equal to the product of (x) the
Merger Consideration, as adjusted, (y) the number of days elapsed between the
date of the Closing Balance Sheet and the Closing (as hereinafter defined), and
(z) 0.0002191.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
AVAILABLE INFORMATION
Applied is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference room of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public reference facilities in the New York Regional Office, 7 World Trade Center, New York, New York 10048, and the Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates by writing to the Securities and Exchange Commission, Public Reference Section, Washington, D.C. 20549. In addition, material filed by Applied can be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York, 10005. The Commission also maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other reports and information filed electronically by Applied.
No person has been authorized to give any information or to make any representations not contained or incorporated in this Prospectus in connection with the matters referred to herein and, if given or made, such information or representations must not be relied upon as having been so authorized by Applied. This Prospectus does not constitute an offer of any securities other than the registered securities to which it relates or an offer to any person in any jurisdiction where such offer would be unlawful. The delivery of this Prospectus shall not, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains 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. Those statements appear in a number of places in this Prospectus and include statements regarding intent, belief or current expectations of Applied. Applied 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 Applied or any other person that the results expressed therein will be achieved. See "Risk Factors."
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.............................. 1
The Companies................................. 1
Applied Industrial Technologies, Inc........ 1
INVETECH Company............................ 1
Merger Sub.................................. 2
The Merger.................................... 2
General..................................... 2
Merger Consideration........................ 3
Election Procedures Regarding Merger
Consideration............................. 3
Escrow Amount............................... 4
Closing Date................................ 4
Effective Time.............................. 4
Conditions to Merger........................ 4
Termination................................. 5
No Solicitation; Termination Fee............ 5
Approval and Recommendation of the Boards of
Directors; Reasons for the Merger......... 5
Certain Federal Income Tax Consequences..... 6
Resale of Applied Common Stock.............. 6
Accounting Treatment of Merger.............. 6
Selected Historical Consolidated and Unaudited
Pro Forma Combined Financial Information.... 7
Combined Condensed Financial Information...... 8
Comparative Per Share Data and Dividend
History..................................... 9
Comparative Stock Price Data and Dividend
History..................................... 10
RISK FACTORS.................................... 12
Integration of Operations; Adverse Effect on
Financial Results........................... 12
Potential Dilutive Effect to Shareholders..... 12
Depletion of Escrow Amount.................... 12
Potential Unavailability of "Reorganization"
Tax Treatment of Merger..................... 13
Risks Attendant to Future Acquisitions........ 13
Highly Competitive Markets.................... 13
Change in Relationship with Manufacturers..... 13
General Market Conditions..................... 14
THE MERGER...................................... 14
General....................................... 14
Background of the Merger...................... 15
Approval of Applied Board of Directors;
Reasons for Merger.......................... 17
Recommendation and Approval of Invetech Board
of Directors; Reasons for Merger............ 18
Opinion of Invetech's Financial Advisor....... 19
Appraisal Rights.............................. 20
Certain Federal Income Tax Consequences of the
Merger...................................... 20
Accounting Treatment.......................... 21
Regulatory Matters............................ 21
INVETECH SPECIAL MEETING........................ 21
INTERESTS OF CERTAIN PERSONS IN THE MERGER...... 22
RESALE OF APPLIED COMMON STOCK.................. 24
THE MERGER AGREEMENT............................ 24
General....................................... 25
Merger Consideration.......................... 25
Election Procedures Regarding Merger
Consideration............................... 25
Escrow Amount................................. 26
Closing Date.................................. 26
Conversion and Exchange of Shares............. 26
PAGE
----
Business of Invetech Pending the Merger....... 26
Solicitation of Alternative Transactions...... 27
Corporate Structure and Related Matters After
the Merger.................................. 27
Certain Covenants............................. 27
Indemnification............................... 28
Conditions to the Merger...................... 29
Termination or Amendment of the Merger
Agreement; Termination Fee.................. 30
Fees and Expenses............................. 30
Confidentiality Agreements.................... 31
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS.................................... 32
APPLIED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 37
INFORMATION CONCERNING APPLIED.................. 42
Description of Business....................... 42
General Development of the Business........... 42
Financial Information about Industry
Segments.................................... 42
Narrative Description of the Business......... 42
Properties.................................... 45
Pending Legal Proceedings..................... 46
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
PRINCIPAL APPLIED SHAREHOLDERS AND
MANAGEMENT.................................... 48
MANAGEMENT OF APPLIED........................... 49
Executive Officers............................ 49
Directors..................................... 49
COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS...................................... 52
Summary Compensation Table.................... 52
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values........... 54
Report of the Compensation Committee.......... 56
Director Compensation......................... 58
INVETECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 60
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
PRINCIPAL INVETECH STOCKHOLDERS AND
MANAGEMENT.................................... 62
INFORMATION CONCERNING INVETECH................. 64
DESCRIPTION OF APPLIED CAPITAL STOCK............
Common Stock.................................. 66
Preferred Stock............................... 66
Transfer Agent and Registrar.................. 66
COMPARISON OF RIGHTS OF HOLDERS OF APPLIED
COMMON STOCK AND INVETECH COMMON STOCK........ 67
EXPERTS......................................... 69
LEGAL MATTERS................................... 69
INDEX TO FINANCIAL STATEMENTS................... F-1
ANNEX A Plan and Agreement of Merger............ A-1
ANNEX B Escrow Agreement........................ B-1
ANNEX C Oppenheimer & Co., Inc. Opinion......... C-1
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this Prospectus and is hereby qualified in its entirety by reference to the full text of this Prospectus and the annexes hereto. Holders of Invetech Common Stock are urged to read this Prospectus and the accompanying annexes in their entirety. See "Risk Factors" for certain information that should be considered in connection with the Merger. Information set forth herein concerning Applied, Merger Sub and their respective affiliates has been furnished by Applied and information set forth herein concerning Invetech and its affiliates has been furnished by Invetech. This Prospectus contains certain information set forth more fully in the Merger Agreement and Escrow Agreement attached as Annexes A and B hereto, respectively, and is qualified by reference to the Merger Agreement and Escrow Agreement, which are hereby incorporated by reference. The Merger Agreement and Escrow Agreement should be read carefully by each recipient of this Prospectus.
THE COMPANIES
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
Applied Industrial Technologies, Inc. is an Ohio corporation that, directly and through its subsidiaries (Applied and its subsidiaries shall be referred to herein collectively as "Applied"), engages in the distribution and sale of ball, roller, thrust, plane and linear type bearings, mechanical and electrical drive system products, industrial rubber products, fluid power products and specialty items used in connection with the foregoing such as seals, lubricants, locking devices, sealing compounds, adhesives and maintenance tools. Although Applied does not generally manufacture the products that it sells, it does assemble filter carts, fluid power components, hydraulic power units, hydraulic and pneumatic cylinders, speed reducers and electrical panels, modify conveyor belts and rebuild precision machine tool spindles.
Applied's sales personnel advise and assist customers with respect to product selection and application. Applied considers this advice and assistance to be an integral part of its overall sales efforts. Beyond acting as a mere distributor, Applied markets itself to selected customers as a "single-source" applied technology supplier, offering product and process solutions involving multiple product technologies, which solutions reduce production downtime and overall procurement and maintenance costs for customers. By providing a high level of service, product knowledge and technical support, while at the same time offering competitive pricing, Applied seeks to develop closer, longer-lasting and more profitable relationships with its customers.
Applied purchases from over 100 major suppliers of bearings, drive system products, industrial rubber products, fluid power products and specialty items and resells to customers in a wide variety of industries, including industrial machinery, forest products, primary metals, agriculture and food processing, chemical processing, transportation, mining, textiles and utilities. Its customers range from the largest industrial concerns in the country to the smallest. No single customer of Applied accounts for more than 3% of Applied's net sales taken as a whole.
Applied and its predecessor companies have been engaged in this business since 1923. Applied was incorporated pursuant to the laws of Delaware in 1928 and reincorporated from Delaware to Ohio in 1988. Applied, formerly known as Bearings, Inc., adopted its current name as of January 1, 1997. Applied's executive offices are located at 3600 Euclid Avenue, Cleveland, Ohio 44115 and its telephone number is (216) 881-8900.
INVETECH COMPANY
INVETECH Company, a Michigan corporation, and its wholly owned subsidiaries, American Bearing and Power Transmission, Inc., a Michigan corporation, and Moore Bearing Co., a Michigan corporation (Invetech and its subsidiaries shall be referred to herein collectively as "Invetech") engage in the distribution and sale of bearings, mechanical and electrical drive system products, industrial rubber products and specialty maintenance and repair products manufactured by others. Although Invetech does not manufacture the products that it sells, it assembles hydraulic and general purpose hose assemblies and power transmission
products. Invetech has a machine shop at its Fort Street facility in Detroit, Michigan which specializes in bearing reconditioning, reducer rebuilds and repair, and machining and alterations.
Invetech is a non-exclusive distributor for numerous manufacturers of the products it sells. Invetech purchases from over 100 major suppliers and resells to a wide range of customers, including automotive companies, industrial plants, machine shops, mines, paper mills, textile mills, food processing plants, agricultural concerns and other enterprises.
Invetech's sales personnel advise and assist customers with respect to product selection and application. Invetech offers product and process solutions involving multiple technologies in an effort to reduce production downtime and overall procurement and maintenance costs for customers. Invetech believes it offers high levels of service, product knowledge and technical support as well as competitive pricing.
Invetech's sales personnel include inside customer service representatives assigned to each branch who receive, process and expedite customer orders and assist in servicing customers. In addition, each branch has field account representatives who make on-site calls to customers and potential customers to provide product and pricing information, engineering assistance and other cost savings services to its customers. Invetech employs a number of product specialists to assist customers with applications in their particular area of expertise.
Invetech, formerly Detroit Ball Bearing Company of Michigan, was incorporated in 1917. Invetech's principal executive offices are located at 1400 Howard Street, Detroit, Michigan 48216 and its telephone number is (313) 963-6011.
MERGER SUB
I.C. Acquisition Corp., herein referred to as Merger Sub, is a wholly owned subsidiary of Applied recently organized under the Ohio General Corporation Law for the purpose of effecting the acquisition of Invetech. Merger Sub has no material assets and has not engaged in any activities except in connection with the proposed acquisition. Merger Sub's executive offices are located at 3600 Euclid Avenue, Cleveland, Ohio 44115 and its telephone number is (216) 881-8900.
THE MERGER
GENERAL
This Prospectus relates to up to 2,300,000 shares of Applied Common Stock
that may be issued in connection with the merger of Invetech with and into
Merger Sub. The Merger is conditioned upon, among other things, approval of the
Merger Agreement by the Invetech Shareholders at a special meeting called for
that purpose. Each share of Invetech Class A Common Stock and Invetech Class B
Common Stock is entitled to one vote regarding approval of the Merger Agreement.
The affirmative vote of the holders of at least a majority of the shares of the
outstanding Invetech Class A Common Stock and the Invetech Class B Common Stock,
voting separately as classes, is required for approval of the Merger Agreement.
Pursuant to the Merger Agreement, J. Michael Moore and James T. Moore II,
directors and executive officers of Invetech, who together beneficially own 100%
of the outstanding shares of Invetech Class A Common Stock and approximately
26.7% of Invetech Class B Common Stock, have agreed to vote their respective
shares in favor of the Merger. Invetech Shareholders will not be entitled to
appraisal or dissenters' rights in connection with the Merger pursuant to
Section 762(2)(b) of the Michigan Business Corporation Act. See "Invetech
Special Meeting."
The Merger is intended to qualify as a reorganization for federal income tax purposes upon which no gain or loss will be recognized by Invetech Shareholders with respect to shares of Applied Common Stock received in the Merger. However, gain, but not loss, will be recognized to the extent Invetech Shareholders receive cash in the Merger. Upon consummation of the Merger, the separate corporate existence of Invetech shall cease and Merger Sub will succeed to all of the rights, franchises, assets, liabilities and business of Invetech. Merger Sub will thereafter continue to conduct business as a wholly owned subsidiary of Applied. By approving the Merger and the Merger Agreement, the Invetech Shareholders shall also thereby agree to be bound by the
terms of the Escrow Agreement and the lock-up letter attached as Exhibit B to the Merger Agreement. In addition, by virtue of the Merger, at the Effective Time, all existing stock redemption agreements and shareholder agreements between Invetech and any Invetech Shareholder(s) shall be deemed to have been terminated and shall have no further force or effect. Following the Effective Time, to the extent the Invetech Shareholders receive shares of Applied Common Stock in the Merger, the rights of such Invetech Shareholders will be governed by Applied's Articles of Incorporation, Code of Regulations and the agreement of merger and plan of reorganization between Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) dated as of September 6, 1988.
MERGER CONSIDERATION
In the Merger, all outstanding shares of the Invetech Common Stock will be converted into the right to receive shares of Applied Common Stock and cash, in the proportion designated by Invetech based upon preference specification forms solicited by Invetech from the Invetech Shareholders in connection with the Special Meeting of Invetech Shareholders (see "The Merger -- Election Procedures Regarding Merger Consideration"). The aggregate value of Applied Common Stock and cash to be paid to Invetech Shareholders will be Eighty-Three Million Dollars ($83,000,000) (the "Merger Consideration"); provided, however, in no event shall more than Two Million Three Hundred Thousand (2,300,000) shares of Applied Common Stock be issuable in connection with the Merger. The Merger Consideration is allocable (i) 15% to the holders of Invetech Class A Common Stock and (ii) 85% to the holders of Invetech Class B Common Stock, on a pro rata basis to each holder's percentage interest in each class of Invetech Common Stock. For purposes of computing the Merger Consideration, each share of Applied Common Stock will be assigned a value of Twenty-Eight Dollars and Sixty-Two Cents ($28.62), which was the average closing sale price of Applied Common Stock on NYSE for the twenty business days preceding February 5, 1997 (the day Applied executed the letter of intent relating to the Merger). The Merger Consideration is subject to adjustment on a dollar for dollar basis to the extent that the shareholders' equity of Invetech, as reflected on the Closing Balance Sheet, reduced as provided in the Merger Agreement for all transaction costs and certain other expenses incurred by Invetech in connection with the Merger, is greater than or less than Forty-Six Million Dollars ($46,000,000). In addition, Applied shall pay interest on the Merger Consideration, as adjusted, in an amount equal to the product of (x) the Merger Consideration, as adjusted, (y) the number of days elapsed between the date of the Closing Balance Sheet and the date of the Closing, and (z) 0.0002191.
No fractional shares of Applied Common Stock will be issued in connection with the Merger. Each Invetech Shareholder otherwise entitled to a fractional share of Applied Common Stock will receive an amount of cash in lieu thereof, rounded up to the nearest cent, determined by multiplying (i) Twenty-Eight Dollars and Sixty-Two Cents ($28.62) by (ii) the fractional interest to which such Invetech Shareholder would otherwise be entitled.
ELECTION PROCEDURES REGARDING MERGER CONSIDERATION
In connection with seeking approval by the Invetech Shareholders of the Merger Agreement and the Merger, Invetech will deliver to each Invetech Shareholder a merger consideration election form (the "Preference Specification"). The Preference Specification will allow each Invetech Shareholder to indicate his or her preference with respect to the portions of the Merger Consideration that such Invetech Shareholder would like to receive in Applied Common Stock and cash. Each Invetech Shareholder will be given the choice to elect to receive 78%, 70%, 60% or 50% of the aggregate Merger Consideration payable to such Invetech Shareholder in Applied Common Stock (at a value of $28.62 per share), with the balance of such Merger Consideration to be payable in cash. From such amounts, cash equal to approximately 12.05% of the Merger Consideration payable to each Invetech Shareholder will be deposited in the Escrow Account by Applied. See "The Merger -- Escrow Amount" and "-- Indemnification." The Preference Specification completed by each Invetech Shareholder will apply to all shares of Invetech Common Stock held by such Invetech Shareholder. A Preference Specification will only be effective if Invetech shall have received the Preference Specification properly completed and signed not less than five (5) business days prior to the Effective Time. In the event that a properly completed and signed Preference Specification for any Invetech Shareholder is not received by
Invetech by such date, such Invetech Shareholder shall be entitled to receive Merger Consideration allocated fifty percent (50%) to Applied Common Stock (at a value of $28.62 per share) and fifty percent (50%) to cash.
ESCROW AMOUNT
At the Effective Time, Ten Million Dollars ($10,000,000) of the Merger Consideration will be deposited into an escrow account (the "Escrow Account") to secure the indemnification obligations of Invetech under the Merger Agreement. Subject to the prior lien of any claims for indemnification asserted by Applied which have not yet been paid from the Escrow Account, the Escrow Amount will be reduced to Five Million Dollars ($5,000,000) on January 1, 2000 and Two Million Five Hundred Thousand Dollars ($2,500,000) on April 1, 2001 and all amounts held in excess of the then applicable Escrow Amount shall be distributed to Invetech Shareholders in proportion to their respective interests. Unless the entire Escrow Amount shall have been paid to Applied in satisfaction of the indemnification obligations of Invetech (upon which the escrow will terminate), the escrow will terminate on the later of (i) five years following the Effective Time, and (ii) the date upon which all claims for indemnification made by Applied pursuant to the Merger Agreement and Escrow Agreement have been resolved and all amounts then held in the Escrow Account will be distributed to the Invetech Shareholders. See "The Merger Agreement -- Escrow Amount" and "-- Indemnification."
CLOSING DATE
The closing of the transactions contemplated by the Merger Agreement (the "Closing") shall take place as soon as practicable after the satisfaction or waiver of each of the conditions to Merger (the "Closing Date"), unless Applied and Invetech agree that the Closing should occur at some other time, as specified in the Merger Agreement. See "The Merger Agreement -- Conditions to the Merger."
EFFECTIVE TIME
The Merger will become effective (the "Effective Time") following the Closing upon the later to occur of (i) the filing of a certificate of merger with the Secretary of State of the State of Ohio and (ii) the filing of a certificate of merger with the Corporation, Securities and Land Development Bureau of the State of Michigan. Except for certain pre-merger notification requirements under federal antitrust laws and for compliance with federal and state securities laws requirements, each of which requirements have been satisfied, the Merger is not subject to any other federal or state regulatory requirements. See "The Merger -- Regulatory Matters."
CONDITIONS TO MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including, without limitation, (i) the approval of the Merger
Agreement and the transactions contemplated therein by the Invetech
Shareholders, (ii) receipt by Invetech and Applied of certain opinions of
counsel, including receipt by Invetech of an opinion of counsel regarding tax
matters, (iii) the effectiveness of the Registration Statement (of which this
Prospectus is a part) with respect to the Applied Common Stock to be issued in
connection with the Merger and approval for listing of such shares on NYSE, (iv)
the continuing accuracy as of the Effective Time of the representations and
warranties made by and the performance of all covenants and agreements of
Applied, Invetech and the Merger Sub in the Merger Agreement, (v) Applied being
satisfied with the environmental condition of the real property of Invetech,
(vi) Applied being satisfied that the shareholders' equity of Invetech as of
December 31, 1996 and as of the Closing is not less than Forty-One Million
Dollars ($41,000,000) nor greater than Fifty-One Million Dollars ($51,000,000),
(vii) Applied being satisfied that certain benefit plans and agreements to which
Invetech and certain of its current or former directors, officers or employees
were parties have been terminated and all obligations thereunder have been
discharged, (viii) the execution of certain employment, consulting,
noncompetition and confidentiality agreements between Applied and certain
shareholders, directors, officers and employees of Invetech, (ix) the closing
price of Applied Common Stock not exceeding $38.00 nor being less than $24.875
on any day subsequent to April 29, 1997 (the date of the Merger Agreement), (x)
no material adverse change having occurred with respect to the business of
Invetech, (xi) Applied being reasonably satisfied that all material
customers, product vendors, suppliers, sales representatives and employees of Invetech will continue their respective relationships with Applied following the Effective Time, (xii) the absence of any restraining order, injunction or other legal restraint prohibiting consummation of the Merger, and (xiii) consent having been obtained by Invetech to the assignment by Invetech of certain intellectual property rights in the Variable Curvilinear Recirculating Element Bearing and a Traveling Windlass Drive Mechanism, also referred to as the Motion Roller/Bearing Assembly, to MRBA Company. For a complete list of conditions to the Merger, see "The Merger Agreement -- Conditions to the Merger."
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned prior to the Effective Time under certain circumstances specified in the Merger Agreement, including, without limitation, (i) by mutual written agreement of Applied and Invetech, (ii) by either party, if the Merger shall not have been consummated by July 31, 1997 or if there is issued any permanent restraining order, injunction or other legal restraint prohibiting consummation of the Merger, (iii) by Invetech, in the event the Board of Directors of Invetech, acting in good faith, determines that it is required, in order to discharge properly its fiduciary duties to the Invetech Shareholders, to withdraw, modify or change its approval of this Merger Agreement or the transactions set forth therein or, by Applied, if the Board of Directors of Invetech takes any such action, (iv) by either party, if the Invetech Shareholders fail to approve the Merger, or (v) by either party, upon a breach by the other party which results or would reasonably be expected to result in an adverse effect on the non-breaching party of Three Million Dollars ($3,000,000) or more before taxes. See "The Merger Agreement -- Termination or Amendment of the Merger Agreement."
NO SOLICITATION; TERMINATION FEE
Invetech has agreed that it will not, prior to the Effective Time, initiate, solicit, or participate in discussions with any other party relating to, or enter into any acquisition proposal or other transaction, the consummation of which could prevent or materially delay the Merger, except to the extent the Board of Directors of Invetech reasonably determines that failure to take such action would constitute a breach of its fiduciary duties to the Invetech Shareholders; provided, however, if (x) prior to termination of this Agreement, any person other than Applied and its affiliates shall have commenced, proposed or communicated to Invetech an Acquisition Proposal (as defined in Section 4.2(c) of the Merger Agreement) and (y) within one year of termination of the Merger Agreement, such person, or any affiliate of such person, enters into any definitive agreement to effect a transaction contemplated by such Acquisition Proposal (or which is related thereto), then Invetech shall pay to Applied within five business days following consummation of the transaction that was contemplated by the Acquisition Proposal a termination fee of Three Million Dollars ($3,000,000). See "The Merger Agreement -- Solicitation of Alternative Transactions" and "-- Termination or Amendment of the Merger Agreement; Termination Fee."
APPROVAL AND RECOMMENDATION OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
The Boards of Directors of Applied and Invetech have unanimously approved the Merger and the Merger Agreement and the Board of Directors of Invetech has recommended the Merger to the Invetech Shareholders. During their respective evaluations of the Merger, each Board considered a number of potential benefits resulting to its shareholders from the Merger, including those benefits which may be realized as a result of the complementary nature of the businesses of Applied and Invetech, the opportunity for the combined company to achieve increased economies of scale and operational efficiency and the enhanced ability of the combined company to attract top quality employees, suppliers and customers. Each Board considered the risks that the potential benefits of the Merger may not be realized and that the Merger may result in a possible loss of customers or suppliers or dilution in their respective shareholders' investments in shares of Applied Common Stock. See "Risk Factors."
For a discussion of the factors considered by the respective Boards of Directors in reaching their decisions to approve the Merger, see "The Merger -- Approval of Applied Board of Directors; Reasons for Merger" and "The Merger -- Recommendation and Approval of Invetech Board of Directors; Reasons for Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization (a "Reorganization")
for federal income tax purposes under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), upon which no gain or loss will be
recognized for federal income tax purposes by Invetech Shareholders with respect
to shares of Applied Common Stock received in exchange for their shares of
Invetech Common Stock. However, gain, but not loss, if any, will be recognized
to the extent that Invetech Shareholders receive cash in exchange for their
shares of Invetech Common Stock. Consummation of the Merger is conditioned upon
receipt by Invetech of an opinion from its legal counsel to that effect. Receipt
of the aforementioned legal opinion may be waived by Invetech as a condition to
consummation of the Merger. Neither party intends to seek a ruling from the
Internal Revenue Service regarding the federal income tax consequences of the
Merger. The Merger will have no tax consequences to shareholders of Applied. ALL
INVETECH SHAREHOLDERS SHOULD READ CAREFULLY THE DISCUSSION UNDER "The
Merger -- Certain Federal Income Tax Consequences of the Merger" and "The Merger
Agreement -- Conditions to the Merger."
RESALE OF APPLIED COMMON STOCK
For the purpose of ensuring qualification of the Merger as a tax-free reorganization for federal income tax purposes, in connection with the Merger, each Invetech Shareholder will be required to execute a "lock up" letter in the form attached as Exhibit B to the Merger Agreement. The lock up letter prohibits each Invetech Shareholder from disposing of any shares of Applied Common Stock obtained in the Merger prior to January 1, 1998, without first delivering an opinion of counsel satisfactory in form and substance to Applied to the effect that such disposition will not violate the continuity of shareholder interest requirement set forth in Section 1.368-1 of the official Treasury Department interpretation of the Code.
Certain persons who are deemed to be "affiliates" of Invetech immediately prior to the Merger will be subject to additional restrictions relating to future resales of Applied Common Stock received in the Merger pursuant to Rule 145 under the Securities Act of 1933, as amended (the "Securities Act"). See "Resale of Applied Common Stock".
ACCOUNTING TREATMENT OF MERGER
The Merger will be accounted for by Applied as a purchase of Invetech for financial accounting purposes in accordance with generally accepted accounting principles.
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION
The following selected historical consolidated financial information of Applied and Invetech has been derived from their respective historical consolidated financial statements, and should be read in conjunction with such consolidated financial statements and the footnotes thereto, which are included in this Prospectus. The selected Applied historical consolidated financial information as of and for the nine months ended March 31, 1997 and the selected Invetech historical consolidated financial information as of and for the three months ended March 31, 1997 presented below have been prepared on the same basis as the historical information derived from the audited financial statements and in the opinion of management of Applied and Invetech, respectively, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations of Applied as of and for the nine months ended March 31, 1997 and Invetech as of and for the three months ended March 31, 1997.
The selected unaudited pro forma combined financial information has been derived from the pro forma combined condensed financial statements and should be read in conjunction with such pro forma statements and the notes thereto, which are included in this Prospectus. These pro forma statements have been prepared as if the acquisition (to be accounted for as a purchase of Invetech) was consummated at the beginning of the fiscal year ended June 30, 1996.
The selected unaudited pro forma combined financial information is presented for illustrative purposes and is not necessarily indicative of the combined financial position or combined results of operations that would have been reported had the acquisition occurred on the dates indicated, nor do the pro forma financial statements represent a forecast of the combined financial position or results of operations for any future period. The selected unaudited pro forma combined financial information does not include the effect on the results of operations of a $3.7 million pre-tax nonrecurring charge for the accrual of estimated costs associated with the acquisition of Invetech, including the consolidation of operations of certain facilities, along with costs relating to certain duplicative assets. This charge principally includes accruals for severance costs, lease termination costs, and write-off of capital assets. The charge will be recorded in the period in which the acquisition is consummated. This pro forma financial information does not include any favorable effect on selling, distribution and administrative expenses resulting from the planned reduction in expenses, primarily salaries and employee benefits, upon consolidation of certain facilities and administrative functions of the two companies. The impact of the reductions is estimated to be approximately $15 million per year before the effect of income taxes.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED
-------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
-------- -------- -------- ---------- ---------- -----------------
Net sales................ $817,813 $831,432 $936,254 $1,054,809 $1,143,749 $ 854,431
Net income (loss)........ (1,666) 8,927 12,687 16,909 23,334 18,163
Net income (loss) per
share.................. (0.16) 0.82 1.12 1.46 1.90 1.47
Cash dividends per
share.................. 0.43 0.43 0.43 0.47 0.54 0.46
Total assets............. 330,619 315,935 343,519 359,231 404,072 397,779
Total long-term
obligations............ -- 80,000 80,000 74,286 62,857 57,143
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF
INVETECH COMPANY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, THREE MONTHS
---------------------------------------------------- ENDED MARCH 31,
1992* 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------------
Net sales..................... $221,658 $246,859 $280,313 $313,913 $314,318 $ 83,360
Income before cumulative
effect of change in
accounting principle........ 2,602 3,554 4,655 4,215 5,089 1,702
Income per share before
cumulative effect of change
in accounting principle..... 0.88 1.24 1.62 2.01 2.43 0.81
Cash dividends per share...... 0.16 0.24 0.32 0.37 0.47 0.04
Total assets.................. 89,810 90,486 98,458 107,697 101,477 104,069
Total long-term obligations... 8,149 8,662 11,341 28,162 8,517 8,517
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* In 1992, the amounts indicated above exclude the cumulative effect of accounting change to adopt SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions."
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION OF APPLIED INDUSTRIAL TECHNOLOGIES, INC.
AND INVETECH COMPANY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
1996 1997
----------------- -----------------
Net sales.................................................. $ 1,454,596 $ 1,092,405
Net income................................................. 24,443 19,904
Net income per share....................................... 1.67 1.35
Cash dividends per share................................... 0.54 0.46
Total assets............................................... 565,334 560,444
Total long-term obligations................................ 89,057 65,660
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COMPARATIVE PER SHARE DATA AND DIVIDEND HISTORY
The following tables set forth certain historical per share data of Applied and Invetech and combined per share data on an unaudited pro forma basis after giving effect to the acquisition using the purchase method of accounting. The information set forth below should be read in conjunction with the selected historical consolidated financial information, the unaudited pro forma combined condensed financial statements and the separate historical consolidated financial statements of Applied and Invetech and notes thereto. The unaudited pro forma combined condensed information is provided for illustrative purposes and is not necessarily indicative of the combined financial position or combined results of operations that would have been reported had the acquisition occurred on the dates indicated, nor does the unaudited pro forma combined condensed financial information represent a forecast of the combined financial position or results of operations for any future period.
SELECTED HISTORICAL PER SHARE DATA OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
FISCAL YEAR ENDED JUNE 30, NINE MONTHS ENDED
------------------------------------------ MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ -----------------
Book value per share(1)............... $12.09 $11.97 $13.30 $13.59 $15.29 $ 16.11
Cash dividends per share.............. 0.43 0.43 0.43 0.47 0.54 0.46
Net income per share.................. (0.16) 0.82 1.12 1.46 1.90 1.47
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SELECTED HISTORICAL PER SHARE DATA OF INVETECH COMPANY
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------ MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------------------
Book value per share(1)................. $14.70 $15.70 $17.05 $20.43 $22.39 $23.16
Cash dividends per share................ 0.16 0.24 0.32 0.37 0.47 0.04
Income per share before cumulative
effect of change in accounting
principle............................. 0.88 1.24 1.62 2.01 2.43 0.81
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SELECTED UNAUDITED PRO FORMA COMBINED INFORMATION OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND INVETECH COMPANY
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
1996 1997
----------------- -----------------
Book value per share (1)................................... $ 17.61 $ 18.31
Cash dividends per share................................... 0.54 0.46
Income per share........................................... 1.67 1.35
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NOTES TO THE COMPARATIVE PER SHARE DATA
(1) -- Historical book value per share is computed by dividing total shareholders' equity by the number of common shares outstanding at the end of each period. Pro forma combined book value per share is computed by dividing pro forma shareholders' equity by the pro forma number of shares of Applied Common Stock outstanding after consideration of the projected issuance of 2.3 million shares to effect the acquisition.
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY
There is no public trading market for the Invetech Class A Common Stock or the Invetech Class B Common Stock and there is no published information with respect to its market price. Invetech is not aware of any trading in Invetech's Class A Common Stock or Class B Common Stock during the past three years, except that Invetech purchased 780,755 shares of its Class B Common Stock in January, 1995, at a price of $12.37 per share.
Applied Common Stock is listed on NYSE under the trading symbol "APZ." The following table sets forth, for the periods indicated, the quarterly high and low sale prices and dividend history per share of Applied Common Stock (as adjusted to give effect to a three-for-two stock split effected in December 1995).
APPLIED COMMON STOCK
FOR FISCAL YEARS 1995 TO DATE
HIGH LOW DIVIDEND
------ ------ --------
First quarter ended September 30, 1994................. $22.17 $20.17 $ 0.11
Second quarter ended December 31, 1994................. 23.09 20.42 0.12
Third quarter ended March 31, 1995..................... 22.67 18.83 0.12
Fourth quarter ended June 30, 1995..................... 21.50 18.33 0.12
First quarter ended September 30, 1995................. 22.67 20.08 0.12
Second quarter ended December 31, 1995................. 29.63 22.50 0.14
Third quarter ended March 31, 1996..................... 29.38 24.00 0.14
Fourth quarter ended June 30, 1996..................... 33.75 26.75 0.14
First quarter ended September 30, 1996................. 31.13 25.63 0.14
Second quarter ended December 31, 1996................. 29.25 25.75 0.16
Third quarter ended March 31, 1997..................... 35.88 27.38 0.16
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On February 14, 1997, the last trading day prior to the announcement by Applied and Invetech that they had entered into a letter of intent relating to the Merger, the closing price of Applied Common Stock as reported on NYSE was $29.625 per share. As of February 14, 1997 and April 30, 1997, there were approximately 1,353 and 1,337 shareholders of record of Applied Common Stock, respectively.
Because the market price of Applied Common Stock is subject to fluctuation, the market value of the shares of Applied Common Stock that the Invetech Shareholders will receive in the Merger may increase or decrease prior to the Effective Time. Invetech Shareholders are urged to obtain a current market quotation for Applied Common Stock.
The holders of Invetech Common Stock are entitled to dividends when, as and if declared by the Board of Directors of Invetech out of funds legally available for that purpose. Shares of Invetech Class A Common Stock and Invetech Class B Common Stock are entitled to share equally in all cash dividends.
The following table sets forth the dividends paid to the holders of Invetech Class A Common Stock and Invetech Class B Common Stock during calendar years 1995 and 1996 and for the period from January 1 to March 31, 1997.
INVETECH COMMON STOCK
FOR FISCAL YEARS 1995 TO DATE
DIVIDEND
--------
First Quarter ended March 31, 1995 $ 0.24
Second Quarter ended June 30, 1995 0.04
Third Quarter ended September 30,
1995 0.04
Fourth Quarter ended December 31,
1995 0.04
First Quarter ended March 31, 1996 0.25
Second Quarter ended June 30, 1996 0.04
Third Quarter ended September 30,
1996 0.04
Fourth Quarter ended December 31,
1996 0.04
First Quarter ended March 31, 1997 0.35
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Invetech's ability to pay dividends is dependent upon its earnings and the declaration of any dividends by Invetech's Board of Directors. Invetech intends to pay a $.04 per share dividend in June, 1997. If the merger is approved, Invetech Shareholders receiving shares of Applied Common Stock will participate in Applied dividends declared with a record date later than the Effective Time.
RISK FACTORS
The following risk factors should be carefully considered by Invetech Shareholders. The risks associated with the combination of the businesses of Applied and Invetech in the Merger will be additional risks faced by both Applied Shareholders and Invetech Shareholders following the Merger. These factors should be considered in conjunction with the other information included in this Prospectus.
INTEGRATION OF OPERATIONS; ADVERSE EFFECT ON FINANCIAL RESULTS
The realization of the benefits sought from the Merger depends in part on the ability of the combined company to utilize sales and marketing channels, administrative functions and facilities better than either company could do separately. These benefits may not be achieved if the activities of Applied and Invetech are not integrated in a coordinated, timely and efficient manner, and there can be no assurance that this will occur. In addition, there can be no assurance that the combined company will be able to retain its existing suppliers or customers following the Merger. The combination of the two organizations will also require the dedication of management resources, which will temporarily detract attention from the day-to-day business of the combined company. There can be no assurance that the integration will be completed without disrupting Applied's or Invetech's businesses. Should the combined company not be able to achieve integration in a timely and coordinated fashion, a material adverse effect on the operating results of the combined company may result. In addition, there is no assurance that the combined company will be able to achieve the benefits projected to occur as a result of the integration or retain the key management, sales and marketing personnel who are critical to the integration and the combined company's future operations.
POTENTIAL DILUTIVE EFFECT TO SHAREHOLDERS
There can be no assurance that the combining of the two companies' businesses, even if achieved in an efficient, effective and timely manner, will result in combined results of operations and financial condition superior to what would have been achieved by each company independently. The issuance of Applied Common Stock in connection with the Merger may have the effect of reducing Applied's net income per share from levels otherwise expected and could reduce the market price of the Applied Common Stock unless revenue growth or cost savings and other business synergies sufficient to offset the effect of such issuance can be achieved. As a consequence of the Merger, Invetech Shareholders will lose the chance to invest in Invetech on a stand-alone basis. Additionally, the combined company will have different management than Invetech's current management, and consequently the management of the combined company may make strategic and operational decisions that differ from those of Invetech's current management. It is possible that Invetech, if it remained independent, could achieve economic performance superior to that of the combined company. Consequently, there can be no assurance that Invetech Shareholders will achieve greater returns on investment through the combined company than if Invetech were to remain an independent company.
From time to time, Applied issues shares and options to purchase Applied Common Stock, Performance-Accelerated Restricted Stock and other stock-based awards under its 1990 Long-Term Performance Plan and otherwise. As of April 30, 1997, options to purchase 758,106 shares of Applied Common Stock were outstanding, of which 349,541 were then currently exercisable. The exercise of such options or the future issuance of such stock, stock-based awards, options or Performance-Accelerated Restricted Stock will dilute the beneficial ownership of Invetech Shareholders following the Merger.
DEPLETION OF ESCROW AMOUNT
Under the Merger Agreement, Invetech has agreed to indemnify Applied and Merger Sub against losses and expenses incurred by Applied and Merger Sub by reason of any breach of any representation, warranty, covenant or agreement of Invetech. The Escrow Amount is the sole source for funding this obligation. In the event that Applied or Merger Sub incurs indemnifiable losses or expenses, all or a portion of the Escrow Amount may be paid to Applied to satisfy Invetech's obligations under the Merger Agreement and such amounts will not be available for distribution to the Invetech Shareholders. See "The Merger Agreement -- Escrow Amount" and "-- Indemnification."
POTENTIAL UNAVAILABILITY OF "REORGANIZATION" TAX TREATMENT OF MERGER
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Code. In connection with such a reorganization, no gain or
loss will be recognized for federal income tax purposes by Invetech Shareholders
upon their receipt of shares of Applied Common Stock in exchange for their
shares of Invetech Common Stock. However, gain, but not loss, will be recognized
to the extent that Invetech Shareholders receive cash in exchange for their
shares of Invetech Common Stock. The receipt of a satisfactory tax opinion (a
"Tax Opinion") regarding the availability of such tax treatment is a condition
to Invetech's obligations to consummate the Merger, although such condition may
be waived by Invetech. See "The Merger Agreement -- Conditions to the Merger."
Invetech Shareholders should be aware that the Tax Opinion does not bind the Internal Revenue Service (the "IRS"), and the IRS is therefore not precluded from successfully asserting a contrary opinion. A successful IRS challenge to the Reorganization status of the Merger would result in all Invetech Shareholders recognizing taxable gain or loss with respect to each share of Invetech Common Stock surrendered equal to the difference between the Invetech Shareholder's basis in such share and the fair market value, as of the Effective Time, of the Applied Common Stock and cash received in exchange therefor.
RISKS ATTENDANT TO FUTURE ACQUISITIONS
Applied regularly considers the acquisition of other companies engaged in the same and related businesses as Applied. At any given time, Applied may be in various stages of considering such opportunities. Such acquisitions are subject to the negotiation of definitive agreements and to conditions typical in acquisition transactions, certain of which conditions may be beyond Applied's control. There is no assurance that Applied will be able to identify desirable acquisition candidates or will be successful in entering into any definitive agreements with respect to desirable acquisitions. Moreover, even if definitive agreements are entered into, there is no assurance that any future acquisition will thereafter be completed or, if completed, that the anticipated benefits of the acquisition will be realized. The process of integrating acquired operations into Applied's operations may result in unforeseen operating difficulties, may absorb significant management attention and may require significant financial resources that would otherwise be available for the ongoing development or expansion of Applied's existing operations. Future acquisitions by Applied could result in the incurrence of additional debt and contingent liabilities, which could have a material adverse effect on Applied's financial condition and results of operations.
HIGHLY COMPETITIVE MARKETS
Applied considers the markets in which it operates to be highly competitive. In addition, such markets present few economic or technological barriers to entry. Applied's principal competitors are, and following the Merger, the combined company's principal competitors will be, other specialized bearing, drive system product, industrial rubber product, fluid power and specialty item distributors, and, to a lesser extent, mill supply houses. These competitors include single and multiple branch operations, some of which are divisions or subsidiaries of larger organizations that may have greater financial resources than the combined company. The combined company will also compete with the manufacturers of original equipment and their distributors in the sale of maintenance and replacement bearings, power transmission components and related items. Some of these manufacturers may have greater financial resources than the combined company. The identity and number of competitors vary throughout the geographic areas in which the combined company will do business.
CHANGE IN RELATIONSHIP WITH MANUFACTURERS
Applied is a non-exclusive distributor for numerous manufacturers of the
products which it sells. The principal bearing lines distributed by Applied are:
American, Barden, Cooper, FAG, Heim/RBC, INA, Kaydon, MB Manufacturing, McGill,
MRC, Sealmaster, SKF, Symmco, Thomson, Timken and Torrington/Fafnir. The
principal drive system product lines distributed by Applied are: Baldor,
Browning, Electron, Falk, FMC, Foote Jones, Jeffrey, Kop-Flex, Lincoln Electric,
Lovejoy, Martin, Morse, Reliance/Dodge, Rexnord/Link-Belt, Saftronics, Stephens
Adamson, U.S. Electrical Motors and Winsmith. The
principal industrial rubber product lines distributed by Applied are: Aeroquip, Boston, Dixon, Flexco, Gates, Globe, Goodyear, Habasit and Weatherhead. The principal fluid power product lines distributed by Applied are: Dana, Denison, Donaldson, Eaton Char-Lynn, Ingersoll Rand-ARO and Schrader Bellows. Specialty items, including seals, sealants, fluid sealing, "O" rings, retaining rings, adhesives, lubricants, maintenance equipment, skin care products and tools, are purchased from various suppliers. The principal specialty item lines distributed by Applied are: CR Industries, Dow Corning, Garlock, Gojo, Keystone, Loctite, Lubriplate, National/Federal Mogul, OTC/Power Team, Parker Hannifin, Rotor Clip and Skil/Bosch. The loss of certain of these suppliers could have an adverse effect on Applied's, and following the Merger, the combined company's, business.
The operations of the combined company will contrast sharply with those of the manufacturers whose products it sells, in that the manufacturers generally confine their direct sales activities to large-volume transactions with original equipment manufacturers who incorporate the components purchased into the products they make. At present, the manufacturers generally do not sell replacement components directly to customers but rather refer such customers to Applied, Invetech or another distributor. There can be no assurance that this practice will continue, however, and any discontinuance of this practice could have an adverse effect on the combined company's business.
There is also a trend among large industrial customers towards reducing the number of suppliers of maintenance and repair products with whom they deal. The combined company intends to respond to this trend by, among other things, continuing to broaden its product offerings and developing new methods for marketing its products. There can be no guarantee, however, that the trend referenced above will not have an adverse effect on the combined company's business.
GENERAL MARKET CONDITIONS
Applied's operations are, and, following the Merger, the combined company's operations will be, dependent upon general industrial activities and economic conditions and would be adversely affected by the unavailability of raw materials to its suppliers or by any prolonged recession or depression that has an adverse effect on American industrial activity generally.
THE MERGER
The terms of, and conditions to, the Merger and certain related transactions are contained in the Merger Agreement and the Escrow Agreement which are attached as Annexes A and B, respectively, to this Prospectus. Information contained herein with respect to the terms of the Merger and such related transactions are qualified by reference to the more complete information set forth in the Merger Agreement and Escrow Agreement.
GENERAL
This Prospectus relates to up to 2,300,000 shares of Applied Common Stock that may be issued in connection with the Merger in accordance with the terms of the Merger Agreement. The Merger is conditioned upon, among other things, approval of the Merger Agreement by the Invetech Shareholders at a special meeting called for that purpose. See "Invetech Special Meeting." The Merger will be consummated promptly after the satisfaction or waiver of the conditions to the Merger set forth in the Merger Agreement. Upon consummation of the Merger, Invetech will be merged with and into Merger Sub, the separate corporate existence of Invetech shall cease and Merger Sub will succeed to all of the rights, franchises, assets, liabilities and business of Invetech. By approving the Merger and the Merger Agreement, the Invetech Shareholders shall also thereby agree to be bound by the terms of the Escrow Agreement and the lock-up letter attached as Exhibit B to the Merger Agreement. In addition, by virtue of the Merger, at the Effective Time, all existing stock redemption agreements and shareholder agreements between Invetech and any Invetech Shareholder(s) shall be deemed to have been terminated and shall have no further force or effect. Following the Effective Time, to the extent the Invetech Shareholders receive shares of Applied Common Stock, the rights of such Invetech Shareholders will be governed by Applied's Articles of Incorporation, Code
of Regulations and the agreement of merger and plan of reorganization between Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) dated as of September 6, 1988.
In the Merger, all of the outstanding shares of the Invetech Common Stock will be converted into the right to receive shares of Applied Common Stock and cash, in the proportion designated by Invetech based upon preference specification forms solicited by Invetech from the Invetech Shareholders in connection with the Special Meeting. The aggregate value of Applied Common Stock and cash to be paid to Invetech Shareholders will be Eighty-Three Million Dollars ($83,000,000) (the "Merger Consideration"); provided, however, in no event shall more than Two Million Three Hundred Thousand (2,300,000) shares of Applied Common Stock be issuable in connection with the Merger. The Merger Consideration is allocable (i) 15% to the holders of Invetech Class A Common Stock and (ii) 85% to the holders of Invetech Class B Common Stock, on a pro rata basis to each holder's percentage interest in each class of Invetech Common Stock. Ten Million Dollars ($10,000,000) (the "Escrow Amount") of the Merger Consideration will be deposited and held in escrow pursuant to the terms of the Escrow Agreement for the purpose of funding the indemnification obligations of Invetech under the Merger Agreement. Assuming no claims for indemnification are asserted by Applied, the Escrow Amount shall be distributed to the Invetech Shareholders over a five-year period following the Effective Time in accordance with the terms of the Escrow Agreement. For purposes of computing the Merger Consideration, each share of Applied Common Stock will be assigned a value of Twenty-Eight Dollars and Sixty-Two Cents ($28.62), which was the average closing sale price of Applied Common Stock on NYSE for the twenty business days preceding February 5, 1997 (the day Applied executed the letter of intent relating to the Merger). The Merger Consideration is subject to adjustment on a dollar for dollar basis to the extent that shareholders' equity of Invetech as reflected on the Closing Balance Sheet, reduced as provided in the Merger Agreement for all transaction costs and certain other expenses incurred by Invetech in connection with the Merger, is greater than or less than Forty-Six Million Dollars ($46,000,000). In addition, Applied shall pay interest on the Merger Consideration, as adjusted, in an amount equal to the product of (x) the Merger Consideration, as adjusted, (y) the number of days elapsed between the date of the Closing Balance Sheet and the date of the Closing, and (z) 0.0002191.
No fractional shares of Applied Common Stock will be issued in connection with the Merger. Each Invetech Shareholder otherwise entitled to a fractional share of Applied Common Stock will receive an amount of cash in lieu thereof, rounded up to the nearest cent, determined by multiplying (i) Twenty-Eight Dollars and Sixty-Two Cents ($28.62) by (ii) the fractional interest to which such Invetech Shareholder would otherwise be entitled.
At the Effective Time, Ten Million Dollars ($10,000,000) of the Merger Consideration will be deposited into an escrow account (the "Escrow Account") to secure the indemnification obligations of Invetech under the Merger Agreement. Subject to the prior lien of any claims for indemnification asserted by Applied which have not been paid, the Escrow Amount will be reduced to Five Million Dollars ($5,000,000) on January 1, 2000 and Two Million Five Hundred Thousand Dollars ($2,500,000) on April 1, 2001 and all amounts held in excess of the then applicable Escrow Amount shall be distributed to Invetech Shareholders in proportion to their respective interests. Unless the entire Escrow Amount shall have been paid to Applied in satisfaction of the indemnification obligations of Invetech (upon which the escrow will terminate), the escrow will terminate on the later of (i) five years following the Effective Time, and (ii) the date upon which all claims for indemnification made by Applied pursuant to the Merger Agreement and Escrow Agreement have been resolved and all amounts then held in the Escrow Account will be distributed to the Invetech Shareholders. See "The Merger Agreement--Escrow Amount" and "--Indemnification."
BACKGROUND OF THE MERGER
The holders of the Invetech Class A Common Stock (the "Class A Shareholders") have the sole right to elect the Board of Directors of Invetech and must approve any sale of Invetech or similar transaction (a "Sale"). Consequently, the Invetech Class B Common Stock shareholders (the "Class B Shareholders"), acting alone, have no right to effect a Sale or otherwise obtain liquidity for their shares. During 1993, certain of the Class B Shareholders advised Invetech that they had an interest in obtaining liquidity for their shares. In response, Invetech offered to purchase 808,407 shares of the Invetech Class B Common Stock at a price of
$12.37 per share. Pursuant to such offer, in January, 1995, Invetech purchased 780,755 shares of Invetech Class B Common Stock at such price.
In addition to addressing issues regarding liquidity for the Invetech Class B Common Stock, the Invetech Board considered the need either to rapidly expand the business of Invetech through acquisitions or to enter into a Sale to a larger organization in order to effectively compete in a rapidly changing marketplace. In this context, the Invetech Board considered the limited capital resources available to Invetech for the purposes of making large acquisitions.
In 1996, the Class B Shareholders entered into negotiations with the Class A Shareholders (consisting of J. Michael Moore and James T. Moore II). As a result of such negotiations, the Class A Shareholders and the Class B Shareholders (except for one shareholder) entered into the Invetech Company Shareholder Agreement dated July 16, 1996 (the "Shareholders Agreement") for, among other matters, the purpose of determining the fair market value of the Invetech Class A Common Stock relative to the Invetech Class B Common Stock. The Shareholders Agreement provided, in part, that upon a Sale, (i) the aggregate consideration for shares of Invetech received or to be received by the Class B Shareholders and the Class A Shareholders would be allocated 85% to the Class B Shareholders and 15% to the Class A Shareholders; and (ii) the present or future value of any consideration paid or payable to any Class A Shareholder in the form of any employment agreement, consulting contract, covenant not to compete, technical services agreement, director fees or other amounts paid in connection with certain existing agreements with the Class A Shareholders would not be included in such 85%-15% allocation of value upon a Sale and the Class A Shareholders would not be required to share any such consideration with any Class B Shareholder.
After execution of the Shareholders Agreement, Invetech's management initiated actions to determine the feasibility of a Sale. Invetech's management interviewed several investment banking firms and hired the firm of Oppenheimer & Co., Inc. ("Oppenheimer") in July, 1996. Thereafter, Oppenheimer and Invetech's management developed a list of seven potential purchasers from approximately thirty candidates initially identified by Oppenheimer. Invetech's management determined that Applied would be the most logical purchaser of Invetech, because of the potential synergies between the businesses of Invetech and Applied and the compatibility of their cultures.
In July, 1996, Oppenheimer initiated discussions with Applied regarding a potential Sale of Invetech. On August 2, 1996, Applied entered into a confidentiality agreement with Oppenheimer, as investment advisor representing Invetech. On August 7, 1996, representatives of Applied and Invetech met in Sandusky, Ohio to discuss Applied's interest in a possible Sale transaction.
Following a meeting of the Board of Directors of Applied on August 29, 1996, Applied sent an indication of interest to Invetech to purchase all of the equity of Invetech for $40 to $50 million. Soon thereafter, discussions were discontinued by Invetech's management for lack of a suitable offer from Applied. Thereafter, Invetech's management authorized Oppenheimer to contact the other potential purchaser candidates and Oppenheimer proceeded to contact all six of such candidates. Pursuant to such contacts, Invetech's management entered into discussions with Motion Industries Inc., a wholly owned subsidiary of Genuine Parts Company, regarding a Sale, which discussions were ultimately terminated as a result of renewed discussions with Applied as described below.
On November 5, 1996, after receipt of additional information from Invetech, Applied delivered a revised indication of interest to Invetech increasing the purchase price for Invetech's outstanding equity to $80 million. Following discussions between representatives of Invetech and Applied regarding the indication of interest, on November 25 and 26, 1996, representatives of Applied commenced preliminary due diligence.
On December 17, 1996, after receiving reports from members of Applied's management and Applied's financial advisor, the TransAction Group, Applied's Board of Directors authorized its management to deliver to Invetech a non-binding letter of intent providing for the acquisition of Invetech by Applied at a purchase price of $85,000,000 payable in Applied Common Stock and cash.
Invetech's management determined that the proposal identified in the above-referenced letter of intent was inadequate because: (i) resale of the Applied Common Stock to be received was restricted for two years;
(ii) indemnification of Applied by the Invetech Shareholders for certain liabilities and breaches of representations and warranties was unlimited; (iii) there was no minimum value for the Applied Common Stock to be received; and (iv) no compensation was allocated to certain noncompetition agreements requested by Applied.
On January 13, 1997, the Chairman and Vice Chairman of Applied and the Chairman and President of Invetech met in Cincinnati, Ohio to further discuss terms of a possible transaction. On January 29, 1997, Applied delivered to Invetech a revised letter of intent providing for an acquisition of all outstanding Invetech Common Stock at a purchase price of $80 million, payable in a combination of Applied Common Stock and cash, and for J. Michael Moore and James T. Moore II to enter into noncompetition agreements with Applied in exchange for payments totaling $2,900,000 each over five years.
On February 5, 1997, representatives of Applied and Invetech met in the Detroit offices of Miller, Canfield, Paddock and Stone, P.L.C. to discuss the terms of Applied's offer. During these meetings, Applied submitted a revised letter of intent providing for an acquisition of all outstanding Invetech Common Stock for $83 million payable in Applied Common Stock and cash, and for J. Michael Moore and James T. Moore II to enter into non-competition agreements with Applied on terms mutually acceptable to such parties. The revised Letter of Intent dated February 5, 1997 also provided for: (i) registration of the Applied Common Stock by Applied; (ii) limitations on Invetech's indemnification of Applied for certain liabilities and breaches of representations and warranties; and (iii) a minimum value for the Applied Common Stock to be received.
On February 8, 1997, after receiving advice from Oppenheimer that the transaction set forth in the February 5, 1997 letter of intent appeared to be fair to the Invetech Shareholders from a financial point of view, the Board of Directors of Invetech approved the letter of intent and caused the letter of intent to be executed by a duly authorized representative of Invetech. On February 18, 1997, Applied and Invetech issued a joint press release announcing execution of the letter of intent.
Thereafter, Applied and Invetech entered into negotiations with respect to the Merger Agreement through the end of April 1997. In addition, beginning in early February, 1997 and continuing until execution of the Merger Agreement, Applied, its representatives and its legal counsel conducted legal, business and other due diligence with respect to Invetech.
On March 27, 1997, the Board of Directors of Applied held a meeting at which the directors, after receiving advice from members of Applied's management and the TransAction Group and reviewing the terms of the Merger Agreement, authorized and approved the Merger Agreement, the Merger and the other transactions contemplated thereby. On March 31, 1997, the Invetech Board held a special meeting at which, after receiving advice from Oppenheimer and reviewing the terms of the Merger Agreement the Invetech Board voted unanimously to approve the Merger Agreement, subject to satisfactory resolution of the then outstanding terms and conditions and receipt of a satisfactory fairness opinion from Oppenheimer, and to recommend to the Invetech Shareholders that they approve and adopt the Merger Agreement. On April 23, 1997, the Invetech Board held another special meeting at which, after review of the then-current draft of the Merger Agreement, the Invetech Board again voted unanimously to approve the Merger Agreement, subject to satisfactory resolution of any outstanding terms and conditions, and receipt of a satisfactory fairness opinion, and to recommend the Merger to the Invetech Shareholders. On April 29, 1997, Applied, Merger Sub and Invetech executed the Merger Agreement.
APPROVAL OF APPLIED BOARD OF DIRECTORS; REASONS FOR MERGER
The Board of Directors of Applied views the Merger as a means to increase the value of the combined company to Applied's shareholders. In evaluating the proposed Merger, the Board of Directors of Applied considered and discussed a wide variety of factors, including the terms of the Merger Agreement and Applied's and Invetech's respective operations and the opportunity for synergies between those operations. The Board of Directors of Applied also discussed the terms of the Merger Agreement in light of its fairness to Applied's shareholders, projected dilution to existing Applied shareholders resulting from the Merger and the effects of and requirements for a tax-free transaction which qualifies as a reorganization under Section 368(a) of the Code. In addition, the Board of Directors of Applied considered the advantages and
disadvantages that the Merger would present to Applied's achievement of its strategic objectives. As part of the evaluation process, the Board of Directors of Applied reviewed information about the business, operations and future prospects of both Invetech and Applied, and the relative assets, revenues and results of operations of Applied and Invetech. In connection with its consideration of the Merger, the Board of Directors of Applied received financial advice with respect to the Merger from its financial advisor, the TransAction Group.
Significant factors leading to the Board's approval of the Merger were the Board's beliefs that Invetech's branch locations in Michigan and the Rocky Mountain states would enable Applied to serve certain existing and potential national account customers better, that the acquisition of Invetech would present significant new customer opportunities to Applied, especially in the automobile industry, and would result in Applied being able to market a broader product offering to customers of the combined company. The Applied Board also determined that a combination of Applied and Invetech would present the combined company with opportunities to service their respective customers better and more cost-efficiently, to consolidate field operations in areas with overlapping branch locations and to eliminate certain management and other overhead expenses through the closing of Invetech's headquarters.
The Board of Directors of Applied also considered the following potentially negative factors: (i) the possibility that the Merger might not be consummated, and the effects of the public announcement of the Merger on Applied's revenues and operating results, (ii) the possible effects of the public announcement of the Merger on the market price of Applied Common Stock, (iii) the risk that the anticipated benefits of the Merger will not be realized, and (iv) the other risks described above under "Risk Factors."
After considering the foregoing factors, the Board of Directors of Applied unanimously approved the Merger Agreement and the transactions contemplated thereby.
RECOMMENDATION AND APPROVAL OF INVETECH BOARD OF DIRECTORS; REASONS FOR MERGER
The Invetech Board believes that the Merger is in the best interests of Invetech Shareholders and that the Merger would allow Invetech and its shareholders to realize the objectives described below.
In approving the Merger, the Invetech Board considered that the Merger would provide the Invetech Shareholders with cash and a public market for their remaining equity ownership in Invetech. The Invetech Board considered the alternative of an initial public offering of Invetech Common Stock but determined that, in light of the costs of such a transaction and the absence of any assurances that an offering would be successfully completed, the Merger provided a preferable means to: (i) provide the Invetech Shareholders liquidity for their current investment in Invetech for which there is no public market, notwithstanding that the Applied Common Stock to be received by the Invetech Shareholders may only be sold by the Invetech Shareholders after January 1, 1998 when certain transfer restrictions expire or upon presentation of an opinion of counsel as described in the "lock up" letter attached as Exhibit B to the Merger Agreement; and (ii) address the need for Invetech to rapidly expand its business. The Invetech Board also concluded that, at the same time as providing enhanced liquidity to the Invetech Shareholders, the Merger will allow Invetech Shareholders to retain an investment in Invetech's business by becoming shareholders of Applied. In addition, the cash component of the Merger Consideration would provide Invetech Shareholders with an immediate return on their investment in Invetech.
In reaching its conclusion, the Invetech Board evaluated a number of factors, including the terms and conditions of the Merger Agreement, the amount of cash and Applied Common Stock offered by Applied, the business operations and prospects of Applied on a historical basis and of Invetech and Applied on a pro forma combined basis, and the fact that Applied submitted the highest acquisition offer. The Invetech Board did not consider one factor more than the others, or assign relative weights to the factors it considered in arriving at its determination.
After considering the foregoing factors, the Invetech Board unanimously adopted and approved the Merger Agreement and the transactions contemplated thereby and determined that the Merger and the issuance of the Merger Consideration pursuant thereto were in the best interests of Invetech and the Invetech
Shareholders. The Invetech Board has therefore recommended that the Invetech Shareholders approve the Merger.
OPINION OF INVETECH'S FINANCIAL ADVISOR
Invetech retained Oppenheimer to act as its financial advisor in connection with a potential sale of Invetech, to investigate the proposed consideration offered by Applied, and to provide an opinion as to the fairness, from a financial point of view, to the Invetech shareholders of the consideration to be paid in connection with the Merger.
The consideration to be paid by Applied in connection with the Merger was determined following extensive negotiations between the management of Applied and Invetech, and was approved by the Invetech Board of Directors. Oppenheimer advised Invetech with respect to the potential form and amount of consideration that was proposed to be paid in connection with the Merger and also advised Invetech with respect to the relative merits, from a financial point of view, of the various proposals made by the potential acquirors of Invetech. Oppenheimer played a significant role in the negotiation of the terms of the letter of intent between Applied and Invetech.
At the request of Invetech, Oppenheimer rendered an opinion dated April 29, 1997 to the Invetech Board of Directors that, based upon and subject to the considerations set forth therein and on other factors Oppenheimer deemed relevant, as of such date, Oppenheimer was of the opinion that the consideration to be received by the Invetech Shareholders pursuant to the Merger Agreement was fair, from a financial point of view, to such shareholders. Oppenheimer's opinion is not a recommendation to any current or prospective Invetech Shareholders as to any investment decision such person may make. Oppenheimer expressed no opinion as to what the value of the Applied Common Stock actually will be when issued to the Invetech Shareholders pursuant to the Merger Agreement or the price at which the Applied Common Stock will trade subsequent to the Merger. The full text of the opinion of Oppenheimer, which sets forth certain assumptions made, matters considered and limitations on the review undertaken, is attached as Annex C hereto and is incorporated herein by reference and should be read in its entirety in connection with this Prospectus. The summary of Oppenheimer's opinion set forth herein is qualified in its entirety by reference to the full text of such opinion. No limitations were imposed by the Invetech Board of Directors upon Oppenheimer with respect to the investigations made or procedures followed by Oppenheimer in rendering its opinion. Oppenheimer has consented to the inclusion of its opinion in this Prospectus and has reviewed the following summary of its opinion.
In rendering its opinion, Oppenheimer relied upon and assumed, without independent verification or investigation, the accuracy and completeness of all of the financial and other information provided to Oppenheimer by Invetech and its employees, representatives and affiliates. With respect to forecasts of future financial condition and operating results of Invetech provided to Oppenheimer, Oppenheimer assumed, without independent verification or investigation, that such forecasts were reasonably prepared on bases reflecting the best available information, estimates and judgment of Invetech's management. In rendering its opinion, Oppenheimer neither made nor obtained any independent evaluation of appraisals of the assets or liabilities of Invetech, Applied, or such other affiliated entities. Oppenheimer assumed, without independent verification, the accuracy of the advice and conclusions of Invetech's legal counsel and accountants with respect to tax matters as provided to Oppenheimer by Invetech's management including, without limitation, the treatment of the Merger as a tax-free reorganization for federal income tax purposes.
In rendering the Oppenheimer Opinion, Oppenheimer: (a) reviewed the draft
Plan and Agreement of Merger, dated April 29, 1997; (b) reviewed Invetech's
audited financial statements for the fiscal years ended December 31, 1992, 1993,
1994, 1995 and 1996; (c) reviewed Applied's audited financial statements for the
fiscal years ended June 30, 1992, 1993, 1994, 1995 and 1996, and the unaudited
financial statements for the six months ended December 31, 1995 and 1996; (d)
reviewed financial information of Invetech prepared by Invetech's management;
(e) reviewed financial information for Applied, including both stand-alone and
pro forma combined financial information with Invetech, provided to Oppenheimer
by Applied's management; (f) reviewed the historical market prices and trading
volume for Applied Common Stock; (g) held discussions
with senior management of Applied and Invetech with respect to the business and prospects for future growth and the integration of the two companies; (h) reviewed and analyzed the pro forma impact of the combination of Invetech and Applied; (i) performed discounted cash flow analyses of Invetech and Applied, both on a stand-alone, and a combined entity basis using certain assumptions of future performance provided to Oppenheimer by the managements of Invetech and Applied; (j) reviewed and analyzed certain publicly available financial data for certain companies deemed by Oppenheimer to be comparable to Invetech and Applied; (k) reviewed certain publicly available financial data for transactions that Oppenheimer deemed comparable to the Merger; (l) reviewed public information concerning Invetech and Applied; and (m) performed such other analyses and reviewed such other information as Oppenheimer deemed appropriate.
The summary set forth above does not purport to be a complete description of the analysis performed by Oppenheimer in this regard. The preparation of a fairness opinion involves various determinations as to the most appropriate and relative methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description.
Oppenheimer was selected to act as Invetech's financial advisor based upon its qualifications, expertise and reputation. Oppenheimer, as a customary part of its investment banking business, is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and valuations for estate, corporate and other purposes. Oppenheimer Capital, an affiliate of Oppenheimer, has advised Invetech regarding its 401(k) profit sharing plan since 1979. Julius Nicolai, an employee of Oppenheimer Capital, serves on the Invetech Board of Directors.
APPRAISAL RIGHTS
Invetech Shareholders are not entitled to appraisal or dissenters' rights in connection with the Merger pursuant to Section 762(2)(b) of the Michigan Business Corporation Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a reorganization (a "Reorganization") for federal income tax purposes under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Consummation of the Merger is conditioned upon receipt by Invetech of an opinion from its legal counsel to that effect. Receipt of the aforementioned legal opinion may be waived by Invetech as a condition to consummation of the Merger. Invetech currently intends to obtain the aforementioned opinion from Deloitte & Touche LLP. The Merger will have no tax consequences to shareholders of Applied.
Under current law, assuming that the Merger takes place as described in the Merger Agreement, Applied believes that:
(i) Gain will be recognized by Invetech Shareholders that exchange Invetech Common Stock for Applied Common Stock and cash, but not in excess of the amount of cash actually received (excluding any amounts deposited into the Escrow Account). Such gain will be treated either as the receipt of a dividend or as gain on the sale of Invetech Common Stock, as provided in section 356 of the Code, the regulations thereunder, and judicial authorities interpreting such section. Such gain will be capital gain to the extent that the Invetech Common Stock was a capital asset at the Effective Time. No loss will be recognized upon the exchange. Invetech Shareholders will not recognize any gain with respect to cash deposited into the Escrow Account until such time as cash is distributed to the Invetech Shareholders. At the time that cash is distributed from the Escrow Account, a portion of such cash may be treated as the receipt of imputed interest income as provided in sections 1274 and 1275 of the Code, the regulations thereunder, and judicial authorities interpreting such sections. The remainder of such cash received will be treated, to the extent of gain realized from the disposition of the shareholder's Invetech Common Stock, as the receipt of a dividend or as gain from the sale of such Invetech Common Stock, as provided above. An amount treated as gain from the sale of Invetech Common Stock will be capital gain to the extent that the Invetech Common Stock was a capital asset at the Effective Time.
(ii) The tax basis of the shares of Applied Common Stock received by the Invetech Shareholders will be the same as the basis of the Invetech Common Stock surrendered in the exchange, decreased by the amount of cash received (excluding any cash treated as imputed interest), and increased by the amount of cash treated as a dividend (if any) and by the amount of gain recognized on the exchange (excluding any portion of the gain treated as a dividend).
(iii) The holding period of the shares of Applied Common Stock in the hands of Invetech Shareholders will include the holding period of their shares of Invetech Common Stock exchanged therefor, provided such shares of Invetech Common Stock are held as capital assets at the Effective Time.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL, OR FOREIGN TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER, AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. THE OPINIONS OF COUNSEL OR ACCOUNTANTS DESCRIBED ABOVE ARE NOT BINDING UPON THE INTERNAL REVENUE SERVICE AND NO RULINGS OF THE INTERNAL REVENUE SERVICE WILL BE SOUGHT OR OBTAINED. THERE IS NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE WILL AGREE WITH THE OPINIONS DESCRIBED ABOVE. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, AND FOREIGN TAX LAWS.
ALL INVETECH SHAREHOLDERS SHOULD READ CAREFULLY THE DISCUSSION UNDER "The
Merger -- Certain Federal Income Tax Consequences of the Merger" and "The Merger
Agreement -- Conditions to the Merger." See "Risk Factors -- Potential
Unavailability of "Reorganization" Tax Treatment.
ACCOUNTING TREATMENT
The Merger will be accounted for by Applied using the purchase method of accounting in accordance with generally accepted accounting principles. Accordingly, the assets and liabilities of Invetech will be adjusted to fair value and the results of operations of Invetech will be included in the results of operations of Applied for periods subsequent to the Effective Time.
REGULATORY MATTERS
On March 28, 1997, Applied and Invetech filed pre-merger notification under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder. Early termination of the waiting period was
granted on April 7, 1997. Other than (i) the Commission's declaring effective
the Registration Statement containing this Prospectus, (ii) approvals in
connection with compliance with applicable Blue Sky or state securities laws and
(iii) the filing of certificates of merger with the Secretary of State of the
State of Ohio and with the Corporation, Securities and Land Development Bureau
of the State of Michigan, neither the management of Applied nor the management
of Invetech believes that any filing with or approval of any government
authority is necessary in connection with the consummation of the Merger.
INVETECH SPECIAL MEETING
The Merger is conditioned upon, among other things, approval of the Merger Agreement by the Invetech Shareholders at a special meeting called for that purpose. A special meeting of the Invetech Shareholders has been called and will be held at Invetech's headquarters, 1400 Howard Street, Detroit, Michigan, on June , 1997, at a.m., local time (the "Special Meeting"). At the Special Meeting, the Invetech Shareholders will be asked to approve the Merger Agreement among Invetech, Applied and Merger Sub pursuant to which Invetech would be merged with and into Merger Sub, a wholly-owned subsidiary of Applied.
Invetech's Board of Directors unanimously voted to adopt the Merger Agreement and determined that the consummation of the Merger would be in the best interests of Invetech and the Invetech Shareholders. The Board of Directors of Invetech has recommended that the Invetech Shareholders vote to approve the Merger Agreement.
Invetech Class A Shareholders and Invetech Class B Shareholders of record at the close of business on June , 1997, will be entitled to vote on the approval of the Merger and any other matter that may be brought before the Special Meeting on June , 1997, and any adjournment thereof. As of May 31, 1997, there were 20,000 shares of Invetech Class A Common Stock and 2,075,391 shares of Invetech Class B Common Stock outstanding.
Each share of Invetech Class A Common Stock and Invetech Class B Common Stock is entitled to one vote regarding approval of the Merger Agreement. The affirmative vote of the holders of at least a majority of the shares of the outstanding Invetech Class A Common Stock and the Invetech Class B Common Stock, voting separately as classes, is required for approval of the Merger Agreement. Pursuant to the Merger Agreement, J. Michael Moore and James T. Moore II, directors and executive officers of Invetech, who together beneficially own 100% of the outstanding shares of Invetech Class A Common Stock and approximately 26.7% of Invetech Class B Common Stock, have agreed to vote their respective shares in favor of the Merger. Invetech Shareholders will not be entitled to appraisal or dissenters' rights in connection with the Merger.
The Board of Directors of Invetech intends to solicit proxies for approval of the Merger Agreement in connection with the Special Meeting, and expenses incurred in connection with the solicitation of proxies will be borne by Invetech. Applied does not intend to solicit proxies in connection with the Special Meeting.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of Invetech have interests in the Merger in addition to their interests as Invetech Shareholders generally. The Invetech Board of Directors was aware of these interests and considered them in approving the Merger Agreement and the transactions contemplated thereby.
As described below, J. Michael Moore, James T. Moore, II, Steven P. Mellos, Steven L. Laten and Thomas P. Moore, II are participants in Invetech's phantom stock plan (the "Phantom Stock Plan"). The Phantom Stock Plan was adopted to provide a means to attract, reward and retain management and to align the interests of managers participating in the Phantom Stock Plan with the interests of shareholders. Awards have been made to participants in the Phantom Stock Plan since 1988 based upon recommendations of the salary and bonus committee of the Invetech Board of Directors and the attainment of certain goals established by such committee. Each award vests over a five year period and increases in value based upon Invetech's annual consolidated return on its equity. Participants in the Phantom Stock Plan were encouraged to increase shareholder value by meeting the goals necessary to receive awards under the Phantom Stock Plan and thereafter by increasing Invetech's return on equity. In addition, the Phantom Stock Plan provides that upon a change in control of Invetech (such as the Merger) each active employee's account will become fully vested and is to be promptly paid with the value of the account adjusted to reflect the consideration to be received by the holders of Invetech Class B Common Stock.
Pursuant to the Merger Agreement, at the Closing, J. Michael Moore (Chairman of the Board and Chief Executive Officer of Invetech) and a consulting corporation to be formed and wholly owned by Mr. Moore will enter into a Consulting, Noncompetition and Confidentiality Agreement with Applied, pursuant to which: (i) Mr. Moore's corporation will perform certain consulting services for Applied for a period of five (5) years in exchange for an annual fee of $70,000; (ii) Mr. Moore has agreed not to compete with Applied during the longer of (x) the five year period following the date of the agreement and (y) 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; (iii) Mr. Moore and his corporation have agreed to maintain the confidentiality of all non-public information pertaining to Applied during the five year period following the date of termination of any of Mr. Moore's and his corporation's relationships with Applied (other than as a shareholder); (iv) Mr. Moore and Applied agree to amend the Salary Continuation
Agreement between Mr. Moore and Invetech to (x) provide that the benefits payable thereunder shall be payable to Mr. Moore beginning at an age not earlier than age 55 designated by Mr. Moore and (y) increase the aggregate benefits payable thereunder by $500,000; and (v) during the term of Mr. Moore's and his spouse's lives, Applied shall pay to Mr. Moore's corporation $700 per month for the cost of health insurance to be obtained and maintained by Mr. Moore's corporation for himself, his spouse and his eligible children. In addition, as a result of the termination and payment of the Phantom Stock Plan, Mr. Moore will receive an aggregate amount of approximately $689,000 (assuming that the value of Applied's stock is $32.00 on the date the Merger is consummated). Mr. Moore will also receive a special bonus from Invetech of property with a value of $32,500. Also, pursuant to the terms of the Merger Agreement, Applied has agreed to recommend to the Nominating Committee of its Board of Directors that Mr. Moore be nominated for election as a director at Applied's next annual meeting.
Pursuant to the Merger Agreement, at the Closing, James T. Moore, II
(President and Chief Executive Officer of Invetech) and a consulting corporation
to be formed and wholly-owned by Mr. Moore, II will enter into a Consulting,
Noncompetition and Confidentiality Agreement with Applied, pursuant to which:
(i) Mr. Moore, II's corporation will perform certain consulting services for
Applied for a period of five (5) years in exchange for an annual fee of $70,000
during the first two years and $40,000 during the remaining three years; (ii)
Mr. Moore, II has agreed not to compete with Applied during the longer of (x)
the five year period following the date of the Agreement and (y) the one year
period following the date of termination of any and all of Mr. Moore, II's
relationships with Applied (other than as a shareholder) in exchange for
$2,700,000 payable in five equal annual installments of $540,000; (iii) Mr.
Moore, II and his corporation have agreed to maintain the confidentiality of all
non-public information pertaining to Applied during the five year period
following the date of termination of any of Mr. Moore, II's and his
corporation's relationships with Applied (other than as a shareholder); (iv) Mr.
Moore, II and Applied agree to amend the Salary Continuation Agreement between
Mr. Moore, II and Invetech to (x) provide that the benefits payable thereunder
shall be payable to Mr. Moore, II beginning at an age not earlier than age 55
designated by Mr. Moore, II and (y) increase the aggregate benefits payable
thereunder by $500,000; (v) during the term of Mr. Moore, II's and his spouse's
lives, Applied shall pay to Mr. Moore, II's corporation $700 per month for the
cost of health insurance to be obtained and maintained by Mr. Moore, II's
corporation for himself, his spouse and his eligible children; and (vi) Applied
has agreed to reimburse Mr. Moore, II's corporation for the reasonable travel
expenses of Mr. Moore, II and Mr. Moore, II's corporation has agreed to cause
Mr. Moore, II to attend (x) the annual meetings of the Bearings Specialists
Association as a representative of Applied and (y) during the first year of the
Agreement (and, thereafter, at the discretion of Applied) the annual meeting of
the Power Transmission Distributors Association. In addition, as a result of the
termination and payment of the Phantom Stock Plan, Mr. Moore, II will receive an
aggregate amount of approximately $689,000 (assuming that the value of Applied's
stock is $32.00 on the date the Merger is consummated). Mr. Moore will also
receive a special bonus from Invetech of property with a value of $32,600.
Steven P. Mellos (Senior Vice President and Chief Financial Officer of
Invetech) intends to enter into an agreement with Applied, pursuant to which:
(i) Mr. Mellos will agree not to compete with Applied for a period of one year
in exchange for a payment of $145,000; and (ii) Mr. Mellos will provide
consulting services to Applied for a period of four months in exchange for
payments of $27,916 per month. In addition, pursuant to the terms of the Merger
Agreement, Invetech is required to terminate and pay all benefits due under
certain of the Salary Continuation Agreements between Invetech and its
employees. As a result of the termination and payment of such agreements and the
Phantom Stock Plan, Mr. Mellos will receive an aggregate amount of approximately
$439,500 (assuming that the value of the Applied Common Stock is $32.00 on the
date the Merger is consummated). Mr. Mellos will also receive a special bonus
from Invetech of cash and property with an aggregate value of $284,700.
Steven L. Laten (Vice President of Operations of Invetech), intends to enter into a two-year employment agreement with Applied pursuant to which he will receive an annual base salary of $130,000 and will be entitled to participate in an annual incentive program. In addition, pursuant to the terms of the Merger Agreement, Invetech is required to terminate and pay all benefits due under certain of the Salary Continuation Agreements between Invetech and its employees. As a result of the termination and payment of such
agreements and the Phantom Stock Plan, Mr. Laten will receive an aggregate amount of approximately $112,900 (assuming that the value of Applied's stock is $32.00 on the date the Merger is consummated).
Thomas P. Moore, II (a director of Invetech) is a participant in the Phantom Stock Plan. As a result of the termination and payment of the Phantom Stock Plan, Mr. Moore, II will receive an aggregate amount of approximately $224,000 (assuming that the value of Applied's stock is $32.00 on the date the Merger is consummated).
Invetech will pay to each of its directors (including J. Michael Moore, James T. Moore, II and Thomas P. Moore, II) an amount equal to Invetech's standard monthly director's fee of $1,700 multiplied by the number of full months between the Effective Time and December 31, 1997.
In considering the recommendation of the Invetech Board, Invetech Shareholders should be aware that certain directors, officers and advisors of Invetech have interests in the Merger that are different from, or in addition to, the interests of Invetech Shareholders generally.
Oppenheimer acted as financial advisor to Invetech in connection with the Merger and, in connection therewith, rendered an opinion as to the fairness, from a financial point of view, to the Invetech Shareholders of the consideration to be paid by Applied in the Merger. Oppenheimer Capital, an affiliate of Oppenheimer has also advised Invetech regarding its 401(k) profit sharing plan since 1979. In addition, Julius Nicolai, an employee of Oppenheimer Capital, serves as a director of Invetech. Oppenheimer will receive fees in connection with the transaction of approximately $ .
Miller, Canfield, Paddock and Stone, P.L.C. acted as legal counsel to Invetech in connection with the Merger and will receive fees in connection with the transaction of approximately $ . Bruce D. Birgbauer, Esq. is a senior principal in the law firm of Miller, Canfield, Paddock and Stone, P.L.C. and serves as Secretary and as a director of Invetech.
RESALE OF APPLIED COMMON STOCK
The shares of Applied Common Stock to be issued in the Merger will have been registered under the Securities Act pursuant to the Registration Statement on Form S-4 of which this Prospectus is a part, thereby allowing such shares to be traded without restriction under federal securities laws by all former holders of Invetech Common Stock who (i) are not deemed "affiliates" of Invetech prior to the Merger and (ii) do not become "affiliates" of Applied after the Merger.
Rule 145 promulgated under the Securities Act regulates the disposition of securities of "affiliates" of Invetech in connection with the Merger. Pursuant to the Merger Agreement, Invetech has agreed to request each of its affiliates enter into a written agreement to the effect that such affiliate will not sell, transfer or otherwise dispose of Applied Common Stock issued to the affiliate in the Merger unless such sale, transfer or other disposition (i) has been registered under the Securities Act, (ii) is made in compliance with the requirements of Rule 145 under the Securities Act or (iii) in the opinion of counsel reasonably acceptable to Applied, is otherwise exempt from registration under the Securities Act.
In addition to the limitations imposed by Rule 145 under the Securities Act, for the purpose of ensuring qualification of the Merger as a tax-free reorganization for federal income tax purposes, in connection with the Merger, each Invetech Shareholder will be required to execute a "lock up" letter in the form attached as Exhibit B to the Merger Agreement. The lock up letter prohibits each Invetech Shareholder from disposing of any shares of Applied Common Stock obtained in the Merger prior to January 1, 1998, without first delivering an opinion of counsel satisfactory in form and substance to Applied to the effect that such disposition will not violate the continuity of shareholder interest requirement set forth in Section 1.368-1 of the official Treasury Department interpretation of the Code.
THE MERGER AGREEMENT
The following paragraphs summarize, among other things, the material terms of the Merger Agreement, which is attached hereto as Annex A and incorporated by reference herein. Invetech Shareholders are urged to read the Merger Agreement in its entirety for a more complete description of the Merger.
GENERAL
This Merger Agreement generally provides for the merger of Invetech with and into Merger Sub. The Merger will become effective upon the later to occur of the filing of a certificate of merger with the Secretary of State of the State of Ohio and the filing of a certificate of merger with the Corporations, Securities and Land Development Bureau of the State of Michigan. It is anticipated that such filing will be made immediately after the Closing. By approving the Merger and the Merger Agreement, the Invetech Shareholders shall also thereby agree to be bound by the terms of the Escrow Agreement and the lock-up letter attached as Exhibit B to the Merger Agreement. In addition, by virtue of the Merger, at the Effective Time, all existing stock redemption agreements and shareholder agreements between Invetech and any Invetech Shareholder(s) shall be deemed to have been terminated and shall have no further force or effect.
MERGER CONSIDERATION
In the Merger, all of the outstanding shares of the Invetech Common Stock will be converted into the right to receive shares of Applied Common Stock and cash, in the proportion designated by Invetech based upon preference specification forms solicited by Invetech from the Invetech Shareholders in connection with the Special Meeting. The aggregate value of Applied Common Stock and cash to be paid to Invetech Shareholders will be Eighty-Three Million Dollars ($83,000,000) (the "Merger Consideration"); provided, however, in no event shall more than Two Million Three Hundred Thousand (2,300,000) shares of Applied Common Stock be issuable in connection with the Merger. The Merger Consideration is allocable (i) 15% to the holders of Invetech Class A Common Stock and (ii) 85% to the holders of Invetech Class B Common Stock, on a pro rata basis to each holder's percentage interest in each class of Invetech Common Stock. For purposes of computing the Merger Consideration, each share of Applied Common Stock will be assigned a value of Twenty-Eight Dollars and Sixty-Two Cents ($28.62), which was the average closing sale price of Applied Common Stock on NYSE for the twenty business days preceding February 5, 1997 (the day Applied executed the letter of intent relating to the Merger). The Merger Consideration is subject to adjustment on a dollar for dollar basis to the extent that the shareholders' equity of Invetech, as reflected on the Closing Balance Sheet, reduced as provided in the Merger Agreement for all transaction costs and certain other expenses incurred by Invetech in connection with the Merger, is greater than or less than Forty-Six Million Dollars ($46,000,000). In addition, Applied shall pay interest on the Merger Consideration, as adjusted, in an amount equal to the product of (x) the Merger Consideration, as adjusted, (y) the number of days elapsed between the date of the Closing Balance Sheet and the date of the Closing, and (z) 0.0002191.
No fractional shares of Applied Common Stock will be issued in connection with the Merger. Each Invetech Shareholder otherwise entitled to a fractional share of Applied Common Stock will receive an amount of cash in lieu thereof, rounded up to the nearest cent, determined by multiplying (i) Twenty-Eight Dollars and Sixty-Two Cents ($28.62) by (ii) the fractional interest to which such Invetech Shareholder would otherwise be entitled.
ELECTION PROCEDURES REGARDING MERGER CONSIDERATION
In connection with seeking approval by the Invetech Shareholders of the
Merger Agreement and the Merger, Invetech will deliver to each Invetech
Shareholder a merger consideration election form (the "Preference
Specification"). The Preference Specification allows each Invetech Shareholder
to indicate his or her preference with respect to the portions of the Merger
Consideration that such Invetech Shareholder would like to receive in Applied
Common Stock and cash. Each Invetech Shareholder will be given the choice to
elect to receive 78%, 70%, 60% or 50% of the aggregate Merger Consideration
payable to such Invetech Shareholder in Applied Common Stock (at a value of
$28.62 per share), with the balance of such Merger Consideration to be payable
in cash. From such amounts, cash equal to approximately 12.05% of the Merger
Consideration payable to each Invetech Shareholder will be deposited in escrow
by Applied. See "The Merger -- Escrow Amount" and "-- Indemnification." The
Preference Specification completed by each Invetech Shareholder will apply to
all shares of Invetech Common Stock held by such Invetech Shareholder. A
Preference Specification will only be effective if Invetech shall have received
the Preference Specification properly completed and signed not less than five
(5) business days prior to the Effective Time. In the event
that a properly completed and signed Preference Specification for any Invetech Shareholder is not received by Invetech by such date, such Invetech Shareholder shall be entitled to receive Merger Consideration allocated fifty percent (50%) to Applied Common Stock (at a value of $28.62 per share) and fifty percent (50%) to cash.
ESCROW AMOUNT
At the Effective Time, Ten Million Dollars ($10,000,000) of the Merger Consideration (the "Escrow Amount") will be deposited into an escrow account (the "Escrow Account") to secure the indemnification obligations of Invetech under the Merger Agreement. Subject to the prior lien of any claims for indemnification asserted by Applied which have not yet been paid, the Escrow Amount will be reduced to Five Million Dollars ($5,000,000) on January 1, 2000 and Two Million Five Hundred Thousand Dollars ($2,500,000) on April 1, 2001 and all amounts held in excess of the then applicable Escrow Amount shall be distributed to Invetech Shareholders in proportion to their respective interests. Unless the entire Escrow Amount shall have been paid to Applied in satisfaction of the indemnification obligations of Invetech (upon which the escrow will terminate), the escrow will terminate on the later of (i) five years following the Effective Time, and (ii) the date upon which all claims for indemnification made by Applied pursuant to the Merger Agreement and Escrow Agreement have been resolved and all amounts then held in the Escrow Account will be distributed to the Invetech Shareholders. See "The Merger Agreement -- Indemnification."
CLOSING DATE
The Closing of the transactions contemplated by the Merger Agreement shall take place as soon as practicable after the satisfaction or waiver of each of the conditions to Merger, unless Applied and Invetech agree that the Closing should occur at some other time, as specified in the Merger Agreement. See "The Merger Agreement -- Conditions to the Merger."
CONVERSION AND EXCHANGE OF SHARES
At the Effective Time, each outstanding share of Invetech Common Stock will be converted into and exchanged for the right to receive the Merger Consideration consisting of Applied Common Stock and cash. See "The Merger -- General."
As promptly as practicable after the Effective Time, Applied will cause Harris Trust and Savings Bank (the "Exchange Agent") to mail to each Invetech Shareholder of record as of the Effective Time transmittal materials for use in exchanging certificates of Invetech Common Stock for certificates of Applied Common Stock and cash. The transmittal materials will contain information and instructions with respect to the surrender of Invetech Common Stock certificates in exchange for new certificates representing Applied Common Stock and cash. Certificates should not be surrendered until the transmittal materials are received. Pending delivery to the Exchange Agent of certificates representing Invetech Common Stock, any dividends on the Applied Common Stock to be issued as a result of the Merger that are payable prior to the delivery of such certificates will be held by the Exchange Agent. Such dividends will be paid, without interest, to the persons entitled thereto upon delivery of such Invetech stock certificates to the Exchange Agent.
Fractional shares of Applied Common Stock will not be issued in the Merger. Instead, each Invetech Shareholder who would otherwise be entitled to a fraction of a share will receive, in lieu thereof, an amount of cash (rounded to the nearest cent) equal to the product of such fractional interest multiplied by Twenty-Eight Dollars and Sixty-Two Cents ($28.62). All certificates representing shares of Invetech Common Stock shall be aggregated prior to determining the number of fractional shares.
BUSINESS OF INVETECH PENDING THE MERGER
Pending the consummation of the Merger, and except as otherwise consented to or approved in advance by Applied in writing, Invetech has agreed that it will, among other things, (i) carry on its and its subsidiaries' business in the usual, regular and ordinary course in substantially the same manner as it has been conducted, (ii) maintain adequate insurance coverage and maintain its properties and assets in good repair, in all cases
consistent with past practice, and (iii) use its reasonable efforts to preserve substantially intact its business organization, its relationships with employees, consultants, customers and suppliers.
In addition, Invetech has agreed not to take certain actions without the
prior written consent of Applied, including (without limitation) the following:
(i) amend its Articles of Incorporation or By-laws, (ii) issue, sell, pledge or
otherwise dispose of any securities of Invetech or its subsidiaries, (iii)
increase the compensation payable to any director, officer, consultant or
employee of Invetech except in a manner consistent with past practice or as may
be required by law or collective bargaining agreement, (iv) make any tax
election inconsistent with past practice, (v) elect to be covered by the
provisions of Section 780 of the Michigan Business Corporation Act, or take any
action which could cause the Invetech to be covered by Section 790 of the
Michigan Business Corporation Act, (vi) adopt any resolution which would grant
Invetech Shareholders dissenters' rights under the Michigan Business Corporation
Act, (vii) maintain its books, records, machinery, equipment and other assets in
a manner other than as consistent with past practice, or (viii) enter into any
agreement in excess of $100,000 connected with the purchase or lease of real
property, computer software, or non-resale items, or any commitments to make any
capital expenditures.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
Until the Effective Time, Invetech has agreed that it will not, directly or indirectly, solicit any proposals or offers from any third party relating to any possible acquisition of Invetech, or participate (except to the extent reasonably required by fiduciary obligations) in any negotiations regarding or furnish to any person (except to the extent reasonably required by fiduciary obligations) any information with respect to, or otherwise cooperate with, any effort by any person to do any such transaction. However, Invetech has agreed that if an unsolicited acquisition proposal shall be received by the Board of Directors of Invetech, then Invetech shall immediately notify Applied upon receipt of any such proposal.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, Invetech will merge with and into Merger Sub, which will survive as a wholly owned subsidiary of Applied. Following the Merger, the Articles of Incorporation and Code of Regulations of Merger Sub, as in effect immediately prior to the Effective Time, will be the Articles of Incorporation and Regulations of the surviving corporation until thereafter amended as provided by Ohio General Corporation Law and such Articles of Incorporation and Regulations.
The directors and the officers of Merger Sub immediately prior to the Effective Time will be the initial directors and officers of the surviving corporation, in each case until their respective successors are duly elected or appointed and qualified.
CERTAIN COVENANTS
Applied, Invetech and Merger Sub have made certain additional covenants under the Merger Agreement. A complete list of such covenants is set forth in the Merger Agreement attached hereto as Annex A. These covenants include the following:
(a) Invetech has agreed to afford Applied and its representatives reasonable access to its properties, books and other information concerning its business, properties and personnel as Applied and its representatives may reasonably request.
(b) Applied and Invetech will use all reasonable efforts to obtain all necessary federal and state securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by the Merger Agreement.
(c) Applied has agreed to use its best efforts to cause the Applied Common Stock to be issued in connection with the Merger to be listed on NYSE prior to the Effective Time.
(d) Invetech has agreed to call a meeting of its shareholders to be held as soon as practicable for the purpose of obtaining the shareholder approvals required in connection with the Merger Agreement.
Subject to the directors' applicable fiduciary duties, the Board of Directors of Invetech will recommend to its shareholders that they vote to approve the Merger Agreement and the Merger.
(e) Applied or the Merger Sub shall offer consulting and employment agreements to certain key employees of Invetech on terms and conditions reasonably agreeable to Applied or the Merger Sub, respectively.
(f) Invetech will use its reasonable efforts to obtain, and Applied will cooperate with Invetech in obtaining, all consents, waivers, approvals, authorizations or orders required in connection with the consummation of the transactions contemplated in the Merger Agreement.
(g) Applied and Merger Sub will prepare, execute and file all tax returns and other documents necessary to constitute the Merger as a Reorganization under Section 368(a) of the Code.
(h) Invetech shall terminate all salary continuation agreements and other postemployment benefit arrangements (other than those pertaining to J. Michael Moore, James T. Moore II, Robert Maxon, Raymond Ranch, Lester Schroeder, and Thomas P. Moore II) and shall satisfy and discharge any and all obligations arising thereunder.
INDEMNIFICATION
By Invetech. At the Effective Date, Applied will cause to be deposited, from the Merger Consideration, immediately available funds in the amount of Ten Million Dollars ($10,000,000) (the "Escrow Amount") into the Escrow Account with NBD Bank, as Escrow Agent pursuant to the Escrow Agreement. The Escrow Amount will be available to indemnify Applied and Merger Sub from and against any losses or expenses incurred by Applied and Merger Sub arising out of any breach of the representations, warranties, covenants or agreements given or made by Invetech under the Merger Agreement. In general, Invetech's indemnification obligation is subject to an aggregate deductible of One Hundred Sixty Thousand Dollars ($160,000).
If the Merger is consummated, the Escrow Amount shall be the exclusive remedy of Applied and Merger Sub for any breach of any representation, warranty, covenant or agreement of Invetech under the Merger Agreement.
Subject to the prior lien of any claims for indemnification asserted by Applied, the Escrow Amount will be reduced to Five Million Dollars ($5,000,000) on January 1, 2000 and Two Million Five Hundred Thousand Dollars ($2,500,000) on April 1, 2001 and all amounts held in excess of the then applicable Escrow Amount shall be distributed to Invetech Shareholders in proportion to their respective interests. Unless the entire Escrow Amount shall have been paid to Applied in satisfaction of the indemnification obligations of Invetech (upon which the escrow will terminate), the escrow will terminate on the later of (i) five years following the Effective Time, and (ii) the date upon which all claims for indemnification made by Applied pursuant to the Merger Agreement and Escrow Agreement have been resolved and all amounts then held in the Escrow Account will be distributed to the Invetech Shareholders.
Pursuant to the terms of the Escrow Agreement, Thomas P. Moore II and Dennis P. Moore will be appointed the Shareholder Representatives and shall each have the discretion to make decisions and take actions on behalf of, and without the consent of, the Invetech Shareholders. Such decisions and actions of each of the Shareholder Representatives will be final, binding and conclusive upon all Invetech Shareholders. Such agency may be changed pursuant to the terms of the Escrow Agreement. BY APPROVING THE MERGER AGREEMENT, INVETECH SHAREHOLDERS WILL BE DEEMED TO HAVE CONSENTED TO THE APPOINTMENT OF THOMAS P. MOORE II AND DENNIS P. MOORE EACH TO ACT AS SHAREHOLDER REPRESENTATIVES ON BEHALF OF INVETECH SHAREHOLDERS, TO GIVE AND RECEIVE COMMUNICATIONS, TO AUTHORIZE DELIVERY TO APPLIED OF THE ESCROW AMOUNT FROM THE ESCROW ACCOUNT, TO OBJECT TO SUCH DELIVERIES, TO AGREE TO, NEGOTIATE, AND ENTER INTO SETTLEMENTS AND COMPROMISES OF SUCH CLAIMS, AND TO TAKE CERTAIN OTHER ACTIONS ON BEHALF OF INVETECH SHAREHOLDERS, ALL AS MORE FULLY DESCRIBED IN THE ESCROW AGREEMENT.
If Applied claims that it is entitled to indemnification under the Merger Agreement, Applied must provide written notice (a "Notice of Claim") of such claim specifying with particularity the factual basis of the claim, to the extent then known, to the Shareholder Representatives and the Escrow Agent. Applied and the Shareholder Representatives shall discuss each Notice of Claim in good faith to determine the validity and (if the claim is then liquidated) the value of such claim for indemnification. If Applied and the Shareholder Representatives cannot agree on the validity of the claim for indemnification and/or (if the claim is then liquidated) the value of the claim specified in the Notice of Claim, then the claim may be submitted by either party to an arbitrator, and the decision of such arbitrator shall be final and binding upon the parties.
In the event Applied or Merger Sub becomes aware of the commencement of any claim, action or proceeding ("Proceeding") against either of them (including, but not limited to a Proceeding regarding any federal, state or local tax) which either of them believes may result in a claim for indemnification under the Merger Agreement, Applied will give notice to the Shareholder Representatives of the commencement of such Proceeding, and the Shareholder Representatives will be entitled to participate in such Proceeding. No compromise or settlement of such claims may be effected by Applied if a Shareholder Representative participates and reasonably objects to the compromise.
Indemnification by Applied. Pursuant to the terms of the Merger Agreement, Applied agrees to indemnify the Invetech Shareholders from any losses and expenses incurred by them by reason of any breach of any representation, warranty, covenant or agreement made in the Merger Agreement by Applied or the Merger Sub. Notwithstanding the above, the liability of Applied under such indemnification shall not exceed Ten Million Dollars ($10,000,000) with respect to claims for indemnification first asserted within the thirty month period following the Effective Time; shall not exceed the lesser of (i) Five Million Dollars ($5,000,000) or (ii) together with the aggregate of all claims for indemnification first asserted within the thirty month period following the Effective Time, Ten Million Dollars ($10,000,000) with respect to claims for indemnification first asserted within the fifteen month period following the first aforementioned thirty month period; and shall not exceed the lesser of (i) Two Million Five Hundred Thousand Dollars ($2,500,000) or (ii) together with the aggregate of all claims for indemnification first asserted within the forty-five month period following the Effective Time, Ten Million Dollars ($10,000,000) with respect to claims for indemnification first asserted within the fifteen month period following the aforementioned forty-five month period. In general, Applied's indemnification obligation is subject to an aggregate deductible of One Hundred Sixty Thousand Dollars ($160,000).
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various conditions, including, without limitation, (i) the approval of the Merger Agreement and the transactions contemplated therein by the Invetech Shareholders, (ii) the listing of the Applied Common Stock to be issued as part of the Merger Consideration on NYSE, (iii) obtaining the requisite regulatory approvals, and (iv) the absence of any restraining order, injunction or other order issued by a court of competent jurisdiction prohibiting the Merger, or of any law, statute, rule or regulation making the Merger or any of the transactions contemplated in the Merger Agreement illegal.
The obligations of Applied and Merger Sub to consummate the Merger are
subject to, among other things, (i) the continuing accuracy as of the Effective
Time of the representations and warranties made by Invetech, (ii) the
performance by Invetech of all of its obligations required of it prior to the
Closing Date under the Merger Agreement, (iii) Applied being satisfied with the
environmental condition of the real property of Invetech, (iv) the receipt by
Applied and Merger Sub of duly executed consulting and non-competition
agreements between Applied or an affiliate of Applied and certain key employees,
(v) Applied being reasonably satisfied that all material customers, vendors,
suppliers, sales representatives and employees of Invetech will continue their
respective relationships with Invetech's business following the Effective Time,
(vi) Applied being satisfied that the shareholders equity of Invetech as of
December 31, 1996 and as of the Closing Date is not less than Forty-One Million
Dollars ($41,000,000) nor greater than Fifty-One Million Dollars ($51,000,000),
(vii) Applied being reasonably satisfied that it may assume all material
contracts,
approvals, permits and leases of Invetech and its subsidiaries, and that no such contracts or leases will conflict with or result in a material breach or default under any material contract, approval, permit or agreement with Applied, (viii) Applied being satisfied that certain benefit plans and agreements to which Invetech and any of its current or former directors, officers or employees were parties have been terminated and all obligations thereunder have been discharged, (ix) Deloitte & Touche LLP having completed its annual audit of Invetech's financial statements for the fiscal year ended December 31, 1996 and issued an unqualified audit opinion with respect thereto, and the absence of an occurrence or nonoccurrence of any event which might result in a material adverse change in the financial condition, assets, business or future prospects of Invetech, (x) the execution of certain employment, consulting, noncompetition and confidentiality agreements between Applied and certain shareholders, directors, officers and employees of Invetech, (xi) the receipt by Applied and the Merger Sub of legal opinions reasonably satisfactory to it pertaining to the Merger and the transactions contemplated in the Merger Agreement, (xii) the closing price of Applied Common stock not having exceeded $38.00 on any day subsequent to April 29, 1997 and prior to the Effective Time, and (xiii) the receipt by Invetech of the consent of the inventor to Invetech's assignment of a patent application relating to a certain Motion Roller/Bearing Assembly to MRBA Company, which assignment shall have been filed with the United States Patent and Trademark Office.
The obligation of Invetech to consummate the Merger is subject to, among other things, (i) the continuing accuracy as of the Effective Time of the representations and warranties made by Applied and the Merger Sub, (ii) the performance by Applied and the Merger Sub of all of its obligations required of it prior to the Effective Time under the Merger Agreement, (iii) the receipt by Invetech of certain legal opinions reasonably satisfactory to it regarding tax and other matters pertaining to the Merger and the transactions contemplated in the Merger Agreement, (iv) the closing price of Applied Common Stock not having been less than $24.875 on any day subsequent to April 29, 1997 and prior to the Effective Time, and (v) control of Applied not having been transferred to persons other than those persons in control of Applied on the date of this Agreement.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT; TERMINATION FEE
The Merger Agreement may be terminated and the Merger may be abandoned prior to the Effective Time under certain circumstances specified in the Merger Agreement, including, without limitation, (i) by mutual written agreement of Applied and Invetech, (ii) by either Applied or Invetech if the Merger shall not have been consummated by July 31, 1997, (iii) by either party if a court of competent jurisdiction or administrative agency shall have issued an order, rule or injunction restraining or prohibiting the Merger, (iv) by Applied, if the Board of Directors of Invetech shall have changed its approval or recommendation of the Merger Agreement or the Merger or shall have recommended to shareholders an alternate acquisition proposal, (v) by Invetech, if the Board of Directors of Invetech, acting in good faith, determines that it is required, in order to discharge properly its fiduciary duties to the Invetech Shareholders, to withdraw, modify or change its approval of the Merger Agreement or the transactions set forth therein, (vi) by either Applied or Invetech if the Invetech Shareholders, at a meeting of such Invetech Shareholders, fail to approve such Merger, or (vii) by either Applied or Invetech if the other party shall have breached the Merger Agreement, which breach results or reasonably would be expected to result in an adverse effect to the terminating party of $3,000,000 or more (before taxes).
In the event, prior to termination of the Merger Agreement, any person other than Applied or its affiliates shall have commenced, proposed or communicated to Invetech a proposal to acquire all or substantially all of the stock or assets of Invetech, and, within one year of the termination of the Merger Agreement, a definitive agreement is entered into between Invetech and such person, Invetech shall pay to Applied the sum of $3,000,000.
FEES AND EXPENSES
Except as set forth above (see "-- Termination or Amendment of the Merger Agreement"), all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such expenses, whether or not the Merger is consummated. Notwithstanding
the above, Applied shall be responsible for the payment of all printing and registration fees associated with this Registration Statement on Form S-4 Registration Statement and Prospectus.
CONFIDENTIALITY AGREEMENTS
Each party to the Merger Agreement has agreed to keep confidential information provided by the other party pursuant to the Merger Agreement, including information with respect to the business and intellectual properties of the party furnishing such information. Such information is only to be used by the parties for the purpose of effecting the Merger.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements ("pro forma financial statements") give effect to the merger of Applied and Invetech. The Merger is subject to the approval of the Invetech Shareholders. The unaudited pro forma combined condensed balance sheet has been prepared as if the acquisition was consummated as of March 31, 1997 and is to be accounted for as a purchase. The purchase price consideration is projected to be paid through the issuance of 2,300,000 shares of Applied Common Stock (valued at $30.16 per share for purchase accounting purposes) along with an estimated $18.8 million of cash. The purchase price has been allocated to the acquired assets of Invetech based on a preliminary analysis of the fair value of assets acquired and liabilities assumed.
The following unaudited pro forma combined condensed income statements for the year ended June 30, 1996 and for the nine months ended March 31, 1997 give effect to the acquisition as if the transaction was completed at the beginning of the year ended June 30, 1996. These pro forma income statements do not include the impact of an estimated $3.7 million pre-tax nonrecurring charge for the accrual of estimated costs associated with the acquisition of Invetech, including the consolidation of operations of certain facilities, along with costs relating to certain duplicative assets. This charge principally includes accruals for certain severance costs, lease termination costs, and write-off of capital assets. The charge will be recorded in the period in which the acquisition is consummated. These pro forma statements do not include any potential favorable effect on selling, distribution and administrative expenses resulting from the projected reduction in expenses, primarily salaries and employee benefits, upon consolidation of certain facilities and administrative functions of the two companies. The impact of these reductions is estimated to be approximately $15 million per year prior to any income tax impact.
The pro forma financial statements are provided for illustrative purposes and are not necessarily indicative of the combined financial position or combined results of operations that would have been reported had the acquisition occurred on the dates indicated, nor do the pro forma financial statements represent a forecast of the combined financial position or results of operations for any future period. The pro forma financial statements should be read in conjunction with the historical financial statements and accompanying notes for Applied and Invetech.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF MARCH 31, 1997
PRO FORMA
-------------------------
APPLIED INVETECH ADJUSTMENTS COMBINED
-------- -------- ----------- --------
ASSETS
Current assets
Cash and temporary investments............. $ 15,521 $ 1,072 $ 16,593
Accounts receivable, net................... 152,335 42,663 194,998
Inventories................................ 118,172 30,047 $ 20,700(1) 168,919
Other current assets....................... 7,226 3,056 10,000(2) 20,282
-------- -------- --------- --------
Total current assets.......................... 293,254 76,838 30,700 400,792
Property, net................................. 84,242 12,272 50(3) 96,564
Other assets.................................. 20,283 14,959 27,846(4) 63,088
-------- -------- --------- --------
TOTAL ASSETS.......................... $397,779 $104,069 $ 58,596 $560,444
======== ======== ========= ========
LIABILITIES
Current liabilities
Notes payable.............................. $ 20,897 $ 18,820(5) $ 39,717
Current portion of long-term debt.......... 11,429 $ 13,636 25,065
Accounts payable........................... 62,860 17,239 80,099
Other accrued liabilities.................. 34,532 9,688 14,190(6) 58,410
-------- -------- --------- --------
Total current liabilities..................... 129,718 40,563 33,010 203,291
Long-term debt................................ 57,143 8,517 65,660
Other liabilities............................. 11,577 6,451 4,810(7) 22,838
-------- -------- --------- --------
TOTAL LIABILITIES..................... 198,438 55,531 37,820 291,789
SHAREHOLDERS' EQUITY
Common stock.................................. 10,000 210 (210)(8) 10,000
Additional paid-in capital.................... 9,365 314 69,000(8) 78,679
Income retained for use in the business....... 209,694 48,014 (48,014)(8) 209,694
Treasury shares -- at cost.................... (23,467) (23,467)
Other......................................... (6,251) (6,251)
-------- -------- --------- --------
TOTAL SHAREHOLDERS' EQUITY............ 199,341 48,538 20,776 268,655
-------- -------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $397,779 $104,069 $ 58,596 $560,444
======== ======== ========= ========
|
See notes to Unaudited Pro Forma Combined Condensed Financial Statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30, 1996
PRO FORMA
---------------------------
APPLIED INVETECH ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
Net Sales.................................. $1,143,749 $310,847 $1,454,596
Cost and Expenses
Cost of sales............................ 848,682 233,855 1,082,537
Selling, distribution and
administrative........................ 245,786 70,475 $ 2,150(1) 318,411
---------- -------- ------- ----------
1,094,468 304,330 2,150 1,400,948
---------- -------- ------- ----------
Operating Income........................... 49,281 6,517 (2,150) 53,648
Interest
Interest Expense......................... 8,975 2,290 1,223(2) 12,488
Interest Income.......................... (528) (237) (765)
---------- -------- ------- ----------
8,447 2,053 1,223 11,723
Income Before Income Taxes................. 40,834 4,464 (3,373) 41,925
Income Taxes............................... 17,500 875 (893)(3) 17,482
---------- -------- ------- ----------
Net Income................................. $ 23,334 $ 3,589 $(2,480) $ 24,443
========== ======== ======= ==========
Net Income per share....................... $ 1.90 $ 1.71 N/A $ 1.67
========== ======== ======= ==========
Average common shares outstanding.......... 12,303 2,095 205(4) 14,603
========== ======== ======= ==========
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See notes to Unaudited Pro Forma Combined Condensed Financial Statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED MARCH 31, 1997
PRO FORMA
---------------------------
APPLIED INVETECH ADJUSTMENTS COMBINED
-------- -------- ----------- ----------
Net Sales................................... $854,431 $237,974 $1,092,405
Cost and Expenses
Cost of sales............................. 630,791 180,149 810,940
Selling, distribution and
administrative......................... 188,766 51,934 $ 1,612(1) 242,312
-------- -------- ------- --------
819,557 232,083 1,612 1,053,252
-------- -------- ------- --------
Operating Income............................ 34,874 5,891 (1,612) 39,153
Interest
Interest Expense.......................... 4,829 1,275 917(2) 7,021
Interest Income........................... (695) (141) (836)
-------- -------- ------- --------
4,134 1,134 917 6,185
Income Before Income Taxes.................. 30,740 4,757 (2,529) 32,968
Income Taxes................................ 12,577 1,279 (792)(3) 13,064
-------- -------- ------- --------
Net Income.................................. $ 18,163 $ 3,478 $(1,737) $ 19,904
======== ======== ======= ========
Net Income per share........................ $ 1.47 $ 1.66 N/A $ 1.35
======== ======== ======= ========
Average common shares outstanding........... 12,390 2,095 205(4) 14,690
======== ======== ======= ========
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See notes to Unaudited Pro Forma Combined Condensed Financial Statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following pro forma adjustments have been made for the balance sheet dated March 31, 1997:
(1) Reflects the net adjustment of inventory to fair value.
(2) Reflects a reclassification of a $10 million non-current asset to current as the intent is to liquidate this asset within a twelve month period.
(3) Reflects the net adjustment of property to fair value.
(4) Reflects the allocation of the purchase price to goodwill and certain covenants not to compete. In addition, $10 million of assets have been reclassified to current as they are intended to be realized within a twelve month period.
(5) Reflects short-term borrowing to finance the estimated cash portion of the purchase price.
(6) Reflects accrual of direct acquisition costs, the current portion of the liability for certain covenants not to compete, and the deferred tax liability associated with the pro forma adjustments.
(7) Reflects the long-term portion of the liability for certain covenants not to compete.
(8) Reflects the elimination of Invetech Common Stock, additional paid-in capital and retained earnings and the projected issuance of 2.3 million shares of Applied Common Stock.
The following pro forma adjustments have been made for the income statement for the year ended June 30, 1996 and the nine months ended March 31, 1997:
(1) Reflects amortization of goodwill and certain covenants not to compete on a straight line basis over 30 and 5 years, respectively.
(2) Reflects the interest cost of funds borrowed to finance the estimated cash portion of the purchase price.
(3) Reflects the impact of the above adjustments on income tax expense. No tax benefit has been included for nondeductible goodwill amortization.
(4) Reflects the net impact on the average common shares outstanding of the elimination of the Invetech Common Stock outstanding and the projected issuance of 2.3 million shares of Applied Common Stock in the Merger.
APPLIED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW
YEAR ENDED JUNE 30, 1996 VS. 1995
Applied sales in 1996 increased 8% to $1,143.7 million from 1995 sales of $1,054.8 million. The sales increased approximately 4% due to price increases and 4% due to volume increases. Net income for the fiscal year ended June 30, 1996 improved 38% over the prior year. In 1996, Applied continued to implement its strategy, which began in 1992, of selling additional products to its existing customers, as well as better penetration of the market with products beyond the traditional bearing product lines. Applied expects to continue expanding its business through acquisitions of other distributors.
Gross margin (net sales less cost of sales) as a percent of sales was 25.8% in 1996 and 1995. Margins remained constant, even though the benefits from favorable LIFO cost adjustments were significantly lower in 1996 than 1995 (see Note 3 to the Consolidated Financial Statements). The lower LIFO benefits were offset by a change in product mix.
Selling, distribution and administrative expenses as a percent of sales were 21.5% in 1996 and 22.3% in 1995. The decrease in expenses as a percent of sales was the result of a continued effort to control expenses and improved productivity. While these expenses decreased as a percent of sales, they did increase 5% in absolute dollars primarily due to higher compensation costs from an increase in the number of associates, costs associated with acquisitions and the accelerated vesting of performance accelerated restricted stock (PARS) based upon the price performance of Applied Common Stock during the year.
Operating income increased to $49.3 million in 1996 from $36.9 million in 1995. As a percent of sales, operating income increased to 4.3% in 1996 from 3.5% in 1995. This improved operating margin resulted from higher sales volume and improved productivity.
The number of associates was 4,133 at June 30, 1996 and 4,080 at June 30, 1995.
Interest expense for 1996 increased $1.3 million as a result of increased borrowings and higher interest rates on short-term debt.
Income tax expense as a percentage of income before income taxes was 42.9% in 1996. The effective tax rate was greater than the federal statutory rate primarily due to state and local income taxes and non-deductible expenses.
YEAR ENDED JUNE 30, 1995 VS. 1994
Sales increased to $1,054.8 million from 1994 sales of $936.3 million, an increase of 13%. The increase in sales was mainly due to additional volume. Price increases averaged 4% for most product lines over the course of the fiscal year. Results for the fiscal year ended June 30, 1995, continued to improve with net income improving 33% over the prior year.
Gross margin as a percent of sales was 25.8% in 1995 and 26.9% in 1994. The gross margin percentage decreased in fiscal 1995 due to a reduction in favorable LIFO cost adjustments and delays in passing along certain price increases due to contract timing and the competitive environment.
Selling, distribution and administrative expenses as a percent of sales were 22.3% in 1995 and 23.9% in 1994. The decrease in expenses as a percent of sales was the result of an active effort to control expenses and the rise in sales volume. In fiscal 1995, Applied incurred higher expenses for hospitalization, and sales commissions paid to account representatives. Expenses decreased due to accelerated vesting in the prior year of performance accelerated restricted stock (PARS).
The number of associates was 4,080 at June 30, 1995 and 4,066 at June 30, 1994.
Interest expense for 1995 increased $1.3 million over the prior year. This increase was due, in part, to higher average interest rates on short-term borrowings. Further, Applied in fiscal 1994 partially offset interest expense by net interest income earned under interest rate swap agreements. In 1995, Applied incurred
additional interest expense from the termination of an interest rate swap agreement. (See Note 5 to the Consolidated Financial Statements).
Income tax expense as a percent of income before income taxes was 43.0% in 1995. The effective tax rate was greater than the federal statutory rate primarily due to state and local income taxes and non-deductible expenses.
LIQUIDITY AND WORKING CAPITAL
Applied generated cash from operating activities in the amount of $36.4 million and $13.4 million in 1996 and 1995, respectively.
Cash flow from operations depends primarily upon generating operating income, controlling the investment in inventory and receivables, and managing the timing of payments to suppliers. Applied's growth in accounts receivable and inventory in 1996 was necessary to service the increased sales volume, including greater sales of non-bearing products.
Investments in property totaled $23.5 million and $15.1 million in 1996 and 1995, respectively. These capital expenditures were primarily made for building and upgrading branch facilities, construction of a new distribution center in Atlanta which opened in the fall of 1996, acquisition of data processing equipment, and vehicles.
Working capital at June 30, 1996, was $152.0 million compared to $153.6 million at June 30, 1995. The current ratio was 2.1 at June 30, 1996 and 2.4 at June 30, 1995.
CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, indebtedness under Applied's lines of credit and long-term debt and from operating lease arrangements. Average combined short-term and long-term borrowing was $111.8 million in 1996 and $97.9 million in 1995. Effective interest rates on short-term borrowings were 6.2% in 1996 and 5.9% in 1995. Applied has short-term lines of credit totaling $110 million. Applied had $30.1 million of borrowings under these short-term lines of credit at June 30, 1996.
Applied sold its Dixie Bearings Aircraft Division business early in fiscal 1997. The initial proceeds from the sale of $9.1 million were used to reduce short-term borrowings. This transaction is not anticipated to have a material effect on the Consolidated Financial Statements.
Applied is obligated for rental payments for operating leases on 176 of its 354 branch, distribution center and other operating locations. See Note 9 to the Consolidated Financial Statements for annual rental commitments.
Management expects that capital resources provided from operations, available lines of credit, long-term debt and operating leases will be sufficient for the foreseeable future to finance normal working capital needs, business acquisitions and enhancement of facilities and equipment. Management also believes that additional long-term debt and line of credit financing could be obtained if desired.
OTHER MATTERS
The name of the company was changed from Bearings, Inc. to Applied Industrial Technologies, Inc., effective January 1, 1997. The Bearings, Inc. name no longer reflected the full scope of Applied's diverse business. Anticipated expenses to promote, communicate and market the new corporate identity are not expected to have a material impact on the fiscal 1997 results of operations.
The 1990 agreement for the acquisition of King Bearing included specific indemnification of Applied and King for any financial damages or losses related to a lawsuit pending against King in the Superior Court of Orange County, California. The indemnification was also guaranteed by the ultimate parent of King's former owner, a Fortune 500 company with stockholders' equity exceeding five billion dollars at June 30, 1996. A $32.4 million judgment relating to this lawsuit was rendered against King in June 1992. As further explained
in Note 10 to the Consolidated Financial Statements, management believes that the outcome of this matter will not have a material adverse affect on the consolidated financial position or results of operations of Applied due to the indemnification and guarantee.
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997
The following is Management's discussion and analysis of certain significant factors which have affected the Company's: (1) financial condition at March 31, 1997 and June 30, 1996, and (2) results of operations and cash flows during the three month and nine month periods ended March 31, 1997.
FINANCIAL CONDITION
LIQUIDITY AND WORKING CAPITAL
Cash provided by operating activities was $27.5 million in the nine months ended March 31, 1997. This compares to $4.3 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 nine month period ended March 31, 1997, inventories (excluding inventories sold with the Dixie Bearings Aircraft Division) decreased approximately $3.8 million. Accounts receivable increased by $0.4 million.
Investments in property totaled $10.9 million and $13.2 million in the nine months ended March 31, 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. A new company-owned distribution center in Atlanta was opened during the quarter ended September 30, 1996. Construction was started on a new distribution center in Fort Worth, Texas. This build-to-suit facility will be financed under an operating lease and is expected to open in May of 1997.
Working capital at March 31, 1997 was $163.5 million compared to $152.0 million at June 30, 1996. This increase is primarily due to an increase in cash provided from operations, the receipt of proceeds from the sale of the Aircraft Division, and the refund of insurance deposits.
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.
Average combined short-term and long-term borrowing was $90.7 million for the nine months ended March 31, 1997 and $111.8 million during the year ended June 30, 1996. The average effective interest rate on the short-term borrowings for the nine months ended March 31, 1997 increased to 6.5% from an average rate of 6.1% for the nine months ended March 31, 1996 due to higher interest rates on short-term debt. The Company has $105 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 $18.9 million of borrowings outstanding under short-term bank lines of credit and none under the shelf facility agreement at March 31, 1997. Unused lines of credit of totaling $136.1 million are available for future short-term financing needs. In addition, the Company also has $2.0 million of other short-term notes payable outstanding outside of these bank line of credit arrangements.
The Board of Directors has authorized the purchase of up to 420,000 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 150,500 shares of its common stock for $4.1 million during the nine months ended March 31, 1997.
The acquisition of Invetech will be financed by a combination of cash and stock valued at $83 million. At least 50% but not more than 78% of the price for all outstanding shares of Invetech Common Stock will be paid with Applied Common Stock. The remainder will be financed through available lines of credit. It is anticipated that a charge of $3.7 million to record restructuring of operations, and consolidation expenses will be recorded at the consummation of the acquisition.
Management expects that capital resources provided from operations, available lines of credit and long-term debt and operating leases will be sufficient for the foreseeable future 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.
RESULTS OF OPERATIONS
A summary of the period-to-period changes in principal items included in the statements of consolidated income follows:
INCREASE (DECREASE)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 AND 1996 1997 AND 1996
------------------ -------------------
AMOUNT CHANGE AMOUNT CHANGE
------ ------ ------- ------
Net sales......................................... $1,126 .4 % $ 6,168 .7 %
Cost of sales..................................... 1,537 .7 247 0
Selling, distribution and administrative
expenses........................................ 89 .1 5,272 2.9
Operating income.................................. (500) (3.9) 649 1.9
Interest expense -- net........................... (678) (30.4) (2,370) (36.4)
Income before income taxes........................ 178 1.7 3,019 10.9
Income taxes...................................... (455) (9.9) 682 5.7
Net income........................................ 633 10.3 2,337 14.8
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THREE MONTHS ENDED MARCH 31, 1997 VS. 1996
The sales increase of 0.4% for the quarter was lower than in previous quarter to quarter comparisons due to an overall slowing in certain industries that exhibited strength in the prior year, particularly in the paper and machine tools industries. These decreases were offset in part by increases in sales to the aluminum, wood products, construction and food products industries. Our comparative sales amounts were also negatively impacted by the sale of the Dixie Bearings Aircraft Division earlier this year and by having fewer business days than in the same quarter last year.
Selling, distribution and administrative expenses remained constant with a modest increase of 0.1%.
Interest expense-net for the quarter decreased by 30.4% primarily as a result of a decrease in average borrowings.
Income taxes as a percentage of income before taxes was 38.0% in the three months ended March 31, 1997 and 42.9% in the three months ended March 31, 1996. The decrease is primarily attributed to tax savings from lower effective state and local income tax rates and from Federal income tax credits.
As a result of the above factors, net income increased by 10.3% compared to the same quarter of last year.
NINE MONTHS ENDED MARCH 31, 1997 VS. 1996
The sales increase of 0.7% for the period was lower than in the prior nine month comparison due to an overall slowing in certain industries that exhibited strength in the prior year, particularly in the paper and machine tools industries. These decreases were offset in part by increases in sales to the aluminum, wood
products, construction and food products industries. The decline in sales growth was also affected by the sale of Dixie Bearings Aircraft Division during the quarter ended September 30, 1996. Gross profit, as a percentage of sales, increased from 25.7% to 26.2% primarily due to changes in the product mix as sales of lower margin bearing products declined and sales in non-bearing products continue to grow. In addition, lower freight costs also favorably impacted the gross profit percentage.
Selling, distribution and administrative expenses increased by 2.9%, primarily from higher compensation expense and health care costs.
Interest expense-net for the period decreased by 36.4% primarily from a decrease in average borrowings.
Income taxes as a percentage of income before taxes was 40.9% in the nine months ended March 31, 1997 and 42.9% in the nine months ended March 31, 1996. The decrease is primarily attributed to tax savings from lower effective state and local income tax rates and from Federal income tax credits.
As a result of the above factors, net income increased by 14.8% compared to the same period last year. Income per share increased by 14.0% due to an increase in income and an increase in the average number of shares outstanding.
INFORMATION CONCERNING
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DESCRIPTION OF BUSINESS
Applied, directly and through its wholly owned operating subsidiaries, is engaged in the business of selling and distributing bearings, mechanical and electrical drive system products, industrial rubber products, fluid power products and specialty maintenance and repair products manufactured by others. Applied and its predecessor companies have been engaged in this business since 1923. Applied was incorporated pursuant to the laws of Delaware in 1928 and reincorporated from Delaware to Ohio in 1988. Applied (formerly known as Bearings, Inc.) adopted its current name as of January 1, 1997.
GENERAL DEVELOPMENT OF THE BUSINESS
In fiscal 1996, Applied continued to enter into strategic business combinations to improve its market position in non-bearing products and services. Applied exchanged 486,000 shares of Applied Common Stock for all of the outstanding shares of Engineered Sales, Inc., an applied-technology distributor of hydraulic, pneumatic and electro-hydraulic systems and components based in St. Louis, in February 1996. Earlier in the year, Applied purchased the assets of Flood Industries, Inc. a two-branch distributor in the Upper Peninsula of Michigan, and the Power Transmission Equipment Division of Hines Motor Supply, Inc., located in Billings, Montana. In addition, in August 1996 Applied sold its aircraft bearing distribution business, located in Atlanta, in order to concentrate further on the core business of distribution to industrial markets.
Applied opened a new 155,000 square foot distribution center in Douglas County, Georgia, replacing the former facility in that area. The center is Applied's largest distribution center. In addition, a new 127,000 square foot distribution center opened in May 1997 in Fort Worth, Texas replacing the current Fort Worth facility. Applied has also substantially completed construction of its new 145,000 square foot headquarters facility in Cleveland's Midtown Corridor. The complex is expected to open in June 1997 and will replace Applied's current headquarters complex of five buildings spread over three blocks in the Midtown Corridor.
Effective January 1, 1997, Applied changed its name from Bearings, Inc. to Applied Industrial Technologies, Inc. The new name reflects the widening range of products and services offered by Applied.
Further information regarding developments in Applied's business are set forth under "Applied Management's Discussion and Analysis of Financial Condition and Results of Operations" herein.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Applied considers its business to involve only one industry segment.
NARRATIVE DESCRIPTION OF THE BUSINESS
Products. Applied engages in the distribution and sale of ball, roller, thrust, plane and linear type bearings, mechanical and electrical drive system products, industrial rubber products, fluid power products and specialty items used in connection with the foregoing such as seals, lubricants, locking devices, sealing compounds, adhesives and maintenance tools. Although Applied does not generally manufacture the products that it sells, it does assemble filter carts, fluid power components, hydraulic power units, hydraulic and pneumatic cylinders, speed reducers and electrical panels, modify conveyor belts and rebuild precision machine tool spindles.
Applied is a non-exclusive distributor for numerous manufacturers of the
products which it sells. The principal bearing lines distributed by Applied are:
American, Barden, Cooper, FAG, Heim/RBC, INA, Kaydon, MB Manufacturing, McGill,
MRC, Sealmaster, SKF, Symmco, Thomson, Timken and Torrington/Fafnir. The
principal drive system product lines distributed by Applied are: Baldor,
Browning, Electron, Falk, FMC, Foote Jones, Jeffrey, Kop-Flex, Lincoln Electric,
Lovejoy, Martin, Morse, Reliance/Dodge, Rexnord/Link-Belt, Saftronics, Stephens
Adamson, U.S. Electrical Motors and Winsmith. The principal industrial rubber
product lines distributed by Applied are: Aeroquip, Boston, Dixon, Flexco,
Gates,
Globe, Goodyear, Habasit and Weatherhead. The principal fluid power product
lines distributed by Applied are: Dana, Denison, Donaldson, Eaton Char-Lynn,
Ingersoll Rand-ARO and Schrader Bellows. Specialty items, including seals,
sealants, fluid sealing, "O" rings, retaining rings, adhesives, lubricants,
maintenance equipment, skin care products and tools, are purchased from various
manufacturers. The principal specialty items lines distributed by Applied are:
CR Industries, Dow Corning, Garlock, Gojo, Keystone, Loctite, Lubriplate,
National/Federal Mogul, OTC/Power Team, Parker Hannifin, Rotor Clip and
Skil/Bosch. Applied believes that its relationships with its suppliers are
generally good and that Applied can continue to represent these suppliers. The
loss of certain of these suppliers could have an adverse effect on Applied's
business.
Based upon Applied's analysis of product dollar sales volume for the period from June 30, 1996 through April 30, 1997, bearings represented 41%, drive system products represented 31%, specialty items represented 12%, and other items, including industrial rubber and fluid power products, represented 16% of sales. For the fiscal year ended June 30, 1996, bearings represented 43%, drive system products represented 30%, specialty items represented 11%, and other items, including industrial rubber and fluid power products, represented 15% of sales. For the year ended June 30, 1995, bearings represented 45%, drive system products represented 30%, specialty items represented 12%, and other items, including industrial rubber and fluid power products, represented 13% of sales. For the year ended June 30, 1994, bearings represented 50%, drive system products represented 27%, specialty items represented 12%, and other items, including industrial rubber and fluid power products, represented 12% of sales.
Applied rebuilds precision machine tool spindles at its Spindle Lab in Cleveland, Ohio. Mechanical shops located in Corona, California; Tracy, California; Atlanta, Georgia; Florence, Kentucky; Worcester, Massachusetts; Iron Mountain, Michigan; Butte, Montana; Charlotte, North Carolina; Cleveland, Ohio; Carlisle, Pennsylvania; Fort Worth, Texas; and Longview, Washington rebuild and assemble speed reducers, pumps, valves, cylinders and hydraulic motors, provide custom machining and assemble electrical panels and fluid power systems to customer specifications. Fluid power centers located in Corona, California; Tracy, California; Baltimore, Maryland; Worcester, Massachusetts; Maryland Heights, Missouri; Limerick, Pennsylvania; Richmond, Virginia; and Kent, Washington assemble fluid power systems and components and provide customers with technical expertise. Applied also operates rubber shops in Tucson, Arizona; Corona, California; Tracy, California; Atlanta, Georgia; Crestwood, Illinois; Billings, Montana; Dayton, New Jersey; Fort Worth, Texas; Longview, Washington; and Appleton, Wisconsin to modify conveyor belts and provide hose assemblies in accordance with customer requirements.
Services. Applied's sales personnel advise and assist customers with respect to product selection and application. Applied considers this advice and assistance to be an integral part of its overall sales efforts. Beyond acting as a mere distributor, Applied markets itself to selected customers as a "single-source" applied technology supplier, offering product and process solutions involving multiple product technologies, which solutions reduce production downtime and overall procurement and maintenance costs for customers. By providing a high level of service, product knowledge and technical support, while at the same time offering competitive pricing, Applied believes it will develop closer, longer-lasting and more profitable relationships with its customers.
Applied sales personnel consist of inside customer service and field account representatives assigned to each branch, in addition to representatives assigned as industry and product specialists. Inside customer service representatives receive, process and expedite customer orders, provide pricing and product information, and provide assistance to field account representatives in servicing customers. Field account representatives make on-site calls to customers and potential customers to provide product and pricing information, make surveys of customer requirements and recommendations, and assist in the implementation of maintenance programs. The representatives will measure and document for a customer the value to the customer of the services and advice Applied provides, through cost savings or increased productivity. Specialists assist with applications particular to their areas of technical expertise.
Applied maintains inventory levels in each branch that are tailored to meet the immediate needs of its customers and maintains back-up inventory in its distribution centers, thereby enabling customers to minimize
their own inventories. Such inventories consist of certain standard items stocked at most branches as well as other items related to the specific needs of customers in the particular locale. As a result, the business of each branch is concentrated largely in the geographic area in which it is located.
Timely delivery of products to customers is an integral part of the service that Applied provides. Branches and distribution centers utilize the most effective method of transportation available to meet customer needs including both surface and air common carrier and courier services. Applied also maintains a fleet of delivery vehicles to provide for delivery to customers. These transportation services and delivery vehicles are also utilized for movement of products between suppliers, distribution centers and branches to assure availability of merchandise for customer needs.
Applied's ability to service its customers is enhanced by its computerized inventory and sales information systems. Applied's point-of-sale OMNEX(R) 2.0 computer system gives all Applied locations on-line access to inventory, sales analysis and data. Inventory and sales information is updated as transactions are entered. The OMNEX(R) 2.0 system permits direct access for order entry, pricing and price-auditing, order expediting and back order review. Applied's computer system also permits Electronic Data Interchange (EDI) with participating customers and suppliers.
Applied's operations contrast sharply with those of manufacturers whose products it sells in that the manufacturers generally confine their direct sales activities to large-volume transactions with original equipment manufacturers who incorporate the components purchased into the products they make. The manufacturers generally do not sell replacement components directly to the customer but refer the customer to Applied or another distributor, although there is no assurance that this practice will continue.
There is a trend among large industrial customers towards reducing the number of suppliers of maintenance and repair products with whom they deal. Applied is responding to this trend by, among other things, continuing to broaden its product offering and developing new methods for marketing its products, such as through various integrated supply channels. Applied continues to develop marketing strategies to anticipate and address evolving customer needs and concerns.
Patents, trademarks and licenses do not have a significant effect on Applied's business.
Markets and Methods of Distribution. Applied purchases from over 100 major suppliers of bearings, drive system products, industrial rubber products, fluid power products and specialty items and resells to customers in a wide variety of industries, including industrial machinery, forest products, primary metals, agriculture and food processing, chemical processing, transportation, mining, textiles and utilities. Its customers range from the largest industrial concerns in the country to the smallest. Applied's business is not significantly dependent upon a single customer or group of customers, the loss of which would have a material adverse effect upon Applied's business as a whole, and no single customer of Applied accounts for more than 3% of Applied's net sales.
On April 30, 1997, Applied had 331 branches in 42 states. Applied has no operations outside the continental United States.
Applied's export business during the fiscal year ended June 30, 1996 and prior fiscal years was less than 2% of net sales, and is not concentrated in any one geographic area.
Competition. Applied considers its overall business to be highly competitive. In addition, such markets present few economic or technological barriers to entry. Applied's principal competitors are other specialized bearing, drive system product, industrial rubber product, fluid power and specialty item distributors, and, to a lesser extent, mill supply houses. These competitors include single and multiple branch operations, some of which are divisions or subsidiaries of larger organizations that may have greater financial resources than Applied. There is a trend in the industry toward larger multiple branch operations. Applied also competes with the manufacturers of original equipment and their distributors in the sale of maintenance and replacement bearings, power transmission components and related items. Some of these manufacturers may have greater financial resources than Applied. The competitors and the number of competitors vary throughout the
geographic areas in which Applied does business. Applied continues to develop and implement marketing strategies to maintain a competitive position.
Applied is one of the leading distributors of replacement bearings, drive system products, industrial rubber products, fluid power products and specialty items in the United States, but Applied's share of the market for those products is relatively small compared to the portion of that market serviced by original equipment manufacturers and other distributors. Applied may not be the largest distributor in each of the geographic areas in which a branch is located.
Backlog and Seasonality. Applied does not have a substantial backlog of orders and backlog is not significant in the business of Applied since prompt delivery of the majority of Applied's products is essential to Applied's business. Applied does not consider its business to be seasonal.
Raw Materials and General Business Conditions. Applied's operations are dependent upon general industrial activities and economic conditions and would be adversely affected by the unavailability of raw materials to its suppliers or by any prolonged recession or depression that has an adverse effect on American industrial activity generally.
Number of Employees. On April 30, 1997, Applied had 4,074 employees. None of Applied's employees are covered by collective bargaining. Applied considers its relationship with its employees to be generally favorable.
Working Capital. Applied's working capital position is disclosed in this Prospectus under the heading "Applied Management's Discussion and Analysis of Financial Condition and Results of Operations."
Applied requires substantial working capital related to accounts receivable and inventories. Significant amounts of inventory are required to be carried to meet rapid delivery requirements of customers. Applied generally requires all payments for sales on account within 30 days and generally customers have no right to return merchandise. Returns are not considered to have a material effect on Applied's working capital requirements. Applied believes that such practices are consistent with prevailing industry practices in these areas.
Environmental Laws. Applied believes that compliance with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment will not have a material adverse effect upon capital expenditures, earnings or competitive position of Applied.
Financial Information About Foreign and Domestic Operations and Export Sales. Applied has no operations outside the continental United States. Applied's export business during the fiscal year ended June 30, 1996, and prior fiscal years, was less than 2% of net sales, and is not concentrated in any one geographic area.
PROPERTIES
Applied owns or leases the properties in which its offices, branches, distribution centers, shops and corporate facilities are located. As of April 30, 1997, the real properties at 175 locations were owned by Applied, while 171 locations were leased by Applied. Certain property locations may contain multiple operations, such as a branch and a distribution center.
The principal real properties owned by Applied (each of which has more than 20,000 square feet of floor space) are: the corporate headquarters office building in Cleveland, Ohio; the corporate finance and information services office building in Cleveland, Ohio; the Cleveland East branch in Cleveland, Ohio; the Atlanta Distribution Center, mechanical shop and rubber shop in Atlanta, Georgia; the Prospect mechanical shop in Cleveland, Ohio; the Midwest Distribution Center in Florence, Kentucky; the John R. Cunin Distribution Center in Carlisle, Pennsylvania; and the Portland branch and Portland Distribution Center in Portland, Oregon. The principal real properties leased by Applied (each of which has more than 20,000 square feet of floor space) are: the new corporate headquarters facility in Cleveland, Ohio (to open in June 1997); the Corona offices and Corona Distribution Center in Corona, California; the Long Beach branch in Long Beach, California; the San Jose branch in San Jose, California; the Tracy fluid power shop, rubber shop and
mechanical shop in Tracy, California; the Worcester branch and fluid power center in Worcester, Massachusetts; the Fort Worth Distribution Center, mechanical shop and rubber shop in Fort Worth, Texas; the Longview branch and Longview Distribution Center in Longview, Washington; the Appleton offices, branch and rubber shop in Appleton, Wisconsin; and the Milwaukee branch and distribution center in Milwaukee, Wisconsin. Applied intends to sell its current corporate buildings in Cleveland following the completion of the new headquarters facility.
Applied considers the properties owned or leased to be generally sufficient to meet its requirements for office space and inventory stocking. The size of the buildings in which Applied's branches are located is primarily influenced by the amount of inventory required to be carried to meet the needs of the customers of the branch. All of the real properties owned or leased by Applied are being utilized by Applied in its business except for certain properties, which in the aggregate are not material and are either for sale or lease to third parties due to relocation or closing of a facility. Unused portions of buildings may be leased or subleased to others.
Generally, when opening a new branch, Applied will initially lease space. Then, as the business develops, suitable property may be purchased or leased for relocation of the branch. A new general purpose office-storeroom building may be constructed. However, Applied has no fixed policy in this regard, and in each instance the final decision is made on the basis of availability and cost of suitable property in the local real estate market, whether purchased or leased. Applied does not consider any one of its properties to be material, because it believes that if it becomes necessary or desirable to relocate any of its branches and distribution centers, other suitable properties could be found.
PENDING LEGAL PROCEEDINGS
In 1994, Dixie Bearings, Incorporated (now known as Applied Industrial
Technologies -- Dixie, Inc.), a wholly-owned subsidiary of Applied, was served
with a First Amending and Supplemental Petition in a case captioned In Re:
Robert Lee Bickham, et al. v. Metropolitan Life Insurance Company, et al., 22nd
Judicial District Court for the Parish of Washington, Louisiana, Case No.
70,760-E, naming it as an additional defendant, along with over 50 other
defendants. The action was initially filed in 1993. The petition claims to have
been filed on behalf of 1,117 persons or heirs of persons who were allegedly
exposed to asbestos-containing products while employed at the Bogalusa,
Louisiana, Paper Mill and/or Box Factory, currently operated by Gaylord
Container, Inc. Exposure is claimed to have occurred until approximately 1989.
Compensatory and punitive damages are sought, but no amount is specified. The
Company was subsequently served with Petitions in two related cases pending in
the same court as the Bickham case: Ida Mae Williams, et al. v. Metropolitan
Life Insurance Company, et al., Case No. 72,986-F; and Bennie L. Adams, et al.
v. Metropolitan Life Insurance Company, et al., Case No. 72,154-B. These cases,
involving a total of 123 persons or heirs of persons who worked at the same
Bogalusa facility, are essentially identical to the Bickham case.
Preliminary information made available to Applied indicates that Applied has been named a defendant in the foregoing cases only as a supplier of certain products manufactured by others, which products allegedly contained a small percentage of encapsulated asbestos fiber. Applied intends to defend these cases vigorously. Even if liability were assessed, Applied would seek indemnification from its suppliers and its insurance carriers.
In 1992, a jury in a case captioned King Bearing, Inc., et al. v. Caryl Edmund Oranges, et al., Superior Court of the State of California, County of Orange, Case No. 53-42-31, awarded a $32.4 million judgment against King Bearing, Inc., a wholly-owned subsidiary of Applied (but which has since been merged into Applied). The verdict was based on contractual and other claims asserted by various cross-complainants against King Bearing in a breach of contract and unfair competition case initially filed by King Bearing in 1987. The suit, which involved a former owner of King Bearing, was pending at the time Applied acquired King Bearing in June 1990. All events relative to the judgment occurred prior to Applied's purchase of King Bearing. On September 30, 1996, the California Court of Appeal, Fourth Appellate District, affirmed the trial court's grant of King Bearing's motion for a new trial. The cross-complainants' petition for rehearing by the
Court of Appeal and petition for review by the California Supreme Court were both denied. As a result, the matter was remanded to the trial court for a new trial. Under the 1990 Stock Purchase Agreement relative to the acquisition of King Bearing by Applied, Applied is specifically indemnified by the ultimate parent of the former owner of King Bearing (whose stockholders' equity exceeded $5 billion at June 30, 1996) for any damages or losses relating to this action.
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
PRINCIPAL APPLIED SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to beneficial ownership of Applied Common Stock as of February 1, 1997, (i) by each person known by Applied to own beneficially more than five percent of the outstanding shares of Applied's common stock, (ii) by each director of Applied who beneficially owns shares of Applied's common stock, (iii) by the executive officers named in the Summary Compensation Table, and (iv) by all directors and executive officers as a group based upon 12,379,761 shares of Applied Common Stock outstanding as of April 30, 1997.
AMOUNT AND
NATURE OF PERCENT OF PERCENT
BENEFICIAL COMMON STOCK AFTER
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING MERGER(9)
- ------------------------------------------------------ ------------ ------------- ----------
The Capital Group Companies, Inc...................... 890,000(2) 7.2% 6.1%
333 South Hope Street
Los Angeles, CA 90071
The Prudential Insurance Company
of America.......................................... 725,925(3) 5.9% 4.9%
Three Gateway Center
Newark, New Jersey 07102-4077
William G. Bares...................................... 13,775(4) * *
Dr. Roger D. Blackwell................................ 5,902 * *
William E. Butler..................................... 1,350 * *
John C. Dannemiller................................... 211,894(5) 1.7% 1.4%
Russel B. Every....................................... 14,068 * *
Russell R. Gifford.................................... 3,458 * *
L. Thomas Hiltz....................................... 571,081(6) 4.6% 3.9%
John J. Kahl.......................................... 14,573 * *
Francis A. Martins.................................... 25,921(7) * *
John C. Robinson...................................... 108,593(5) * *
Robert C. Stinson..................................... 52,932(5) * *
Dr. Jerry Sue Thornton................................ 1,046 * *
John R. Whitten....................................... 52,604(5) * *
All directors and executive officers as group (16
persons)............................................ 1,114,560(8) 8.9% 7.5%
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* Less than one percent.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Beneficial ownership may be disclaimed for other purposes.
(2) The Capital Group Companies, Inc. filed a Schedule 13G dated February 12, 1997 indicating it had, as of December 31, 1996, sole voting power for 275,950 shares and sole dispositive power for 890,000 shares.
(3) The Prudential Insurance Company of America filed a Schedule 13G dated January 28, 1997 indicating it had, as of December 31, 1996, sole voting and dispositive power for 302,400 shares, and shared voting and dispositive power for 423,525 shares.
(4) Includes 1,500 shares owned by Mr. Bares' spouse, who has sole voting and dispositive power.
(5) Includes shares that could be acquired within 60 days after February 1, 1997, pursuant to the exercise of stock options as follows: Mr. Dannemiller -- 82,050; Mr. Robinson -- 41,589; Mr. Stinson -- 23,576; and Mr. Whitten -- 23,276.
(6) Includes 553,500 shares held by the H.C.S. Foundation, a charitable trust of which L. Thomas Hiltz is one of five trustees, with sole voting and dispositive power. Pursuant to a Schedule 13D filed by the
H.C.S. Foundation dated December 20, 1989, the trustees, including Mr. Hiltz, disclaimed beneficial ownership of those shares.
(7) Includes 375 shares owned by Mr. Martins' son, who has sole voting and dispositive power.
(8) Includes 171,241 shares that could be acquired within 60 days after February 1, 1997, pursuant to the exercise of stock options. In determining the percentage of share ownership, the 171,241 stock option shares are added to both the denominator and the numerator, pursuant to Instruction 1 to Item 403 of Regulation S-K and Rule 13-3(d)(1) under the Securities Exchange Act of 1934.
(9) Assuming the issuance of 2,300,000 shares of Applied Common Stock in connection with the Merger.
MANAGEMENT OF APPLIED: EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers
The Executive Officers of Applied are elected for a term of one year, or until their successors are chosen and qualified, at the organizational meeting of the Board of Directors held immediately following the annual meeting of shareholders. The following is a listing of the Executive Officers of Applied and a description of their business experience during the past five years. Except as otherwise stated, the positions and offices indicated are with Applied and the persons were elected to their present positions on October 22, 1996:
John C. Dannemiller. Mr. Dannemiller is Chairman (since January 1992), Chief Executive Officer (since January 1992), President (since October 1996) and a Director (since 1985). He is 59 years of age.
John C. Robinson. Mr. Robinson is Vice Chairman (since October 1996) and a Director (since 1991). He was President (from January 1992 to October 1996), Chief Operating Officer (from January 1992 to October 1996). He is 54 years of age.
Mark O. Eisele. Mr. Eisele is Controller (since October 1992). He was Manager of Internal Audit (from 1991 to October 1992). He is 40 years of age.
Francis A. Martins. Mr. Martins is Vice President-Sales & Field Operations (since July 1996). Prior to that he was Vice President-Sales & Marketing (October 1994 to July 1996); and Vice President-Marketing (from May 1992 to October 1994). He is 54 years of age.
Bill L. Purser. Mr. Purser is Vice President-Marketing & National Accounts (since July 1996). Prior to that he was Vice President-National Accounts (from January 1995 to July 1996); and Director of National Accounts (from December 1994 to January 1995). Before joining Applied, he was Vice President of Business Development for Invetech (from December 1992 to December 1994); and Vice President of Sales for Invetech (from 1990 to December 1992). He is 53 years of age.
Richard C. Shaw. Mr. Shaw is Vice President-Communications, Organizational Learning & Quality Standards (since July 1996). Prior to that he was Vice President-Communications & Public Relations (from July 1993 to July 1996); and Director of Corporate Communications (from 1989 to July 1993). He is 48 years of age.
Robert C. Stinson. Mr. Stinson is Vice President-Administration, Human Resources, General Counsel & Secretary (since October 1994) and has served as Secretary since 1990. He was Vice President-General Counsel (from 1989 to October 1994). He is 51 years of age.
John R. Whitten. Mr. Whitten is Vice President-Finance & Treasurer (since October 1992). He was Vice President (since 1985) and Controller (from 1981 to October 1992). He is 50 years of age.
Directors
The Board of Directors is divided into three classes. The terms of directors serving in Class I expire in 1997, the terms of directors serving in Class II expire in 1998, and the terms of directors serving in Class III
expire in 1999. The following is a listing of the directors of Applied and a description of their business experience during the past five years.
CLASS I DIRECTORS
JOHN C. DANNEMILLER (a)(b)
(Director since 1985)
Mr. Dannemiller is Chairman (since January 1992), Chief Executive Officer (since January 1992), and President (since October 1996) of Applied. He is 59 years of age.
JOHN C. ROBINSON (a)
(Director since 1991)
Mr. Robinson is Vice Chairman (since October 1996) of Applied. He has also served as President (from January 1992 to October 1996) and Chief Operating Officer (from January 1992 to October 1996). He is 54 years of age.
DR. JERRY SUE THORNTON (d)(e)
(Director since 1994)
Dr. Thornton is President (since January 1992) of Cuyahoga Community College, the largest community college in Ohio. She is 50 years of age.
CLASS II DIRECTORS
WILLIAM G. BARES (b)(c)(e)
(Director since 1986)
Mr. Bares is Chairman (since April 1996), President (since 1982) and Chief Executive Officer (since January 1996) of The Lubrizol Corporation, a specialty chemical company. Lubrizol specializes in products created through the application of advanced chemical, mechanical and biological technologies for use in specialty additive systems for gasoline and diesel engine oils, automatic transmission fluids, gear oils, marine and tractor lubricants, and specialty products for industrial fluids, fuel additives and process chemicals. He was Chief Operating Officer (from 1987 to December 1995) and has served as a director of that company since 1981. He is 55 years of age and also serves as a director of Oglebay Norton Company and KeyCorp.
DR. ROGER D. BLACKWELL
(Director since 1996)
Dr. Blackwell is a Professor of Marketing at the Ohio State University College of Business and President of Blackwell Associates, Inc., a consulting firm in Columbus, Ohio. He is 56 years of age and also serves as a director of Checkpoint Systems, Inc., Cheryl & Co., Inc., Intimate Brands, Inc., Max & Erma's Restaurants, Inc., and Worthington Foods, Inc., and as a trustee of The Flex-funds.
RUSSEL B. EVERY (c)(d)
(Director since 1986)
Mr. Every has been a business consultant since his retirement as Chairman of The Lamson & Sessions Co. in 1989. In furtherance of his consulting business, he was hired as President and Chief Executive Officer in October 1991 by the Board of Directors of Sudbury, Inc., a diversified manufacturer of industrial products, for the purpose of restructuring that company. When Sudbury, Inc. filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in January 1992, Mr. Every was elected Chairman and director to continue the restructuring of that company and to find a new Chief Executive Officer. A plan of reorganization was confirmed and a new Chief Executive Officer selected; therefore, Mr. Every's assignment with Sudbury, Inc. concluded in August 1992. He served as a director of The Lamson & Sessions Co. from 1979 to April 1995. The Lamson & Sessions Co. is a supplier of a variety of fabricated and machined metal components and parts
for use by original equipment manufacturers principally in the transportation equipment industry. Its Carlon Division is a leading domestic producer of thermoplastic conduit, ducts, fittings, enclosures and accessories used principally in electrical applications. He is 72 years of age.
JOHN J. KAHL (b)(d)
(Director since 1992)
Mr. Kahl is Chairman and Chief Executive Officer of Manco, Inc., a manufacturer of pressure sensitive tapes for household and automotive repair, including Duck(R) Brand Tapes, mailing and shipping supplies for both home and office under the CareMail(R) brand, weatherstripping and related home energy products for the "do-it-yourselfer" and labels for both home and office. He is 56 years of age and also serves as a director of Royal Appliance Mfg. Co.
CLASS III DIRECTORS
WILLIAM E. BUTLER (b)(c)
(Director since 1987)
Mr. Butler was Chairman, from January 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. Principal products include truck transmissions and axles, engine components, hydraulic products, electrical power distribution and control equipment, ion implanters and a wide variety of controls. He was Chief Executive Officer (from September 1991 to September 1995), and served as a director of that company from 1989 until his retirement. He is 66 years of age and also serves as a director of Ferro Corporation, The Goodyear Tire & Rubber Co., Pitney Bowes, Inc. and Zurn Industries, Inc.
RUSSELL R. GIFFORD (d)(e)
(Director since 1992)
Mr. Gifford was President of CNG Energy Services Corp., a subsidiary of Consolidated Natural Gas Company, from September 1994 until his retirement in September 1996. CNG Energy Services Corp. is an unregulated energy services marketing company. He was also President and Chief Executive Officer (from 1989 to September 1994) of The East Ohio Gas Company, the largest distribution subsidiary of Consolidated Natural Gas Company. Mr. Gifford is 57 years of age and serves as a trustee of First Union Real Estate Equity and Mortgage Investments.
L. THOMAS HILTZ (a)(b)(c)(e)
(Director since 1981)
(a) Member of the Executive Committee.
(b) Member of the Director Nominating Committee.
(c) Member of the Executive Organization & Compensation Committee.
(d) Member of the Audit Committee.
(e) Member of the Corporate Governance Committee.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes compensation earned during the fiscal years ended June 30, 1996, 1995 and 1994, by those persons who were, during the fiscal year ended June 30, 1996, the Chief Executive Officer and the four other most highly compensated executive officers of Applied.
ANNUAL COMPENSATION
NAME AND
PRINCIPAL POSITION YEAR SALARY BONUS(1)
------------------------------------------------------- ---- -------- --------
John C. Dannemiller.................................... 1996 $439,167 $435,960
Chairman, Chief 1995 411,117 451,153
Executive Officer & President 1994 374,567 379,771
John C. Robinson....................................... 1996 303,533 241,444
Vice Chairman 1995 283,333 241,027
1994 258,333 224,602
John R. Whitten........................................ 1996 186,830 131,680
Vice President -- 1995 175,667 117,429
Finance & Treasurer 1994 165,000 124,932
Robert C. Stinson...................................... 1996 179,067 131,572
Vice President -- Administration, Human 1995 165,000 132,874
Resources, General Counsel & Secretary 1994 151,333 82,802
Francis A. Martins..................................... 1996 170,640 126,903
Vice President -- 1995 158,000 114,704
Sales & Field Operations 1994 146,667 96,439
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LONG-TERM
COMPENSATION AWARDS
NAME AND RESTRICTED NUMBER
PRINCIPAL POSITION YEAR STOCK AWARD(S)(2) OF OPTIONS
------------------------------------------------- ---- ----------------- ----------
John C. Dannemiller.............................. 1996 $ 0 0
Chairman, Chief 1995 952,500 0
Executive Officer & President 1994 0 0
John C. Robinson................................. 1996 0 0
Vice Chairman 1995 476,250 0
1994 0 0
John R. Whitten.................................. 1996 0 0
Vice President -- 1995 238,125 0
Finance & Treasurer 1994 0 0
Robert C. Stinson................................ 1996 0 0
Vice President -- Administration, Human 1995 238,125 0
Resources, General Counsel & Secretary 1994 0 0
Francis A. Martins............................... 1996 0 0
Vice President -- 1995 238,125 0
Sales & Field Operations 1994 0 0
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NAME AND ALL OTHER
PRINCIPAL POSITION YEAR COMPENSATION(3)
-------------------------------------------------------------- ---- ---------------
John C. Dannemiller........................................... 1996 $41,994
Chairman, Chief 1995 42,168
Executive Officer & President 1994 36,394
John C. Robinson.............................................. 1996 27,245
Vice Chairman 1995 21,651
1994 26,163
John R. Whitten............................................... 1996 16,457
Vice President -- 1995 11,379
Finance & Treasurer 1994 7,486
Robert C. Stinson............................................. 1996 16,726
Vice President -- Administration, Human 1995 12,189
Resources, General Counsel & Secretary 1994 11,691
Francis A. Martins............................................ 1996 9,874
Vice President -- 1995 14,111
Sales & Field Operations 1994 12,185
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(1) Amounts reported in this column are earnings pursuant to the annual Management Incentive Plan, described in the Executive Organization & Compensation Committee Report. Pursuant to the Deferred Compensation Plan, described herein, the following named executive officers deferred, and had invested in Applied Common Stock in August 1996, the corresponding percentages of their earnings under the 1996 Management Incentive Plan: Mr. Dannemiller, 80%; Mr. Robinson, 64%; Mr. Whitten, 50%; Mr. Stinson, 50%; and Mr. Martins, 20%.
(2) Amounts reported in this column represent Performance-Accelerated Restricted Stock awards ("PARS") under the 1990 Long-Term Performance Plan described in the Executive Organization & Compensation Committee Report, valued at the closing market price of Applied Common Stock on the dates of grant. Dividends are paid on PARS at the same rate paid to all shareholders. One-half of the PARS granted in fiscal 1995 vested during fiscal 1996, except certain of those held by Mr. Dannemiller, for the reason described in the Executive Organization & Compensation Committee Report below. At June 30, 1996, the persons listed above held the following number of unvested PARS, valued at the closing market price of Applied Common Stock on that date: Mr. Dannemiller, 27,961 shares, $754,947; Mr. Robinson, 11,250 shares, $303,750; Mr. Whitten, 5,625 shares, $151,875; Mr. Stinson, 5,625 shares, $151,875; and Mr. Martins, 5,625 shares, $151,875.
(3) Amounts reported in this column for fiscal 1996 include the following:
(a) The contributions made by Applied and credited to the individual accounts of the named executive officers under Applied's Retirement Savings Plan, as follows: Mr. Dannemiller, $7,117; Mr. Robinson, $11,853; Mr. Whitten, $9,873; Mr. Stinson, $10,147; and Mr. Martins, $9,874. These totals are estimated and subject to year-end adjustment.
(b) Pursuant to the Deferred Compensation Plan, the accounts of certain participants were credited with additional Applied Common Stock equal to 10% of the amount of earnings deferred into Applied Common Stock. The values of the additional shares credited to the accounts of the named executive officers are as follows: Mr. Dannemiller, $34,877; Mr. Robinson, $15,392; Mr. Whitten, $6,584; Mr. Stinson, $6,579; and Mr. Martins, $0.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning stock option exercises by the Chief Executive Officer and the four other most highly compensated executive officers of Applied in the fiscal year ended June 30, 1996, and the values of in-the-money options held by those individuals on June 30, 1996.
NUMBER OF SECURITIES UNDERLYING OPTIONS
NAME EXERCISED VALUE REALIZED
------------------------------------------------------------- --------- --------------
John C. Dannemiller.......................................... 0 $0
John C. Robinson............................................. 0 0
John R. Whitten.............................................. 0 0
Robert C. Stinson............................................ 0 0
Francis A. Martins........................................... 0 0
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NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS
AT FISCAL YEAR END
NAME EXERCISABLE UNEXERCISABLE
------------------------------------------------------------ ----------- -------------
John C. Dannemiller......................................... 82,050 0
John C. Robinson............................................ 41,589 0
John R. Whitten............................................. 23,276 0
Robert C. Stinson........................................... 23,576 0
Francis A. Martins.......................................... 0 0
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VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
AT FISCAL YEAR END
NAME EXERCISABLE UNEXERCISABLE
----------------------------------------------------------- ----------- -------------
John C. Dannemiller........................................ $1,240,894 $ 0
John C. Robinson........................................... 601,971 0
John R. Whitten............................................ 359,174 0
Robert C. Stinson.......................................... 363,161 0
Francis A. Martins......................................... 0 0
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ESTIMATED RETIREMENT BENEFITS UNDER
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN(1)
The following table shows estimated annual benefits payable at retirement to certain selected executive officers under Applied's Supplemental Executive Retirement Benefits Plan.
YEARS OF SERVICE(2)
REMUNERATION(3) 5 10 15 20
- --------------- ------- -------- -------- --------
$ 125,000 $14,063 $ 28,125 $ 42,188 $ 56,250
150,000 16,875 33,750 50,625 67,500
175,000 19,688 39,375 59,063 78,750
200,000 22,500 45,000 67,500 90,000
225,000 25,313 50,625 75,938 101,250
250,000 28,125 56,250 84,375 112,500
275,000 30,938 61,875 92,813 123,750
300,000 33,750 67,500 101,250 135,000
350,000 39,375 78,750 118,125 157,500
400,000 45,000 90,000 135,000 180,000
450,000 50,625 101,250 151,875 202,500
500,000 56,250 112,500 168,750 225,000
550,000 61,876 123,750 185,626 247,500
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(1) Amounts shown in the table are computed on the basis of a straight life annuity and are not subject to deduction of Social Security or other offset amounts.
(2) Mr. Robinson has in excess of 20 years of service with Applied and is, therefore, entitled to a full retirement benefit under the plan. Messrs. Dannemiller, Stinson and Martins have in excess of five years of service with Applied and Mr. Whitten has in excess of fifteen years of service.
(3) Amounts in this column represent, and benefits are based on, highest average salary for three consecutive years. The salaries for the Chief Executive Officer and the four other most highly compensated executive officers for the past three fiscal years are found in the Summary Compensation Table on pages 52 and 53.
REPORT OF THE EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
OVERVIEW
The Executive Organization & Compensation Committee (the "Committee") is comprised entirely of independent outside directors. The Committee is responsible for setting Applied's executive officer compensation policies. The purpose of the executive officer compensation program is to attract and retain qualified executives and to provide appropriate incentives, both monetary and stock-based, to achieve Applied's business strategies and ultimately enhance shareholder value over the long term.
The major components of Applied's executive officer compensation program applicable to the Chief Executive Officer and the other executive officers, including those named in the Summary Compensation Table appearing on pages 52 and 53 hereof, are:
(a) Annual base salary; and,
(b) The 1990 Long-Term Performance Plan.
ELEMENTS OF COMPENSATION PROGRAM
(A) ANNUAL BASE SALARY
The Committee utilizes an annual competitive pay analysis compiled by an independent nationally recognized compensation and benefits consulting firm (the "Independent Consultant") which provides data on similar positions. The analysis provides the Committee with the market base salary at the 25th, 50th and 75th percentiles for each executive officer position, together with the market total cash compensation (discussed later in this report). The competitive pay analysis is based on survey data primarily from the distribution industry and is more industry-specific to Applied than the published industry index shown in the stock performance graph appearing below. In addition to the competitive pay analysis, the Committee generally considers time and level of experience in the position in setting the annual base salary. As a general rule, annual base salaries have been set by the Committee below the 50th percentile; however, the Committee would consider setting annual base salaries at higher levels coincident with sustained corporate earnings improvement. The Committee's overall executive compensation philosophy is to place greater weight on the performance-driven portions of the compensation package -- namely the awards under Applied's 1990 Long-Term Performance Plan.
(B) LONG-TERM PERFORMANCE PLAN
(1) MANAGEMENT INCENTIVE PLAN
The annual Management Incentive Plan, adopted under the Long-Term Performance Plan, is Applied's program for compensating executive officers for the achievement of goals set for a particular fiscal year. Under the Management Incentive Plan, each executive officer, including the Chief Executive Officer and the other executive officers named in the Summary Compensation Table, presents the Committee with individual goals for the fiscal year. Corporate goals for the fiscal year are also presented to the Committee. The Committee reviews and discusses the goals with the executive officers and then sets the goals for the year. Both the individual and the corporate goals are expressed in terms of threshold, target (midpoint) and maximum levels of required performance.
In fiscal 1996, Messrs. Dannemiller and Robinson had the corporate goals as their individual goals. The corporate goals for fiscal 1996 included objectives based on Applied's pre-tax return on assets, pre-tax income, and sales, distribution and administrative expenses as a percentage of net sales. These goals were weighted 40%, 40% and 20%, respectively. The other executive officers, including Messrs. Whitten, Stinson and Martins, had individual goals (in addition to the corporate goals) relating specifically to their job responsibilities. These goals may vary in relative weight. The size of the Management Incentive Plan payment for any of the executive officers depends on the amount of performance achieved on both the individual and the corporate goals. Although all or some of the individual goals under the Plan were met in fiscal 1990, 1991 and
1992, corporate goals were not met and, for that reason, no payments were made under the Plan in those years. Because the corporate goals were met in fiscal 1993, 1994, 1995 and 1996, payments were made pursuant to the Management Incentive Plans in those years.
Assuming that corporate and individual goals are met, the amount of the individual award is based on a formula, the components of which are the 50th percentile market base salary and a responsibility percentage assigned to the executive officer. The responsibility percentages are set by the Committee. Thus, the Chief Executive Officer target incentive payment set by the Committee in fiscal 1996 was $301,000, being 70% (the responsibility percentage) multiplied by the market base salary. The annual base salary set by the Committee, plus the target incentive payment, has generally been less than the 50th percentile market total cash compensation. For Mr. Dannemiller, the market total cash compensation at the 50th percentile was $810,000 effective for the twelve-month period commencing November 1, 1995, the date on which executive compensation changes are made each year. Mr. Dannemiller's actual annual base salary for fiscal 1996 was $439,167, his target incentive was $301,000, and total cash compensation assuming target performance under the Management Incentive Plan was $740,167. If, however, performance for corporate and individual goals exceeds the target level set by the Committee, the executive officers, including the Chief Executive Officer and the named executive officers, can earn above the 50th percentile for total cash compensation. Thus, because 94% of maximum performance was achieved on his goals in fiscal 1996, Mr. Dannemiller received total cash compensation of $875,127 ($439,167 base salary, plus $435,960 under the Management Incentive Plan), as compared with the 50th percentile market total cash compensation of $810,000. A similar philosophy applies to the other executive officers. Responsibility percentages for the other executive officers during fiscal 1996, including those named in the Summary Compensation Table, ranged from 36% to 50%.
The Deferred Compensation Plan, approved by the shareholders in October 1993, was adopted in part to encourage increased investment in Applied Common Stock by Applied's executive officers. All but one of the participants in the 1996 Management Incentive Plan elected under the Deferred Compensation Plan to defer a portion of their Management Incentive Plan awards, with deferral percentages ranging from 20% to 85%. All but one of those persons elected to have their deferred awards invested solely in Applied Common Stock, with the remaining participant electing to invest more than one-half of his total award in Common Stock.
(2) STOCK-BASED AWARDS
Until fiscal 1993, the only types of awards under Applied's 1990 Long-Term Performance Plan were stock options. In order to align more closely the executive officers with the interests of Applied's shareholders and to compensate the executive officers based on performance measures that directly enhance shareholder value, the Committee chose in October 1992 to make awards of Performance-Accelerated Restricted Stock ("PARS") under the Plan. The awards were intended to replace ongoing stock option grants to executive officers, but would not affect past stock option grants. The PARS were awards of restricted shares of Applied Common Stock, which shares would vest six years from the date of grant; however, the PARS could vest automatically at an earlier date if certain performance hurdles based on stock price and pre-tax return on assets were met. No new stock option or PARS awards could be made to the executive officers until 100% of the PARS had vested, either by meeting the performance hurdles or by passage of the six-year term, and in no event could a new award be made during the two-year period immediately following the date of grant of the previous awards. The initial PARS awards vested in fiscal 1994 as a result of the achievement of stock price performance hurdles.
In October 1994 new PARS awards were made to the executive officers. At the time the awards were made, the stock price was $21.17 (adjusted for the December 1995 3-for-2 stock split). Once again, the shares would automatically vest six years from the date of grant, although they could vest at an earlier date if certain performance hurdles were met; provided further, with respect to the awards made to Messrs. Dannemiller and Robinson, such awards would not vest early to the extent vesting would result in the non-deductibility of the resulting compensation under Section 162(m) of the Internal Revenue Code. In April 1996, 50% of the PARS awards vested on reaching a stock price of $30.67 per share for ten consecutive trading days. The remaining 50% can vest early on reaching either a pre-tax return on assets of 12%, or a stock price of $36.00 per share for ten consecutive days. According to an independent survey of other companies utilizing
stock-based long-term performance awards, which survey was prepared at the time
the grants were made, if all
of the PARS had vested within the first two years, the awards would have
represented the 85th percentile of competitive compensation. If, however, the
performance hurdles were not met and the PARS vested only after the full six
years, the compensation on a competitive basis would have been in the 20th
percentile.
No new stock option or PARS awards can be made to the executive officers until 100% of the PARS vest, either by meeting the performance hurdles or by passage of the six-year term, and in no event can a new award be made during the two-year period immediately following the date of grant of the previous awards. An exception with respect to the two-year limitation was made in October 1994 for two executive officers. These individuals were granted PARS awards within the previous two years upon assuming their current positions of responsibility. The two-year limitation on the grant of additional awards was waived to permit the grant of new PARS awards to these individuals in October 1994 and to put all of the executive officers on the same award cycle.
The total amount of all stock-based awards is limited by the annual limitation set forth in the Long-Term Performance Plan of 2% of shares outstanding on the first day of the fiscal year in which the awards are made.
(C) BENEFITS
Benefits provided to the executive officers are those generally provided to Applied's other associates with variations consistent with executive benefits in the competitive marketplace.
FEDERAL INCOME TAX DEDUCTIBILITY
Section 162(m) of the 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 ensure that the awards made to the executive officers under the Management Incentive Plan qualify as performance-based under Internal Revenue Service regulations. In the future, the Committee will continue to seek ways to preserve the full deductibility of compensation paid to Applied's executive officers without compromising the Committee's flexibility in designing an effective compensation program.
EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE
September 16, 1996
William E. Butler
William G. Bares
Russel B. Every
L. Thomas Hiltz
DIRECTOR COMPENSATION
Applied officers do not receive any additional compensation for service as a director. Non-employee directors receive a quarterly retainer of $4,500, a fee of $1,500 for the first directors' meeting or committee meeting attended on a given day, and $500 for each additional meeting attended on the same day, up to a maximum of $2,500 per day. The directors may be similarly compensated if they attend other meetings or conferences at the request of the Chairman. In addition, the directors receive $500 for any action taken by unanimous written consent or via telephone conference of less than 30 minutes in duration, and directors who serve as chairmen of committees receive an additional quarterly retainer of $400. All non-employee directors are eligible to participate in the Deferred Compensation Plan for Non-employee Directors described below. Participants in the plan may elect to receive their director compensation in the form of Applied Common Stock, in which case they receive an additional amount equal to 25% of the compensation so deferred. The
amount of compensation received by non-employee directors is reviewed from time to time by Applied's management. If management believes that a change in the amount of non-employee director compensation is required to make the level of such compensation relative to the size and nature of Applied's business, management recommends the change to the Board of Directors and approval of any such change requires the affirmative vote of a majority of the directors then serving in office. The directors participate in Applied's travel accident plan and may also elect to participate in Applied's contributory health insurance plan.
The purposes of the Applied Deferred Compensation Plan for Non-employee Directors (the "Plan") are to allow non-employee directors to defer receipt of compensation payable for services as a director to promote loyalty to Applied through increased investment in Applied's Common Stock.
Pursuant to the Plan, a non-employee director may elect, prior to any calendar quarter, to defer payment of his or her compensation for future services as a director. Once an election is made, it is irrevocable with respect to compensation earned. Directors may change their election to receive or defer receipt of compensation for future services commencing with the calendar quarter following the election. Amendments that serve only to change a director's beneficiary are permitted at any time and as often as necessary.
As directors' compensation would otherwise become due and payable, Applied transfers an amount equal to the compensation deferred pursuant to the Plan to a trust maintained by Key Trust Company of Ohio, N.A., as Trustee. Deferred fees are invested by the Trustee, at a director's option, in a money market fund and/or Applied Common Stock. If a director elects to have his compensation invested in Applied Common Stock, then Applied contributes to the trust an additional amount equal to 25% of the amount so deferred.
The Plan is administered by a committee consisting of not less than three members, not necessarily members of the Board of Directors, which is authorized to interpret and administer the Plan, but has no discretion with respect to Plan contributions, investment direction or distributions.
Distribution of a director's account commences as designated by the director in his or her election on a date that is not more than thirty days after (i) the director's termination as a director due to resignation, retirement, death or otherwise, or (ii) the director's attainment of the age (not younger than age 55) specified in his or her deferral election form; or upon a change of control (as defined in the Plan) of Applied.
There are currently eight non-employee directors of Applied. Of those non-employee directors, Messrs. Bares, Every, Gifford, Hiltz and Kahl and Drs. Blackwell and Thornton currently defer all of their retainer and meeting fees and invest those fees in Applied Common Stock.
INVETECH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 VS. 1995
Net sales for the year ended December 31, 1996 were $314.3 million compared to $313.9 million for the year ended December 31, 1995. The increase in net sales was due primarily to volume increases. The increase was partially offset by lost revenue from a discontinued line of hose and fittings.
Invetech gross margins (net sales less related cost of products sold) increased 0.9% to $77.3 million in 1996 from $76.6 million in 1995. The gross margin as a percentage of sales increased from 24.4% to 24.6%.
Operating, selling, administrative and general expenses decreased 3.0% to $69.0 million in 1996 from $71.2 million in 1995. During 1996 several cost reduction actions were implemented including advertising reductions, staff reductions, elimination of certain outside consultants, re-negotiation of long distance rates, closing of the electrical division, branch consolidations and revision of the cash management system. These actions resulted in cost reductions of $2.1 million during 1996.
Interest expense decreased $65,000 as a result of decreased borrowings. The overall decrease was partially offset by a higher average borrowing rate during 1996 as compared to 1995.
Income tax expense decreased 23.4% in 1996. The decrease was due to an adjustment to the liability and income recorded for book purposes which was not taxable. The decrease was partially offset by taxes on increased net earnings before taxes.
Net earnings in 1996 increased 20.7% over 1995 earnings.
YEAR ENDED DECEMBER 31, 1995 VS. 1994
Invetech net sales for the year ended December 31, 1995 of $313.9 million increased 12% over sales of $280.3 million for the year ended December 31, 1994. The acquisition of Kentucky Bearings Service, Inc. ("Kentucky Bearings") contributed approximately 4.1% while gain in market share accounted for the remaining increase.
Invetech gross margins increased to $76.6 million in 1995 from $69.2 million in 1994. Despite increased sales volume, the gross margin as a percentage of sales declined slightly from 24.7% to 24.4% in 1995, due to increased competitive pressure and delays in passing on certain price increases.
Operating, selling, administrative and general expenses increased 13.7% to $71.2 million in 1995 from $62.6 million in 1994. The increase was attributable to costs associated with the acquisition of Kentucky Bearings and increases in compensation and certain general expenses.
Interest expense increased $1.4 million from $0.7 million in 1994 to $2.1 million in 1995, an increase of 202.3%. This increase was due to the addition of acquisition financing related to Kentucky Bearings and the addition of debt to finance the redemption of $9.7 million of common stock.
In 1995, other income of $1.9 million was due to gains on the sale of business properties and from death benefits paid on life insurance policies.
Income tax expense decreased 36.3% in 1995. Taxes for 1995 decreased as a result of larger portion of non-taxable income from the proceeds of life insurance, capital gains treatment on the sale of land and buildings, and non-taxable increase in the surrender value of life insurance policies.
Net earnings decreased 9.5% to $4.2 million in fiscal 1995 from $4.7 million in fiscal 1994.
LIQUIDITY AND SOURCES OF CAPITAL
Working capital was $34.2 million at December 31, 1996 compared to $49.2 million at December 31, 1995. The ratio of current assets to current liabilities was 1.9 and 2.6 at December 31, 1996 and 1995. The
decrease in working capital in 1996 is primarily due to a reclassification of $13.5 million in debt from long-term to current.
Net cash flows from operations of $10.5 million in 1996 and $3.9 million in 1995 have continued to improve the Company's financial position and serve as a primary source of funding capital requirements. The 1996 increase in net cash flows from operations over 1995 was the result of increased earnings, inventory reductions and accounts receivable management. The increase was partially offset by reductions in trade payables during 1996. In addition to internally generated funds, the Company has financing of $18 million available under bank lines of credit and a working capital authorization. Total debt as a percent of shareholders' equity was 47.3% and 70.2%, at December 31, 1996 and 1995, respectively.
During 1995, the Company repurchased 780,755 shares of common stock for a total cost of $9.7 million. Long term debt was issued to fund the repurchase.
During 1995, the Company acquired the assets and certain liabilities of Kentucky Bearings for a purchase price of approximately $3.1 million. Long-term debt was issued to fund the purchase.
THREE MONTHS ENDED MARCH 31, 1997 VS. 1996
Net sales for the three months ended March 31, 1997 were $83.3 million compared to $80.8 million for the three months ended March 31, 1996. The increase in net sales was due primarily to volume increases.
Invetech's gross margins (net sales less related cost of products sold) decreased slightly to $20.1 million in 1997 from $20.2 million in 1996. The gross margin as a percentage of sales decreased from 25.1% in 1996 to 24.1% in 1997.
Operating, selling, administrative and general expenses decreased $0.4 million to $17.2 million in 1997 from $17.6 million in 1996. Expenses continue to decrease due to continued cost reduction efforts.
Interest expense decreased $174,000 as a result of decreased borrowings.
Income tax expense increased $475,000 in 1997. The increase was primarily due to an adjustment of the tax liability in 1996. The increase was also partially due to an increase in earnings before taxes in 1997.
Net earnings in 1997 decreased 0.3% from 1996 earnings.
LIQUIDITY AND SOURCES OF CAPITAL
Working capital was $37.2 million at March 31, 1997 compared to $34.2 million at December 31, 1996. The ratio of current assets to current liabilities was 1.9 at both March 31, 1997 and December 31, 1996.
Net cash flows provided by operations was $1.6 million during the three month period ended March 31, 1997. In addition to internally generated funds, Invetech has financing of $18 million available under bank lines of credit and a working capital authorization. Total debt as a percent of shareholder's equity was 45.6% and 47.3%, at March 31, 1997 and December 31, 1996, respectively.
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL
INVETECH SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to beneficial ownership of Invetech Class A Common Stock as of May 1, 1997, (i) by each person known by Invetech to own beneficially more than five (5%) percent of the outstanding shares of Invetech Class A Common Stock; (ii) by each director of Invetech who beneficially owns shares of Invetech Class A Common Stock; (iii) by each executive officer of Invetech who beneficially owns shares of Invetech Class A Common Stock; and (iv) by all directors and executive officers as a group. The number of shares of Invetech Class A Common Stock outstanding as of May 1, 1997 was 20,000 shares.
PERCENT OF CLASS A
NAME & ADDRESS OF AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- -------------------------------------------------------------- ------------------------
J. Michael Moore 10,000 Shares 50%
4376 Oak Grove Drive
Bloomfield Hills, MI 48302
James T. Moore II 10,000 Shares 50%
1988 Crosswick
Bloomfield Hills, MI 48301
All Directors and Executive 20,000 Shares 100%
Officers as a Group (2 Persons)
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The following table sets forth certain information with respect to beneficial ownership of Invetech Class B Common Stock as of May 1, 1997, (i) by each person known by Invetech to own beneficially more than five (5%) percent of the outstanding shares of Invetech Class B Common Stock; (ii) by each director of Invetech who beneficially owns shares of Invetech Class B Common Stock; (iii) by each executive officer of Invetech who beneficially owns shares of Invetech Class B Common Stock; and (iv) by all directors and executive officers as a group. The number of shares of Invetech Class B Common Stock outstanding as of May 1, 1997 was 2,075,391 shares.
PERCENT OF CLASS B
NAME & ADDRESS OF AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OUTSTANDING
- -------------------------------------------------------------- ------------------------
J. Michael Moore 243,425 Shares 11.73%
4376 Oak Grove Drive
Bloomfield Hills, MI 48302
James T. Moore, II 310,658 shares(2) 14.97%
1988 Crosswick Bloomfield Hills, MI
48301
Dennis P. Moore and 203,585 shares 9.81%
Susan L. Moore 131 Hall Place Gross
Point Farms, MI 48236
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(1)This information is based upon Invetech's records as of May 1, 1997 and information supplied by its directors. The number of shares stated in the column includes shares owned directly as well as by spouses, dependent children, minor children in trust, trusts of which the named individual has sole or shared voting and investment power, and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power, unless otherwise noted.
(2)Includes 106,900 shares as to which Mr. Moore II shares voting and investment power with Marion G. Moore, his mother and Sterling Bank, as co-trustees.
PERCENT OF CLASS B
NAME & ADDRESS OF AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OUTSTANDING
- -------------------------------------------------------------- ------------------------
Margaret Anne Luyat 179,844 shares(3) 8.67%
c/o James Williams Miller, Canfield,
Paddock and Stone, P.L.C. 1400 North
Woodward Avenue Bloomfield Hills, MI
48303-2014
Mary E. Squires 227,096 shares 10.94%
3762 S. Quebec Street Denver, CO
80237
Maureen G. Wolohan 121,221 shares 5.84%
45889 Turtlehead Plymouth, MI 48170
Elizabeth A. Parravano 118,406 shares 5.71%
22210 Olmstead Avenue Dearborn, MI
48124
Thomas P. Moore, II 92,618 shares 4.46%
1158 E. Wickford Bloomfield Hills, MI
48302
All Directors and 646,701 shares 31.16%
Executive Officers as a Group (3 per-
sons)
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(1)This information is based upon Invetech's records as of May 1, 1997 and information supplied by its directors. The number of shares stated in the column includes shares owned directly as well as by spouses, dependent children, minor children in trust, trusts of which the named individual has sole or shared voting and investment power, and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power, unless otherwise noted.
(3)Includes 118,948 shares as to which Ms. Luyat shares voting and investment power with James C. Williams, a senior principal of Miller, Canfield, Paddock and Stone, P.L.C., who serves as a trustee.
INFORMATION CONCERNING INVETECH
INVETECH COMPANY
INVETECH Company, a Michigan corporation, and its wholly owned subsidiaries, American Bearing and Power Transmission, Inc., a Michigan corporation, and Moore Bearing Co., a Michigan corporation (Invetech and its subsidiaries shall be referred to herein collectively as "Invetech") engage in the distribution and sale of bearings, mechanical and electrical drive system products, industrial rubber products and specialty maintenance and repair products manufactured by others. Although Invetech does not manufacture the products that it sells, it assembles hydraulic and general purpose hose assemblies and power transmission products. Invetech has a machine shop at its Fort Street facility in Detroit, Michigan which specializes in bearing reconditioning, reducer rebuilds and repair, and machining and alterations.
Invetech is a non-exclusive distributor for numerous manufacturers of the products it sells. Invetech purchases from over 100 major suppliers and resells to a wide range of customers, including automotive companies, industrial plants, machine shops, mines, paper mills, textile mills, food processing plants, agricultural concerns and other enterprises.
Invetech's sales personnel advise and assist customers with respect to product selection and application. Invetech offers product and process solutions involving multiple technologies in an effort to reduce production downtime and overall procurement and maintenance costs for customers. Invetech believes it offers high levels of service, product knowledge and technical support as well as competitive pricing.
Invetech's sales personnel include inside customer service representatives assigned to each branch who receive, process and expedite customer orders and assist in servicing customers. In addition, each branch has field account representatives who make on-site calls to customers and potential customers to provide product and pricing information, engineering assistance and other cost savings services to its customers. Invetech employs a number of product specialists to assist customers with applications in their particular area of expertise.
Invetech, formerly Detroit Ball Bearing Company of Michigan, was incorporated in 1917. Invetech's principal executive offices are located at 1400 Howard Street, Detroit, Michigan 48216 and its telephone number is (313) 963-6011.
PROPERTIES
Invetech owns or leases the properties in which its offices, branches, warehouses and corporate facilities are located. As of April 28, 1997, the real properties at 27 locations were owned by Invetech while 67 locations were leased by Invetech.
The principal real properties owned by Invetech are the corporate headquarters office building in Detroit, Michigan and adjoining warehouse facility and the office building and shop operation located on Fort Street in Detroit, Michigan. The principal real properties leased by Invetech are the warehouse facilities located in Charlotte, North Carolina and Denver, Colorado.
Invetech considers the properties owned or leased to be generally sufficient to meet its requirements for office space and inventory stocking. The size of the buildings in which Invetech branches are located is primarily influenced by the amount of inventory required to be carried to meet the needs of the customers of the branch. All of the real properties owned or leased by Invetech are being utilized by Invetech in its business, except for one undeveloped parcel.
NUMBER OF EMPLOYEES
On May 15, 1997, Invetech had 980 employees of which 124 are represented by Local Union No. 299 affiliated with International Brotherhood of Teamsters, AFL/CIO. Invetech considers its relationship with its employees to be generally favorable.
COMPETITION
Invetech considers its overall business to be highly competitive. Invetech's principal competitors are other specialized bearing, drive system product, industrial rubber products and specialty item distributors. These competitors include single and multiple branch operations, some of which are divisions or subsidiaries of larger organizations that may have greater financial resources than Invetech. There is a trend in the industry toward larger multiple branch operations. Invetech also competes with the manufacturers of original equipment and their distributors in the sale of maintenance and replacement bearings, power transmission components and related items. Some of these manufacturers may have greater financial resources than Invetech. The competitors and the number of competitors vary throughout the geographic areas in which Invetech does business. Invetech continues to develop and implement marketing strategies to maintain a competitive position.
Invetech is one of the leading mid-size distributors of replacement bearings, drive system products, industrial rubber products and specialty items in the United States, but Invetech's share of the market for those products is relatively small compared to the portion of that market serviced by original equipment manufacturers and other distributors. Invetech may not be the largest distributor in each of the geographic areas in which a branch is located.
LEGAL PROCEEDINGS
Invetech is subject to claims and lawsuits arising in the ordinary course of business. In the opinion of Invetech's management, all such pending claims are either adequately covered by insurance or, if not insured, will not have a material adverse effect on Invetech.
DESCRIPTION OF APPLIED CAPITAL STOCK
The authorized capital stock of Applied consists of 30,000,000 shares of Common Stock, without par value, and 2,500,000 shares of Preferred Stock, without par value.
COMMON STOCK
The holders of Applied Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders. Subject to preferences that may be applicable to any outstanding shares of Applied Preferred Stock, the holders of Applied Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of Applied, the holders of Applied Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior rights of holders of Applied Preferred Stock then outstanding, if any. The Applied Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions available to the Applied Common Stock. All outstanding shares of Applied Common Stock are fully paid and non-assessable.
At April 30, 1997, 12,379,761 shares of Applied Common Stock were outstanding and held of record by 1,337 shareholders. In addition, options to purchase an aggregate of 758,106 shares of Applied Common Stock were outstanding at April 30, 1997.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,500,000 shares of Preferred Stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the shareholders. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of Applied without further action by the shareholders and may adversely affect the voting and other rights of the holders of Applied Common Stock. At present, no shares of Applied Preferred Stock are issued or outstanding, and Applied has no plans to issue any shares of Applied Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Applied Common Stock is Harris Trust and Savings Bank.
COMPARISON OF RIGHTS OF HOLDERS OF APPLIED COMMON STOCK
AND INVETECH COMMON STOCK
Upon consummation of the Merger, holders of common stock of Invetech, a Michigan corporation, whose rights are currently governed by Michigan law and Invetech's Articles of Incorporation and By-Laws, will become shareholders of Applied to the extent such holders receive Applied Common Stock. Upon becoming shareholders of Applied, the rights of such shareholders shall be governed by Ohio law, and Applied's Articles of Incorporation, Code of Regulations and the agreement of merger and plan of reorganization between Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) dated as of September 6, 1988.
Certain differences exist between the applicable laws of Michigan and Ohio and the respective organizational documents of Applied and Invetech. The following discussion is not intended to be a complete statement of all differences affecting the rights of shareholders and is qualified in its entirety by reference to the Articles of Incorporation of Applied and Invetech, the Code of Regulations of Applied, the By-laws of Invetech, the agreement of merger and plan of reorganization between Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) dated as of September 6, 1988 and the laws of the States of Ohio and Michigan.
Preemptive Rights
Holders of Applied Common Stock have no right to purchase or subscribe for any additional unissued shares or treasury shares of the capital stock of Applied.
The Invetech Articles of Incorporation do not grant holders of Invetech Common Stock the right to purchase or subscribe for any additional unissued shares or treasury shares of the capital stock of Invetech.
Number and Term of Directors
Pursuant to the Applied Code of Regulations, the Applied Board of Directors (the "Applied Board") is to be comprised of no fewer than nine (9) and no more than twelve (12) directors divided into three classes, which classes are to be as nearly equal in size as possible. Currently, the Applied Board consists of 10 members, divided into two classes of three members each and one class of four members. Each director serves a three-year term. Terms of office expire on a staggered basis and, as a result, it would generally take two annual meetings to effect a change in membership of a majority of the Applied Board.
Pursuant to the Invetech By-laws, the Invetech Board of Directors (the "Invetech Board") is to be comprised of no fewer than one (1) and no more than twelve (12) directors, all of which serve for one-year terms. Currently, the Invetech Board consists of 8 members. The holders of Invetech Class A Common Stock have the sole voting power exercisable in the election of directors.
Cumulative Voting
Neither the holders of Applied Common Stock nor the holders of Invetech Class A Common Stock have cumulative voting rights. As a result, in the case of each of Applied and Invetech, the holders of more than 50% of the voting power of all securities outstanding voting for the election of directors can elect 100% of the directors if they choose to do so. In such event, the holders of the remaining voting power will not be able to elect any person or persons to the respective company's Board.
Antitakeover Provisions
Certain of the provisions of the Applied Articles of Incorporation summarized in the succeeding paragraphs may be deemed to have an antitakeover effect and may delay a tender offer or takeover attempt which an Applied shareholder might consider in such shareholder's best interest, including attempts which might result in the payment to shareholders of a premium over the market price for Applied's common stock.
The rights of Applied shareholders are governed by Applied's Articles of Incorporation and Code of Regulations, the agreement of merger and plan of reorganization between Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) dated as of September 6, 1988 and Ohio law (including Chapters 1701, 1704 and 1707 of the
Ohio Revised Code). Chapter 1704 of the Ohio Revised Code, among other things, prohibits certain mergers, sales of assets, issuances or purchases of securities, liquidation or dissolution, or reclassification of the then outstanding shares of an Ohio corporation involving, or for the benefit of, certain holders of stock representing 10% or more of the voting power (other than current 10% shareholders who do not increase their present proportional interest), unless (a) such transactions are approved by the directors of such corporation prior to the 10% shareholder becoming such, or (b) the acquisition of 10% of the voting power is approved by the directors of such corporation prior to the 10% shareholder becoming such, or (c) the transaction involves a 10% shareholder which has been such for at least three years and is approved by holders of two-thirds of the voting power of the company and the holders of a majority of the voting power not owned by the 10% shareholder or certain minimum price and form of consideration requirements are met; and Section 1707.043 of the Ohio Revised Code provides Ohio corporations, or in certain circumstances the shareholders of an Ohio corporation, a cause of action to recover profits realized under certain circumstances by persons who dispose of securities of a corporation within 18 months of proposing to acquire such corporation. Chapter 1704 and Section 1707.043 of the Ohio Revised Code may have the effect of deterring certain potential acquisitions of Applied which might be beneficial to Applied's shareholders.
The Applied Articles of Incorporation include a fair price provision (the "Fair Price Provision") which is similar in many ways to the provisions of Chapter 1704 described above. The Fair Price Provision, in certain circumstances, requires a Business Combination between Applied and a Related Person (as such terms are defined in the Applied Articles of Incorporation) to meet specified criteria as to price and procedural requirements. Specifically, the Fair Price Provision requires that any Business Combination with a Related Person receive the prior approval of the holders of not less than eighty percent (80%) of the voting power of Applied, unless such Business Combination is a merger or consolidation and the per share consideration to be received by Applied shareholders meets certain fair price requirements set forth in the Applied Articles of Incorporation. For purposes of the Fair Price Provision, the term "Business Combination" includes mergers or consolidations of Applied or its subsidiaries with other entities, a sale, lease exchange or transfer of a substantial part of the Assets of Applied or any of its subsidiaries, the issuance of Applied securities to any Related Person, or any reclassification or recapitalization which would have the effect of increasing the voting power of any Related Person. The term "Related Person", for purposes of the Fair Price Provision, includes any entity which, together with its affiliates, beneficially owns twenty percent (20%) or more of the outstanding voting power of Applied. The eighty percent shareholder vote generally required to approve a Business Combination with a Related Person may have the effect of foreclosing mergers and other business combinations which a majority of Applied shareholders deem desirable, and places the power to prevent such a merger or combination in the hands of a minority of shareholders.
The Applied Articles of Incorporation include a control share acquisition provision (the "Control Share Acquisition Provision"), pursuant to which the purchase of shares with certain levels of voting power of Applied (one-fifth or more, one-third or more, or a majority) can be made only with the prior authorization of (i) the holders of at least a majority of the total voting power of Applied and (ii) the holders of at least a majority of the total voting power held by shareholders other than the proposed acquiror, officers of Applied elected or appointed by the Applied Board, and directors of Applied who are also employees of Applied. Chapter 1701 of the Ohio Revised Code contains a similar control share acquisition provision; Applied, however, has elected not to be subject to such provision for such times as the Control Share Acquisition Provision described above remains substantially in full force and effect. The Control Share Acquisition Provision may have the effect or deterring certain potential acquisitions of Applied which might be beneficial to Applied's shareholders.
Removal of Directors
The Applied Code of Regulations provides that one or more directors may be removed, with or without cause, upon the affirmative vote of the holders of eighty percent (80%) of the Applied Common Stock entitled to vote on the matter present in person or represented by proxy at any annual or special meeting of shareholders. The Invetech By-laws provide that one or more directors may be removed at any time, with or
without cause, upon the affirmative vote of the holders of a majority of the Invetech Common Stock entitled to vote on such removal.
Amendment of Articles of Incorporation, Code of Regulations and By-Laws
Under Ohio law and the Applied Articles of Incorporation, the Applied Articles of Incorporation may be amended by the affirmative vote of the holders of one-half of the Applied shares entitled to vote on the matter, except that amendments to the articles relating to the Control Share Acquisition Provision and the Fair Price Provision require the approval of the holders of at least eighty percent (80%) of such shares.
Under Ohio law and the Applied Code of Regulations, the Applied Code of Regulations may be amended by the affirmative vote of the holders of one-half of the Applied shares entitled to vote on the matter. Notwithstanding the previous sentence, amendments relating to the number, classification, term, and removal of directors must be approved by the affirmative vote of the holders of at least eighty percent (80%) of the Applied shares entitled to vote on the matter, present in person or by proxy, at any annual meeting or special meeting duly called for the purpose of acting on such amendment, unless such amendment has been recommended by at least two-thirds of the members of the Applied Board, in which case such amendment shall require the approval of the holders of one-half of the Applied shares entitled to vote on the matter.
Under Michigan law and the Invetech Articles of Incorporation, the Invetech Articles of Incorporation may be amended by the affirmative vote of the holders of a majority of each class of the Invetech Common Stock entitled to vote on the matter.
Under Michigan law and the Invetech By-laws, the Invetech By-laws may be amended by the affirmative vote of the holders of a majority of the Invetech Class A Common Stock.
Liability of Directors
Under the laws of both Ohio and Michigan, a director of a corporation is required to perform his duties as a director in good faith, and in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation. To impose liability on a director, however, the law of Ohio requires a showing of clear and convincing evidence that such director violated the duties set forth above. This evidentiary burden imposed under Ohio law is greater than that imposed under Michigan law.
EXPERTS
The consolidated financial statements of Applied as of June 30, 1996 and 1995, and for each of the three years in the period ended June 30, 1996 included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Invetech as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996 included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Applied Common Stock issuable pursuant to the Merger and certain other legal matters relating thereto will be passed upon for Applied by Squire, Sanders & Dempsey L.L.P. Miller, Canfield, Paddock and Stone, P.L.C. is acting as counsel for Invetech in connection with certain legal matters relating to the Merger and the transactions contemplated thereby.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Audited Consolidated Financial Statements of Applied Industrial Technologies, Inc. and
its subsidiaries:
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and June 30, 1995................... F-3
Statements of Consolidated Income for each of the years in the three-year period
ended June 30, 1996.............................................................. F-4
Statements of Consolidated Shareholders' Equity for each of the years in the
three-year period ended June 30, 1996............................................ F-5
Statements of Consolidated Cash Flows for each of the years in the three-year period
ended June 30, 1996.............................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Unaudited Consolidated Financial Statements of Applied Industrial Technologies, Inc.
and its subsidiaries:
Consolidated Balance Sheets as of March 31, 1997 and June 30, 1996.................. F-15
Statements of Consolidated Income for the three months and nine months ended March
31, 1997 and 1996................................................................ F-16
Statements of Consolidated Shareholders' Equity for the nine months ended March 31,
1997 and the year ended June 30, 1996............................................ F-17
Statements of Consolidated Cash Flows for the nine months ended March 31, 1997 and
1996............................................................................. F-18
Notes to Consolidated Financial Statements.......................................... F-19
Audited Consolidated Financial Statements of INVETECH Company and its subsidiaries:
Independent Auditors' Report........................................................ F-21
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995........... F-22
Consolidated Statements of Earnings for each of the years in the three-year period
ended December 31, 1996.......................................................... F-23
Consolidated Statements of Stockholders' Equity for each of the years
in the three-year period ended December 31, 1996................................. F-24
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1996................................................... F-25
Notes to Consolidated Financial Statements.......................................... F-26
Unaudited Consolidated Financial Statements of INVETECH Company and its subsidiaries:
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996.............. F-32
Consolidated Statements of Earnings for three month periods ended March 31, 1997 and
March 31, 1996................................................................... F-33
Consolidated Statements of Cash Flows for three month periods ended March 31, 1997
and March 31, 1996............................................................... F-34
Consolidated Statements of Stockholders' Equity for three month periods ended March
31, 1997 and the year ended December 31, 1996.................................... F-35
Notes to Unaudited Consolidated Financial Statements................................ F-36
|
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Applied Industrial Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Applied Industrial Technologies, Inc. (formerly Bearings, Inc.) and its subsidiaries (the "Company") as of June 30, 1996 and 1995 and the related statements of consolidated income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 1996 and 1995 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
August 6, 1996
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
JUNE 30
---------------------
1996 1995
-------- --------
ASSETS
Current assets
Cash and temporary investments....................................... $ 9,243 $ 4,789
Accounts receivable, less allowance of $2,400 and $2,300............. 155,524 145,680
Inventories.......................................................... 127,937 112,596
Other current assets................................................. 2,434 2,307
-------- --------
Total current assets................................................... 295,138 265,372
-------- --------
Property -- at cost
Land................................................................. 13,529 11,783
Buildings............................................................ 64,441 57,365
Equipment............................................................ 71,938 68,926
-------- --------
149,908 138,074
Less accumulated depreciation........................................ 63,574 58,802
-------- --------
Property -- net........................................................ 86,334 79,272
-------- --------
Other assets........................................................... 22,600 14,587
-------- --------
TOTAL ASSETS................................................. $404,072 $359,231
======== ========
LIABILITIES
Current liabilities
Notes payable........................................................ $ 30,056 $ 18,575
Current portion of long-term debt.................................... 11,429 5,714
Accounts payable..................................................... 67,652 53,722
Compensation and related benefits.................................... 19,081 18,248
Other current liabilities............................................ 14,964 15,558
-------- --------
Total current liabilities.............................................. 143,182 111,817
Long-term debt......................................................... 62,857 74,286
Deferred income taxes.................................................. 918
Other liabilities...................................................... 8,741 6,809
-------- --------
TOTAL LIABILITIES............................................ 214,780 193,830
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock -- no par value; 2,500 shares authorized; none issued
or outstanding
Common stock -- no par value; 30,000 shares authorized; 13,954 shares
issued............................................................... 10,000 10,000
Additional paid-in capital............................................. 7,528 11,311
Income retained for use in the business................................ 197,232 177,402
Treasury shares -- at cost (1,577 and 2,266 shares).................... (21,260) (29,253)
Shares held in trust for deferred compensation plans................... (3,008) (1,426)
Unearned restricted common stock compensation.......................... (1,200) (2,633)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................... 189,292 165,401
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $404,072 $359,231
======== ========
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30
--------------------------------------
1996 1995 1994
---------- ---------- --------
NET SALES............................................... $1,143,749 $1,054,809 $936,254
---------- ---------- --------
COST AND EXPENSES
Cost of sales......................................... 848,682 783,105 684,213
Selling, distribution and administrative.............. 245,786 234,781 224,224
---------- ---------- --------
1,094,468 1,017,886 908,437
---------- ---------- --------
OPERATING INCOME........................................ 49,281 36,923 27,817
---------- ---------- --------
INTEREST EXPENSE........................................ 8,975 7,650 6,385
INTEREST INCOME......................................... (528) (386) (225)
---------- ---------- --------
8,447 7,264 6,160
---------- ---------- --------
INCOME BEFORE INCOME TAXES.............................. 40,834 29,659 21,657
---------- ---------- --------
INCOME TAX EXPENSE
Federal............................................... 14,250 10,630 7,172
State and local....................................... 3,250 2,120 1,798
---------- ---------- --------
17,500 12,750 8,970
---------- ---------- --------
NET INCOME.............................................. $ 23,334 $ 16,909 $ 12,687
========== ========== ========
NET INCOME PER SHARE.................................... $ 1.90 $ 1.46 $ 1.12
========== ========== ========
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
SHARES HELD
SHARES OF INCOME IN TRUST FOR UNEARNED
COMMON ADDITIONAL RETAINED TREASURY DEFERRED RESTRICTED TOTAL
STOCK COMMON PAID-IN FOR USE IN SHARES- COMPENSATION COMMON STOCK SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL THE BUSINESS AT COST PLANS COMPENSATION EQUITY
----------- ------- ---------- ------------ -------- ------------ ------------ ------------
BALANCE AT JULY 1, 1993........ 11,273 $10,000 $ 5,357 $157,784 $(31,947) $ (2,189) $139,005
Net income................... 12,687 12,687
Cash dividends -- $.43 per
share...................... (4,739) (4,739)
Purchases of common stock for
treasury................... (88) (1,945) (1,945)
Treasury shares issued for:
401(k) Savings Plan
contributions.......... 84 503 1,007 1,510
Exercise of stock
options................ 19 74 237 311
Restricted common stock
awards................. 19 53 233 (286)
Other.................... 12 64 137 201
Amortization of restricted
common stock
compensation............... 911 2,475 3,386
Other........................ 75 75
------ ------- -------- -------- -------- -------- -------- --------
BALANCE AT JUNE 30, 1994....... 11,319 10,000 6,962 165,807 (32,278) 150,491
Net income................... 16,909 16,909
Cash dividends -- $.47 per
share...................... (5,397) (5,397)
Purchases of common stock for
treasury................... (180) (3,874) (3,874)
Treasury shares issued for:
401(k) Savings Plan
contributions.......... 140 1,124 1,788 2,912
Exercise of stock
options................ 225 1,565 2,789 4,354
Restricted common stock
awards................. 138 1,232 1,727 (2,959)
Deferred compensation
plans.................. 46 428 595 $ (1,023)
Amortization of restricted
common stock
compensation............... 326 326
Other........................ 83 (403) (320)
------ ------- -------- -------- -------- -------- -------- --------
BALANCE AT JUNE 30, 1995
As previously reported....... 11,688 10,000 11,311 177,402 (29,253) (1,426) (2,633) 165,401
Pooling of interests with
Engineered Sales, Inc...... 486 (6,499) 3,024 6,408 2,933
------ ------- -------- -------- -------- -------- -------- --------
BALANCE AS RESTATED............ 12,174 10,000 4,812 180,426 (22,845) (1,426) (2,633) 168,334
Net income................... 23,334 23,334
Cash dividends -- $.54 per
share...................... (6,528) (6,528)
Purchases of common stock for
treasury................... (86) (2,212) (2,212)
Treasury shares issued for:
Retirement Savings Plan
contributions.......... 138 1,692 1,805 3,497
Exercise of stock
options................ 107 391 1,390 1,781
Restricted common stock
awards................. 1 13 19 (32)
Deferred compensation
plans.................. 43 416 583 (999)
Amortization of restricted
common stock
compensation............... 204 1,465 1,669
Other........................ (583) (583)
------ ------- -------- -------- -------- -------- -------- --------
BALANCE AT JUNE 30, 1996....... 12,377 $10,000 $ 7,528 $197,232 $(21,260) $ (3,008) $ (1,200) $189,292
====== ======= ======== ======== ======== ======== ======== ========
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(AMOUNTS IN THOUSANDS)
YEAR ENDED JUNE 30
-------------------------------
1996 1995 1994
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $23,334 $16,909 $12,687
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
Depreciation..................................... 13,478 13,275 13,586
Deferred income taxes............................ (1,444) (3,345) 2,448
Provision for losses on accounts receivable...... 2,123 1,710 1,418
(Gain) loss on sale of property.................. (1,119) (1,412) (775)
Amortization of restricted common stock
compensation and goodwill...................... 1,959 680 2,779
Treasury shares contributed to employee benefit
and deferred compensation plans................ 4,496 3,935 1,510
Changes in current assets and liabilities:
Accounts receivable............................ (9,132) (16,313) (14,344)
Inventories.................................... (12,889) (5,075) (2,042)
Other currents assets.......................... 1,722 (4) 885
Accounts payable and accrued expenses.......... 13,908 2,548 9,810
Other -- net..................................... 513 2,547
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 36,436 13,421 30,509
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Property purchases.................................. (23,536) (15,055) (16,585)
Proceeds from property sales........................ 4,803 4,081 4,901
Acquisition of businesses, less cash acquired....... (4,328) (1,852)
Deposits and other.................................. (7,729) (164) (519)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES................. (30,790) (12,990) (12,203)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) under:
Line-of-credit agreements -- net............... 11,481 (1,230) (5,321)
Long-term debt................................. (5,714)
Exercise of stock options........................... 1,781 3,924
Dividends paid...................................... (6,528) (5,397) (4,739)
Purchases of treasury shares........................ (2,212) (3,874) (1,945)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES................. (1,192) (6,577) (12,005)
------- ------- -------
Increase (decrease) in cash and temporary
investments......................................... 4,454 (6,146) 6,301
Cash and temporary investments at beginning of year... 4,789 10,935 4,634
------- ------- -------
CASH AND TEMPORARY INVESTMENTS AT END OF YEAR......... $ 9,243 $ 4,789 $10,935
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes..................................... $17,842 $14,827 $ 3,697
Interest......................................... $ 8,291 $ 8,411 $ 5,928
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ACCOUNTING POLICIES
NAME CHANGE
On October 22, 1996 shareholders approved a change in the company's name from Bearings, Inc. to Applied Industrial Technologies, Inc. effective January 1, 1997.
BUSINESS
The Company distributes bearings, electrical and mechanical drive systems products, fluid power products and systems, industrial rubber products, general maintenance products and related specialty items. The Company offers technical application support for these products and provides creative solutions to help customers minimize downtime and reduce overall procurement costs. Although the Company does not generally manufacture the products it sells, it does assemble and repair certain products and systems. Most of the Company's sales are in the maintenance and replacement markets, to customers in a wide range of industries principally in the United States.
CONSOLIDATION
The consolidated financial statements include the accounts of Bearings, Inc. (Applied Industrial Technologies, Inc., effective January 1, 1997) and its wholly-owned subsidiaries Bruening Bearings, Inc., Dixie Bearings, Incorporated, King Bearing, Inc., Mainline Industrial Distributors, Inc., and for the year ended June 30, 1996, Engineered Sales, Inc. (see Note 2). All significant intercompany transactions and balances have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from the estimates and assumptions used in preparing the consolidated financial statements.
CASH EQUIVALENTS
The Company considers all temporary investments with maturities of three months or less from date purchased to be cash equivalents for purposes of the statements of consolidated cash flows.
GOODWILL
Goodwill is recorded for the purchase price of acquired operations in excess of the fair value of identifiable net assets. Goodwill is amortized on a straight-line basis over 15 to 20 years.
INVENTORIES
Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) method. See Note 3 for further information regarding inventories.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DEPRECIATION
Depreciation of buildings and equipment is computed using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over 30 years and equipment over 3.75 to 8 years.
INCOME TAXES
Income taxes are determined based upon income and expenses recorded for financial reporting purposes. Deferred income taxes are recorded for estimated future tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes giving consideration to enacted tax laws.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common shares outstanding for the period. Net income per share has not been adjusted for the effect of stock options as the dilutive effect would be less than 3% for each year. All shares and per-share data have been restated to reflect a three-for-two stock split effective December 4, 1995.
2. BUSINESS COMBINATIONS
On February 9, 1996 the Company exchanged 486,000 shares of the Company's common stock for all of the outstanding shares of Engineered Sales, Inc., a distributor of hydraulic, pneumatic and electro-hydraulic components, systems and related fluid power engineering services. This business combination was accounted for as a pooling of interests. The fiscal 1996 consolidated financial statements include results of operations of Engineered Sales for the entire fiscal year. The prior years' consolidated financial statements have not been restated as the effects are not material. Separate 1996 results of operations for Engineered Sales prior to the acquisition are not presented as the amounts are not material.
In addition, during fiscal 1996 the Company acquired the assets of a distributor of drive products and a distributor of rubber products, for a total of $4,328. During fiscal 1995, the Company acquired the assets of a distributor of fluid power products, and of a distributor of bearings and drive systems products, for a total of $3,255. The acquisitions of these businesses were accounted for as purchases and their results of operations are included in the accompanying consolidated financial statements from their respective acquisition dates. Results of operations for these acquisitions are not material for all periods presented. Goodwill recognized in connection with these combinations is being amortized over 15 years.
In fiscal 1994, the Company exchanged 294,000 shares of its common stock for Mainline Industrial Distributors, Inc., an applied technology distributor of drive systems, rubber products and bearings. The business combination was accounted for as a pooling of interests and the consolidated financial statements include Mainline's results of operations for each of the three years ended June 30, 1996.
3. INVENTORIES
CURRENT COST
The current cost of inventories exceeded the LIFO cost as follows:
JUNE 30
---------------------
1996 1995
-------- --------
LIFO cost....................................................... $127,937 $112,596
Excess of current cost over LIFO cost........................... 100,835 94,670
-------- --------
Current cost.................................................... $228,772 $207,266
======== ========
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
LIFO LIQUIDATIONS
During the years ended June 30, 1996, 1995 and 1994, the Company liquidated LIFO inventory quantities carried at lower costs prevailing in prior years. The effect of these liquidations reduced cost of sales and increased net income and net income per share, respectively, by $946, $515, and $.04 per share during 1996, $3,127, $1,692, and $.15 per share during 1995 and $6,784, $3,841 and $.34 per share during 1994.
4. OTHER ASSETS
Other assets consist of the following:
JUNE 30
-------------------
1996 1995
------- -------
Deposits and investments........................................ $12,024 $ 5,495
Goodwill -- net of amortization................................. 5,281 4,554
Other........................................................... 5,295 4,538
------- -------
Total........................................................... $22,600 $14,587
======= =======
|
Substantially all investments are restricted and consist of money-market or similar liquid investments which have fair values approximately equal to their carrying values.
5. NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE
The Company has $110,000 of short-term lines of credit which require payment of interest at various interest rate options, none of which is in excess of the banks' prime rate at interest determination dates. Borrowings under these lines of credit totaled $30,056 at June 30, 1996. The remaining unused lines available for short-term borrowings at June 30, 1996 totaled $79,944.
LONG-TERM DEBT
The Company has $74,286 of long-term Senior Unsecured Term Notes, including $11,429 due during fiscal 1997. Interest is payable quarterly at a fixed interest rate of 7.82%. The principal amount is to be paid in semi-annual installments of $5,714 through 2003. These notes contain certain restrictive covenants regarding liquidity, tangible net worth, financial ratios and other covenants. At June 30, 1996, the most restrictive of these covenants required that the Company maintain a minimum tangible net worth of $122,000. Based upon current market rates for debt of similar maturities, the Company estimates that the fair value of its long-term debt is more than its carrying value at June 30, 1996 by $1,000.
INTEREST RATE SWAPS
Effective March 1, 1996 the Company entered into a two year interest rate swap agreement with a major bank that effectively converts $15,000 of variable rate borrowings to a fixed rate. Under this agreement, the Company receives payments at variable rates based on LIBOR as determined at monthly intervals and makes payments at a fixed interest rate of 5.29%. Net interest earned under this agreement reduces interest expense. The interest rate swap agreement has a nominal fair value at June 30, 1996.
During fiscal 1995, the Company terminated a two year interest rate swap agreement initiated in fiscal 1994. Costs to terminate were amortized to interest expense over the original term of the swap agreement.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES
PROVISION
The provision (benefit) for income taxes consists of:
YEAR ENDED JUNE 30
-------------------------------
1996 1995 1994
------- ------- -------
Current............................................... $18,944 $16,095 $ 6,522
Deferred.............................................. (1,444) (3,345) 2,448
------- ------- -------
Total................................................. $17,500 $12,750 $ 8,970
======= ======= =======
|
The exercise of non-qualified stock options during fiscal 1996 and 1995 resulted in $501 and $431, respectively, of income tax benefits to the Company derived from the difference between the market price at the date of exercise and the option price. Also, the accelerated vesting of Performance Accelerated Restricted Stock (PARS) in fiscal 1996 and 1994 resulted in $204 and $911, respectively, of income tax benefits. These tax benefits were credited to additional paid-in capital.
EFFECTIVE TAX RATES
The following is a reconciliation between the federal statutory income tax rate and the Company's effective tax rate:
YEAR ENDED JUNE 30
----------------------
1996 1995 1994
---- ---- ----
Statutory tax rate....................................... 35.0% 35.0% 35.0%
Effects of:
State and local income taxes........................... 5.2 4.7 5.4
Non-deductible expenses................................ 2.0 2.3 1.8
Other, net............................................. .7 1.0 (0.8)
---- ---- ----
Effective tax rate....................................... 42.9% 43.0% 41.4%
==== ==== ====
|
BALANCE SHEET
The significant components of the Company's deferred tax assets (liabilities) as of June 30, 1996 and 1995 are as follows:
JUNE 30
-------------------
1996 1995
------- -------
Depreciation and differences in property bases.................. $(4,526) $(4,771)
Inventory....................................................... (8,301) (8,180)
Compensation liabilities not currently deductible............... 5,121 4,298
Reserves not currently deductible............................... 4,226 3,474
Goodwill........................................................ 1,393 1,502
Tax loss carried forward........................................ 94 526
Other........................................................... 1,427 1,086
Valuation allowance............................................. (266) (404)
------- -------
Net deferred tax liability...................................... $ (832) $(2,469)
======= =======
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. STOCK INCENTIVE PLANS
The 1990 Long-Term Performance Plan (the "1990 Plan") provides for granting of stock options, stock awards, cash awards, and such other awards or combination thereof as the Executive Organization and Compensation Committee of the Board of Directors may determine. The number of shares of Common Stock which may be awarded in each fiscal year under the 1990 Plan is two percent (2%) of the total number of shares of Common Stock outstanding on the first day of each year for which the plan is in effect. Common Stock available for distribution under the 1990 Plan, but not distributed, may be carried over to the following year.
Under the 1990 Plan, the Company had awarded PARS and stock options to officers and other key associates. PARS recipients are entitled to receive dividends and have voting rights on their respective shares but are restricted from selling or transferring the shares prior to vesting. The restricted stock vests after a period of six years, with accelerated vesting based upon achievement of certain return on asset objectives or minimum stock price levels. The aggregate fair market value of the restricted stock is considered unearned compensation at the time of grant and is amortized over the six year vesting period or until such time as acceleration of vesting takes place. In fiscal 1996 and 1994 the Company recognized accelerated vesting of 64,000 and 230,000 shares, respectively, of previously awarded PARS.
The following is a summary of transactions with respect to the stock incentive plans:
NUMBER OF SHARES
------------------------------------------
AVAILABLE
OPTION PRICE FOR FUTURE
PER SHARE OUTSTANDING EXERCISABLE GRANTS
-------------- ----------- ----------- ----------
Balance at July 1, 1993................. 722,931 435,630 3,261
Additional available.................... 219,573
Became exercisable...................... 172,575
Canceled upon exercise.................. $9.46-$20.00 (148,192) (148,192)
Expired/canceled........................ $9.46-$20.00 (30,488) (24,713)
Options granted......................... $14.62-$21.54 179,175 (179,175)
PARS common stock awards................ (19,500)
-------- -------- --------
Balance at June 30, 1994................ 723,426 435,300 24,159
Additional available.................... 226,383
Became exercisable...................... 124,429
Canceled upon exercise.................. $9.46-$20.00 (224,581) (224,581)
Expired/canceled........................ $9.46-$20.00 (9,673) (3,039)
Options granted......................... $22.29 2,400 (2,400)
PARS common stock awards................ (138,000)
-------- -------- --------
Balance at June 30, 1995................ 491,572 332,109 110,142
Additional available.................... 233,762
Became exercisable...................... 72,005
Canceled upon exercise.................. $9.46-$21.54 (107,597) (107,597)
Expired/canceled........................ $9.46-$21.54 (16,500) (375)
Options granted......................... $21.71-$22.88 217,275 (217,275)
PARS common stock awards................ (1,500)
-------- -------- --------
Balance at June 30, 1996................ 584,750 296,142 125,129
======== ======== ========
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At June 30, 1996 option prices related to outstanding options ranged from $9.46 to $22.88 per share.
The Financial Accounting Standards Board has issued Statement of Financial Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which the Company will be required to adopt for the fiscal year ending June 30, 1997. As permitted by SFAS 123, the Company does not intend to change its method of accounting for stock-based compensation. The Company has not yet determined the pro forma disclosures for employee awards granted in the fiscal year ending June 30, 1996, which will be presented in the notes to financial statements for the year ending June 30, 1997.
8. BENEFIT PLANS
QUALIFIED RETIREMENT PLANS
Substantially all associates of the Company are covered by the Applied Industrial Technologies Inc. (formerly Bearings, Inc.) Retirement Savings Plan. This plan is the result of a combination, effective July 1, 1995, of the Employees' Profit-Sharing Trust and the Bearings, Inc. 401(k) Savings Plan. The Company makes a discretionary profit-sharing contribution to the Retirement Savings Plan generally based upon a percentage of the Company's income before income taxes and before the amount of the contribution. The Company also partially matches contributions by participants, who may elect to contribute up to 15 percent of their compensation. The matching contribution is made with the Company's Common Stock and is determined quarterly using rates based on achieving certain quarterly earnings per share levels.
The Company's expense for contributions to the above plans was $4,953, $3,958, and $2,602 for the years ended June 30, 1996, 1995, and 1994, respectively.
RETIREE MEDICAL BENEFITS
The Company provides health care benefits to eligible retired associates who elect to pay the Company a specified monthly premium. Premium payments are based upon current insurance rates for the type of coverage provided and are adjusted annually. Certain monthly health care premium payments are partially subsidized by the Company. At June 30, 1996 and 1995 the accumulated post-retirement benefit obligation was $830 and $685, respectively. The costs recognized for post-retirement benefits for fiscal 1996, 1995, and 1994 were not material.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT PLAN (SERP)
The Company has a non-qualified pension plan to provide supplemental retirement benefits to certain officers. Benefits are payable at retirement based upon a percentage of the participant's compensation. The plan specifies minimum annual retirement benefits for certain participants.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The funded status of the SERP plan is:
JUNE 30
-----------------
1996 1995
------ ------
Projected benefit obligation............................................... $4,852 $4,629
Unrecognized net transition obligation..................................... (262)
Unrecognized net loss...................................................... (802) (796)
Unrecognized prior service cost............................................ (145) (207)
Adjustment required to recognize minimum liability......................... 418
------ ------
Accrued pension liability, included in other liabilities on the
Consolidated Balance Sheets.............................................. $3,905 $3,782
====== ======
Accumulated benefit obligation, fully vested............................... $3,905 $3,782
====== ======
|
Periodic pension cost for the SERP consists of:
YEAR ENDED JUNE 30
----------------------
1996 1995 1994
---- ---- ----
Service cost -- benefits earned....................................... $132 $115 $ 91
Interest cost on projected benefit obligation......................... 368 350 347
Net amortization and deferral......................................... 349 361 483
---- ---- ----
Total................................................................. $849 $826 $921
==== ==== ====
|
Pension cost and benefit obligations shown above were determined using a discount rate of 8.0% and a rate of increase in compensation levels of 5.5%. At June 30, 1996 there were no assets under the plan. The Company funds the benefits when payments are made to participants.
DEFERRED COMPENSATION PLANS
The Company has deferred compensation plans that enable certain associates of the Company to defer receipt of a portion of their compensation and non-employee directors to defer receipt of director fees. The Company funds these deferred compensation liabilities by contributing to rabbi trusts common stock of the Company and investments in money market and mutual funds. While held in trust, the common stock is reported as a contra-equity account and the money market and mutual fund investments are included in other assets in the accompanying consolidated balance sheets. The deferred compensation liabilities of $3,286 and $1,461 at June 30, 1996 and 1995, respectively, are recorded in other liabilities in the consolidated balance sheets.
9. COMMITMENTS, LEASE OBLIGATIONS AND RENT EXPENSES
The Company leases certain branch and distribution center facilities and computer equipment under non-cancelable lease agreements. The minimum annual rental commitments under operating leases, including the lease commitment described below, are $8,779 in 1997; $9,035 in 1998; $6,129 in 1999; $4,430 in 2000; $3,157 in 2001 and $41,549 after 2001.
During fiscal 1996 the Company entered into a twenty year lease agreement with the Cleveland-Cuyahoga County Port Authority (the Port) in connection with the construction of a new corporate headquarters facility. Lease payments are to begin upon completion of construction in July 1997 and the facility portion of the lease will be accounted for as an operating lease. The Company will also have a capital
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
lease for $2,000 of furniture, fixtures and equipment as part of the agreement. In connection with the lease agreement the Company has also agreed to guarantee repayment of $5,678 of bonds issued by the Port and Cuyahoga County to fund construction of the new headquarters facility.
Rental cost, principally from leases for real property, vehicles and computer equipment was $12,077 in 1996, $10,756 in 1995, and $10,013 in 1994.
10. LITIGATION
The 1990 agreement for the acquisition of King Bearing, Inc. (King) included specific indemnification of Applied Industrial Technologies, Inc. (effective January 1, 1997) and King for any financial damages or losses related to a lawsuit pending against King in the Superior Court of Orange County, California. The indemnification was also guaranteed by the ultimate parent of King's former owner, a Fortune 500 company with stockholders' equity exceeding five billion dollars at June 30, 1996. A $32,400 judgment relating to this lawsuit was rendered against King in June 1992. The judgment is being strongly contested by counsel retained by the indemnitor on behalf of King, and in September 1992 the trial court granted the motion of King for a new trial as to all but $219 in damages returned by the jury. A notice of appeal was filed by the cross-complainants, and the case is now pending in the California Court of Appeal, Fourth Appellate District. All alleged events relevant to the judgment occurred prior to the Company's purchase of King, and the jury found no liability on the part of the Company. Due to the indemnification and guarantee, management believes that the outcome of this matter will not have a material adverse effect on the consolidated financial position or results of operations of the Company.
The Company is a defendant in several lawsuits for product and employment related matters. The Company is vigorously defending these lawsuits, which management believes are without merit. Although management cannot predict the outcomes of these lawsuits, they are not expected to have a material adverse affect on the Company's consolidated financial position, results of operations or cash flows.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
MARCH 31, JUNE 30,
1997 1996
----------- --------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and temporary investments............................................... $ 15,521 $ 9,243
Accounts receivable, less allowance of $2,002 and $2,400..................... 152,335 155,524
Inventories (at LIFO)........................................................ 118,172 127,937
Other current assets......................................................... 7,226 2,434
Total current assets........................................................... 293,254 295,138
--------- --------
Property -- at cost
Land......................................................................... 12,972 13,529
Buildings.................................................................... 64,798 64,441
Equipment.................................................................... 75,493 71,938
--------- --------
153,263 149,908
Less accumulated depreciation................................................ 69,021 63,574
--------- --------
Property -- net................................................................ 84,242 86,334
--------- --------
Other assets................................................................... 20,283 22,600
--------- --------
TOTAL ASSETS................................................................. $ 397,779 $404,072
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable................................................................ $ 20,897 $ 30,056
Current portion of long-term debt............................................ 11,429 11,429
Accounts payable............................................................. 62,860 67,652
Compensation and related benefits............................................ 20,424 19,081
Other accrued liabilities.................................................... 14,108 14,964
--------- --------
Total current liabilities................................................ 129,718 143,182
Long-term debt................................................................. 57,143 62,857
Other liabilities.............................................................. 11,577 8,741
--------- --------
TOTAL LIABILITIES.............................................................. 198,438 214,780
--------- --------
SHAREHOLDERS' EQUITY
Preferred stock -- no par value; 2,500 shares authorized; none issued or
outstanding
Common stock -- no par value; 30,000 shares authorized; 13,954 shares
issued..................................................................... 10,000 10,000
Additional paid-in capital................................................... 9,365 7,528
Income retained for use in the business...................................... 209,694 197,232
Less 1,579 and 1,577 treasury shares -- at cost.............................. (23,467) (21,260)
Less shares held in trust for deferred compensation plans.................... (5,202) (3,008)
Less unearned restricted common stock compensation........................... (1,049) (1,200)
--------- --------
TOTAL SHAREHOLDERS' EQUITY..................................................... 199,341 189,292
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $ 397,779 $404,072
========= ========
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
Net Sales....................................... $297,190 $296,064 $854,431 $848,263
-------- -------- -------- --------
Cost and Expenses
Cost of sales................................. 221,991 220,454 630,791 630,544
Selling, distribution and administrative...... 62,752 62,663 188,766 183,494
-------- -------- -------- --------
284,743 283,117 819,557 814,038
-------- -------- -------- --------
Operating Income................................ 12,447 12,947 34,874 34,225
-------- -------- -------- --------
Interest
Interest expense.............................. 1,673 2,426 4,829 6,879
Interest income............................... (124) (199) (695) (375)
-------- -------- -------- --------
1,549 2,227 4,134 6,504
-------- -------- -------- --------
Income Before Income Taxes...................... 10,898 10,720 30,740 27,721
-------- -------- -------- --------
Income Taxes
Federal....................................... 3,379 3,665 10,338 9,563
State and local............................... 764 933 2,239 2,332
-------- -------- -------- --------
4,143 4,598 12,577 11,895
-------- -------- -------- --------
Net Income...................................... $ 6,755 $ 6,122 $ 18,163 $ 15,826
======== ======== ======== ========
Net Income per share............................ $ 0.55 $ 0.50 $ 1.47 $ 1.29
======== ======== ======== ========
Cash dividends per common share................. $ 0.16 $ 0.14 $ 0.46 $ 0.40
======== ======== ======== ========
|
See notes to consolidated financial statements.
APPLIED INDUSTIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
AND YEAR ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
SHARES HELD
SHARES OF INCOME IN TRUST UNEARNED
COMMON ADDITIONAL RETAINED TREASURY FOR DEFERRED RESTRICTED TOTAL
STOCK COMMON PAID-IN FOR USE IN SHARES -- COMPENSATION COMMON STOCK SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL THE BUSINESS AT COST PLANS COMPENSATION EQUITY
----------- ------- ---------- ------------ -------- ------------ ------------ ----------
Balance at July 1,
1995................... 12,174 $10,000 $4,812 $180,426 $(22,845) $ (1,426) $ (2,633) $168,334
Net income............. 23,334 23,334
Cash dividends -- $.54
per share............ (6,528) (6,528)
Purchase of common
stock for treasury... (86) (2,212) (2,212)
Treasury shares issued
for:
Retirement Savings
Plan
contributions...... 138 1,692 1,805 3,497
Exercise of stock
options............ 107 391 1,390 1,781
Deferred compensation
plans.............. 43 416 583 (999)
Restricted common
stock awards....... 1 13 19 (32)
Amortization of
restricted common
stock compensation... 204 1,465 1,669
Other.................. (583) (583)
------ ------- ------ -------- --------- -------- -------- ---------
Balance at June 30,
1996................... 12,377 10,000 7,528 197,232 (21,260) (3,008) (1,200) 189,292
Net income............. 18,163 18,163
Cash dividends -- $.46
per share............ (5,701) (5,701)
Purchase of common
stock for treasury... (162) (4,434) (4,434)
Treasury shares issued
for:
Retirement Savings
Plan
contributions...... 84 1,307 1,195 2,502
Exercise of stock
options............ 39 (28) 538 510
Deferred compensation
plans.............. 33 500 438 (938)
Restricted common
stock awards....... 4 58 56 (114)
Amortization of
restricted common
stock compensation... 265 265
Other.................. (1,256) (1,256)
------ ------- ------ -------- --------- -------- -------- ---------
Balance at March 31,
1997................... 12,375 $10,000 $9,365 $209,694 $(23,467) $ (5,202) $ (1,049) $199,341
====== ======= ====== ======== ========= ======== ======== =========
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
MARCH 31
-------------------
1997 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................... $18,163 $15,826
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Depreciation................................................................... 10,178 10,193
Provision for losses on accounts receivable.................................... 599 1,966
Gain on sale of property....................................................... (399) (889)
Amortization of restricted common stock compensation and goodwill.............. 606 723
Treasury shares contributed to employee benefit plans.......................... 2,502 2,402
Changes in current assets and liabilities, net of effects from acquisition and
disposal of businesses:
Accounts receivable....................................................... (426) (9,539)
Inventories............................................................... 3,765 (17,329)
Other current assets...................................................... (4,792) 1,537
Accounts payable and accrued expenses..................................... (3,637) (1,583)
Other -- net.............................................................. 938 956
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................................... 27,497 4,263
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Property purchases............................................................... (10,855) (13,210)
Proceeds from property sales..................................................... 3,068 3,667
Proceeds from sale of Aircraft Division.......................................... 9,090
Acquisition of businesses, less cash acquired.................................... (4,328)
Deposits and other............................................................... 1,976 (8,451)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................................ 3,279 (22,322)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under Line-of-credit agreements...................... (9,159) 31,450
Long-term debt repayments........................................................ (5,714)
Exercise of stock options........................................................ 510 1,219
Dividends paid................................................................... (5,701) (4,799)
Purchase of treasury shares...................................................... (4,434) (1,362)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................ (24,498) 26,508
------- -------
Increase in cash and temporary investments......................................... 6,278 8,449
Cash and temporary investments at beginning of period.............................. 9,243 4,789
------- -------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD.................................... $15,521 $13,238
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes................................................................... $16,740 $12,933
Interest....................................................................... $ 5,161 $ 6,297
|
See notes to consolidated financial statements.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. NAME CHANGE
Effective January 1, 1997, the Company changed its name from Bearings, Inc. to Applied Industrial Technologies, Inc.
2. 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 March 31, 1997 and June 30, 1996, and the results of operations for the three months and nine months ended March 31, 1997 and 1996, and cash flows for the nine months ended March 31, 1997 and 1996.
The results of operations for the three and nine month periods ended March 31, 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.
3. NET INCOME PER SHARE
Net income per share was computed using the weighted average number of common shares outstanding for the period.
Average shares outstanding for the computation of net income per share were as follow:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
- ------------------- -------------------
1997 1996 1997 1996
- ------ ------ ------ ------
12,354 12,341 12,390 12,285
|
4. SALE OF DIVISION
On August 9, 1996 the Company sold the Dixie Bearings Aircraft Division located in Atlanta, Georgia to Aviation Sales Company for $9,090. The assets were sold at their approximate net book value. The sale did not have a material effect on the consolidated financial statements.
5. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which the Company will be required to adopt for the fiscal year ending June 30, 1997. As permitted by SFAS No. 123, the Company does not intend to change its method of accounting for stock-based compensation. The Company has not yet determined the pro forma disclosure for employee awards granted in the nine months ended March 31, 1997 and the fiscal year ending June 30, 1996 which will be presented in the notes to financial statements for the year ending June 30, 1997.
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share." This statement simplifies the current standard for computing earnings per share (EPS). At March 31, 1997 the Company has stock options outstanding, which would currently have a less than 3% dilution effect for reporting Diluted EPS under SFAS No. 128. SFAS No. 128 becomes effective for interim and annual financial statements issued after December 15, 1997 and earlier application is not permitted.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. LONG-TERM DEBT
The Company has entered into an agreement with Prudential Insurance Company of America for an uncommitted shelf facility enabling the Company to borrow up to $50,000 in additional long-term financing. The Company may make long-term borrowings at its sole discretion, with terms ranging anywhere from seven to twenty years under this agreement. At March 31, 1997 there were no borrowings under this agreement.
7. LITIGATION
As reported in the Notes to the Consolidated Financial Statements contained in the 1996 Annual Report to shareholders, a $32,400 judgment was rendered against King Bearing, Inc. (King) in June 1992 in a lawsuit pending in the Superior Court of Orange County, California. The 1990 agreement for the Company's acquisition of King included specific indemnification of the Company for any financial damages or losses related to the lawsuit. The indemnification was also guaranteed by the ultimate parent of King's former owner, a Fortune 500 company with stockholders' equity exceeding five billion dollars at June 30, 1996. The judgment was strongly contested by counsel retained by the indemnitor on behalf of King, and in September 1992 the trial court granted King's motion for a new trial as to all but $219 in damages returned by the jury. In September 1996 the California Court of Appeals, Fourth Appellate District, affirmed the trial court's grant of King's motion for a new trial and reversed its exclusion of the $219 in damages from the new trial order. As a result, a new trial will be scheduled. Due to the indemnification and guarantee, management believes that the outcome of this matter will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
8. SUBSEQUENT EVENT
In April, 1997 the Company signed a definitive agreement to acquire Invetech Company, a distributor of industrial components, for a combination of cash and stock valued at $83 million. The acquisition is expected to close near the end of the fourth quarter. This business combination is anticipated to be accounted for as a purchase.
INVETECH COMPANY AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
INVETECH Company
Detroit, Michigan
We have audited the accompanying consolidated balance sheets of INVETECH Company and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of INVETECH Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 10, 1997
(April 29, 1997 as to Note 12)
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 583,110 $ 285,731
Trade accounts receivable, less allowance for doubtful accounts
of $450,000 in 1996 and 1995................................ 36,536,006 37,040,040
Inventories (Note 2)........................................... 33,273,283 39,377,687
Income tax receivable.......................................... 1,272,959 604,332
Deferred income taxes (Note 10)................................ 1,358,000 1,736,000
Other current assets........................................... 844,825 723,354
------------ ------------
Total current assets................................. 73,868,183 79,767,144
PROPERTY, PLANT AND EQUIPMENT (Notes 3 and 4):
Land........................................................... 1,160,726 1,195,778
Buildings and improvements..................................... 11,782,247 11,952,113
Furniture and equipment........................................ 18,647,245 18,710,031
------------ ------------
Total................................................ 31,590,218 31,857,922
Less accumulated depreciation.................................. 18,867,598 17,454,683
------------ ------------
Total property, plant and equipment.................. 12,722,620 14,403,239
OTHER ASSETS:
Deferred income taxes (Note 10)................................ 1,756,000 806,000
Goodwill -- net of accumulated amortization.................... 445,970 472,660
Cash surrender value of life insurance......................... 12,054,338 11,323,067
Covenants not to compete -- net of accumulated amortization.... 456,288 762,406
Miscellaneous.................................................. 173,444 162,810
------------ ------------
Total other assets................................... 14,886,040 13,526,943
------------ ------------
TOTAL ASSETS..................................................... $101,476,843 $107,697,326
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable......................................... $ 17,246,277 $ 19,781,179
Compensation and related payroll taxes......................... 6,337,549 6,037,309
Taxes, other than income taxes................................. 503,407 806,000
Current portion of long-term debt (Note 3)..................... 13,684,273 1,904,466
Dividends payable.............................................. 649,571 440,032
Other current liabilities...................................... 1,255,919 1,643,029
----------- -----------
Total current liabilities............................ 39,676,996 30,612,015
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (Note 3)............. 8,516,876 28,161,830
DEFERRED COMPENSATION (Note 1)................................... 1,887,558 1,655,416
ACCRUED POST-RETIREMENT BENEFITS (Note 8)........................ 4,475,000 4,452,000
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value:
Class A (voting), authorized 30,000 shares, issued and
outstanding 20,000 shares.............................. 2,000 2,000
Class B (non-voting), authorized 5,000,000 shares, issued
and outstanding 2,075,391 shares (Note 9).............. 207,539 207,539
Additional paid-in capital..................................... 314,309 314,309
Retained earnings.............................................. 46,396,565 42,292,217
----------- -----------
Total stockholders' equity........................... 46,920,413 42,816,065
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $101,476,843 $107,697,326
============ ============
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------ ------------ ------------
REVENUES:
Net sales.......................................... $314,317,708 $313,912,918 $280,313,261
Other income....................................... 225,911 340,740 373,083
------------ ------------ ------------
Total........................................... 314,543,619 314,253,658 280,686,344
COSTS AND EXPENSES:
Cost of products sold.............................. 237,028,272 237,338,271 211,133,216
Operating, selling, administrative, and general.... 69,021,165 71,172,822 62,614,019
------------ ------------ ------------
Total........................................... 306,049,437 308,511,093 273,747,235
INCOME FROM OPERATIONS............................... 8,494,182 5,742,565 6,939,109
OTHER INCOME (EXPENSE):
Interest income.................................... 231,528 192,661 175,741
Interest expense................................... (2,064,179) (2,128,803) (704,158)
Other.............................................. (393,349) 1,948,511 663,186
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES......................... 6,268,182 5,754,934 7,073,878
INCOME TAXES:
Current............................................ 1,790,000 2,154,000 2,199,000
Deferred........................................... (611,000) (614,000) 220,000
------------ ------------ ------------
Total........................................... 1,179,000 1,540,000 2,419,000
------------ ------------ ------------
NET EARNINGS......................................... $ 5,089,182 $ 4,214,934 $ 4,654,878
============ ============ ============
NET EARNINGS PER SHARE............................... $ 2.43 $ 2.01 $ 1.62
============ ============ ============
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN RETAINED
CLASS A CLASS B CAPITAL EARNINGS
------- -------- ---------- -----------
BALANCE, JANUARY 1, 1994............................. $ 2,000 $285,615 $ 431,422 $44,424,666
Net earnings....................................... 4,654,878
Cash dividends, $.32 per share..................... (764,216)
------- -------- --------- -----------
BALANCE, DECEMBER 31, 1994........................... 2,000 285,615 431,422 48,315,328
Net earnings....................................... 4,214,934
Cash dividends, $.37 per share..................... (775,295)
Stock repurchase (Note 9).......................... (78,076) (117,113) (9,462,750)
------- -------- --------- -----------
BALANCE, DECEMBER 31, 1995........................... 2,000 207,539 314,309 42,292,217
Net earnings....................................... 5,089,182
Cash dividends, $.47 per share..................... (984,834)
------- -------- --------- -----------
BALANCE, DECEMBER 31, 1996........................... $ 2,000 $207,539 $ 314,309 $46,396,565
======= ======== ========= ===========
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATIONS:
Net earnings............................................ $ 5,089,182 $ 4,214,934 $ 4,654,878
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 3,558,500 3,509,492 3,098,838
(Increase) decrease in cash surrender value of life
insurance.......................................... (731,271) 472,545 (1,313,116)
(Decrease) increase in allowance for doubtful
accounts........................................... -- (280,000) 30,000
Loss (gain) on sales of equipment..................... 62,386 (1,703,642) (1,046,186)
Increase in deferred compensation..................... 232,142 129,753 65,057
Decrease (increase) in deferred income tax............ (572,000) (614,000) 220,000
Changes in working capital items affecting operations:
Decrease (increase) in accounts receivable............ 504,034 947,824 (5,663,581)
Decrease (increase) in inventories.................... 6,104,404 (4,525,501) (1,493,449)
(Increase) decrease in income tax receivable.......... (668,627) 15,568 (619,900)
(Increase) decrease in other current assets........... (121,471) 109,740 (129,104)
(Decrease) increase in accounts payable............... (2,534,902) 1,202,538 (729,328)
(Decrease) increase in other current liabilities...... (387,110) 298,122 (849,138)
Increase in other accrued expenses.................... 10,013 118,579 663,756
----------- ----------- -----------
Total adjustments.................................. 5,456,098 (318,982) (7,766,151)
----------- ----------- -----------
Net cash provided by (used in) operations.......... 10,545,280 3,895,952 (3,111,273)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant and
equipment.......................................... 636,827 4,018,265 1,454,211
Proceeds from land held for sale...................... 700,000
Capital expenditures.................................. (2,244,286) (6,526,857) (3,631,469)
Acquisition of Kentucky Bearings Service, Inc......... (3,096,596) --
Other................................................. -- -- (150,064)
----------- ----------- -----------
Net cash used in investing activities.............. (1,607,459) (5,605,188) (1,627,322)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings.................... -- 21,000,000 10,500,000
Repayment of note..................................... (15,899) (13,161) --
Repayment of short-term debt.......................... (1,700,000) (2,000,000) (5,500,000)
Repayment of long-term debt........................... (6,202,876) (6,191,563) (556,406)
Payments on life insurance policy loans............... -- (696,285) --
Borrowings against life insurance policies............ 53,628 53,628 874,888
Cash paid for repurchase of common stock.............. -- (9,657,939) --
Dividends paid........................................ (775,295) (754,341) (575,229)
----------- ----------- -----------
Net cash (used in) provided by financing
activities....................................... (8,640,442) 1,740,339 4,743,253
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 297,379 31,103 4,658
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......... 285,731 254,628 249,970
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 583,110 $ 285,731 $ 254,628
=========== =========== ===========
OTHER CASH FLOW INFORMATION:
Interest paid......................................... $ 2,208,000 $ 1,650,000 $ 1,011,000
=========== =========== ===========
Income taxes paid..................................... $ 2,430,000 $ 2,030,000 $ 2,540,000
=========== =========== ===========
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL -- INVETECH Company ("Invetech") is an industrial distributor of bearings, pneumatic products, power transmission components, and other industrial related products. Invetech has service centers in 20 states throughout the continental United States.
CONSOLIDATED FINANCIAL STATEMENTS -- The consolidated financial statements include the accounts of Invetech and its wholly owned subsidiaries. All material intercompany transactions, profits, and balances have been eliminated.
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -- Invetech considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES represent finished goods and are stated at the lower of cost, last-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. Invetech provides for depreciation by the straight-line method based on estimated useful lives. Expenditures for repairs and maintenance are charged to operations as incurred.
GOODWILL -- The excess of acquisition cost over fair value of net assets acquired is amortized on a straight-line basis over ten or forty years. Invetech evaluates the recoverability of goodwill based upon cash flows and other financial factors. Accumulated amortization of goodwill was $399,000 and $372,000 at December 31, 1996 and 1995 respectively.
REVENUE RECOGNITION -- Invetech recognizes revenue when title to the goods sold passes to the buyer, which is generally at the time of shipment. Approximately 10% of Invetech's sales are derived from companies in the automotive industry.
DEFERRED COMPENSATION relates to amounts earned by branch managers, divisional management and executives under incentive compensation plans whereby those participants have elected to defer payments into future years. Interest accumulates on the unpaid balance under the incentive compensation agreements at the rate of the longest term certificate of deposit established by a regional bank as of the beginning of each year.
NET EARNINGS PER SHARE is based on the weighted average number of shares of Invetech Common Stock outstanding during each year.
INCOME TAXES -- Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is generally the tax payable or refundable, if any, for the period plus or minus the change during the period in deferred tax assets and liabilities.
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. INVENTORIES
Inventories are valued using the last-in, first-out (LIFO) method of inventory accounting, which essentially charges to cost of goods sold the most recent costs of goods purchased, resulting in the matching of current costs to revenues. On a supplemental basis, if inventories had been valued by the first-in, first-out method, inventories would have been approximately $24,000,000 higher at December 31, 1996, and $23,200,000 higher at December 31, 1995.
During 1996, the quantities of inventory were reduced resulting in a partial liquidation of LIFO inventory layers. These liquidations increased net earnings and net earnings per share by $256,000 and $0.12, respectively.
3. LONG-TERM DEBT, CAPITAL LEASE OBLIGATION AND LINES OF CREDIT
Long-term debt, capital lease obligation and lines of credit consist of the following:
1996 1995
----------- -----------
Term loans........................................................ $21,500,000 $27,500,000
Capital lease obligation -- warehouse and office additions........ -- 1,700,000
Note assumed in Kentucky Bearings Service, Inc. purchase, payable
in monthly principal installments of $2,172..................... 122,128 138,025
Noninterest bearing obligation with an imputed interest rate of
6%, payable in monthly installments of $15,000.................. 96,855 266,011
Noninterest bearing obligation with an imputed interest rate of
9%, payable in annual installments.............................. 321,283 355,005
Policy loans...................................................... 160,883 107,255
----------- -----------
Total................................................... 22,201,149 30,066,296
Less current portion.............................................. 13,684,273 1,904,466
----------- -----------
Total long-term debt.............................................. $ 8,516,876 $28,161,830
=========== ===========
|
At December 31, 1996, Invetech has $13,500,000 in borrowings outstanding under term loan agreements maturing on December 1, 1997 with interest at 7.4%.
Invetech also has a $10,000,000 working capital authorization with $8,000,000 in related debt outstanding at December 31, 1996. The outstanding debt matures on December 21, 1998 and bears interest at 5.97%.
In addition, Invetech has a $5,000,000 revolving line of credit and two unsecured lines of credit aggregating $11,000,000 with no related debt outstanding at December 31, 1996. The bank has been granted a security interest in all of Invetech's deposit accounts maintained with the bank. Interest on any borrowings under these agreements is at negotiated rates not to exceed the prime rate at the date of borrowing.
The capital lease obligation relates to warehouse and office facilities financed by the proceeds of industrial development bonds. Interest payments at 68% of the prime interest rate are due semiannually. A lump-sum principal payment was paid in 1996, at the end of the obligation. Invetech purchased the facilities in 1996 upon satisfaction of the capital lease amounts.
A note was assumed, in connection with the purchase of Kentucky Bearings Service, Inc. ("Kentucky Bearings") with an interest rate of 1%. The note has been discounted to reflect an imputed interest of 8%. The note balloons on October 1, 1999.
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The noninterest bearing obligations relate to covenants not to compete pursuant to the acquisitions of Kentucky Bearings in 1995 and Southern Bearings Services, Inc. in 1991. The obligations have been discounted to reflect an imputed interest rate of 9% and 6% respectively.
In 1996 and 1995, policy loans represent open ended policy loans against the cash surrender value of certain life insurance policies at interest rates ranging from 6% to 8%. During 1995, a portion of the policy loans were repaid.
Based on the borrowing rates currently available to Invetech for bank loans with similar terms and average maturities, the fair value of Invetech's long-term debt approximates carrying value.
Financial covenants in certain of Invetech's term loan agreements, lines of credit and the capital lease obligation require Invetech to maintain certain financial ratios and tangible net worth amounts and restrict dividends to 50% of Invetech's net earnings. Management believes Invetech has complied with the covenants.
Maturities of long-term debt for the years ending December 31 are as follows:
1997.................................................................. $13,684,231
1998.................................................................. 8,095,546
1999.................................................................. 103,644
2000.................................................................. 113,789
2001.................................................................. 23,980
Thereafter............................................................ 179,959
-----------
Total................................................................. $22,201,149
===========
|
4. PROPERTY, PLANT AND EQUIPMENT
Included in property, plant and equipment are assets acquired under a capital lease having a net book value of approximately $237,000 and $452,000 at December 31, 1996 and 1995, respectively. The assets are being amortized (included in depreciation) over their estimated useful lives.
Invetech recorded depreciation expense on property, plant and equipment of approximately $3,121,000, $3,171,000, and $2,832,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
5. EMPLOYEE RETIREMENT PLANS
Invetech and its subsidiaries participate in a profit-sharing and 401(k) retirement plan which covers substantially all nonunion employees. Invetech makes matching contributions to the plan equal to 50% of participant contributions to a maximum of 1 1/2% of participant compensation. Semiannual additional contributions are also made by Invetech as determined by the Board of Directors. Total expense amounted to approximately $965,000, $715,400, and $974,900 for the years ended December 31, 1996, 1995, and 1994 respectively.
Invetech also has a defined benefit plan for union employees. Disclosure of pension expense and the funded status of the plan has been omitted as the amounts are not significant.
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. LEASE COMMITMENTS
Invetech occupies certain facilities and leases equipment under operating leases which expire at various dates through 2009. Future minimum rental commitments as of December 31, 1996, were as follows:
1997................................................................... $2,269,000
1998................................................................... 1,630,000
1999................................................................... 1,285,000
2000................................................................... 1,194,000
2001................................................................... 824,000
Thereafter............................................................. 1,855,000
----------
Total.................................................................. $9,057,000
==========
|
Lease expense for the years ended December 31, 1996, 1995, and 1994 amounted to approximately $2,962,000, $3,018,000, and $2,605,000, respectively.
7. ACQUISITION
Invetech purchased the assets and assumed certain liabilities of Kentucky Bearings on March 30, 1995 for a purchase price of approximately $3,100,000. Kentucky Bearings is a distributor of power transmission products, bearings, and other industrial equipment with locations in Kentucky. In addition, a previous owner of Kentucky Bearings entered into an agreement not to compete with Invetech for a period of five years in exchange for a noninterest bearing obligation of $500,000. The obligation is being paid and amortized over a five year period.
The acquisition has been accounted for by the purchase method of accounting; accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the date of acquisition. The operating results of Kentucky Bearings are included in Invetech's consolidated results of operations from the date of acquisition.
8. OTHER POST-RETIREMENT BENEFIT PLANS
Invetech provides healthcare benefits for certain retirees. Invetech also has agreements with certain key employees ("the Agreements") which take effect at the time of the employee's normal retirement providing the employees continue to work for Invetech until that date. The Agreements stipulate that the employees, subsequent to normal retirement, will perform services at Invetech's convenience and that the employees agree not to compete with Invetech for the duration of the Agreements, generally 10 years.
Net periodic post-retirement benefit cost for the healthcare costs and the Agreements for the years ended December 31, 1996, 1995, and 1994 included the following components:
1996 1995 1994
-------- -------- --------
Interest cost on accumulated post-retirement benefit
obligation........................................ $313,000 $360,000 $351,000
Change in actuarial assumptions..................... (81,000) 212,000 223,000
-------- -------- --------
Net periodic post-retirement benefit cost........... $232,000 $572,000 $574,000
======== ======== ========
|
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Invetech's post-retirement benefits are funded on a pay-as-you-go basis. The status of the post-retirement benefits at December 31, is as follows:
1996 1995
---------- ----------
Accumulated post-retirement benefit obligations:
Retirees................................................. $3,206,000 $3,201,000
Fully eligible and other active participants............. 1,269,000 1,251,000
-------- --------
Total accrued post-retirement benefits..................... $4,475,000 $4,452,000
======== ========
|
For measurement purposes, a 12% annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 1996 through the year 2004 and decreased to 5% per annum thereafter. The assumptions for the healthcare cost trend rate has an effect on the amount of the obligation and period cost reported. An increase in the assumed healthcare cost trend rates by 1% would increase the accumulated post-retirement benefit obligation by approximately $73,000 and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost by approximately $21,000 for the year.
The discount rate used in determining the accumulated post-retirement healthcare benefit obligation was 7%. The estimated obligation under the Agreements included in the above table has been recorded in the accompanying financial statements at their present value, currently $1,760,000 in 1996 and $1,770,000 in 1995. These future liabilities have been discounted at 7.70% and 7.25% in 1996 and 1995, respectively. Interest cost attributable to the Agreements was $128,000 in 1996 and $177,000 in 1995.
9. STOCK REPURCHASE
In October 1994, Invetech extended an offer to purchase 808,407 shares of the Invetech Class B Common Stock at $12.37 per share. On January 2, 1995, 780,755 shares were purchased under the offer at a total cost of $9,657,939. As a result of the stock repurchase, the Invetech Class B Common Stock, additional paid-in capital and retained earnings were reduced by $78,076, $117,113 and $9,462,750, respectively.
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. INCOME TAXES
Temporary differences which give rise to the deferred tax assets and liabilities are as follows:
1996 1995
---------- ----------
Deferred tax assets:
Accounts receivable................................................ $ 146,000 $ 146,000
Inventory.......................................................... 514,000 712,000
Accrued vacation................................................... 666,000 648,000
Accrued health..................................................... 129,000
Accrued relocation................................................. 25,000 108,000
Deferred compensation.............................................. 642,000 563,000
Accrued postretirement............................................. 1,515,000 1,514,000
Other.............................................................. 144,000 55,000
---------- ----------
Total deferred tax assets............................................ 3,652,000 3,875,000
---------- ----------
Deferred tax liabilities:
Plant and equipment................................................ 401,000 400,000
Accrued health..................................................... 47,000
Accrued rent....................................................... 41,000
Other liabilities.................................................. 49,000 933,000
---------- ----------
Total deferred tax liabilities....................................... 538,000 1,333,000
---------- ----------
Net deferred tax asset............................................... 3,114,000 2,542,000
Less: net deferred tax asset -- current.............................. 1,358,000 1,736,000
---------- ----------
Net deferred tax asset -- noncurrent................................. $1,756,000 $ 806,000
========== ==========
|
Effective Tax Rates
A reconciliation from statutory tax rate to the effective tax rate is as follows:
1996 1995 1994
----- ----- ----
Statutory tax rate..................................................... 34.0% 34.0% 34.0%
Effects of:
Adjustment of tax liability.......................................... (13.9) (6.4)
Other................................................................ (1.3) (0.8) 0.2
----
-
----- -----
Effective tax rate..................................................... 18.8% 26.8% 34.2%
===== ===== =====
|
11. RELATED PARTY TRANSACTIONS
In the ordinary course of business Invetech purchases services and makes payments to entities who employ certain of Invetech's outside board of directors members. The total payments made to these entities was $269,000, $549,000 and $633,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
12. SUBSEQUENT EVENT
Invetech signed a letter of intent on February 8, 1997 to exchange all the outstanding common stock of Invetech for cash and Applied Common Stock valued at approximately $83,000,000. On April 29, 1997, Invetech entered into the Merger Agreement with Applied. The transaction is expected to be completed in 1997.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 1,072,111 $ 583,110
Trade accounts receivable, less allowance for doubtful accounts of
$450,000 in 1997 and 1996.............................................. 42,663,456 36,536,006
Inventories.............................................................. 30,046,610 33,273,283
Income tax receivable.................................................... 1,053,459 1,272,959
Deferred income taxes.................................................... 1,388,000 1,358,000
Other current assets..................................................... 614,922 844,825
------------ ------------
Total current assets................................................... 76,838,558 73,868,183
PROPERTY, PLANT AND EQUIPMENT:
Land..................................................................... 1,160,726 1,160,726
Buildings and improvements............................................... 11,717,461 11,782,247
Furniture and equipment.................................................. 17,687,875 18,647,245
------------ ------------
Total.................................................................. 30,566,062 31,590,218
Less accumulated depreciation............................................ 18,294,190 18,867,598
------------ ------------
Total property, plant and equipment.................................... 12,271,872 12,722,620
OTHER ASSETS:
Deferred income taxes.................................................... 1,756,000 1,756,000
Goodwill -- net of accumulated amortization.............................. 439,298 445,970
Cash surrender value of life insurance................................... 12,233,190 12,054,338
Covenants not to compete -- net of accumulated amortization.............. 385,950 456,288
Miscellaneous............................................................ 144,344 173,444
------------ ------------
Total other assets..................................................... 14,958,782 14,886,040
------------ ------------
TOTAL ASSETS............................................................... $104,069,212 $101,476,843
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable................................................... $ 17,239,398 $ 17,246,277
Compensation and related payroll taxes................................... 5,882,847 6,337,549
Taxes, other than income taxes........................................... 612,681..... 503,407
Current portion of long-term debt........................................ 13,636,123 13,684,273
Dividends payable........................................................ -- 649,571
Other current liabilities................................................ 3,191,748 1,255,919
------------ ------------
Total current liabilities.............................................. 40,562,797 39,676,996
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION................................ 8,516,876 8,516,876
DEFERRED COMPENSATION...................................................... 1,980,132 1,887,558
ACCRUED POST-RETIREMENT BENEFITS........................................... 4,471,101 4,475,000
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value:
Class A (voting), authorized 30,000 shares, issued and outstanding
20,000 shares......................................................... 2,000 2,000
Class B (non-voting), authorized 5,000,000 shares, issued and
outstanding 2,075,391 shares.......................................... 207,539 207,539
Additional paid-in capital............................................... 314,309 314,309
Retained earnings........................................................ 48,014,458 46,396,565
------------ ------------
Total stockholders' equity............................................. 48,538,306 46,920,413
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $104,069,212 $101,476,843
============ ============
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
REVENUES:
Net sales........................................................ $83,295,962 $80,828,467
Other income..................................................... 63,990 87,401
----------- -----------
Total......................................................... 83,359,952 80,915,868
COSTS AND EXPENSES:
Cost of products sold............................................ 63,195,004 60,645,236
Operating, selling, administrative, and general.................. 17,156,592 17,590,250
----------- -----------
Total......................................................... 80,351,596 78,235,486
INCOME FROM OPERATIONS............................................. 3,008,356 2,680,382
OTHER INCOME (EXPENSE):
Interest income.................................................. 25,580 57,882
Interest expense................................................. (462,228) (636,214)
----------- -----------
EARNINGS BEFORE INCOME TAXES....................................... 2,571,708 2,102,050
INCOME TAXES:
Current.......................................................... 900,000 600,000
Deferred......................................................... (30,000) (205,000)
----------- -----------
Total......................................................... 870,000 395,000
----------- -----------
NET EARNINGS....................................................... $ 1,701,708 $ 1,707,050
=========== ===========
NET EARNINGS PER SHARE............................................. $ 0.81 $ 0.81
=========== ===========
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATIONS:
Net earnings..................................................... $ 1,701,708 $ 1,707,050
Adjustments to reconcile net earnings to net cash provided by
(used in)operating activities:
Depreciation and amortization................................. 857,047 851,554
Increase in cash surrender value of life insurance............ (178,852) (118,505)
Loss (gain) on sales of equipment............................. 7,329 (22,997)
Increase (decrease) in deferred compensation.................. 88,675 (3,691)
Increase in deferred income tax............................... (30,000) (204,422)
Changes in working capital items affecting operations:
Increase in accounts receivable............................. (6,127,450) (4,099,589)
Decrease in inventories..................................... 3,226,673 4,456,112
Decrease in income tax receivable........................... 219,500 163,700
Decrease in other current assets............................ 229,903 182,982
Decrease in accounts payable................................ (6,879) (5,289,068)
Increase (decrease) in other current liabilities............ 1,935,829 (37,020)
(Decrease) increase in other accrued expenses............... (316,328) 1,863,824
----------- -----------
Total adjustments........................................ (94,553) (2,257,120)
----------- -----------
Net cash provided by (used in) operations................ 1,607,155 (550,070)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property, plant and equipment.......... 83,970 273,384
Capital expenditures............................................. (420,588) (1,784,735)
----------- -----------
Net cash used in investing activities......................... (336,618) (1,511,351)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note................................................ (4,257) (1,687)
Repayment of long-term debt...................................... (43,893) (41,342)
Dividends paid................................................... (733,386) (523,848)
----------- -----------
Net cash used in financing activities......................... (781,536) (566,877)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 489,001 (2,628,298)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................... 583,110 285,731
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $ 1,072,111 $(2,342,567)
=========== ===========
OTHER CASH FLOW INFORMATION:
Interest paid.................................................... $ 375,000 $ 601,000
=========== ===========
Income taxes paid................................................ None None
=========== ===========
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTH PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1996
COMMON
STOCK COMMON ADDITIONAL
CLASS STOCK PAID-IN RETAINED
A CLASS B CAPITAL EARNINGS
------ -------- ---------- -----------
BALANCE, JANUARY 1, 1996.......................... $2,000 $207,539 $ 314,309 $42,292,217
Net earnings.................................... 5,089,182
Cash dividends, $.47 per share.................. (984,834)
------ -------- -------- -----------
BALANCE, DECEMBER 31, 1996........................ 2,000 207,539 314,309 46,396,565
Net earnings.................................... 1,701,708
Cash dividends, $.04 per share.................. (83,815)
------ -------- -------- -----------
BALANCE, MARCH 31, 1997........................... $2,000 $207,539 $ 314,309 $48,014,458
====== ======== ======== ===========
|
See notes to consolidated financial statements.
INVETECH COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared by management and, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position of Invetech and its wholly owned subsidiaries as of March 31, 1997 and the results of its operations and its cash flows for the three month periods ended March 31, 1997 and 1996.
The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included elsewhere herein. The results of operations for the three month period ended March 31, 1997 may not necessarily be indicative of the operating results of the full year.
ANNEXES TO PROSPECTUS
RELATING TO THE OFFERING OF UP TO
2,300,000 SHARES
OF
COMMON STOCK
OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
IN CONNECTION WITH THE MERGER OF
INVETECH COMPANY WITH AND INTO
I.C. ACQUISITION CORP.
ANNEX A
PLAN AND AGREEMENT OF MERGER
BY AND AMONG
APPLIED INDUSTRIAL TECHNOLOGIES, INC.,
IC ACQUISITION CORPORATION
AND
INVETECH COMPANY
DATED APRIL 29, 1997
TABLE OF CONTENTS
PAGE NO. A-
-----------
ARTICLE I. -- THE MERGER...................................................... 1
1.1 Effective Time; Effect of Merger................................... 1
1.2 Conversion of Capital Stock........................................ 2
1.3 Escrow Amount...................................................... 3
1.4 Exchange of Certificates........................................... 4
1.5 Stock Transfer Books............................................... 5
1.6 No Further Ownership Rights in Company Shares...................... 5
1.7 Lost, Stolen or Destroyed Certificates............................. 5
1.8 Dissenting Shares.................................................. 5
1.9 Tax Consequences................................................... 5
1.10 Closing............................................................ 5
1.11 Plan of Merger..................................................... 5
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 6
2.1 Organization and Standing; Subsidiaries............................ 6
2.2 Organizational Documents and Corporate Records..................... 6
2.3 Authority; Shareholder Approval; Takeover Laws..................... 7
2.4 Capitalization..................................................... 7
2.5 Consents and Approvals; No Violation............................... 8
2.6 Absence of Undisclosed Liabilities................................. 8
2.7 Financial Statement; Absence of Certain Changes or Events.......... 8
2.8 Compliance with Laws and Permits................................... 9
2.9 Litigation and Arbitration......................................... 9
2.10 Brokers and Fees................................................... 9
2.11 Territorial Restrictions........................................... 10
2.12 Registration Statement............................................. 10
2.13 Taxes.............................................................. 10
2.14 Contracts.......................................................... 11
2.15 Assets; Inventory.................................................. 12
2.16 Environmental and Safety Matters................................... 12
2.17 Customers, Suppliers and Sales Representatives..................... 13
2.18 Outstanding Commitments............................................ 13
2.19 Insurance.......................................................... 13
2.20 Employee Benefits.................................................. 13
2.21 Labor Matters; Employees........................................... 14
2.22 Products; Product Liability........................................ 14
2.23 Real Property...................................................... 15
2.24 Banking Relationships.............................................. 15
ARTICLE IIA -- POST-EXECUTION SCHEDULE REVISIONS; CERTAIN MATTERS............. 15
2.A.1 Schedules and Amendments Thereto................................... 15
2.A.2 Certain Matters.................................................... 16
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT........ 16
3.1 Organization and Standing; Subsidiaries............................ 16
3.2 Authority.......................................................... 16
3.3 Capitalization..................................................... 16
3.4 Consents and Approvals; No Violation............................... 16
3.5 Litigation and Arbitration......................................... 17
3.6 Registration Statement............................................. 17
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3.7 SEC Filings........................................................ 17
3.8 Brokers and Fees................................................... 17
3.9 Parent Shares...................................................... 17
ARTICLE IV -- CONDUCT OF BUSINESS PENDING THE MERGER; FURTHER ASSURANCES; AND
CERTAIN COVENANTS........................................................ 18
4.1 Conduct of Business by the Company Pending the Merger.............. 18
4.2 No Solicitation.................................................... 19
4.3 Further Assurances; Cooperation.................................... 19
4.4 HSR Act............................................................ 19
4.5 Registration Statement............................................. 20
4.6 Shareholders Meetings.............................................. 20
4.7 Consents; Approvals................................................ 20
4.8 Agreements with Respect to Affiliates.............................. 20
4.9 Notification of Certain Matters.................................... 20
4.10 Public Announcements............................................... 21
4.11 Listing of Shares.................................................. 21
4.12 Access to Company Information...................................... 21
4.13 Access to Parent Information....................................... 21
4.14 Notice of Liabilities.............................................. 21
4.15 MESC Disclosure.................................................... 21
4.16 Ancillary Agreements............................................... 21
4.17 Consulting and Employment Agreements............................... 21
4.18 WARN Act Notices................................................... 21
4.19 Parent Tax Returns................................................. 21
4.20 Parent Dividends................................................... 22
4.21 Life Insurance..................................................... 22
4.22 Notification under Union Agreement................................. 22
4.23 Amendment or Termination of Certain Plans and Agreements........... 22
4.24 Inventory Record................................................... 22
4.25 Certain Employees.................................................. 22
4.26 Nomination as Director............................................. 22
4.27 Company and Plan Tax Returns....................................... 22
4.28 Confederation Life Policies........................................ 23
ARTICLE V -- SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION...... 23
5.1 Survival of Representations and Warranties......................... 23
5.2 Indemnification of Parent and Merger Sub........................... 23
5.3 Indemnification of Shareholders.................................... 23
5.4 Assertion of Claims................................................ 24
5.5 Limitation on Parent Liability..................................... 24
5.6 Indemnification is Net of Benefits................................. 24
5.7 Good Faith Claims.................................................. 24
ARTICLE VI -- CONDITIONS TO THE MERGER........................................ 24
6.1 Conditions to Obligations of Each Party to Effect the Merger....... 24
6.2 Additional Conditions to Obligations of Parent and Merger Sub...... 25
6.3 Additional Conditions to Obligations of the Company................ 26
ARTICLE VII -- TERMINATION.................................................... 27
7.1 Termination........................................................ 27
7.2 Effect of Termination.............................................. 28
7.3 Fees and Expenses.................................................. 28
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ARTICLE VIII -- MISCELLANEOUS................................................. 28
8.1 Parties in Interest; No Third Party Beneficiaries.................. 28
8.2 Exhibits and Schedules............................................. 28
8.3 Entire Agreement................................................... 28
8.4 Waiver of Compliance............................................... 28
8.5 Enforceability..................................................... 29
8.6 Counterparts....................................................... 29
8.7 Headings........................................................... 29
8.8 Governing Law...................................................... 29
8.9 Effectiveness of Representations, Warranties and Agreements........ 29
8.10 Notices............................................................ 29
8.11 Confidentiality; Solicitation of Employees......................... 30
8.12 Dispute Resolution; Arbitration.................................... 30
ARTICLE IX -- CERTAIN DEFINITIONS............................................. 31
9.1 Definitions........................................................ 31
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TABLE OF SCHEDULES & EXHIBITS
2.1(a) Organization and Standing; Subsidiaries
2.2 Organizational Documents and Corporate Records
2.4 Capitalization
2.5 Consents and Approvals; No Violation
2.6 Absence of Undisclosed Liabilities
2.7 Financial Statement; Absence of Certain Changes or Events
2.9 Litigation and Arbitration
2.10 Brokers and Fees
2.11 Territorial Restrictions
2.13 Power of Attorney
2.14 Contracts
2.15 Assets; Inventory
2.17 Customers, Suppliers and Sales Representatives
2.19 Insurance
2.20 Pension Plans
2.21 Labor Matters; Employees
2.22 Products; Product Liability
2.23 Real Property
2.24 Banking Relationships
2.A.2 Certain Matters
3.8 Brokers and Fees
4.17 Consulting and Employment Agreements
4.28 Confederation Life Policies
Exhibit A Escrow Agreement
Exhibit B Lock-Up Letter
Exhibit C Preference Specification
Exhibit D Rule 145 Affiliate Letter
Exhibit E Consulting, Noncompetition and Confidentiality Agreement between
Parent and J. Michael Moore
Exhibit F Consulting, Noncompetition and Confidentiality Agreement between
Parent and James T. Moore II
Exhibit G Company Counsel Opinion
Exhibit H Parent Counsel Opinion
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PLAN AND AGREEMENT OF MERGER
This PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into on this 29th day of April, 1997, by and among APPLIED INDUSTRIAL TECHNOLOGIES, INC., an Ohio corporation (the "Parent"), IC ACQUISITION CORPORATION, an Ohio corporation (the "Merger Sub") and wholly-owned subsidiary of Parent, and INVETECH COMPANY, a Michigan corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have determined that it is advisable and in the best interests of their respective shareholders for Parent and Merger Sub to enter into a business combination with the Company upon the terms and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such combination, the Boards of Directors of Parent, Merger Sub and the Company have each approved the merger of the Company with and into the Merger Sub (the "Merger"), upon the terms and subject to the conditions set forth herein, in accordance with applicable provisions of the Michigan Business Corporation Act (the "MBCA"), in the case of the Company and the Ohio General Corporation Law (the "OGCL"), in the case of Parent and Merger Sub; and
WHEREAS, Parent, Merger Sub and the Company intend, by approving resolutions authorizing this Agreement, to adopt this Agreement as a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 EFFECTIVE TIME; EFFECT OF MERGER.
(a) Upon the terms and subject to the conditions set forth herein, the Company shall be merged into and with Merger Sub. Merger Sub shall be the surviving corporation (the "Surviving Corporation") of the Merger and shall continue to exist and be governed by the laws of the State of Ohio. The Merger shall become effective (the "Effective Time") upon the later of (i) the filing of a certificate of merger (the "Ohio Certificate of Merger") with the Secretary of State of the State of Ohio in accordance with the OGCL and (ii) the filing of a certificate of merger (the "Michigan Certificate of Merger") with the Corporations, Securities and Land Development Bureau of the State of Michigan in accordance with the MBCA.
(b) At the Effective Time, (i) the separate corporate existence of the Company shall cease; (ii) the Articles of Incorporation and Code of Regulations of Merger Sub shall be the Articles of Incorporation and Code of Regulations of the Surviving Corporation; (iii) the directors and officers of Merger Sub shall be the directors and officers of the Surviving Corporation; and (iv) Merger Sub shall continue as the Surviving Corporation and a wholly owned subsidiary of Parent. At the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. By approving the Merger and the Merger Agreement, (i) the Shareholders shall also thereby agree to be bound by the terms of the Escrow Agreement attached as Exhibit A (the "Escrow Agreement") hereto and the lock-up letter attached as Exhibit B hereto (the "Lock-up Letter"), and (ii) at the Effective Time, all existing stock redemption agreements and shareholder agreements between the Company and any Shareholder(s) relating to the capital stock of the Company shall be deemed to have been terminated and shall have no further force or effect.
1.2 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities:
(a) Merger Consideration. The shares of Class A common stock, $0.10 par
value, of the Company (the "Company Class A Shares") and the shares of Class B
common stock, $0.10 par value, of the Company (the "Company Class B Shares")
issued and outstanding immediately prior to the Effective Time (collectively,
the "Company Shares") shall be converted into the right to receive shares of
common stock, without par value, of Parent ("Parent Shares") and cash
consideration (the "Cash Component"). The aggregate value of the Parent Shares
and the Cash Component shall be Eighty-Three Million Dollars ($83,000,000) (the
"Merger Consideration") with each Parent Share valued at Twenty-Eight Dollars
and Sixty-Two Cents ($28.62) per share (the "Parent Share Value"). The Cash
Component shall equal Eighty-Three Million Dollars ($83,000,000) less the
product of the number of Parent Shares issued as part of the Merger
Consideration (which number shall be designated by the Company in accordance
with this Section 1.2(a)) and the Parent Share Value. The Merger Consideration
shall be allocated in the following manner: (i) 15% to the holders of the
Company Class A Shares on a per share pro rata basis, and (ii) 85% to the
holders of the Company Class B Shares on a per share pro rata basis. Subject to
the limitations described in this Section 1.2(a) above, not less than five
business days prior to the Closing (as hereinafter defined), the Company shall
designate the number of Parent Shares and the amount of the Cash Component to be
delivered by Parent to each Shareholder in consideration of such Shareholder's
Company Shares. In connection with seeking approval of this Agreement and the
Merger from the Shareholders, the Company shall ask each Shareholder to specify
such Shareholder's preference for percentages of Parent Shares and cash to be
received in consideration of such Shareholder's Company Shares (the "Preference
Specification"). The Preference Specification shall (i) be in the form attached
as Exhibit C, (ii) be delivered by the Company to the Shareholders with the
notice of the meeting relating to the Merger, (iii) provide for each Shareholder
to designate that the Merger Consideration payable to such Shareholder shall be
allocated between Parent Shares and Cash Component as described therein, and
(iv) provide that the Preference Specification must be delivered to the Company
not less than five business days prior to the Closing to be effective. In the
event that an effective and fully completed Preference Specification for any
Shareholder is not received by the Company by such date, such Shareholder shall
be entitled to receive Merger Consideration allocated 50% to Parent Shares and
50% to Cash Component. If necessary to comply with the limitations described in
this Section 1.2(a), or if necessary to preserve the tax-free status of the
Merger under Section 368(a) of the Code, the Company shall prorate the Cash
Component and the Parent Shares among the Shareholders on a basis intended to
respect the preferences for cash or Parent Shares specified by each Shareholder
to the extent reasonably possible. Notwithstanding the foregoing, Parent shall
not be required to issue more than Two Million Three Hundred Thousand
(2,300,000) Parent Shares in connection with the Merger, but rather, may elect,
upon written notice delivered to the Company prior to Closing, to pay any
portion of the Merger Consideration in cash rather than Parent Shares to the
extent Parent would otherwise be required to issue in excess of such number of
Parent Shares.
(b) Adjustment of Merger Consideration. The Merger Consideration shall be subject to adjustment on a dollar for dollar basis to the extent that shareholders equity of the Company as reflected on the Closing Balance Sheet (as hereinafter defined), reduced for any and all liabilities, transaction costs, compensation and termination expenses (including expenses relating to terminations required by Section 4.23), and other costs incurred (other than those of Parent or Merger Sub), arising out of or in any way associated with the transactions contemplated hereby or a change of control of the Company (excluding expenses and costs associated with any termination of leases), is greater than or less than Forty-Six Million Dollars ($46,000,000). In addition, Parent shall pay interest on the Merger Consideration, as adjusted, in an amount equal to the product of (x) the Merger Consideration, as adjusted, (y) the number of days elapsed between the date of the Closing Balance Sheet to and including the date of the Closing, and (z) 0.0002191. As soon as practicable, but not later than seven business days prior to the Closing Date, the Company shall prepare and deliver to Parent a balance sheet of the Company as of the end of the month immediately preceding the Closing (the "Closing Balance Sheet"). The Closing Balance Sheet shall be prepared in accordance with generally accepted accounting principles ("GAAP"), applied on a basis consistent with the audited balance
sheet dated as of December 31, 1996 (the "December Balance Sheet") and the audited balance sheet of the Company dated as of December 31, 1995. Parent shall have five business days from receipt of the Closing Balance Sheet to deliver a written notice of disagreement to the Company (a "Notice of Disagreement"). During such period, the Company shall make the books and accounting records of the Company (including work papers) and appropriate Company accounting personnel reasonably available to Parent. Any such Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If no Notice of Disagreement is delivered within such five day period, the Closing Balance Sheet shall become final and binding upon Parent and the Company. Following delivery of a Notice of Disagreement, the parties shall attempt to resolve any differences which they may have with respect to any matter specified in the Notice of Disagreement. If prior to the scheduled Closing Date, the parties fail to reach a written agreement with respect to all such matters, then all such matters as specified in the Notice of Disagreement as to which such written agreement has not been reached (the "Disputed Matters") shall be submitted to and reviewed by an arbitrator (the "Arbitrator"), who shall be an audit partner of any of the "big six" accounting firms (other than Deloitte & Touche LLP) selected by Parent's and the Company's representatives at the Cleveland and Detroit offices of Deloitte & Touche LLP, respectively. The Arbitrator shall act promptly (in no event to exceed 20 days) to resolve all Disputed Matters and his or her decision with respect to all Disputed Matters shall be final and binding upon Parent and the Company. The fees and expenses of the Arbitrator incurred in resolving the Disputed Matters shall be borne equally by Parent and the Company (with the Company's portion of the fees and expenses being a further adjustment to the Merger Consideration). The Closing Date shall be postponed until all Disputed Matters have been resolved by the Arbitrator or waived by the parties.
(c) Cancellation. Each Company Share held in the treasury of the Company and each Company Share owned by Parent, Merger Sub or any direct or indirect wholly owned subsidiary of the Company or Parent immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, automatically cease to be outstanding, be canceled and be retired without payment of any consideration therefor and cease to exist.
(d) Capital Stock of Merger Sub. Each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall continue to be outstanding and shall be unaffected by the Merger and shall constitute an issued and outstanding share of capital stock of the Surviving Corporation.
(e) Antidilution Adjustments to Merger Consideration. The Merger Consideration payable with respect to each Company Share shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Shares or Company Shares), reorganization, recapitalization or other like change with respect to the Parent Shares or the Company Shares, as appropriate, occurring after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No certificates or scrip representing fractional Parent Shares shall be issued in connection with the Merger, and such fractional share interests will not entitle the owner thereof to vote or to any rights as a shareholder of Parent. In lieu of any such fractional shares, each holder of Company Shares upon surrender of a certificate (a "Certificate") for exchange shall be paid an amount in cash (without interest), rounded up to the nearest cent, determined by multiplying (i) Twenty-Eight Dollars and Sixty-Two Cents ($28.62) by (ii) the fractional interest to which such holder would otherwise be entitled (after taking into account all Company Shares then held of record by such holder).
1.3 ESCROW AMOUNT. At the Closing, as security for the general obligations of the Company under this Agreement, immediately available funds in the amount of Ten Million Dollars ($10,000,000) (the "Escrow Amount") shall be delivered by Parent (on behalf of the Shareholders on a pro rata basis as to the total Merger Consideration to be received by each Shareholder and as part of the Merger Consideration) to NBD Bank, as escrow agent (the "Escrow Agent"), to be deposited and held in and released from escrow pursuant to the Escrow Agreement to be entered into at the Closing, and shall be deposited and held in escrow for a period of up to five years following the Effective Time pursuant to the provisions of the Escrow Agreement. By approving the Merger and the Merger Agreement, the Shareholders thereby agree to be bound by the terms of the Escrow Agreement.
1.4. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. At or prior to the Effective Time, Parent shall supply, or shall cause to be supplied, to or for the account of such bank or trust company as shall be designated by Parent and subject to the reasonable approval of the Company (the "Exchange Agent"), in trust for the benefit of the holders of the Company Shares, for exchange in accordance with this Section 1.4 through the Exchange Agent, (i) certificates evidencing the Parent Shares issuable pursuant to Section 1.2(a) in exchange for outstanding Company Shares and (ii) cash in an aggregate amount sufficient to pay (x) the cash portion of the Merger Consideration and (y) for fractional shares pursuant to Section 1.2(f), less the Escrow Amount (the shares and cash so deposited, together with any dividends or distributions with respect to such Parent Shares to which the Shareholders are entitled as shareholders of record of Parent Shares on the record date therefor that are payable after the Effective Time which shall also be deposited with the Exchange Agent, being hereinafter referred to collectively as the "Exchange Fund"). Any interest, dividends or other income earned on the investment of cash or other property (not including Parent Shares) held in the Exchange Fund shall be for the account of and payable to Parent.
(b) Exchange Procedures. Promptly after the Effective Time, Parent will instruct the Exchange Agent to mail to each holder of record of the Company Shares (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify), (ii) instructions to effect the surrender of the Certificates in exchange for the certificates evidencing Parent Shares, (iii) the Lock-up Letter, and (iv) such other documentation as is customary for transactions of this type. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal and lock-up letter, both of which shall be duly executed, and such other customary documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor (A) certificates evidencing that number of whole Parent Shares which such holder has the right to receive pursuant to Section 1.2(a) in respect of the Company Shares formerly evidenced by such Certificate, (B) any dividends or other distributions to which such holder is entitled pursuant to Section 1.4(c), and (C) cash in respect of the cash portion of the Merger Consideration and of fractional shares as provided in Sections 1.2(a) and (f) hereof, less such holder's proportionate Escrow Amount (which cash portion shall be disbursed by wire transfer upon receipt by the exchange agent of the documents described above and appropriate wire transfer instructions from a Shareholder) and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Shares which is not registered in the transfer records of the Company as of the Effective Time, Parent Shares, dividends and distributions may be issued and paid in accordance with this Article I to a transferee if the Certificate evidencing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer pursuant to this Section 1.4(b) and by evidence that any applicable stock transfer taxes have been paid. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented Company Shares will be deemed from and after the Effective Time, for all corporate purposes, other than the exercise of voting rights and the payment of dividends and subject to Section 1.2(c), to evidence the ownership of the number of full Parent Shares into which such Company Shares shall have been so converted.
(c) Distributions with Respect to Unexchanged Parent Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to Parent Shares until the holder of such Certificate shall surrender such Certificate for exchange in accordance with this Section 1.4. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole Parent Shares issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole Parent Shares.
(d) Transfers of Ownership. If any certificate for Parent Shares is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for Parent Shares in any name other than that of the registered holder of the certificate surrendered, or have established to the reasonable satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of Company Shares as of the date which is six months after the Effective Time shall be delivered to Parent, upon demand, and thereafter such holders of Company Shares who have not theretofore complied with this Section 1.4 shall be entitled to look only to Parent for payment of the Merger Consideration to which they are entitled pursuant hereto.
(f) No Liability. Except as required by applicable law, none of Parent, Merger Sub or the Company shall be liable to any holder of Company Shares for any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
(g) Withholding Rights. Parent or the Exchange Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Company Shares such amounts as Parent or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Parent Shares in respect of which such deduction and withholding was made by Parent or the Exchange Agent.
1.5. STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of the Company Shares thereafter on the records of the Company.
1.6. NO FURTHER OWNERSHIP RIGHTS IN COMPANY SHARES. The Merger Consideration delivered upon the surrender for exchange of Company Shares in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Company Shares, and there shall be no further registration of transfers of Company Shares which were outstanding immediately prior to the Effective Time on the records of the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I.
1.7. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such Parent Shares and cash as may be required pursuant to Section 1.2; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.
1.8 DISSENTING SHARES. No Shareholder shall have dissenter's rights in connection with the Merger pursuant to Section 762(2)(b) of the MBCA.
1.9 TAX CONSEQUENCES. It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Code. The parties hereto hereby adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
1.10 CLOSING. The consummation of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Squire, Sanders & Dempsey
L.L.P., 4900 Key Tower, 127 Public Square, Cleveland, Ohio 44114-1304, at 10:00
a.m. Cleveland time, as soon as possible following approval of the Shareholders,
as set forth in Section 2.3 hereof, or such other time, date and place as the
parties may mutually agree (the "Closing Date").
1.11 PLAN OF MERGER. The designation and number of outstanding shares of the Company are 20,000 Company Class A Shares and 2,075,391 Company Class B Shares. Holders of Company Class A Shares are
entitled to vote on all matters submitted to Shareholders, including approval of this Agreement and the Merger. Holders of Company Class B Shares shall vote as a class on approval of this Agreement and the Merger as required by the MBCA. The designation and number of outstanding shares of the Merger Sub are 75 shares of common stock, without par value ("Merger Sub Common Stock"). Parent is the sole holder of the Merger Sub Common Stock and is entitled to vote on all matters submitted to shareholders of the Merger Sub, including approval of this Agreement and the Merger. The number of shares outstanding for the Company and the Merger Sub are not subject to change prior to the Effective Time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
References to the Company in this Article II shall mean the Company and its Subsidiaries, unless the context otherwise requires. The Company represents and warrants to Merger Sub and Parent as follows:
2.1 ORGANIZATION AND STANDING; SUBSIDIARIES.
(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan. The Company has all requisite corporate power and authority and is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvals and orders ("Approvals") necessary to own, lease and operate the properties and assets it now owns, operates and leases and to carry on its business and operations as currently and heretofore conducted, except where the failure to possess an Approval does not have a material adverse effect on the Company. The Company is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the failure to so qualify would have a material adverse effect on the business or properties of the Company. Schedule 2.1(a) sets forth a true and complete list of all jurisdictions in which the Company is (i) presently doing business and (ii) duly qualified or licensed to do business.
(b) Schedule 2.1(b) sets forth a true and complete list of each entity in which the Company has any ownership interest, as well as the nature and proportionate amount of such ownership interest (such entities to be hereinafter referred to as "Subsidiaries"), and each jurisdiction in which each Subsidiary is (i) organized, (ii) presently doing business and (iii) duly qualified or licensed to do business. Each Subsidiary is duly organized, validly existing and in good standing in the state of its incorporation and is qualified or licensed to do business as a foreign corporation in each jurisdiction where the failure to so qualify would have a material adverse effect on such Subsidiary. Other than as set forth in Schedule 2.1(b), the Company neither owns nor has a right or obligation to acquire any equity interest (or option therefor) of any corporation, partnership, limited liability company, business trust, or other business or entity. Except as set forth in Schedule 2.1(b), the Company neither participates nor has an interest in any joint venture or collective production, sales or marketing arrangement or agreement.
2.2 ORGANIZATIONAL DOCUMENTS AND CORPORATE RECORDS.
(a) The Company has heretofore delivered to Parent true and complete copies of the Articles of Incorporation and Bylaws of the Company, as currently in effect, including all amendments thereto. Except as set forth on Schedule 2.2, the minute books of the Company have been delivered to Parent for its inspection and contain complete and correct records of minutes of all meetings, and consents in lieu of a meeting, of the Company's Board of Directors (and any committees thereof) and of the Company's shareholders held or executed since the Company's incorporation, and such records accurately reflect all transactions referred to therein. The Company is not in violation of any of the provisions of its Articles of Incorporation or Bylaws. There are no dissenters' rights provided for in any provision of the Company's Articles of Incorporation or Bylaws or in any resolution of the Company's Board of Directors. The stock books and ledgers of the Company have been delivered to Parent for its inspection, and such books and ledgers are complete and correct in all material respects.
(b) The Company has made available to Parent all accounting, corporate and financial books and records (the "Accounting Books and Records") which relate to the business of the Company, and such books and ledgers are true and complete in all material respects.
2.3 AUTHORITY; SHAREHOLDER APPROVAL; TAKEOVER LAWS.
(a) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other documents and agreements contemplated hereby and to consummate the transactions contemplated hereby and thereby, subject only, with respect to the Merger, to the approval and adoption of this Agreement by the holders of at least a majority of the outstanding Company Class A Shares and Company Class B Shares, voting separately as classes, in accordance with the MBCA and the Company's Articles of Incorporation and Bylaws. All corporate proceedings on the part of the Company which are necessary to execute, deliver and perform this Agreement and the other documents and agreements contemplated hereby and to consummate the transactions contemplated hereby and thereby have been duly authorized and taken, except, with respect to the Merger, the approval and adoption of this Agreement by the holders of at least a majority of the outstanding Company Class A Shares and Company Class B Shares, voting separately as a class, entitled to vote in accordance with the MBCA and the Company's Articles of Incorporation and Bylaws. This Agreement has been duly authorized, executed and delivered by the Company.
(b) Approval of the holders of a majority of the outstanding Company Class A Shares and Company Class B Shares, voting separately as a class, is the only vote of the holders of any class or series of the Company's capital stock necessary to approve the Merger, this Agreement and the transactions contemplated hereby. Following such approval and adoption of this Agreement by the Shareholders and assuming due authorization, execution and delivery by Parent and Merger Sub, as applicable, this Agreement and all such other documents and agreements to which the Company is a party will constitute valid and binding obligations of the Company and shall be enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and except as the availability of equitable remedies may be limited by the application of general principles of equity (regardless of whether such equitable principles are applied in a proceeding at law or in equity). No Shareholder has any dissenter's rights or any similar rights in connection with the Merger pursuant to any provision of the MBCA, the Company's organizational documents, any resolution of shareholders or directors of the Company, any agreement or otherwise.
(c) The Company is not subject to the provisions of any state takeover laws, including Sections 778-784 of the MBCA regarding "Business Combinations" and Sections 790-799 of the MBCA regarding "Control Share Acquisitions." The Company is not an "issuing public corporation" within the meaning of Section 793(1) of the MBCA.
2.4 CAPITALIZATION. The authorized capital stock of the Company consists of 30,000 Company Class A Shares and 5,000,000 Company Class B Shares. 20,000 Company Class A Shares and 2,075,391 Company Class B Shares are issued and outstanding as of the date hereof, all of which are owned by the Shareholders and in the amounts set forth on Schedule 2.4. The Company has no other class of capital stock authorized or outstanding. None of the Company's shares of capital stock have been reserved for any purpose. All outstanding Company Shares are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive rights. Except as set forth in Schedule 2.4, there are no (i) options, warrants, calls, commitments, or rights of any character to purchase or otherwise acquire shares of its or any of its Subsidiaries' capital stock of any class issued or outstanding, (ii) outstanding securities of the Company that are convertible into or exchangeable or exercisable for any other security, (iii) options, warrants or other rights to purchase any such convertible or exchangeable securities, (iv) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance or transfer of any capital stock of the Company or any of its Subsidiaries, nor (v) options, warrants or rights, pursuant to which, in any of the foregoing cases, the Company or any of its Subsidiaries is or would be subject or bound. Except as set forth in Schedule 2.4, there are no obligations, contingent or otherwise, of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any securities of the Company or any Subsidiary or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such Subsidiary or any other entity other than guarantees of bank obligations of Subsidiaries entered into in the ordinary course of business.
2.5 CONSENTS AND APPROVALS; NO VIOLATION.
(a) Except as set forth in Schedule 2.5, neither the execution and delivery of this Agreement and the other documents and agreements contemplated hereby, nor the consummation of the transactions contemplated hereby or thereby, nor compliance with any of the provisions hereof, will (i) conflict with any provision of the Articles of Incorporation or Bylaws (or other similar organizational documents) of the Company, (ii) violate any Law or any restriction imposed by any Governmental Authority which is applicable to the Company, or by which any of the Company's business, properties or assets are bound or affected, nor (iii) violate, breach, or conflict with, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration of any obligation to pay or result in the imposition of any Encumbrance upon any of its property) under any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, Encumbrance, contract, Permit, Order or other instrument or obligation to which the Company is a party or by which any of the Company's business, properties or assets are bound or affected.
(b) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental, judicial or regulatory authority, domestic or foreign, except for (i) pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (ii) filing of the Certificate of Merger as required by the MBCA, and (iii) filing and recordation of the Certificate of Merger as required by the OGCL.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except for those liabilities reflected on the December Balance Sheet, as of the date hereof, and on the Closing Balance Sheet, as of the Closing, and except for liabilities incurred in the ordinary course of business (such as current payables to vendors, employees and taxing authorities and excluding any liability arising from any threatened or pending Proceeding (as hereinafter defined) following the date of the Closing Balance Sheet, Schedule 2.6 sets forth a true, complete and accurate list of all material liabilities of the Company, including all Encumbrances attaching to any of the Company's Assets. Except for such liabilities, (i) the Company has no material liabilities arising from or relating to its business and operations of any nature (whether asserted or unasserted, known or unknown, absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether due or to become due) and (ii) any and all liabilities or obligations incurred since December 31, 1996 were incurred in the ordinary course of business and consistent with past practices.
2.7 FINANCIAL STATEMENT; ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) The audited financial statements of the Company for the years ending December 31, 1996, 1995 and 1994, including the December Balance Sheet, were previously delivered to Parent. All such financial statements (including, in each case, any related notes or schedules thereto) were prepared in accordance with GAAP, applied on a consistent basis throughout and between the periods involved (except as may be indicated therein or in the notes thereto), and fairly present the consolidated financial position of the Company and its consolidated subsidiaries at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated. The Company's independent auditors have consented to the filing of such financial statements in the Registration Statement (as hereinafter defined).
(b) Except as set forth on Schedule 2.7(b), since December 31, 1996, (i) the Company has operated its business in the usual and ordinary course consistent with past practice, has not sold or otherwise disposed of any assets (other than the sale of inventory or collection of receivables in the ordinary course of its business) with an aggregate value of $100,000 or more, and has not declared or paid any dividends or made any other distributions on its capital stock or repurchased or agreed to repurchase any of its capital stock; (ii) there has been no material adverse change in the business, results of operations, assets, liabilities, financial condition or prospects of the Company; (iii) the Company has not incurred any material damage, destruction or loss (whether or not covered by insurance) to its owned or leased property or assets; (iv) there have not been any amendments or changes in the Articles of Incorporation or Bylaws of the Company; (v) no Encumbrance has been created upon property of the Company; (vi) there has not been any change by the Company in its
accounting methods, principles or practices; and (vii) there has not been any revaluation by the Company of any of its assets, including, without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business.
(c) Schedule 2.7(c) contains all adjustments of $200,000 or more, individually or in the aggregate, that were not recorded in the December 31, 1996 financial statements in accordance with generally accepted accounting principles.
2.8 COMPLIANCE WITH LAWS AND PERMITS.
(a) The business and operations of the Company, at each of its facilities and branches, have been conducted and are now being conducted in all material respects in compliance with all Laws and Orders of all Governmental Authorities having jurisdiction over the Company and with all Permits relating to any of its properties or applicable to its business.
(b) The Company possesses all Permits necessary to own and operate its property and assets and to conduct its business as it is currently conducted. Such Permits are valid, subsisting in full force and effect, and the Company has fulfilled its material obligations under each of the Permits, and to the knowledge of the Company, no event has occurred or condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a default or violation under any of the Permits or would permit revocation or termination of any of the Permits. No proceeding which might involve the revocation or termination of any such Permits is pending or, to the knowledge of the Company, threatened.
(c) The Company has made all filings and received all approvals relating to the Permits which are necessary in order for the Company to legally and validly own and operate its property and assets and to conduct the Company's business.
2.9 LITIGATION AND ARBITRATION.
(a) Except as set forth on Schedule 2.9(a), no claim, action, cause of action, suit, proceeding, inquiry, investigation or Order ("Proceeding") by or before any Governmental Authority, administrative body or arbitration or mediation panel is pending or, to the knowledge of the Company, threatened, against the Company. No order of any Governmental Authority, arbitrator or mediator is outstanding against the Company, its business, operations or assets. The Company has no knowledge of any fact or circumstance which could reasonably be expected to result in any other material claim, action, cause of action, suit, proceeding, inquiry, investigation or Order being filed against the Company.
(b) To the knowledge of the Company, no claim, action, suit, proceeding, inquiry or investigation has been instituted which threatens to restrain or prohibit or to otherwise challenge the legality or validity of the transactions contemplated by this Agreement or the other documents or agreements contemplated hereby.
(c) Except as set forth in Schedule 2.9(c), neither the operation of its business nor the products sold by the Company infringe upon the proprietary rights of others, including without limitation any intellectual property rights such as trademarks, service marks, copyrights, patents, and tradenames nor has the Company received any notice alleging that the Company has infringed on any other party's intellectual property rights. Except as set forth in Schedule 2.9(c), the Company has not given any indemnification for infringement of any other party's intellectual property rights. The Company knows of no limitation to the continued and/or expanded use of any trademarks, service marks, tradenames or other intellectual property used by the Company.
(d) Schedule 2.9(d) sets forth a true and complete list of each claim, action, cause of action, suit, proceeding, inquiry, investigation or Order by or before any Governmental Authority, administrative body or arbitration or mediation panel instituted or prosecuted against the Company since January 1, 1992.
2.10 BROKERS AND FEES. Except as set forth on Schedule 2.10, neither the Company nor any Shareholder has an obligation to pay any broker, finder, investment banker, financial advisor, attorney or similar fee in connection with this Agreement or the other documents or agreements contemplated hereby or
the transactions contemplated hereby or thereby. All amounts which are payable by the Company for such fees are recorded as a liability in the Closing Balance Sheet including amounts disclosed on Schedule 2.10.
2.11 TERRITORIAL RESTRICTIONS. Except as set forth on Schedule 2.11, the Company is not restricted by any agreement or understanding with any third party or by any writs, judgments or orders of any judicial or administrative body from carrying on or competing with any business anywhere in the world.
2.12 REGISTRATION STATEMENT. Subject to the accuracy of the representations of Parent in Section 3.6, the information supplied by the Company for inclusion in the Registration Statement pursuant to which the Parent Shares to be issued in the Merger will be registered with the United States Securities and Exchange Commission ("SEC") shall not at the time the Registration Statement is declared effective by the SEC contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. If at any time prior to the Effective Time, any event relating to the Company or any of its respective affiliates, officers or directors should be discovered by the Company which should be set forth in an amendment to the Registration Statement, the Company shall promptly provide notice to Parent and Merger Sub. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent or Merger Sub which is contained or incorporated by reference in any of the foregoing documents.
2.13 TAXES.
(a) The Company has timely filed all tax and information returns required to be filed by it pursuant to applicable federal, state, local and foreign law and has paid all taxes required to be shown on such returns, or, if not yet due and payable, the Closing Balance Sheet contains an adequate reserve for all taxes payable by the Company accrued but unpaid through the date of Closing, including any interest or penalties. All such returns are true, correct and complete in all material respects. Except as set forth on Schedule 2.13, the Company's federal income tax returns have never been audited by, and the Company has received no notice of audit from, the Internal Revenue Service. Except as set forth on Schedule 2.13, no deficiencies for any taxes have been proposed, asserted or assessed against the Company by any Governmental Authority and the Company is not a party to any action or proceeding for the assessment or collection of taxes, has not received any claim for the assessment or collection of taxes, has not received a claim made by a taxing authority or Governmental Authority in a jurisdiction where it does not file tax returns that it is or may be subject to taxation by that jurisdiction, and has not agreed to extend the period for the assessment or collection of taxes. The federal income tax returns of the Company for all years prior to 1993 are closed and there are no proceedings or claims relating thereto or any facts which could give rise to the reopening thereof. Neither the Company nor any of its affiliates have made any agreement, waiver or other arrangement providing for an extension of time, nor entered into any power of attorney, with respect to the assessment or collection of any tax against the Company or filed a consent with the Internal Revenue Service pursuant to Section 341(f) of the Code, or with any other Governmental Authority to any similar effect.
(b) The Company has duly withheld and timely paid all withholding taxes required to date with respect to payments to employees and others and has duly collected and paid all applicable sales and use taxes. The Company has paid all workers' compensation and unemployment compensation premiums due to date. The Company has obtained properly completed sales tax exemption certificates for sales where tax is not charged.
(c) Except as disclosed in Schedule 2.13, neither the Company nor any of its Subsidiaries is obligated under any agreements with respect to industrial development bonds or other obligations with respect to which the excludability from gross income of the holder for federal or state income tax purposes would be affected by the transactions contemplated hereunder. Neither the Company nor any of its subsidiaries is, or has been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. To the knowledge of the Company, neither the Company nor any of its Subsidiaries owns any property of a character, the indirect transfer of which, pursuant to this Agreement, would give rise to any material documentary, stamp or other transfer tax.
(d) Except as disclosed in Schedule 2.13, neither the Company nor any of its Subsidiaries (i) is a party to or bound by (nor will it, prior to the Effective Time, become a party to or become bound by) any tax-
indemnity, tax sharing or tax allocation agreement (or administrative or
accounting practice having substantially the same effect as such an agreement);
(ii) has filed a consent under Section 341(f) of the Code (or any corresponding
provision of state, local, or foreign income tax law) or agreed to have Section
341(f) of the Code (or any corresponding provision of state, local, or foreign
income tax law) apply to any disposition of any asset owned by it; (iii) has
agreed to make or is required to make any material adjustment under Section
481(a) of the Code by reason of a change in accounting method or otherwise; (iv)
has been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code, other than the affiliated group of which the Company
is the common parent corporation; or (v) owns material assets that directly or
indirectly secure debt the interest on which is tax-exempt under Section 103(a)
of the Code.
(e) For purposes of this Agreement, "tax" or "taxes" shall mean all taxes, fees, levies, duties, tariffs, premiums, assessments, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing (or similar) authority, including (without limitation) (i) income, franchise, profits, gross receipts, ad valorem, net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers' compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, transfer and gains taxes, and (ii) interest, penalties, additional taxes or amounts and additions to tax imposed with respect thereto; and "tax returns" shall mean returns, reports, declarations, information statements and other documents with respect to taxes required to be filed with the IRS or any other taxing (or similar) authority, domestic or foreign, including, without limitation, consolidated, combined and unitary tax returns.
2.14 CONTRACTS. Schedule 2.14 contains an accurate and complete list of all material plans, arrangements, leases, contracts and agreements (hereinafter referred to as "contracts") to which the Company is a party, by which its property is bound or affecting its business, whether written or oral, express or implied or having any other legally binding basis, including:
(a) any contract involving commitments to make expenditures, purchases or sales, any supplier contracts, rebate arrangements, and consignment or ledger balance inventory contracts involving $200,000 or more, except contracts terminable by the Company on not more than thirty days' notice without penalty or financial obligation;
(b) any contract relating to any direct or indirect indebtedness for borrowed money or securing the repayment thereof other than trade payables and other accrued liabilities in the ordinary course of business;
(c) any contract directly or indirectly benefiting any affiliate of the Company or the Shareholders;
(d) any collective bargaining, union, employment, or consulting contract;
(e) any pension, stock option, bonus, incentive compensation, retirement, employee stock purchase, stock ownership, profit sharing, fringe benefit, severance pay, welfare, health, death benefit, disability, dental or any other employee benefit contract;
(f) any contract containing covenants limiting the freedom of the Company to compete in any line of business, with any person or entity, or in any territory;
(g) any contract relating to patents, trademarks, tradenames or other intellectual property;
(h) any contract with any sales agent, manufacturer, dealer, distributor or licensee of any products sold by the Company;
(i) any tax-sharing contract;
(j) any indemnity or hold harmless contract;
(k) any contract relating to the lease or sale to or by others of any of real property; and
(l) any other contract not in the ordinary course.
True, complete and correct copies of all written contracts and summaries of all oral or implied contracts listed on Schedule 2.14 hereto have been delivered to Parent. All such contracts are valid and binding obligations of the parties thereto, enforceable in accordance with their respective terms and are in full force and effect. No party to any such contract is in material default of its obligations thereunder.
2.15 ASSETS; INVENTORY.
(a) Except as set forth in Schedule 2.15, the Company has good and marketable title to all of its assets, free and clear of all Encumbrances of any kind or description, including any conditional sale or other title retention agreements. Except as set forth in Schedule 2.15, all of the Company's assets reflected on the December Balance Sheet or subsequently acquired are presently in service in the Company's business. The Company's assets constitute substantially all of the assets used or held for use by the Company in the conduct of its business as conducted prior to the Closing and are in sufficiently good condition and repair to permit the operation of its business after the Closing in the same manner in all material respects as it was operated prior to the Closing.
(b) The inventory of the Company reflected on the Closing Balance Sheet or subsequently acquired by the Company has been recorded on the books of the Company in accordance with GAAP, applied on a basis consistent with past practice. Notwithstanding anything else provided herein, Parent shall not be entitled to indemnification for any breach of the representations set forth in this Section 2.15(b).
2.16 ENVIRONMENTAL AND SAFETY MATTERS.
(a) The Company and each of its Subsidiaries (i) have obtained all applicable permits, licenses and other authorizations that are required to be obtained under all applicable federal, state or local laws or any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder ("Environmental Laws") relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic wastes into ambient air, surface water, ground water, or land or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes by the Company or its Subsidiaries (or their respective agents); (ii) are in compliance with all terms and conditions of such required permits, licenses and authorizations, and also are in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in applicable Environmental Laws, except to the extent any failure of compliance does not have a material adverse effect on the Company's operations at any of its facilities or branches; (iii) have no knowledge, nor have received notice, of any past or present violations of Environmental Laws or any event, condition, circumstance, activity, practice, incident, action or plan that is reasonably likely to interfere with or prevent continued compliance with Environmental Laws or that could give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit or proceeding, against the Company or any of its Subsidiaries based on or resulting from the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge or release into the environment, of any pollutant, contaminant or hazardous or toxic material or waste which (as to all matters described in this clause (iii)) would have a material adverse effect on the Company's operations at any of its facilities or branches; and (iv) have taken all actions necessary under applicable Environmental Laws to register or give notice with respect to any products or materials required to be registered or noticed by the Company or its Subsidiaries (or any of their respective agents) thereunder (including without limitation pursuant to any state and local "right to know" Laws).
(b) Without in any way limiting the generality of the foregoing, no polychlorinated biphenyls (PCB's) or PCB-containing items are used or stored at a property owned or leased by the Company or any of the Subsidiaries.
(c) The business and operations of the Company, at each of its facilities and branches, have been conducted and are now being conducted in compliance with all material laws, whether federal, state or local, generally relating to the protection of health or safety ("Safety Laws"). For the past ten years, the Company has not received any written notification of any violation of Safety Laws.
2.17 CUSTOMERS, SUPPLIERS AND SALES REPRESENTATIVES. The Customers, Suppliers and Sales Representatives List attached hereto as Schedule 2.17 contains a listing of all customers, suppliers and sales representatives of the Company which, for the 12 months ended December 31, 1996, accounted for $500,000 or more of the Company's purchases or sales. Except as described in Schedule 2.17, the Company is not aware of any existing or anticipated changes in the policies or conditions, financial or otherwise, of such customers, suppliers or sales representatives which will materially and adversely affect the Company's business. Except as set forth in Schedule 2.17, to the knowledge of the Company, no such customer, supplier or sales representative has reduced, canceled or otherwise terminated its relationship with the Company, or made any written or oral threat to reduce, cancel or terminate its relationship with the Company for any reason, including the consummation of the transactions contemplated hereby. To the knowledge of the Company, no such customer or supplier listed in Schedule 2.17 intends to cancel or otherwise terminate its relationship with the Company or to materially decrease its services or supplies to the Company or its usage of the services or products of the Company.
2.18 OUTSTANDING COMMITMENTS. The Company is not bound by any commitments for the performance of services or delivery of products in excess of its ability to provide such services or deliver such products during the time available to satisfy such commitments; all outstanding commitments for the performance of services or delivery of products were made on a basis calculated to produce a profit under the circumstances prevailing when such commitments were made.
2.19 INSURANCE. Schedule 2.19 lists all insurance policies and contracts (including, without limitation, all life insurance, death benefit and similar policies) presently maintained or maintained within the past seven (7) years, indicating the insurer, the types and amounts of coverage, the applicable deductible, the expiration date, any additional loss payees or additional insureds and the cash surrender value (if applicable). Schedule 2.19 also lists any claims filed with respect to such policies within the past twenty-four months and all open claims. All such claims have been timely and properly submitted. The Company has previously delivered true and complete copies of all such insurance policies to Parent. Except as set forth on Schedule 2.19, the Company has not entered into any policy which provides for, and is not otherwise subject to, any retrospective premium adjustment with respect to any such policies.
2.20 EMPLOYEE BENEFITS.
(a) Schedule 2.20 lists all Plans currently maintained by the Company (or any ERISA Affiliate) which provide or has provided benefits to or for any employee of the Company within the most recent five years. The Company has delivered or made available to Parent copies of each Plan; all amendments thereto; all related funding arrangements; all actuarial valuation reports for the most recent five years; all Forms 5500 with schedules thereto for the most recent four years; a copy of the most recent determination letter issued by the Internal Revenue Service for each Pension Plan; and a copy of the most recent summary plan description.
(b) Except as indicated on Schedule 2.20, each Plan and related funding arrangements (i) are in form and have been administered in compliance in all material respects with all applicable laws, including, without limitation, ERISA and the Code; (ii) each Pension Plan intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to such qualification or has been submitted timely to the Internal Revenue Service for such a favorable determination; (iii) each trust maintained in conjunction with a Pension Plan intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to the exemption thereof under Section 501(a) of the Code; (iv) none of the Pensions Plans or related trusts, or any administrator or, to the knowledge of the Company, trustee thereof, or party-in-interest or disqualified person thereto has engaged in a transaction that could cause any of them to be liable for a civil penalty under Section 409 or 502(i) or any other section of ERISA or result in a tax under Section 4975 or 4976 or any other section of Chapter 43 of Subtitle D of the Code; (v) all amounts required to be paid by the Company to or pursuant to each of the Plans on or before the Closing Date have been paid within the time periods required by the Plans or by law; (vi) no Pension Plan has incurred any "accumulated funding deficiency," as defined in Section 412 of the Code; and (vii) no "reportable event" within the meaning of Title IV of ERISA has occurred with respect to any Pension Plan subject thereto.
(c) Except as listed in Schedule 2.20, no employees of the Company or of an ERISA Affiliate currently participate, or have participated within the last five years, in any Multiemployer Plan. The Company represents that the consummation of the Merger shall not cause a withdrawal to occur with respect to any Multiemployer Pension Plan. The Company represents that there are no unpaid withdrawal liability claims with respect to the Company or any ERISA Affiliate. No liability under Title IV of ERISA has been incurred by the Company that has not been satisfied in full, and no condition exists that presents a risk to the Company of incurring a liability under Title IV other than liability for premiums due the Pension Benefit Guaranty Corporation. The PBGC has not instituted proceedings to terminate any Pension Plan in which the Company participates, and no condition exists that presents a risk that such proceedings will be instituted.
(d) Each Welfare Plan that provides medical benefits to employees of the Company has been operated in compliance in all respects with the requirements of Sections 601 through 608 of ERISA and Section 4980B of the Code ("COBRA"), relating to the continuation of coverage under certain circumstances in which coverage would otherwise cease.
(e) Notice of any Plan or Benefit Arrangement required to be given to the Department of Labor under Section 2520.104.23 of Title 29 of the Code of Federal Regulations has been given.
(f) Any Plan designed to satisfy the requirements of Section 125, Section
401(k), Section 409, Section 501(c)(9), Section 4975(e)(7), and/or Section 4980B
of the Code, satisfies such section in all material respects.
(g) Except as indicated on Schedule 2.20, there is no audit which is in process by, or for which notification has been received from, the Internal Revenue Service, the Department of Labor or the PBGC, with respect to any Plan.
2.21 LABOR MATTERS; EMPLOYEES.
(a) The Company is in compliance at each of its facilities and branches in all material respects with all federal, state and local laws respecting employment and employment practices (including the Americans with Disabilities Act and the Family and Medical Leave Act), terms and conditions of employment, wages and hours, and nondiscrimination in employment, and is not engaged in any unfair labor practice.
(b) The Company is not a party to, or subject to any obligation, liability or commitment with respect to any written or material oral employment, compensation, consulting, severance pay or similar agreement other than the agreements listed on Schedule 2.21(b). A payroll list as of April 11, 1997, showing as of such date, each employee of the Company, his or her social security number, annual salary and date of hire has been delivered to Parent.
(c) [Intentionally left blank]
(d) Except as set forth in Schedule 2.21(d), (i) there are no claims or proceedings pending or, to the knowledge of the Company, threatened, between the Company or any of its Subsidiaries and any of their respective employees; (ii) neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or other labor union contract; and (iii) the Company is not aware of, and during the past five years there have not been, any strikes, slowdowns, work stoppages, corporate campaigns or threats thereof, representation petitions, representation demands, demands for recognition, lockouts, boycotts, grievances, corporate campaigns or threats thereof, by or with respect to any employees of the Company or any of its Subsidiaries.
2.22 PRODUCTS; PRODUCT LIABILITY. Except as set forth on Schedule 2.22, the Company has not sold any products which have been relabeled or repackaged with a label or package specifying a different country of origin than originally specified. Except as set forth on Schedule 2.22, during the past seven years, the Company has not received notice or information of any claim or allegation of personal death or material personal injury, property or economic damage, any claim for punitive or exemplary damages, any material claim for contribution or indemnification, or any claim for injunctive relief in connection with any product sold or distributed or any service provided by it, except for routine warranty claims.
2.23 REAL PROPERTY.
(a) Schedule 2.23 contains a complete listing of all real property owned, leased, used or held for use in connection with the Company's business and all real property otherwise owned, leased or in or to which the Company has any right or interest, along with a description of the Company's interest therein. The Company has a good, marketable and valid fee or leasehold interest, as set forth on such schedule, to all such real property free and clear of all Encumbrances, other than taxes and assessments, both general and special, which are a lien but not yet due and payable and that do not, individually or in the aggregate, materially detract from the value of such real property or materially impair the use and operation thereof in carrying on the Company's business. There are no easements, conditions, reservations, covenants, or restrictions presently of record or otherwise that would adversely affect the use of any such real property by Parent or the Merger Sub after the Effective Time, including, without limitation, in the operation of the business, for the same purposes and uses as such real property has been heretofore used by the Company. No third party has any right with respect to such real property (whether by option to purchase, land contract, or otherwise). There are no pending or, to the knowledge of the Company, threatened proceedings in eminent domain involving any such real property or any portion thereof, or for a sale in lieu thereof, or of any plans for a possible widening of the streets abutting any such real property or the imposition of any special taxes or assessments against any such real property or any portion thereof.
(b) All leases with respect to the leased real properties are in full force and effect. The Company has heretofore provided to Parent complete, true, and correct copies of all such leases, including any and all modifications or amendments thereof and any supplements thereto. All principal terms, conditions, and provisions of the leases to be performed have been duly and timely performed and complied with by the parties thereto and all insurance, tax, and other payments in respect of the leased property due or payable prior to the Closing Date have been or, as of the Closing Date, will have been paid. There is no default with respect to any principal term on the part of any party thereto and no event has occurred or failed to occur which with the giving of notice, the passage of time, or both, would constitute a default by any party thereto. To the knowledge of the Company, the lessors under such leases have not waived, or extended the time for the performance of, any obligation of the Company under any lease. Except as set forth in Schedule 2.23, there are no security deposits or prepaid rent (including last month's rent in advance) with respect to the leased real property.
2.24 BANKING RELATIONSHIPS. Schedule 2.24 sets forth a true and complete list of each financial institution with which the Company or any of its Subsidiaries has an account (giving the account number therefor) or safe deposit box and the names of the persons authorized at the date hereof to draw thereon or to have access thereto and all powers of attorney granted or executed on behalf of the Company.
ARTICLE IIA
POST-EXECUTION SCHEDULE REVISIONS; CERTAIN MATTERS
2.A.1 SCHEDULES AND AMENDMENTS THERETO. All schedules described in Article II of this Agreement shall be contained in a separately bound Disclosure Statement (the "Disclosure Statement") prepared by the Company, the contents of which Disclosure Statement are hereby incorporated in the same manner as if attached to this Agreement. The initial draft of the Disclosure Statement (the "Initial Disclosure") shall be delivered to Parent and Merger Sub by the Company on the date of this Agreement. The Company shall have the right to amend the Disclosure Statement at any time prior to the third business day immediately preceding the closing. Notwithstanding any amendment of, or supplement to, the Initial Disclosure by the Company: (i) for purposes of indemnification under section 5.2 of this Agreement, the representations and warranties described in Article II shall be deemed made on and as of the date of this Agreement, without any amendment or supplement to the Initial Disclosure; and (ii) Parent and Merger Sub shall not have the right to terminate this Agreement as a result of any breach of any representation or warranty set forth in Article II which is disclosed by an amendment or supplement to the Initial Disclosure unless such termination is pursuant to the provisions of section 7.1(g).
2.A.2 CERTAIN MATTERS. Notwithstanding anything else contained in this Agreement, Parent shall be entitled to indemnification pursuant to the provisions of Section 5.2 for Losses incurred relating to the matters set forth on Schedule 2.A.2 as if such matters had not been identified in the Initial Disclosure Schedule.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT
Parent and Merger Sub represent and warrant to the Company and the Shareholders as follows:
3.1 ORGANIZATION AND STANDING; SUBSIDIARIES. Each of Merger Sub and Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. Each of Merger Sub and Parent has all requisite corporate power and authority and is in possession of all Authorizations necessary to own, lease and operate the properties and assets it now owns, operates and leases and to carry on its business and operations as currently and heretofore conducted, except where the failure to obtain an Authorization does not have a material adverse effect on it. Each of Merger Sub and Parent is duly qualified or licensed to do business and is in good standing in all jurisdictions were the failure to be so qualified would have a material adverse effect on the business or properties of Parent, taken as a whole.
3.2 AUTHORITY. Each of Merger Sub and Parent has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other documents and agreements contemplated hereby and to consummate the transactions contemplated hereby and thereby. All corporate proceedings on the part of Merger Sub and Parent which are necessary to execute, deliver and perform this Agreement and the other documents and agreements contemplated hereby and to consummate the transactions contemplated hereby and thereby have been duly authorized and taken. This Agreement has been duly authorized, executed and delivered by Merger Sub and Parent. No approval of the holders of Parent Shares is necessary to approve the Merger, this Agreement and the transactions contemplated hereby. Following approval and adoption of this Agreement by the Shareholders and assuming due authorization, execution and delivery by the Company and the Shareholders, as applicable, this Agreement and all such other documents and agreements to which Parent or Merger Sub is a party will constitute valid and binding obligations of Parent or Merger Sub and shall be enforceable against Parent or Merger Sub in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and except as the availability of equitable remedies may be limited by the application of general principles of equity (regardless of whether such equitable principles are applied in a proceeding at law or in equity).
3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of Merger Sub consists of 75 shares of common stock, without par value, all of which are issued and outstanding and owned by Parent. As of the date hereof, the authorized capital stock of Parent consists of (i) 30,000,000 shares of common stock, without par value, of which approximately 12,350,000 are issued and outstanding and (ii) 2,500,000 shares of authorized but unissued preferred stock.
3.4 CONSENTS AND APPROVALS; NO VIOLATION.
(a) Neither the execution and delivery of this Agreement and the other documents and agreements contemplated hereby, nor the consummation of the transactions contemplated hereby or thereby, nor compliance with any of the provisions hereof, will (i) conflict with any provision of the Articles of Incorporation or Code of Regulations (or other similar organizational documents) of Merger Sub or Parent; (ii) violate any Law of any Governmental Authority which is applicable to Merger Sub or Parent, or by which any of their respective businesses, properties or assets may be bound or affected; or (iii) violate, breach, or conflict with, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration of any obligation to pay or result in the imposition of any Encumbrance upon any of their respective properties) under any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, Encumbrance, contract, Permit, Order or other instrument or obligation to which Merger Sub or Parent is a party or by which any of the business, properties or assets of Merger Sub or Parent are bound or affected.
(b) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental, judicial or regulatory authority, domestic or foreign, except for applicable requirements, if any, of the Securities Act, the Exchange Act, and the rules and regulations thereunder, state securities laws ("Blue Sky Laws"), state takeover laws, the pre-merger notification requirements of the HSR Act and the rules and regulations thereunder, the listing requirements of the NYSE and the filing and recordation of the Certificate of Merger or other documents as required by the OGCL and the MBCA.
3.5 LITIGATION AND ARBITRATION. To the knowledge of Parent and Merger Sub, no claim, action, suit, proceeding, inquiry or investigation has been instituted which threatens to restrain or prohibit or to otherwise challenge the legality or validity of the transactions contemplated by this Agreement or the other documents or agreements contemplated herein.
3.6 REGISTRATION STATEMENT. Subject to the accuracy of the representations of the Company in Section 2.12, the Registration Statement shall not, at the time the Registration Statement (including amendments or supplements thereto) is declared effective by the SEC, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements included therein not misleading. If at any time prior to the Effective Time any event relating to Parent, Merger Sub or any of their respective affiliates, officers or directors should be discovered by Parent or Merger Sub which should be set forth in an amendment to the Registration Statement, Parent or Merger Sub will promptly inform the Company. Notwithstanding the foregoing, Parent and Merger Sub make no representation or warranty with respect to any information supplied by the Company which is contained or incorporated by reference in any of the foregoing documents.
3.7 SEC FILINGS.
(a) Parent has filed all forms, reports, statements and other documents
required to be filed by it with the SEC since January 1, 1994 (such forms,
reports, statements and other documents are hereinafter referred to as the
"Parent SEC Reports"). To the knowledge of Parent, the Parent SEC Reports (i)
were prepared in all material respects in accordance with the applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) The consolidated financial statements (including, in each case, any related notes and schedules thereto) contained in the Parent SEC Reports were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented in all material respects the consolidated financial position of Parent and its consolidated subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments.
3.8 BROKERS AND FEES. Except as set forth on Schedule 3.8, neither Parent nor its subsidiaries has an obligation to pay any broker, finder, investment banker, financial advisor, attorney or similar fee in connection with this Agreement or the other documents or agreements contemplated hereby or the transactions contemplated hereby or thereby.
3.9 PARENT SHARES. The Parent Shares, when issued by Parent to the Shareholders as part of the Merger Consideration, shall be duly and validly issued and outstanding, fully paid and nonassessable shares of Parent. Such Parent Shares shall not have been issued in violation of any preemptive rights.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER;
FURTHER ASSURANCES; AND CERTAIN COVENANTS
4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, the Company covenants and agrees that, unless Parent shall otherwise agree in writing, (i) the Company shall conduct its business and shall cause the businesses of its Subsidiaries to be conducted only in the ordinary course of business and in a manner consistent with past practice; (ii) the Company shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to keep in full force and effect adequate insurance coverage consistent with past practice and maintain and keep its properties and assets in good repair, working order and condition, consistent with past practice, normal wear and tear excepted; and (iii) the Company shall use its reasonable efforts to preserve substantially intact the business organization of the Company and its Subsidiaries, to keep available the services of the present officers, employees and consultants of the Company and its Subsidiaries and to preserve the present relationships of the Company and its Subsidiaries with customers, suppliers and other persons with which the Company or any of its Subsidiaries has significant business relations; provided, however, Parent consents to the Company's purchase of directors and officers insurance following the date hereof to the extent all premiums therefor are accrued for on the Closing Balance Sheet. By way of amplification and not limitation, except as contemplated by this Agreement, neither the Company nor any of its Subsidiaries shall, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, directly or indirectly do, or propose to do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or Bylaws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest) in the Company or any of its Subsidiaries;
(c) except as set forth on Schedule 4.1(c), increase the compensation payable or to become payable to any director, officer, consultant or employee of the Company or any of its Subsidiaries, except for increases in salaries or wages of employees or payments of bonuses which are consistent with past practice or which are required pursuant to collective bargaining agreements or other written agreements entered into prior to the date hereof, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company or any of its subsidiaries, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees (any of the foregoing being an "Employee Benefit Arrangement"), except, in each case, as may be required by law or collective bargaining agreement or this Agreement and the Exhibits hereto;
(d) make any material tax election inconsistent with past practice or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations;
(e) elect, pursuant to Section 783 of the MBCA, to be covered by the provisions of Section 780 of the MBCA or take any action which could cause the Company or the Company Shares held by Parent or any direct or indirect wholly owned subsidiary of Parent to be covered by the provisions of Section 790 et seq. of the MBCA;
(f) adopt any resolutions of the Board of Directors which would grant the Shareholders dissenters' rights pursuant to the MBCA; or
(g)(i) record sales and maintain its books of account other than in accordance with its prior practices consistently applied, (ii) maintain the machinery and equipment and other fixed assets used in the business other than in good operating and usable condition, and in a state of good maintenance and repair, consistent
with past practice, reasonable wear and tear excepted, and (iii) purchase or enter into any agreement to purchase or lease (including any lease amendment, renewal or extension) any real property, computer software or hardware, or non-resale items or make or enter into any commitments to make any capital expenditures; provided, however, Parent's consent will be required only to the extent such commitments, purchases or leases exceed $100,000 in the aggregate.
4.2 NO SOLICITATION.
(a) Neither the Company nor any of its Subsidiaries shall (i) solicit or
initiate the submission of, any Acquisition Proposal (as hereinafter defined),
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action intended to
facilitate any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to, an Acquisition Proposal or (iii) enter into
any agreement with respect to, agree to, approve or recommend any Acquisition
Proposal, except to the extent that the Board of Directors of the Company
reasonably determines that failure to take such action would constitute a breach
of its fiduciary duties to the Shareholders.
(b) The Company shall immediately notify Parent after receipt of any Acquisition Proposal, or any modification of or amendment to any Acquisition Proposal, or any request for nonpublic information relating to the Company or any of its Subsidiaries in connection with an Acquisition Proposal or for access to the properties, books or records of the Company or any Subsidiary by any person or entity that informs the Board of Directors of the Company or such Subsidiary that it is considering making, or has made, an Acquisition Proposal.
(c) As used in this Agreement, "Acquisition Proposal" shall mean any proposal or offer from any person (other than Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent) relating to (i) any direct or indirect acquisition or purchase of any equity interest in, or a substantial amount of assets of, the Company or its Subsidiaries, (ii) any tender offer or exchange offer (including a self-tender offer), (iii) any merger, consolidation, recapitalization, liquidation, business combination or similar transaction involving the Company other than the transactions contemplated by this Agreement or (iv) any other extraordinary transaction the consummation of which would or could reasonably be expected to impede, interfere with, prevent or materially delay the Merger.
(d) The Company shall immediately cease and cause to be terminated any existing discussions or negotiations with any persons (other than Parent and Merger Sub) conducted heretofore with respect to any of the foregoing, except to the extent that the Board of Directors of the Company reasonably determines that failure to take such action would constitute a breach of its fiduciary duties to the Shareholders. The Company agrees not to release any third party from the confidentiality provisions of any confidentiality agreement to which the Company is a party. At Closing, the Company shall provide Parent with copies of all such confidentiality agreements (except for the Confidential Proprietary Information Agreements of various dates between Kaman Industrial Technologies Corporation and the Company), including any agreements entered into in connection with the possible sale of the Company.
(e) The Company shall advise the Company Representatives of the restrictions described in this Section 4.2. For purposes of this Section 4.2, "Company Representatives" shall mean all officers, directors, investment bankers, attorneys, financial advisors or other similar representatives retained by the Company or any of its Subsidiaries.
4.3 FURTHER ASSURANCES; COOPERATION. The parties shall from time to time after the Closing, upon the request of any other party and without further consideration, execute, acknowledge and deliver in proper form any further instruments or documents, and take such further actions as such other party may reasonably require, to carry out effectively the intent of this Agreement and the other documents and agreements contemplated herein.
4.4 HSR ACT. The Company and Parent have filed notifications under and in accordance with the HSR Act. Following the date hereof, the Company and Parent shall respond as promptly as practicable to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation and shall respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or other governmental authority (foreign or domestic) in connection with antitrust matters.
4.5 REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement, Parent (with the cooperation of the Company) shall prepare and file with the SEC under the Securities Act a registration statement on Form S-4 or any other form as may be appropriate (such registration statement, together with any amendments thereof or supplements thereto, the "Registration Statement") with respect to the Parent Shares to be issued by Parent in connection with the Merger. Parent and the Company (with respect to information regarding the Company) will cause the Registration Statement to comply in all material respects with the Securities Act and the rules and regulations thereunder. Each of Parent and the Company shall use all reasonable efforts to have or cause the Registration Statement to become effective as promptly as practicable thereafter, and shall take any and all actions required under any applicable federal or state securities or Blue Sky Laws in connection with the issuance of shares of Parent Shares Stock pursuant to the Merger. Without limiting the generality of the foregoing, each of Parent and the Company agrees to use all reasonable efforts, after consultation with the other such party, to respond promptly to any comments made by the SEC with respect to the Registration Statement. Each of Parent and the Company shall, and shall cause its respective representatives to, fully cooperate with the other such party and its respective representatives in the preparation of the Registration Statement, and shall, upon request, furnish the other such party with all information concerning it and its affiliates, directors, officers and shareholders as the other may reasonably request in connection with the Registration Statement.
(b) Without limiting the generality of the foregoing (i) the Company and Parent shall each notify the other as promptly as practicable upon becoming aware of any event or circumstance which should be described in an amendment of, or a supplement to the Registration Statement, and (ii) the Company and Parent shall each notify the other as promptly as practicable after the receipt by it of any written or oral comments of the SEC on, or of any written or oral request by the SEC for amendments or supplements to the Registration Statement, and shall promptly supply the other with copies of all correspondence between it or any of its representatives and the SEC with respect to any of the foregoing filings.
4.6 SHAREHOLDERS MEETINGS. The Company shall call and hold a shareholder meeting as promptly as practicable following the date hereof and in accordance with applicable laws for the purpose of voting upon the approval of the Merger and the adoption of this Agreement. Unless otherwise required under the applicable fiduciary duties of the respective directors of the Company, as determined by such directors in good faith after consultation with and based upon the advice of their legal counsel, the Company shall recommend that Shareholders vote in favor of the approval and adoption of this Agreement, the Merger and the other transactions contemplated herein.
4.7 CONSENTS; APPROVALS. The Company shall use its reasonable efforts to obtain, and Parent shall cooperate with Company in obtaining, all consents, waivers, approvals, authorizations or orders, and the Company and Parent shall make all filings required in connection with the authorization, execution and delivery of this Agreement by the Company and Parent and the consummation by them of the transactions contemplated hereby. Prior to the Closing or termination of this Agreement, Parent agrees that it shall not initiate discussions with any suppliers (other than suppliers to Parent or its subsidiaries), employees or customers (other than customers of Parent or its subsidiaries) of the Company regarding the Merger without obtaining the prior consent of the Company pursuant to a mutually agreed upon written plan.
4.8 AGREEMENTS WITH RESPECT TO AFFILIATES. The Company shall request each person who is identified by the Company as being an "affiliate" of the Company at the time of the Company's shareholders meeting for purposes of Rule 145 under the Securities Act ("Rule 145") to deliver to Parent, prior to the Effective Time, a written agreement in connection with restrictions on affiliates under Rule 145 in the form attached hereto as Exhibit D.
4.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate, (ii) any failure of the Company, Parent or Merger Sub, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (iii) the occurrence or nonoccurrence of any event which might result in a material adverse change in its financial condition, assets, business or future prospects; provided, however, that the delivery of any notice pursuant to this Section 4.9 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
4.10 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with each other before issuing any press release with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statement without the prior consent of the other party, which shall not be unreasonably withheld; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may upon the reasonable advice of outside legal counsel be required by applicable law or the rules and regulations of the NYSE, if it has used all reasonable efforts to consult with the other party and its counsel and allow such other party and its counsel to comment thereon.
4.11 LISTING OF SHARES. Parent shall use its best efforts to cause the Parent Shares to be issued in the Merger to be listed, upon official notice of issuance, on the NYSE prior to the Effective Time.
4.12 ACCESS TO COMPANY INFORMATION. Upon reasonable notice, from and after the date hereof through the Effective Time, the Company shall afford to the officers, employees, accountants, counsel and other representatives of Parent, reasonable access to all its properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Parent all information concerning its business, properties and personnel as Parent may reasonably request, and shall make available to Parent appropriate individuals (including attorneys, accountants and other professionals) for discussion of the Company's business, properties and personnel as Parent may reasonably request.
4.13 ACCESS TO PARENT INFORMATION. Prior to the Closing, Parent shall, promptly after receipt thereof, deliver to the Company copies of all environmental reports obtained by Parent regarding the properties and/or operations of the Company.
4.14 NOTICE OF LIABILITIES. Prior to the Closing, Parent shall use its best efforts to disclose to the Company actual, liquidated liabilities of the Company which have become known to Parent, but which Parent believes are not known to the Company.
4.15 MESC DISCLOSURE. Upon receipt thereof, Parent shall acknowledge receipt of the Business Transferor's Notice to Transfer of Unemployment Tax Liability and Rate on Form 1027 from the Company.
4.16 ANCILLARY AGREEMENTS. At the Closing, Parent shall execute consulting, confidentiality and noncompetition agreements between Parent and J. Michael Moore and James T. Moore II, substantially in the form of Exhibits E and F hereto.
4.17 CONSULTING AND EMPLOYMENT AGREEMENTS. At the Closing, Parent or Merger Sub shall offer consulting and employment agreements to the key employees identified on Schedule 4.17 on terms and conditions reasonably agreeable to Parent or Merger Sub.
4.18 WARN ACT NOTICES. Prior to the Closing, at the direction of Parent, the Company shall act as Parent's agent and promptly issue any and all Worker Adjustment and Retraining Notification Act notices requested by Parent to the Company's headquarters personnel, governmental agencies and units, and organizations designated by Parent and in the manner and form directed by Parent. Parent shall provide notices for the Company's use and shall reimburse the Company for the cost of mailing or otherwise delivering the notices. Parent shall hold the Company harmless from Losses arising directly from the giving of any such notice.
4.19 PARENT TAX RETURNS. Parent and Merger Sub shall prepare, execute, and file all tax returns and other documents necessary to constitute the Merger as a reorganization within the meaning of Section 368(a) of the Code; provided, however, that Parent and Merger Sub shall not be so obligated if Parent or Merger Sub has a reasonable belief that one or more former shareholders of the Company who received Parent Shares in
the Merger have (prior to the filing of such tax returns) disposed of sufficient Parent Shares so received so as to violate the "continuity of interest" requirement contained in Treasury Regulation Section 1.368-1(b); provided, further, that after forming a reasonable belief of a violation of such continuity of interest requirement, that Parent and Merger Sub shall prepare, execute, and file all tax returns and other documents necessary to constitute the Merger as a reorganization within the meaning of Section 368(a) of the Code if the Shareholder Representatives (as defined in the Escrow Agreement) deliver an opinion of counsel reasonably acceptable to Parent (as to counsel, substance and form) to the effect that the "continuity of interest" requirements have not been violated and that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code. For purposes of this provision, the "continuity of interest" requirement shall be interpreted so as to require such former Company shareholders to retain (in the aggregate) Parent Shares received in the Merger at least equal to forty percent of the total consideration provided in the Merger until at least January 1, 1998. In the event Parent or Merger Sub proposes to file any tax return or document inconsistent with the treatment of the Merger as a reorganization within the meaning of Section 368(a) of the Code, Parent and Merger Sub agree to notify the Shareholder Representatives as far in advance as possible (but in any event, at least fifteen days in advance of such filing unless delaying such filing to comply with this notice requirement would violate applicable law) of such proposed filing and to consider in good faith any objections raised to the filing of such return or document.
4.20 PARENT DIVIDENDS. Prior to the Closing, Parent shall not declare or pay any dividends or make any other distributions with regard to any shares of its capital stock on or after the date hereof, except for the payment of cash dividends not to exceed $0.25 per share per calendar quarter.
4.21 LIFE INSURANCE. For a period of thirty days after the Closing, Merger Sub shall, at the request of any Shareholder who is the insured under a life insurance policy acquired by Merger Sub pursuant to the Merger, sell and transfer such policy to such Shareholder at a cash price equal to the value of such policy as reflected on the Closing Balance Sheet.
4.22 NOTIFICATION UNDER UNION AGREEMENT. Upon execution of this Agreement, the Company shall give notice of sale and any similar notice required to be given under any collective bargaining agreement to which the Company or its Subsidiaries are a party or by which any of them are bound.
4.23 AMENDMENT OR TERMINATION OF CERTAIN PLANS AND AGREEMENTS. No later than fifteen days prior to the Closing, the Company shall deliver to Parent forms of all documentation necessary to (i) terminate all salary continuation agreements (other than those with J. Michael Moore, James T. Moore II, Robert Maxon, Raymond Rench, Lester Schroeder and Thomas P. Moore II), phantom stock rights and plans, split dollar and reverse split dollar agreements, death benefit only agreements and all other post-employment benefit arrangements (other than qualified plans) between or among the Company and any of its directors, officers or employees and (ii) satisfy and discharge all obligations arising thereunder. Prior to the Closing, the Company shall effect the transactions contemplated in clauses (i) and (ii) of this Section 4.23 and shall provide Parent with copies of all documentation relating to such action. No later than fifteen days prior to the Closing, the Company shall amend any Plan required to be amended to provide for any withdrawal made by any participant thereunder and shall file full and correct Forms 5500 for the four years ending prior to the Closing with respect to each Pension Plan and Welfare Plan.
4.24 INVENTORY RECORD. The Company will deliver to Parent a true and complete copy of its perpetual inventory records as of the date of the Closing Balance Sheet and the Effective Time. The Company will deliver to Parent a true and complete schedule of all inventory held on consignment by or which is in the possession of third parties and of any ledger balance or consignment arrangement with any supplier.
4.25 CERTAIN EMPLOYEES. Prior to the Closing, the Company will use its best efforts to inform Parent of any salaried employee who intends to terminate his or her employment with the Company.
4.26 NOMINATION AS DIRECTOR. Parent will recommend J. Michael Moore to the Nominating Committee of its Board of Directors for nomination as a director at Parent's next annual meeting.
4.27 COMPANY AND PLAN TAX RETURNS. Prior to the Closing, the Company shall use its best efforts to file all applicable federal, state, local and foreign tax and information returns, including tax and information
returns with respect to any Plan maintained by the Company or any of its Subsidiaries, relating to all tax periods ending on or before December 31, 1996 and shall pay all taxes required to be shown on such returns, whether or not yet due and payable.
4.28 CONFEDERATION LIFE POLICIES. After the Closing, Parent shall hold for up to thirty months in order to maximize the cash surrender value of, life insurance policies issued by Confederation Life listed on Schedule 4.28 (the "Confederation Life Policies"). Prior to the expiration of such thirty month period, the Shareholder Representatives shall have the sole right to direct the disposition of the Confederation Life Policies.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set forth in
Section 2.15(b), all representations and warranties of the Company,
Shareholders, Merger Sub or Parent contained herein or made pursuant hereto
shall survive the Closing and any investigation at any time made by or on behalf
of any party hereto until five years from the Effective Time. Notwithstanding
the foregoing, if a claim with respect to a breach of a representation and
warranty is made within the applicable period in accordance with the provisions
hereinafter set forth, such claim and any related claim may continue to be
asserted after such period. No party shall have liability under this Section 5.1
unless the notice specified in Section 5.4 is given prior to expiration of the
period specified in this Section 5.1.
5.2 INDEMNIFICATION OF PARENT AND MERGER SUB. The Company shall indemnify Parent and Merger Sub from and against any Losses incurred by Parent or Merger Sub (including any Losses incurred by the Company or its Subsidiaries following the Closing) by reason of any breach of any representation, warranty, covenant or agreement of the Company. Following the Closing, the Escrow Amount shall be the sole and exclusive source for the indemnity provided for in this Section 5.2 and such indemnity shall be the sole and exclusive remedy for any Losses incurred by Parent or Merger Sub arising from the Company's breach of any provision of this Agreement. Notwithstanding anything else provided herein, Parent and Merger Sub shall be entitled to indemnification only if, and to the extent, Losses incurred by Parent or Merger Sub (including any Losses incurred by the Company or its Subsidiaries) by reason of any breach of any representation, warranty, covenant or agreement of the Company exceed One Hundred Sixty Thousand Dollars ($160,000) (the "Deductible"); provided, however, although the term "material" is used in certain representations, warranties and covenants, the parties intend that solely for purposes of determining whether or not there has been a breach of any representation, warranty, covenant or agreement of the Company which would entitle Parent or Merger Sub to indemnification under this Section 5.2, no effect shall be given in any such representation, warranty, covenant or agreement to the use of the term "material." For purposes of this Section 5.2, the term "Parent" shall be deemed to include all direct and indirect Subsidiaries and affiliates of Parent. Notwithstanding anything to the contrary provided herein, Parent and Merger Sub shall be entitled to indemnification from the Escrow Amount on a dollar for dollar basis (and without giving effect to the Deductible or any materiality threshold) to the extent that the Adjusted Value of the Confederation Life Policies on the Closing Balance Sheet exceeds the actual cash surrender value received by Parent. Notwithstanding anything to the contrary provided herein, Parent and Merger Sub shall also be entitled to indemnification from the Escrow Amount on a dollar for dollar basis (and without giving effect to the Deductible or any materiality threshold) to the extent that the reserve for workers' compensation liabilities reflected on the Closing Balance Sheet is less than the actual amounts incurred by Parent and its affiliates with respect to any and all workers' compensation claims relating to injuries incurred by employees of the Company and its Subsidiaries prior to the Closing plus a reasonable estimate of any and all future liability with respect to such claims. Notwithstanding anything to the contrary provided herein, Parent and Merger Sub shall not be entitled to indemnification with respect to the adequacy of the reserve on the Closing Balance Sheet for the DEC hardware and related software.
5.3 INDEMNIFICATION OF SHAREHOLDERS. Parent agrees to indemnify the Shareholders from any Losses incurred by reason of any breach of any representation, warranty, covenant or agreement of Parent or Merger Sub contained herein.
5.4 ASSERTION OF CLAIMS.
(a) The parties shall be free to bring all differences of interpretation and disputes arising in connection with this Agreement to the attention of the other at any time without prejudicing their harmonious relationship and operations hereunder, and the good offices and facilities of either party shall be available at all times for the prompt and effective adjustment of any and all such differences, either by mail, telephone or personal meeting under friendly and courteous circumstances.
(b) If a party claims ("Claiming Party") that it is entitled to indemnification under this Article V, written notice of such claim specifying with particularity the factual basis of the claim to the extent known (the "Claim") shall be given to the party from whom the Claiming Party seeks indemnification. The parties shall negotiate in good faith to determine the validity and the value of the Claim. If the parties cannot reach an agreement as to the value of the Claim, then such Claim shall be submitted to a mutually acceptable party for arbitration in accordance with the Commercial Rules of the American Arbitration Association in Toledo, Ohio, and the decision of such arbitrator shall be final and binding upon the parties. The prevailing party in any action brought before an arbitrator or any court shall be entitled to recover all costs, including fees and expenses of counsel; provided, however, following the Closing, if Parent or Merger Sub is the Claiming Party, all matters relating to any Claim shall be noticed, administered and resolved as set forth in the Escrow Agreement.
5.5 LIMITATION ON PARENT LIABILITY. The aggregate amount of the indemnification payable by Parent pursuant to this Article V shall not exceed Ten Million Dollars ($10,000,000) with respect to claims for indemnification first asserted within the thirty month period following the Effective Time; shall not exceed the lesser of (i) Five Million Dollars ($5,000,000) or (ii) together with the aggregate of all claims for indemnification first asserted within the thirty month period following the Effective Time, Ten Million Dollars ($10,000,000) with respect to claims for indemnification first asserted within the thirty month period following the first aforementioned thirty month period; and shall not exceed the lesser of (i) Two Million Five Hundred Thousand Dollars ($2,500,000) or (ii) together with the aggregate of all claims for indemnification first asserted within the forty-five month period following the Effective Time, Ten Million Dollars ($10,000,000) with respect to claims for indemnification first asserted within the fifteen month period following the aforementioned forty-five month period. Notwithstanding anything else provided herein, Parent and Merger Sub shall be liable to indemnify Shareholders for any Losses incurred by reason of any breach of any representation, warranty, covenant or agreement of Parent or Merger Sub contained herein only if, and to the extent, Losses incurred by Shareholders by reason of any breach of any representation, warranty, covenant or agreement of Parent or Merger Sub exceed One Hundred Sixty Thousand Dollars ($160,000).
5.6 INDEMNIFICATION IS NET OF BENEFITS. Any Claim for indemnification under this Article V shall be net of any tax benefits.
5.7 GOOD FAITH CLAIMS. Parent and Merger Sub agree that they will use good faith reasonable business judgment in taking any action that results in a Claim by Parent for indemnification under Section 5.2.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to effect the Merger shall be subject to the satisfaction or waiver by the appropriate party at or prior to the Closing of the following conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement shall have been declared effective by the SEC. No stop order suspending the effectiveness of the Registration Statement shall have been issued, initiated or threatened by the SEC;
(b) Shareholder Approval. This Agreement, the Merger and the transactions contemplated hereby shall have been approved and adopted by the requisite vote of the shareholders of the Company;
(c) Listing. The Parent Shares to be issued in the Merger shall have been authorized for listing on the NYSE, subject to official notice of issuance;
(d) HSR Act. All waiting periods applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; and
(e) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, shall be in effect; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered or enforced which makes the consummation of the Merger illegal.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of Parent and Merger Sub to effect the Merger are also subject to the following conditions, which conditions may be waived by Parent:
(a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Effective Time, except for (i) changes contemplated by this Agreement, (ii) those representations and warranties which address matters only as of a particular date (which shall have been true and correct as of such date) and (iii) where the failure or failures of such representations and warranties to be so true and correct, individually or in the aggregate, does not result or would not reasonably be expected to result in an adverse effect on the Company or its business of $3,000,000 or more (before taxes). Parent and Merger Sub shall have received a certificate to such effect signed by the President of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and Parent and Merger Sub shall have received a certificate to such effect signed by the President of the Company;
(c) Environmental Condition. Parent shall be reasonably satisfied with the environmental condition of the real property owned or held under lease by the Company and with the Company's compliance with applicable environmental laws and regulations;
(d) Consulting and Employment Agreements. Parent and Merger Sub shall have received duly executed consulting and employment agreements between Parent (or its designated affiliate) and the key employees identified on Schedule 4.17 on terms reasonably acceptable to Parent;
(e) Continuity of Business. Parent shall be reasonably satisfied that all material customers, product vendors, suppliers, sales representatives and employees of the Company and its Subsidiaries will continue their respective relationships with the business following the Effective Time;
(f) Shareholders Equity; Net Income. Parent shall be reasonably satisfied that shareholders equity of the Company as of December 31, 1996 and as of the Closing is not less than Forty-One Million Dollars ($41,000,000) or greater than Fifty-One Million Dollars ($51,000,000) and that the net income after taxes of the Company for the fiscal year ending December 31, 1996 is not less than Three Million Three Hundred Thousand Dollars ($3,300,000);
(g) Material Contracts, Approvals, Permits and Leases. Parent shall be reasonably satisfied that it or Merger Sub may assume all material contracts, Approvals, Permits and leases of the Company and its Subsidiaries and that no such contracts or leases will conflict with or result in a material breach or default under any material contract, Approval, Permit or agreement of Parent. In the event the Company is unable to obtain consent to the assignment of any material lease, Parent and the Company shall negotiate in good faith an equitable resolution to the issues arising therefrom;
(h) Amendment or Termination of Certain Plans and Agreements. Parent shall be reasonably satisfied that (i) all salary continuation agreements (other than those with J. Michael Moore, James T. Moore II, Robert Maxon, Raymond Rench, Lester Schroeder and Thomas P. Moore II), phantom stock rights and
plans, split dollar and reverse split dollar agreements, death benefit only agreements and all other post-employment benefit arrangements (other than qualified plans) between or among the Company and any of its directors, officers or employees have been terminated and all obligations arising thereunder have been satisfied and discharged and (ii) all Plans required to be amended and all Forms 5500 required to be filed pursuant to Section 4.23 shall have been amended and filed, respectively;
(i) Audit; Material Adverse Change. Deloitte & Touche LLP shall have completed its annual audit of the Company's financial statements for the fiscal year ended December 31, 1996 and issued an unqualified audit opinion with respect thereto and there shall not have been an occurrence or nonoccurrence of any event which results or might reasonably be expected to result in an adverse effect on the Company or its business of $3,000,000 or more (before taxes);
(j) Consulting, Noncompetition and Confidentiality Covenants. Parent and Merger Sub shall have received duly executed (i) consulting, noncompetition and confidentiality agreements between Parent and J. Michael Moore and James T. Moore II, respectively, substantially in the form of Exhibits E and F hereto, and (ii) a duly executed confidentiality agreement between Parent and Dennis P. Moore in a form satisfactory to Parent;
(k) Company Counsel Opinion. Parent and Merger Sub shall have received an opinion of counsel to the Company substantially in the form of Exhibit G hereto; and
(l) Price of Parent Common Stock. Prior to the Effective Time and after the date of this Agreement, the closing price of Parent Shares on the New York Stock Exchange for a single trading day shall not have been more than $38.00 per share.
(m) Assignment of Motion Roller/Bearing Assembly. Prior to Closing, the Company shall obtain the written consent of Richard K. Goldy ("Goldy") to the assignment, without recourse to the Company, of all of the Company's rights and obligations under the Assignment Agreement between Goldy and the Company dated June 1, 1996 (which agreement assigned all of Goldy's right, title and interest to and with respect to the Variable Curvilinear Recirculating Element Bearing and a Traveling Windlass Drive Mechanism, also referred to as the Motion Roller/Bearing Assembly, and the patent application relating thereto), to INVETECH Holding Company, now known as MRBA Company and shall file an effective assignment of the patent application with the United States Patent and Trademark Office, each in a form reasonably acceptable to Parent. Parent and Merger Sub hereby consent to such assignments and waive any rights in such intellectual property.
(n) Termination of Regionalization Program. Parent shall be reasonably satisfied that all benefits and expenses incurred in connection with the Regionalization and Consolidation programs undertaken with respect to the Detroit Metro Region and the Denver Region have been paid or have been reserved for on the Closing Balance Sheet, that no person currently or in the future shall be eligible to receive benefits or payments under such programs except as reserved for on the Closing Balance Sheet, and that all steps necessary to terminate such programs shall have been taken by the Company prior to the Closing.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the Company to effect the Merger is also subject to the following conditions, which conditions may be waived by the Company:
(a) Representations and Warranties. The representations and warranties of the Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Effective Time, except for (i) changes contemplated by this Agreement, (ii) those representations and warranties which address matters only as of a particular date (which shall have been true and correct as of such date) and (iii) where the failure or failures of such representations and warranties to be so true and correct, individually or in the aggregate, does not result or would not reasonably be expected to result in a material adverse effect on Parent. The Company shall have received a certificate to such effect signed by an executive officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied
with by them on or prior to the Effective Time, and the Company shall have received a certificate to such effect signed by an executive officer of Parent.
(c) Tax Opinion. The Company shall have received a written opinion of its legal counsel or accountants (addressed to the Company and the Shareholders) in form and substance reasonably satisfactory to the Company to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code.
(d) Parent Counsel Opinion. The Company shall have received an opinion of counsel to Parent substantially in the form of Exhibit H hereto.
(e) Price of Parent Common Stock. Prior to the Effective Time and after the date of this Agreement, the closing price of Parent Shares on the New York Stock Exchange for a single trading day shall not have been less than $24.875 per share.
(f) Change of Control of Parent. Prior to the Effective Time, control of Parent shall not be transferred to persons other than those persons in control of Parent on the date of this Agreement.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, notwithstanding approval thereof by the Shareholders:
(a) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company;
(b) by either Parent or the Company, if the Merger shall not have been consummated by July 31, 1997 (provided that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose failure to use all reasonable efforts to expedite a Closing or to fulfill any material obligation under this Agreement has been the cause of or a substantial contributor to the failure of the Merger to occur on or before such date);
(c) by either Parent or the Company, if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party who has not complied with its
obligations hereunder and such noncompliance materially contributed to the
issuance of any such order, decree or ruling or the taking of such action);
(d) by Parent, if (i) the Board of Directors of the Company shall withdraw, modify or change its approval or recommendation of this Agreement or the Merger in a manner adverse to Parent or shall have resolved to do so; or (ii) the Board of Directors of the Company shall have recommended to the Shareholders of the Company an Acquisition Proposal;
(e) by the Company, if (i) the Board of Directors of the Company shall
determine in good faith, based upon advice of outside legal counsel, that it is
required, in order to discharge properly its fiduciary duties, to withdraw,
modify or change its approval or recommendation of this Agreement or the Merger
in a manner adverse to Parent or shall have resolved to do so and (ii) the Board
of Directors of the Company shall have recommended to the Shareholders of the
Company an Acquisition Proposal; provided, that, the Company shall not be
entitled to exercise any termination rights under clause (ii) of this Section
7.1(e) unless (x) any action of the Board of Directors in order to discharge its
fiduciary duties is taken in good faith upon advice of outside legal counsel and
(y) the Company has complied with its other obligations hereunder;
(f) by Parent or the Company, if, at a duly held meeting of the shareholders of the Company (including any adjournment thereof) held for the purpose of voting on the Merger, this Agreement and the consummation of the transactions contemplated hereby, the holders of the requisite number of Company Shares shall not have approved the Merger, this Agreement and the consummation of the transactions contemplated hereby; or
(g) by Parent or the Company, upon a breach or breaches of this Agreement by the other party, individually or in the aggregate, which results or would reasonably be expected to result in an adverse effect on such party or its business of $3,000,000 or more (before taxes).
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 hereof, and (ii) nothing herein shall relieve any party from
liability for any breach hereof.
7.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated; provided, however, that Parent shall pay and be responsible for the filing fee and printing fees to be paid in connection with the Registration Statement and Prospectus.
(b) In order to induce Parent to enter into this Agreement, the Company agrees that if: (x) prior to termination of this Agreement, any person other than Parent and its affiliates shall have commenced, proposed or communicated to the Company an Acquisition Proposal (a "Pre-Termination Acquisition Proposal") and (y) within one year of the termination of this Agreement, such person, or any affiliate of such person, enters into any definitive agreement to effect a transaction contemplated by an Acquisition Proposal (which is related to such Pre-Termination Acquisition Proposal), then the Company shall pay to Parent within five business days following the consummation of the transaction that was contemplated by the Acquisition Proposal a fee of $3,000,000 in cash; provided, however, that in no event shall the Company be obligated to pay more than one such fee with respect to all such occurrences and provided further, no such fee shall be payable if there has been a material misrepresentation by or material breach of any material obligation of Parent hereunder which would entitle the Company to terminate this Agreement under Section 7.1.
ARTICLE VIII
MISCELLANEOUS
8.1 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns. This Agreement and the rights and obligations of the Company, Shareholders, Merger Sub and Parent hereunder may not be assigned by any of the parties hereto without the prior written consent of the other parties, except that Parent may assign its rights and obligations hereunder to a designated wholly owned subsidiary at any time.
(b) This Agreement is not intended, nor shall it be construed, to confer any rights or remedies under or by reason of this Agreement upon any Person except the parties hereto and their heirs, representatives, successors and permitted assigns.
8.2 EXHIBITS AND SCHEDULES. All exhibits and schedules attached hereto and referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.
8.3 ENTIRE AGREEMENT. This Agreement, including all Exhibits, documents, schedules, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement. This Agreement supersedes all prior agreements, arrangements and understandings of the parties with respect to such transaction.
8.4 WAIVER OF COMPLIANCE. No amendment, modification, alteration, supplement or waiver of compliance with any obligation, covenant, agreement, provision or condition hereof or consent pursuant to this Agreement shall be effective unless evidenced by an instrument in writing executed by all of the parties hereto, or, in the case of a waiver the party against whom enforcement of any waiver is sought. Any waiver or failure to insist upon strict compliance with such obligations, covenant, agreement, provision or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
8.5 ENFORCEABILITY. If any term, provision, covenant or restriction of this Agreement or the application thereof to any person or circumstance should be held by an administrative agency or court of competent jurisdiction to be invalid, void, or unenforceable, then the remainder of this Agreement and the application of such term, provision, covenant, or restriction to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law. Further, it is the intent of the parties that if any term, provision, covenant, or restriction of the Agreement should be held to be invalid, void, or unenforceable as applied to any person or circumstance, then such term, provision, covenant, or restriction shall be modified to the extent necessary in order to render the same enforceable, consistent with the expressed objectives of the parties hereto for entering into this Agreement.
8.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
8.7 HEADINGS. The table of contents, article and section headings contained in this Agreement are for convenience only and shall not control or affect in any way the meaning or interpretation of the provisions of this Agreement.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Ohio, without giving effect to the conflicts of law principles thereof.
8.9 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations, warranties and agreements of each party hereto shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other party hereto, any person controlling any such party or any of their officers or directors, whether prior to or after the execution of this Agreement.
8.10 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) at the time of delivery if personally delivered or telecopied (with confirmation of receipt), (ii) the next day, if delivered by nationally-recognized overnight express service, or (iii) in five (5) days, if sent by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses:
(a) If to Parent or Merger Sub to:
Applied Industrial Technologies, Inc.
3600 Euclid Avenue
Cleveland, Ohio 44115-1925
Telephone Number: (216) 881-8900
Facsimile Number: (216) 391-6217
Attn: Robert C. Stinson, Esq.
with copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Telephone Number: (216) 479-8500
Facsimile Number: (216) 479-8780
Attn: David A. Zagore, Esq.
(b) if to the Company:
INVETECH Company
1400 Howard Street
Detroit, Michigan 48216
Telephone Number: (313) 963-6011
Facsimile Number: (313) 963-5427
Attn: Mr. J. Michael Moore
with a copy to:
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson, Suite 2500
Detroit, Michigan 48226
Telephone Number: (313) 963-4240
Facsimile Number: (313) 496-7500
Attn: Bruce D. Birgbauer, Esq.
or to such other address as the person to whom notice is to be given may have previously furnished to the other in writing in the manner set forth above, provided that notice of a change of address shall be, deemed given only upon receipt.
8.11 CONFIDENTIALITY; SOLICITATION OF EMPLOYEES. Each party to this
Agreement will maintain in confidence, hold in trust for the other, and not use
in any way except as expressly permitted, any information obtained from such
other party or such other party's Subsidiaries in connection with this Agreement
or the Merger, and each party to this Agreement will cause its respective
Subsidiaries, directors, officers, employees, agents, and advisers to do the
same, unless: (a) such information is or becomes publicly available through no
fault of the party disclosing or using such information; (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
requisite regulatory approval; or (c) the furnishing or use of such information
is required by or necessary or appropriate in connection with legal proceedings;
provided, however, that the responding party shall first have given notice to
the other party hereto and shall have made a reasonable effort to obtain a
protective order to limit the disclosure. Information will be disclosed only on
a need to know basis and will only be used to the extent required to accomplish
the Merger. Information shall not be reproduced in any form except as required
to accomplish the Merger. If the Merger is not consummated, each party will
return or destroy such information of the other party (and all copies or
extracts) as the other party may request in writing and the chief executive
officers of the Company and Parent shall promptly execute and deliver
certifications to the other party that, at their request and to their knowledge,
all such information has been destroyed or returned to the other party. Each
party hereby acknowledges and agrees that in the event of any breach of this
Section by the other party, including, without limitation, the actual or
threatened disclosure or unauthorized use of a disclosing party's information,
in violation of this Section, the disclosing party will suffer an irreparable
injury, such that no remedy at law will afford it adequate protection against,
or appropriate compensation for, such injury. Accordingly, each party hereby
agrees that the other party shall be entitled to specific performance of the
receiving party's obligations under this Section as well as such further relief
as may be granted by a court of competent jurisdiction. If the Merger is not
consummated, until the earlier of (x) August 1, 1998 or (y) the acquisition of
the other party by a third party, each party further agrees that it shall not
initiate or maintain contact (except for those contacts made in the ordinary
course of business) with any director, officer or employee of the other party
with respect to the employment of any such director, officer or employee by the
first party; provided that, this provision shall not operate to prevent either
party from hiring any person who responds to an advertisement or makes an
unsolicited contact for employment. This Section 8.11 shall survive termination
of this Agreement.
8.12 DISPUTE RESOLUTION; ARBITRATION. Parent and the Company shall be free to bring all differences of interpretation and disputes arising in connection with this Agreement to the attention of the other at any time without prejudicing their harmonious relationship and operations hereunder, and the good offices and facilities of either party shall be available at all times for the prompt and effective adjustment of any and all such differences, either by mail, telephone or personal meeting under friendly and courteous circumstances. To the extent any differences with respect to or arising out of the terms of this Agreement cannot be resolved between the parties in accordance with the procedures set forth in the previous sentence, either party may deliver a written notice of disagreement (a "Notice of Disagreement") to the other specifying with particularity the nature of the disagreement and the facts related thereto.
Following delivery of a Notice of Disagreement, the parties shall attempt to resolve any differences which they may have with respect to any matter specified in the Notice of Disagreement. If prior to the scheduled Closing Date, the parties fail to reach a written agreement with respect to all such matters, then all such matters as
specified in the Notice of Disagreement as to which such written agreement has not been reached (the "Disputed Matters") shall be submitted to and reviewed by an arbitrator (the "Arbitrator"), who shall be appointed in accordance with the Commercial Rules of the American Arbitration Association. The Arbitrator shall act promptly (in no event to exceed twenty days) to resolve all Disputed Matters and shall issue a written decision resolving the disputed matters applying such reasonable and equitable principles (consistent with this Agreement and applicable law) as he or she deems appropriate. The Arbitrator's decision with respect to all Disputed Matters shall be final and binding upon Parent and the Company. The arbitration shall be conducted in Toledo, Ohio in accordance with the Commercial Rules of the American Arbitration Association, and the decision of such Arbitrator shall be final and binding upon the parties. The Arbitrator shall issue a written decision with respect to any disputes relating to any Notice of Disagreement submitted for arbitration. The decision of the Arbitrator shall be final and binding upon the parties and judgment in accordance with such decision may be entered in any court of competent jurisdiction. The fees and expenses of the Arbitrator incurred in resolving the Disputed Matters shall be borne equally by Parent and the Company (with the Company's portion of the fees and expenses being a further adjustment to the Merger Consideration).
ARTICLE IX
CERTAIN DEFINITIONS
9.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Adjusted Value" shall mean (i) the amount recorded with respect to the
Confederation Life Policies on the Closing Balance Sheet (which includes a 15%
reserve), minus (ii) in the event any death benefit is paid under any such
policies, an amount equal to the cash surrender value of such policies,
including any dividends credited thereto and without deduction for any loans (or
interest thereon), plus (iii) interest on the amount determined by subtracting
(ii) from (i) at a rate of 7% per annum (compounded annually), minus (iv) any
unpaid loans (and interest thereon) debited against the cash surrender value of
such policies to the extent recorded on the Closing Balance Sheet, plus (v) the
amount of any premium payments due after the Closing and not deducted directly
from the cash surrender value of such policies.
"Benefit Arrangements" means all bonus, incentive compensation, individual employment contract, consulting contracts, termination, severance pay, holiday, vacation, termination, severance pay, sick pay, sick leave, disability, tuition refund, relocation, fringe benefit, collective bargaining agreements and other policies or practices of the Company providing employee or executive compensation or benefits to employees of the Company.
"Closing" shall have the meaning set forth in Section 1.10 hereof.
"Closing Date" shall have the meaning set forth in Section 1.10 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"The Company" shall mean INVETECH Company, a Michigan corporation.
"Encumbrance" shall mean any lien, encumbrance, proxy, voting trust arrangement, pledge, security interest, collateral security agreement, financing statement (and similar notices) filed with any Governmental Authority, claim (including any claim as defined in the Code), charge, equities, mortgage, pledge, objection, title defect, option, restrictive covenant or restriction on transfer of any nature whatsoever, and the interest of the lessor in any property subject to a capital lease.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations promulgated thereunder.
"ERISA Affiliate" means an entity that would be treated as a single employer with the Company under Section 414 of the Code.
"Governmental Authority" shall mean any government or political subdivision thereof, whether federal, state, local or foreign, or any agency, department, commission, board, bureau, court, tribunal, body, administrative or regulatory authority or instrumentality of any such government or Political subdivision.
"knowledge" means actual knowledge after reasonable investigation.
"Law" shall mean any law (including common law), rule, regulation, restriction (including building or zoning code), code, statute, ordinance, order, writ, injunction, judgment, decree or other requirement of a Governmental Authority.
"Losses" shall mean and include all demands, claims, actions, causes of action, assessments, damages, losses, liabilities, judgments, settlements, fines, penalties, sanctions, costs and expenses (including, without limitation, interest, penalties, reasonable attorneys' fees and expenses as incurred, and all other reasonable costs of investigating and defending third party claims as incurred). With respect to Parent, "Losses" shall not include (and shall be net of) any amounts reserved, if any, on the Company's Closing Balance Sheet specifically with respect to such Losses or, to the extent paid, any amounts relating to Losses which are payable through insurance, other than self-insurance, maintained by the Company prior to the Closing which insurance is not continued by Parent following the Closing.
"material" or "materiality" means, as applied in any particular representation, warranty, covenant, in an effect, individually or in the aggregate, of $200,000 or more or substantial interference with the conduct of business at any facility or branches for more than forty-eight hours.
"Merger" shall have the meaning set forth in the Recitals hereof.
"Merger Sub" shall mean IC Acquisition Corporation, an Ohio corporation and a wholly-owned subsidiary of Parent.
"Multiemployer Plan" means a Plan which is a multiemployer pension plan as defined in Section 3(37)(A) of ERISA.
"Order" shall mean any order, judgment, injunction, award, decree, writ, rule or similar action of any Governmental Authority.
"Parent" shall mean Applied Industrial Technologies, Inc.
"Parent Shares" shall mean the shares of common stock, without par value, of Applied Industrial Technologies, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto.
"Pension Plan" means any Plan that is an "employee benefit pension plan" as such term is defined in Section 3(2) of ERISA.
"Permits" shall mean any franchise, license, certificate, approval, number, registration, permit, authorization, order or approval of, and any required registration with, any Governmental Authority.
"Person" shall mean any individual, partnership, firm, trust, association, corporation, joint venture, joint stock company, unincorporated organization, Governmental Authority or other entity.
"Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation day, or dependent care, legal services, educational assistance, relocation assistance, cafeteria, life, health, accident, disability, workers compensation or other insurance, death benefit agreements, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including but not limited to an "employee benefit plan" within the meaning of Section 393 of ERISA, which provides compensation or benefits to employees of the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Shareholders" shall mean the shareholders of the Company immediately preceding the Closing as set forth on Schedule 2.4.
"Welfare Plans" means all plans which are employee welfare benefit plans as defined in Section 3(1) of ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the day and year first above written.
The Company:
INVETECH COMPANY
By: /s/ J. Michael Moore
--------------------------------
Chairman and Chief Executive
Officer
|
Parent:
APPLIED INDUSTRIAL TECHNOLOGIES,
INC.
By: /s/ John C. Dannemiller
--------------------------------
Name: John C. Dannemiller
Title: Chairman, Chief Executive
Officer and President
|
Merger Sub:
IC ACQUISITION CORPORATION
By: /s/ John C. Dannemiller
--------------------------------
Name: John C. Dannemiller
Title: Chairman, Chief Executive
Officer and President
|
LIMITED JOINDER
The undersigned have executed this Agreement, as of the day and year first written above, solely to evidence their agreement to vote all Company Shares beneficially owned by them in favor of the authorization, approval and adoption of the Merger and this Agreement by the Shareholders.
/s/ J. Michael Moore ------------------------------------ J. Michael Moore /s/ James T. Moore II ------------------------------------ James T. Moore II |
SCHEDULE 2.A.2
CERTAIN MATTERS
Matters disclosed in the Initial Disclosure Statement relating to Encumbrances, environmental, Plans, employee benefits, ERISA, equal employment opportunity, labor, government contracts, affirmative action, taxes, and pending or threatened Proceedings.
EXHIBIT B
, 1997
Invetech Company
GENTLEMEN:
This letter is delivered pursuant to the terms and provisions of that certain Plan and Agreement of Merger dated April , 1997, among Invetech Company, a Michigan corporation ("Invetech"), Applied Industrial Technologies, Inc., an Ohio corporation ("Applied") and IC Acquisition Corporation, an Ohio corporation (the "Merger Agreement"), a copy of which has been provided to the undersigned. Capitalized terms not otherwise defined in this letter have the meanings assigned to them in the Merger Agreement.
All shares of Applied Stock which the undersigned receives pursuant to the Merger Agreement are referred to in this letter as "Merger Shares." The Merger Shares and any other consideration to be received by the undersigned upon consummation of the Merger are referred to collectively in this letter as "Merger Consideration."
1. TAX MATTERS. The undersigned hereby agrees and represents that the undersigned will at no time prior to January 1, 1998, sell or otherwise dispose of any Merger Shares (other than a disposition by will or under the laws of descent and distribution) unless the undersigned has first furnished to Applied an opinion of nationally recognized tax counsel, satisfactory to Applied and its counsel as to form and substance, to the effect that such disposition will not violate the continuity of shareholder interest requirement set forth in Section 1.368-1 of the official Treasury Department interpretation of the Internal Revenue Code of 1986, as amended, found in Title 26 of the Code of Federal Regulations.
Any legal counsel issuing an opinion described in the preceding paragraph:
(a) must assume, for purposes of determining whether a disposition will violate
the continuity of shareholder interest requirement, that (i) each person that
held shares of Invetech Stock immediately before the Effective Time (other than
the undersigned) and who received shares of Applied Common Stock in connection
with the Merger effected one or more sales or other dispositions of the shares
of Applied Common Stock received by such person in connection with the Merger,
(ii) such sales or other dispositions reduced the aggregate fair value of such
shares of Applied Common Stock (with such fair value measured as of the
Effective Time) retained by such person to 40% (provided, however, that if such
person actually owns less than 40%, the actual percentage owned shall be
substituted for 40%) of the aggregate fair market value of the shares of
Invetech Stock held by such person immediately before the Effective Time, and
(iii) such sales or other dispositions were effected promptly following the
Effective Time pursuant to a plan or intention in existence immediately before
the Effective Time; and (b) may rely on the representations and warranties
contained in the Merger Agreement and the tax opinion of
issued pursuant to the Merger Agreement, provided that in the preparation of
such opinion, the opinion giver has made due inquiry of Applied as to whether
Applied has been advised that such representations and warranties were true and
correct when made.
2. LEGEND. The undersigned agrees to: (a) the placement of a legend on the certificates evidencing the Merger Shares which shall state that any transfer of such shares is subject to the terms of this letter; and (b) the issuance by Applied of a stop- transfer order for a period of six months from the Effective Time to the transfer agent for the Applied Common Stock.
3. WARRANTIES AND REPRESENTATIONS. The undersigned warrants and represents to Applied as follows:
(a) The undersigned has full power to execute this letter, to make the representations, warranties, and agreements herein, and to perform the undersigned's obligations hereunder.
(b) The undersigned has consulted such legal counsel and financial advisers as the undersigned deems appropriate in connection with the execution of this letter.
4. BINDING EFFECT; RELIANCE. This letter shall be binding upon and enforceable against the undersigned, any administrators, executors, representatives, heirs, legatees, and devisees of the undersigned, and any pledgee holding any Merger Shares of the undersigned as collateral. The undersigned acknowledges that the representations, warranties, and agreements of the undersigned contained herein are part of the terms and conditions of the Merger Agreement.
5. TERMINATION OF CERTAIN AGREEMENTS. The undersigned hereby agrees to the termination of all existing stock redemption agreements and shareholder agreements between Invetech and any shareholder(s) of Invetech relating to the capital stock of Invetech.
6. ESCROW AGREEMENT. The undersigned hereby agrees to be bound by the terms of the Escrow Agreement attached as Exhibit to the Merger Agreement.
Very truly yours,
ANNEX B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into on , 1997 ("Escrow Agreement") by and among NBD Bank (the "Escrow Agent"), INVETECH Company, a Michigan corporation ("INVETECH"), Applied Industrial Technologies, Inc., an Ohio corporation ("Applied"), IC Acquisition Corporation, an Ohio corporation ("Merger Sub") and Thomas P. Moore II and Dennis P. Moore (the "Shareholder Representatives"). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Merger Agreement (as hereinafter defined).
RECITALS
WHEREAS, Applied, Merger Sub and INVETECH are parties to a Plan and Agreement of Merger, dated as of April 29, 1997 (the "Merger Agreement"), pursuant to which, at the Effective Time, INVETECH will merge with and into Merger Sub; and
WHEREAS, pursuant to Section 1.3 of the Merger Agreement, at the Closing, Applied has agreed to deposit with the Escrow Agent, Ten Million Dollars ($10,000,000) in immediately available funds (as reduced from time to time pursuant to the terms hereof, the "Escrow Amount"); and
WHEREAS, INVETECH and Applied wish to enter into this Escrow Agreement specifying the terms and conditions upon which the Escrow Amount will be held, invested and disbursed by the Escrow Agent, and the Escrow Agent wishes to act as escrow agent pursuant to the terms and conditions of this Escrow Agreement;
NOW, THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree as follows:
1. DEPOSITS INTO ESCROW ACCOUNT.
(a) On the date hereof, Applied has delivered to the Escrow Agent, and the Escrow Agent hereby acknowledges receipt of, the Escrow Amount. The Escrow Agent shall deposit the Escrow Amount into an escrow account under the account name "Applied-INVETECH Escrow Account" (the "Escrow Account") and shall hold the Escrow Amount separate and apart from its other funds and accounts and shall keep an accurate record of all the transactions with respect thereto.
(b) After the date hereof, Applied shall deposit into the Escrow Account for distribution to Shareholders any amount received prior to expiration of the term of this Agreement from Wayne Fielding ("Fielding").
(c) After the date hereof, Applied shall deposit into the Escrow Account for distribution to Shareholders any amount received by Applied in respect of the cash surrender value of the Confederation Life Policies to the extent such amount exceeds the Adjusted Value of the Confederation Life Policies on the date such amount is received.
(d) Prior to the date which is sixty months following the date hereof, Applied shall deposit into the Escrow Account for distribution to Shareholders the amount, if any, by which the reserve for workers' compensation liabilities reflected on the Closing Balance Sheet exceeds the actual amounts incurred by Applied and its affiliates with respect to any and all workers' compensation claims relating to injuries incurred by INVETECH and its Subsidiaries' employees prior to the Closing Date plus a reasonable estimate of any and all future liability with respect to such claims.
(e) After the date hereof, Applied shall deposit in the Escrow Account for distribution to Shareholders one-half of the net proceeds received by Applied, if any, from the sale of the assets identified on Schedule 1(e).
2. PURPOSE OF ESCROW. The Escrow Amount shall be held by the Escrow Agent for the purpose of securing the payment and performance of the indemnification obligations of INVETECH set forth in Section 5.2 of the Merger Agreement.
3. INVESTMENT AND EARNINGS.
(a) During the term of this Escrow Agreement, the Escrow Agent shall invest and reinvest cash, whether received as a portion of the Escrow Amount or as proceeds thereof or earnings thereon, in U.S. treasury securities, interest-bearing accounts maintained at, or interest bearing instruments issued by, commercial banks designated in writing by Applied and the Shareholder Representative (as hereinafter defined) or failing such designation, in U.S. treasury securities. Any such investments comprising any portion of the Escrow Amount shall be registered in the name of the Escrow Agent. The Escrow Agent shall not be responsible for any loss arising out of or resulting from any such investments, except for intentional wrongdoing or gross negligence. The Escrow Agent is hereby authorized and directed to receive and hold in escrow pursuant to the terms hereof, in its capacity as Escrow Agent, all proceeds and earnings to which the cash and other property comprising the Escrow Amount would be entitled. Subject to Section 3(b) hereof, all earnings (but not proceeds) on the Escrow Amount and amounts, if any, deposited into the Escrow Account pursuant to Sections 1(b), (c), (d) and (e) above shall be distributed to the Shareholders by the Escrow Agent annually on or before December 31 each year in accordance with the terms of the Escrow Release Instructions set forth on Schedule 4(b). For purposes of this Escrow Agreement, "earnings" shall mean the amount, if any, by which the property held by the Escrow Agent in the Escrow Account exceeds the Escrow Amount (as reduced from time to time pursuant to the terms hereof).
(b) To the extent required by law, during the term of this Escrow Agreement, all federal, state and local income or other taxes assessed on any proceeds, interest or income received on, or on the value of, the Escrow Amount which are required to be withheld, paid or deducted by the Escrow Agent shall be withheld, paid, and deducted by the Escrow Agent from earnings, if any, prior to distribution to the Shareholders in accordance with Section 3(a) or 4. During the term of this Agreement, the Escrow Agent may retain such accountants, attorneys and other experts as it shall deem advisable in connection with any audits by any taxing authorities concerning the Escrow Amount. All reasonable out-of-pocket costs, expenses or advances incurred by the Escrow Agent as a result thereof shall be borne equally by Applied and the Shareholders; provided, however, any such amounts to be borne by the Shareholders shall be deducted and paid by the Escrow Agent first from any earnings on the Escrow Amount prior to distribution to the Shareholders in accordance with Section 3(a) or 4, or if earnings on the Escrow Amount shall be inadequate, then from the Escrow Amount. All such amounts to be borne by Applied shall be paid directly by Applied upon written request of the Escrow Agent. The Escrow Agent shall have no personal liability for any such taxes or costs.
4. ESCROW DISTRIBUTIONS AND DELIVERY.
(a) The Escrow Agent shall hold the Escrow Amount until such time or times as the Escrow Agent is directed to distribute all or any portion of the Escrow Amount to the Shareholders or Applied pursuant to the terms hereof or pursuant to the joint written instructions of Applied and the Shareholder Representative. The respective percentage amounts of any distribution that, subject to the terms and condition contained herein, shall be paid to each of the Shareholders in a distribution to Shareholders, is set forth in Schedule 4(a) hereto. All distributions by the Escrow Agent to the Shareholders pursuant to this Agreement shall be divided among the Shareholders in proportion of the respective percentages set forth on Schedule 4(a) corresponding to their respective names.
(b) On the dates set forth on Schedule 4(b) hereto, if no Notice of Claim for indemnification has been submitted by Applied that remains pending pursuant to the terms hereof, the Escrow Amount shall be reduced to the amount set forth on Schedule 4(b) corresponding to such date. After payment of or provision for all amounts to be borne and paid by the Shareholders hereunder, the Escrow Agent shall disburse to the Shareholders from the Escrow Account an amount equal to the excess of the fair cash value of all property held in the Escrow Account (determined by the Escrow Agent in accordance with its ordinary practices) in excess of the then applicable Escrow Amount (each amount to be so released, an "Interim Release Amount") in accordance with the terms of the "Escrow Release Instructions" set forth on Schedule 4(b). If any
Notice(s) of Claim for indemnification have been submitted by Applied which remain pending, the Escrow Agent shall distribute from the Escrow Account to the Shareholders in accordance with the terms of the Escrow Release Instructions the difference (if such amount is greater than zero) between (x) the Interim Release Amount and (y) the aggregate amount of all pending claims for indemnification specified in the Notice(s) of Claim for indemnification which have been submitted by Applied and which remain pending pursuant to the terms hereof.
(c) On the date which is sixty months following the date hereof, if no Notice of Claim for indemnification has been submitted by Applied that remains pending pursuant to the terms hereof, the Escrow Agent shall distribute to the Shareholders all amounts held in the Escrow Account (the "Final Release Amount") in accordance with the terms of the Escrow Release Instructions. If any Notice(s) of Claim for indemnification have been submitted by Applied which remain pending, the Escrow Agent shall distribute from the Escrow Account to the Shareholders in accordance with the terms of the Escrow Release Instructions the difference (if such amount is greater than zero) between (x) the Final Release Amount and (y) the aggregate amount of all pending claims for indemnification specified in the Notice(s) of Claim for indemnification which have been submitted by Applied and which remain pending pursuant to the terms hereof.
(d) Upon receipt of joint written instructions from Applied and the Shareholder Representative, the Escrow Agent shall deliver the Escrow Amount, or such portion thereof as is specified in such instructions, according to the instructions contained therein.
(e) In the event that any amounts are withheld from distribution to the Shareholders as a result of pending claims for indemnification under subsections 4(b) and (c) above and, thereafter, indemnification relating such pending claims are determined pursuant to section 5(a) below to be payable in an amount less than the amount specified in the applicable Notice of Claim, Applied and the Shareholder Representative shall promptly execute joint written instructions to the Escrow Agent instructing the Escrow Agent to deliver the difference to the Shareholders in accordance with the terms of the "Escrow Release Instructions" set forth on Schedule 4(b).
5. ASSERTION OF CLAIMS.
(a) If Applied claims that it is entitled to indemnification under the Merger Agreement, written notice (a "Notice of Claim") of such claim specifying with particularity the value and factual basis of the claim, to the extent then known, shall be given to the Shareholder Representative and the Escrow Agent. Applied and the Shareholder Representative shall discuss each Notice of Claim in good faith to determine the validity and (if the claim is then liquidated) the value of such claim for indemnification. If Applied and the Shareholder Representative agree on the validity and the value of the claim for indemnification, Applied and the Shareholder Representative shall execute joint written instructions to the Escrow Agent instructing that the Escrow Agent shall deliver to Applied such portion of the Escrow Amount as is specified in such instructions, in accordance with the instructions contained therein. If Applied and the Shareholder Representative cannot agree on the validity of the claim (which shall include both the validity of the nature and amount of the claim asserted) for indemnification and/or (if the claim is then liquidated) the value of the claim specified in the Notice of Claim, then the claim may be submitted by either party to an arbitrator, who shall be appointed in accordance with the Commercial Rules of the American Arbitration Association, for arbitration in Toledo, Ohio in accordance with the Commercial Rules of the American Arbitration Association, and the decision of such arbitrator shall be final and binding upon the parties. The arbitrator shall issue a written decision with respect to any disputes relating to any Notice of Claim submitted to arbitration. Upon the rendering of any such decision, Applied and the Shareholder Representative shall promptly execute joint written instructions consistent with such decision notifying the Escrow Agent of the resolution of such Notice of Claim and, as and if appropriate, instructing the Escrow Agent to make distributions from the Escrow Account consistent with such decision. Judgment in accordance with the decision of the arbitrator may be entered in any court of competent jurisdiction.
(b) During the time that any portion of the Escrow Amount is held by the Escrow Agent and until distribution by the Escrow Agent to the Shareholders or Applied, neither the Shareholders nor Applied shall
be entitled to the Escrow Amount and the Escrow Amount shall not be subject to any lien, security interest or encumbrance of any kind placed thereon by any of them.
(c) Applied and the Shareholder Representative shall be free to bring all differences of interpretation and disputes arising in connection with this Agreement to the attention of the other at any time without prejudicing their harmonious relationship and operations hereunder, and the good offices and facilities of either party shall be available at all times for the prompt and effective adjustment of any and all such differences, either by mail, telephone or personal meeting under friendly and courteous circumstances.
(d) Promptly after receipt by Applied or Merger Sub of notice of the commencement of any claim, action or proceeding ("Proceeding") against either of them (including, but not limited to a Proceeding regarding any federal, state or local tax) which either of them believes may result in a claim for indemnification under the Merger Agreement, Applied will give notice to the Shareholder Representative of the commencement of such Proceeding, but the failure to notify the Shareholder Representative will not impair Applied's right to indemnification, except to the extent that the Shareholder Representative demonstrates that the defense of such action is prejudiced by Applied's failure to give such notice.
(e) If any Proceeding referred to in Section 5(d) is brought against Applied or Merger Sub and Applied gives notice to the Shareholder Representative of the commencement of such Proceeding, the Shareholder Representative will be entitled to participate in such Proceeding and his/her reasonable legal fees and expenses shall be payable from the Escrow Amount. If notice is given to the Shareholder Representative of the commencement of a Proceeding and the Shareholder Representative does not, within thirty days after such notice is given, give notice to Applied of its election to participate in the defense of such Proceeding, the Shareholder Representative will be bound by any determination made in such Proceeding or any compromise or settlement effected by Applied or the Merger Sub. If the Shareholder Representative does so elect to participate in the defense of such Proceeding, Applied or Merger Sub shall give notice to the Shareholder Representative of any proposed settlement or compromise and will not compromise or settle such Proceeding if within seven days of Applied giving such notice, the Shareholder Representative objects to the terms of such compromise or settlement; provided, further, under no circumstances shall Shareholder Representative unreasonably withhold consent to any compromise or settlement.
6. TERMINATION. Unless a Notice of Claim has been received by the Escrow Agent and no joint instruction providing notice of resolution has subsequently been received by the Escrow Agent indicating that the dispute has been resolved, this Escrow Agreement shall terminate five years following the Effective Time and the Escrow Agent shall deliver the Escrow Amount, or the portion thereof remaining in the Escrow Account, to the Shareholders in accordance with the terms of the Escrow Release Instructions.
7. SHAREHOLDER REPRESENTATIVE. As used herein, the term "Shareholder Representative" shall mean Thomas P. Moore II and Dennis P. Moore, or their duly appointed successors, and either shall be and hereby are severally empowered to act with full authority of the Shareholder Representative under this Agreement. If either Shareholder Representative dies, resigns or otherwise ceases to be a Shareholder Representative, the remaining Shareholder Representative may appoint a successor Shareholder Representative or, if no successor is appointed within ninety days or there is no remaining Shareholder Representative, then a majority in interest of the Shareholders may appoint a successor Shareholder Representative.
8. THIRD PARTY BENEFICIARIES. The provisions of this Escrow Agreement shall be binding upon, inure to the benefit of and be enforceable by the Escrow Agent, Applied, Merger Sub, INVETECH, the Shareholder Representatives and the Shareholders and each of their respective heirs, representatives, executives, administrators, successors and assigns. No person is intended to be a third party beneficiary hereunder.
9. INDEMNIFICATION; EXPENSES. The Shareholders and Applied jointly and severally agree to hold the Escrow Agent harmless and indemnify it from any loss or claim whatsoever arising in conjunction with the performance of the duties of the Escrow Agent, but only to the extent that the Escrow Agent has fully complied with the provisions of this Escrow Agreement. Said indemnification shall survive the termination of this Escrow Agreement. The Shareholders and Applied shall bear equally the fees and expenses of the Escrow Agent as set forth on Schedule 9 hereto; provided, however, any such amounts to be borne by the
Shareholders shall be deducted and paid by the Escrow Agent first from any earnings on the Escrow Amount prior to distribution to the Shareholders in accordance with Section 3(a) or 4, or if earnings on the Escrow Amount shall be inadequate, then from the Escrow Amount.
10. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) at the time of delivery if personally delivered or telecopied (with confirmation of receipt), (ii) the next day, if delivered by a nationally-recognized overnight express service, or (iii) in five (5) days, if sent by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses:
(a) If to Applied to:
Applied Industrial Technologies, Inc.
3600 Euclid Avenue
Cleveland, Ohio 44115-1925
Telephone Number: (216) 881-8900
Facsimile Number: (216) 391-6217
Attn: Robert C. Stinson, Esq.
with copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Telephone Number: (216) 479-8500
Facsimile Number: (216) 479-8780
Attn: David A. Zagore, Esq.
(b) if to INVETECH or the Shareholder Representative:
INVETECH Company
1400 Howard Street
Detroit, Michigan 48216
Telephone Number: (313) 963-6011
Facsimile Number: (313) 963-5427
Attn: Thomas P. Moore II
Dennis P. Moore
with a copy to:
Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson, Suite 2500
Detroit, Michigan 48226
Telephone Number: (313) 963-4240
Facsimile Number: (313) 496-8451
Attn: Bruce D. Birgbauer, Esq.
(c) if to Escrow Agent:
NBD Bank
[Address]
or to such other address as the person to whom notice is to be given may have previously furnished to the other in writing in the manner set forth above, provided that notice of a change of address shall be deemed given only upon receipt.
11. ENTIRE AGREEMENT. This Escrow Agreement is the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.
12. AMENDMENTS; WAIVER. This Escrow Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms and conditions hereof waived, only by a written instrument signed by the parties hereto or, in the case of a waiver, the party waiving compliance.
13. ASSIGNMENT. No assignment of any rights or delegation of any obligations provided for herein may be made by any party without the express written consent of all of the other parties hereto. No Shareholders may assign any rights under this Escrow Agreement.
14. COUNTERPARTS. This Escrow Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
15. GOVERNING LAW. This Escrow Agreement shall be governed by and construed in accordance with the laws of the state of Ohio, without giving effect to the conflicts of law principles thereof.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures to this Escrow Agreement upon the date first set forth above.
APPLIED:
APPLIED INDUSTRIAL TECHNOLOGIES,
INC.
INVETECH:
INVETECH COMPANY
ESCROW AGENT:
NBD BANK
SHAREHOLDER REPRESENTATIVES:
MERGER SUB:
IC ACQUISITION CORPORATION
SCHEDULE 4(b)
DATE ESCROW AMOUNT
- ------------------------------------------------------ -------------
Effective Time........................................ $10,000,000
January 1, 2000....................................... $ 5,000,000
April 1, 2001......................................... $ 2,500,000
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ANNEX C
[OPPENHEIMER LETTERHEAD]
[To be filed by amendment]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Applied's Code of Regulations provides that Applied shall indemnify its directors and officers to the fullest extent permitted by Ohio law, including circumstances in which indemnification is otherwise discretionary under Ohio law. Applied has entered into indemnification agreements with its officers and directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the Ohio Law. The indemnification agreements may require Applied, among other things, to indemnify its directors against certain liabilities that may arise by reason of their status or service as directors (other than liabilities arising from willful misconduct or willful disregard of duties), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain director's insurance if available on reasonable terms.
Applied believes that the indemnification provisions in its Code of Regulations and the indemnification agreements will facilitate Applied's ability to continue to attract and retain qualified individuals to serve as directors and officers of Applied. It is the opinion of the Commission that indemnification provisions such as those contained in the Applied Code of Regulations and these agreements have no effect on a director's or officer's liability under the federal securities laws.
Applied has also obtained directors and officers' liability insurance covering, subject to certain exceptions, actions taken by Applied's directors and officers in their capacities as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed herewith.
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
2(a) Plan and Agreement of Merger among Applied, Merger Sub and Invetech dated as of
April 29, 1997 included as Annex A to the Prospectus filed as part of this
Registration Statement.
3(a) Amended and Restated Articles of Incorporation of Applied.
3(b) Code of Regulations of Applied adopted September 6, 1988.
4(a) 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 of Merger and Plan of Reorganization between Bearings, Inc. (Ohio) and
Bearings, Inc. (Delaware) dated September 6, 1988.
4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf
Facility dated October 31, 1992 between Applied and The Prudential Insurance
Company of America (as amended and restated).
5(a) Opinion of Squire, Sanders & Dempsey L.L.P. as to the legality of the Applied
Common Stock being registered hereby.
10(a) Form of Executive Severance Agreement between Applied and each of its executive
officers, together with schedule pursuant to Instruction 2 of Item 601(a) of
Regulation S-K identifying the officers and setting forth the material details
in which the agreements differ from the form of agreement that is filed.
10(b) Consulting, Noncompetition and Confidentiality Agreement between Applied and J.
Michael Moore (to be entered into as of the Closing Date).
10(c) A written description of Directors' Compensation Program.
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II-1
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
10(d) Applied Deferred Compensation Plan for Non-Employee Directors (January 1, 1997
Restatement).
10(e) A written description of Applied's Non-Contributory Life and Accidental Death
and Dismemberment Insurance for executive officers.
10(f) A written description of Applied's Long-Term Disability Insurance for executive
officers.
10(g) Form of Director and Officer Indemnification Agreement entered into between
Applied and its directors and its executive officers, together with a schedule
pursuant to Instruction 2 of Item 601(a) of Regulation S-K identifying the
directors and executive officers executing such Agreements.
10(h) Applied Supplemental Executive Retirement Benefits Plan (July 1, 1993
Restatement) currently covering 7 executive officers of Applied (as well as
certain retired executive officers).
10(i) First Amendment to Applied Supplemental Executive Retirement Benefits Plan (July
1, 1993 Restatement).
10(j) Applied Deferred Compensation Plan (January 1, 1997 Restatement).
10(k) Applied 1990 Long-Term Performance Plan.
10(l) A written description of Applied's Management Incentive Plan.
10(m) Applied Supplemental Defined Contribution Plan (January 1, 1997 Restatement).
10(n) Lease dated as of March 1, 1996 between Applied and the Cleveland-Cuyahoga Port
Authority.
11(a) Computation of Net Income Per Share of Applied Common Stock.
11(b) Computation of Net Income Per Share of Invetech Common Stock.
21 Subsidiaries of Applied.
23(a) Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit 5(a)).
23(b) Consent of Deloitte & Touche LLP.
23(c) Consent of Deloitte & Touche LLP.
24 Power of Attorney.
27 Financial Data Schedule.
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II-2
(B) FINANCIAL STATEMENT SCHEDULES.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
COLUMN C
COLUMN B ---------- COLUMN D COLUMN E
---------- ADDITIONS ---------- ----------
COLUMN A BALANCE AT CHARGED TO DEDUCTIONS BALANCE
---------------------------------------- BEGINNING COSTS AND FROM AT END
DESCRIPTION OF PERIOD EXPENSES RESERVE OF PERIOD
---------------------------------------- ---------- ---------- ---------- ----------
YEAR ENDED JUNE 30, 1996:
Reserve deducted from assets to which it
applies -- allowance for doubtful
accounts.............................. $2,300 $2,123 $2,023(A) $2,400
YEAR ENDED JUNE 30, 1995:
Reserve deducted from assets to which it
applies -- allowance for doubtful
accounts.............................. $1,900 $1,710 $1,310(A) $2,300
YEAR ENDED JUNE 30, 1994:
Reserve deducted from assets to which it
applies -- allowance for doubtful
accounts.............................. $2,000 $1,418 $1,518(A) $1,900
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(A) Amounts represent uncollectible accounts charged off.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
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(c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
(h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON MAY 23, 1997.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
By: /s/ JOHN C. DANNEMILLER
-------------------------------------
(Chairman, Chief Executive Officer &
President)
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
NAME TITLE DATE
- ---------------------------------------- ------------------------------ ---------------------
/s/ JOHN C. DANNEMILLER Chairman, Chief Executive May 23, 1997
- ---------------------------------------- Officer & President
John C. Dannemiller
/s/ JOHN C. ROBINSON Vice Chairman May 23, 1997
- ----------------------------------------
John C. Robinson
/s/ JOHN R. WHITTEN Vice President-Finance & May 23, 1997
- ---------------------------------------- Treasurer (Principal Financial
John R. Whitten Officer)
/s/ MARK O. EISELE Controller (Principal May 23, 1997
- ---------------------------------------- Accounting Officer)
Mark O. Eisele
* Director May 23, 1997
- ----------------------------------------
William G. Bares
* Director May 23, 1997
- ----------------------------------------
William E. Butler
* Director May 23, 1997
- ----------------------------------------
Russel B. Every
* Director May 23, 1997
- ----------------------------------------
L. Thomas Hiltz
* Director May 23, 1997
- ----------------------------------------
Dr. Roger D. Blackwell
* Director May 23, 1997
- ----------------------------------------
Russell R. Gifford
* Director May 23, 1997
- ----------------------------------------
John J. Kahl
* Director May 23, 1997
- ----------------------------------------
Dr. Jerry Sue Thornton
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*By: /s/ ROBERT C. STINSON
---------------------------------
Robert C. Stinson,
as Attorney-in-fact
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II-5
EXHIBIT LIST
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ------------------------------------------------------------------------ -----------
2(a) Plan and Agreement of Merger among Applied, Merger Sub and Invetech
dated as of April 29, 1997 included as Annex A to the Prospectus filed
as part of this Registration Statement.
3(a) Amended and Restated Articles of Incorporation of Applied Industrial
Technologies, Inc., an Ohio corporation, dated January 1, 1997.
3(b) Code of Regulations of Applied adopted September 6, 1988.
4(a) 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 of Merger and Plan of Reorganization between
Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) dated September 6,
1988.
4(b) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private
Shelf Facility dated October 31, 1992 between Applied and The Prudential
Insurance Company of America (as amended and restated).
5(a) Opinion of Squire, Sanders & Dempsey L.L.P. as to the legality of the
Applied Common Stock being registered hereby.
10(a) Form of Executive Severance Agreement between Applied and each of its
executive officers, together with schedule pursuant to Instruction 2 of
Item 601(a) of Regulation S-K identifying the officers and setting forth
the material details in which the agreements differ from the form of
agreement that is filed.
10(b) Consulting, Noncompetition and Confidentiality Agreement between Applied
and J. Michael Moore (to be entered into as of the Closing Date of the
Merger).
10(c) A written description of Directors' Compensation Program.
10(d) Applied Deferred Compensation Plan for Non-Employee Directors (January
1, 1997 Restatement).
10(e) A written description of Applied's Non-Contributory Life and Accidental
Death and Dismemberment Insurance for executive officers.
10(f) A written description of Applied's Long-Term Disability Insurance for
executive officers.
10(g) Form of Director and Officer Indemnification Agreement entered into
between Applied and its directors and its executive officers, together
with a schedule pursuant to Instruction 2 of Item 601(a) of Regulation
S-K identifying the directors and executive officers executing such
Agreements.
10(h) Applied Supplemental Executive Retirement Benefits Plan (July 1, 1993
Restatement) presently covering 7 executive officers of Applied (as well
as certain retired executive officers).
10(i) First Amendment to Applied Supplemental Executive Retirement Benefits
Plan (July 1, 1993 Restatement).
10(j) Applied Industrial Technologies, Inc. Deferred Compensation Plan
(January 1, 1997 Restatement).
10(k) Applied 1990 Long-Term Performance Plan adopted by Shareholders on
October 16, 1990.
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II-6
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ------------------------------------------------------------------------ -----------
10(l) A written description of Applied's Management Incentive Plan.
10(m) Applied Supplemental Defined Contribution Plan (January 1, 1997
Restatement).
10(n) Lease dated as of March 1, 1996 between Applied and the
Cleveland-Cuyahoga Port Authority.
11(a) Computation of Net Income Per Share of Applied Common Stock.
11(b) Computation of Net Income Per Share of Invetech Common Stock.
21 Subsidiaries of Applied.
23(a) Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit 5(a)).
23(b) Consent of Deloitte & Touche LLP.
23(c) Consent of Deloitte & Touche LLP.
24 Power of Attorney.
27 Financial Data Schedule.
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II-7
Exhibit 2(a)
A Plan and Agreement of Merger among Applied, Merger Sub and Invetech dated April 29, 1997 is included as Annex A to the Prospectus filed as part of this Registration Statement. A list of schedules and exhibits briefly identifying the contents thereof is included on page iv of the Plan and Agreement of Merger. The Registrant agrees to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission upon request.
Exhibit 3(a)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
FIRST: The name of the Corporation shall be Applied Industrial Technologies, Inc.
SECOND: The place in the State of Ohio where the principal office of the Corporation will be located is 3600 Euclid Avenue, Cleveland, Ohio 44115, in Cuyahoga County, or such other location as the Board of Directors shall from time to time determine.
THIRD: The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Revised Code of Ohio, as now in effect or hereinafter amended.
FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is Thirty Million (30,000,000) shares of Common Stock, without par value, and Two Million Five Hundred Thousand (2,500,000) shares of Preferred Stock, without par value.
No holder of shares of stock of any class of the Corporation shall, as such holder, have any rights to subscribe for or purchase (a) any shares of stock of any class, any warrants, options or other instruments that shall confer upon the holder thereof the right to subscribe for or purchase or receive from the Corporation any shares of stock of any class which the Corporation may issue or sell, whether or not such shares shall be exchangeable for any shares of stock of the Corporation of any class or classes and whether or not such shares shall be unissued shares, now or hereafter authorized, or shares acquired by the Corporation after the issue thereof, and whether or not such shares of stock, warrants, options or other instruments are issued for cash or services or property or by way of dividend or otherwise, or (b) any other security of the Corporation which shall be convertible into, or exchangeable for, any shares of stock of the Corporation or any class or classes, or to which shall be attached or appurtenant to any warrant, option or other instrument that shall confer upon the holder of such security the right to subscribe for or purchase or receive from the Corporation any shares of its stock or any class or classes, whether or not such shares shall be unissued shares, now or hereafter authorized, or shares acquired by the Corporation after the issue thereof, and whether or not such securities are issued for cash or services or property or by way of dividend or otherwise, other than such right, if any, as the Board of Directors, in its sole discretion, may from time to time determine. If the Board of Directors shall offer to the holders of shares of stock of any class of the Corporation, or any of them, any such shares of stock, options, warrants, instruments or other securities of the Corporation, such offer shall not, in any way, constitute a waiver or release of the right of the Board of Directors subsequently to dispose of other securities of the Corporation without offering the same to said holders.
The shares of such classes shall have the following express terms:
DIVISION A
EXPRESS TERMS OF THE PREFERRED STOCK
(1) The Preferred Stock may be issued from time to time in one or more series. All shares of Preferred Stock shall be of equal rank and shall be identical with all other shares except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except, if dividends are to be cumulative, as to the date from which dividends are cumulative. Subject to the provisions of Sections 2 and 3 of this Division, which provisions shall apply to all Preferred Stock, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix:
(a) The number of shares constituting such series, including the authority to increase or decrease such number, and the distinctive designation of such series.
(b) The dividend rate of the shares of such series, whether the dividends shall be cumulative and, if so, the date from which they shall be cumulative, and the relative rights of priority, if any, of payment of dividends on shares of such series.
(c) The right, if any, of the Corporation to redeem shares of such series and the terms and conditions of such redemption including the redemption price.
(d) The rights of the shares in case of a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of such series.
(e) The obligation, if any, of the Corporation to retire shares of such series pursuant to a retirement or sinking fund or fund of a similar nature and the terms and conditions of such obligation.
(f) The terms and conditions, if any, upon which shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes of stock of the Corporation or other entity or of any other series of Preferred Stock, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any.
(g) Any other rights, preferences or limitations of the shares of such series as may be permitted by law.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) through (g), inclusive, of this
Section 1.
(2) The Preferred Stock shall be senior to the Common Stock in payment of dividends and payment in respect of liquidation or dissolution.
(3) The holders of Preferred Stock shall be entitled to one vote for each share of such stock upon all matters presented to the shareholders; and, except as otherwise required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together as one class on all matters.
DIVISION B
EXPRESS TERMS OF THE COMMON STOCK
The Common Stock shall be subject to the express terms of the Preferred Stock and any series thereof and to the terms of Article EIGHTH. Each share of Common Stock shall be equal to every other share of Common Stock and the holders thereof shall be entitled to one vote for each share of such stock on all questions presented to the shareholders.
FIFTH: Except as otherwise provided in these Articles of Incorporation or in the Regulations, the holders of a majority of the outstanding shares are authorized to take any action which, but for this provision, would require the vote or other action of the holders of more than a majority of such shares.
SIXTH: Except as otherwise provided in these Articles of Incorporation, the Corporation, by its Board of Directors, may purchase issued shares, to the extent permitted by law.
SEVENTH: The affirmative vote of the holders of not less than eighty percent (80%) of the voting power of the Corporation in the election of directors shall be required for the approval or authorization of any Business Combination; provided, however, that the eighty percent voting requirement shall not be applicable if the Business Combination is a merger or consolidation and the cash or fair market value of the property, securities or other consideration to be received per share by holders of the Common Stock of the Corporation in the Business Combination (a) is not less than the highest per share price (with appropriate adjustments for recapitalizations and for stock splits, stock dividends and like distributions), paid by the Related Person in acquiring any of its holdings of the Corporation's Common Stock and (b) if the Related Person has acquired Common Stock with varying forms of consideration, the form of consideration to be received by the holders of the Common Stock in the Business Combination is cash or the form used to acquire the largest percentage of the voting power of the Corporation in the election of directors owned by the Related Person.
For the purpose of this Article SEVENTH:
(1) The term "Business Combination" shall mean (i) any merger or
consolidation of the Corporation or a subsidiary with or into a Related Person,
(ii) any sale, lease, exchange, transfer
or other disposition, including, without limitation, a mortgage or any other
security device, of all or any "Substantial Part" (as hereinafter defined) of
the assets, either of the Corporation (including, without limitation, of any
voting securities of a subsidiary) or of a subsidiary, to a Related Person,
(iii) any merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation, (iv) any sale, lease, exchange,
transfer or other disposition of all or any Substantial Part of the assets of a
Related Person to the Corporation or a subsidiary of the Corporation, (v) the
issuance of any securities of the Corporation or a subsidiary of the Corporation
to a Related Person, (vi) any reclassification of securities (including any
reverse stock split) or recapitalization what would have the effect of
increasing the voting power of a Related Person, (vii) the adoption of any plan
or proposal for the liquidation or dissolution of the Corporation proposed by or
on behalf of a Related Person, and (viii) any agreement, contract or other
arrangement providing for any of the transactions described in this definition
of Business Combination.
(2) The term "Related Person" shall mean and include any individual, corporation, partnership or other person or entity which, together with its "Affiliates" and "Associates" (as defined on October 18, 1988 in Rule 12b-2 under the Securities Exchange Act of 1934), "Beneficially Owns" (as defined on October 18, 1988 in Rule 13d-3 under the Securities Exchange Act of 1934) Common Stock or Preferred Stock of the Corporation consisting in the aggregate of 20 percent or more of the outstanding voting power of the Corporation in the election of directors, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity.
(3) The term "Substantial Part" shall mean more than thirty percent (30%) of the fair market value of the total assets of the corporation in question, as of the end of its most recent fiscal year ending prior to the time the determination is being made.
(4) Without limitation, any Common Stock of the Corporation, or Preferred Stock of the Corporation that has voting power in the election of directors, that any Related Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise shall be deemed beneficially owned by the Related Person.
(5) For the purposes of this Article SEVENTH, the term "other consideration to be received" shall include, without limitation, Common Stock of the Corporation retained by its existing public stockholders in the event of a Business Combination in which the Corporation is the surviving corporation.
Notwithstanding any other provisions of these Articles of Incorporation or the Regulations of the Corporation or any provision of law which might otherwise permit a lesser vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law or these Articles of Incorporation or the Regulations of the Corporation, the affirmative vote of the holders of at least eighty percent (80%) of the Corporation's voting power in the election of directors, voting as a single class, shall be required to alter, amend or repeal this Article SEVENTH or to adopt any provisions in these Articles of Incorporation or the
Regulations of the Corporation which are inconsistent with the provisions of this Article SEVENTH.
EIGHTH: No person shall make a Control Share Acquisition without first obtaining the prior authorization of the Corporation's shareholders at a special meeting of shareholders called by the Board of Directors in accordance with this Article EIGHTH.
(1) Procedure. Any Person who proposes to make a Control Share Acquisition shall deliver a notice ("Notice") to the Corporation at its principal place of business that sets forth all of the following information:
a) The identity of the Person who is giving the Notice;
b) A statement that the Notice is given pursuant to this Article EIGHTH;
c) The number and class of shares of the Corporation owned, directly or indirectly, by the Person who gives the Notice;
d) The range of voting power (as specified in Section (6)(b)(1) of this Article EIGHTH) under which the proposed Control Share Acquisition would, if consummated, fall;
e) A description in reasonable detail of the terms of the proposed Control Share Acquisition; and
f) Representations, supported by reasonable information, that the proposed Control Share Acquisition would be consummated if shareholder approval is obtained and, if consummated, would not be contrary to law and that the Person who is giving the Notice has the financial capacity to make the proposed Control Share Acquisition.
(2) Call of Special Meeting of Shareholders. The Board of Directors of
the Corporation shall, within ten (10) days after receipt by the Corporation of
a Notice that complies with Section (1), call a special meeting of shareholders
to be held not later than fifty (50) days after receipt of the Notice by the
Corporation, unless the Person who delivered the Notice agrees to a later date,
to consider the proposed Control Share Acquisition; provided that the Board of
Directors shall have no obligation to call such a meeting if they make a
determination within ten (10) days after receipt of the Notice that (i) the
Notice was not given in good faith; (ii) the proposed Control Share Acquisition
would not be in the best interests of the Corporation and its shareholders or
(iii) the proposed Control Share Acquisition could not be consummated for
financial or legal reasons. Notwithstanding anything to the contrary contained
in clause (ii) of the immediately preceding sentence, the Board of Directors
shall call such special meeting of shareholders if the Control Share Acquisition
described in the Notice is for any and all shares of the Corporation, for cash,
at a price higher than the highest price at which shares of Common
Stock have been traded during the ninety (90) day period prior to the date on which the Corporation receives the Notice.
The Board of Directors may adjourn such special meeting of shareholders if prior to such meeting the Corporation has received a Notice from any other Person and the Board of Directors has determined that the Control Share Acquisition proposed by such other Person, or a merger, consolidation or sale of assets of the Corporation, should be presented to shareholders at an adjourned meeting or at a special meeting held at a later date.
For purposes of making a determination that a special meeting of shareholders should not be called pursuant to this Section (2), no such determination shall be deemed void or voidable with respect to the Corporation merely because one or more of its directors or officers who participated in deliberations regarding such determination may be deemed to be other than disinterested, if in any such case the material facts of the relationship giving rise to a basis for self-interest are known to the directors and the directors, in good faith reasonably justified by the facts, make such determination by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum. For purposes of this paragraph, "disinterested directors" shall mean directors whose material contacts with the Corporation are limited principally to activities as a director or shareholder. Persons who have material and recurring business or professional contacts with the Corporation shall not be deemed to be "disinterested directors" for purposes of this provision. A director shall not be deemed to be other than a "disinterested director" merely because he would no longer be a director if the proposed Control Share Acquisition were approved and consummated.
(3) Notice of Special Meeting. The Corporation shall, as promptly as practicable, give notice of the special meeting of shareholders called pursuant to Section (2) to all shareholders of record as of the record date set for such meeting. Such notice shall include or be accompanied by a copy of the Notice and by a statement of the Corporation, authorized by the Board of Directors, of its position or recommendation, or that it is taking no position or making no recommendation, with respect to the proposed Control Share Acquisition.
(4) Requirements for Approval. The Person who delivered the Notice may make the proposed Control Share Acquisition if both of the following occur:
(a) The shareholders of the Corporation authorize such
acquisition at the special meeting of shareholders called pursuant to
Section (2), at which meeting a quorum is present, by the affirmative
vote of a majority of the Voting Stock represented at such meeting in
person or by proxy and by a majority of the portion of such Voting
Stock represented at such meeting in person or by proxy excluding the
votes of Interested Shares. A quorum shall be deemed to be present at
such special meeting if at least a majority of the issued and
outstanding Voting Stock, and a majority of such Voting Stock excluding
Interested Shares, are represented at such meeting in person or by
proxy.
(b) Such acquisition is consummated, in accordance with the terms so authorized, not later than three hundred sixty (360) days following shareholder authorization of the Control Share Acquisition.
(5) Violations of Restriction. Any Voting Stock issued or transferred to any Person in violation of this Article EIGHTH shall hereinafter be called "Excess Shares." In the event that any Person acquires Excess Shares, then, in addition to any other remedies which the Corporation may have at law or in equity as a result of such acquisition, the Corporation shall have the right to treat the issuance or transfer of any such Excess Shares as null and void. In the event the Corporation is not permitted to treat an issuance or transfer of Excess Shares as null and void, such Excess Shares will be treated as the equivalent of treasury shares of the Corporation and, as such, holders of Excess Shares will hold such Excess Shares as agent of the Corporation and shall have no right to exercise or receive the benefits of shareholder rights appurtenant to such Excess Shares. In such event, the Corporation may redeem any or all Excess Shares, arrange a sale to one or more purchasers who could acquire such Excess Shares without violating this Article EIGHTH, or seek other appropriate remedies. In addition, any Person who receives dividends, interest or any other distribution with respect to Excess Shares shall hold the same as agent for the Corporation and, following a permitted transfer, for the transferee thereof. Notwithstanding the foregoing, any person who holds Excess Shares may transfer the same (together with any distributions thereon) to any Person who, following such transfer, would not own shares in violation of this Article EIGHTH. Upon such permitted transfer, the Corporation shall pay or distribute to the transferee any distributions on the Excess Shares not previously paid or distributed.
(6) Definitions. As used in this Article EIGHTH:
(a) "Person" includes, without limitation, an individual, a corporation (whether nonprofit or for profit), a partnership, an unincorporated society or association, and two or more persons having a joint or common interest.
(b)(1) "Control Share Acquisition" means the acquisition, directly or indirectly, by any Person, of shares of the Corporation that, when added to all other shares of the corporation in respect of which such Person, directly or indirectly, may exercise or direct the exercise of voting power as provided in this paragraph, would entitle such Person, immediately after such acquisition, directly or indirectly, to exercise or direct the exercise of voting power of the Corporation in the election of directors within any of the following ranges of such voting power:
(i) One-fifth or more but less than one-third of such voting power;
(ii) One-third or more but less than a majority of such voting power; or
(iii) A majority of such voting power.
A bank, broker, nominee, trustee, or other Person who acquires shares in the ordinary course of business for the benefit of others in good faith and not for the purpose of circumventing this Article EIGHTH shall, however, be deemed to have voting power only of shares in respect of which such Person would be able to exercise or direct the exercise of votes at a special meeting of shareholders called pursuant to Section (2) of this Article EIGHTH without further instruction from others. For purposes of this Article EIGHTH, the acquisition of securities immediately convertible into shares of the Corporation with voting power in the election of directors shall be treated as an acquisition of such shares.
(b)(2) The acquisition of any shares of the Corporation does not constitute a Control Share Acquisition for the purposes of this Article EIGHTH if the acquisition is consummated in any of the following circumstances:
(i) By underwriters in good faith and not for the purpose of circumventing this Article EIGHTH in connection with any offering to the public of securities of the Corporation;
(ii) By bequest or inheritance, by operation of law upon the death of any individual, or by any other transfer without valuable consideration, including a gift, that is made in good faith and not for the purpose of circumventing this Article EIGHTH;
(iii) Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this Article EIGHTH;
(iv) Pursuant to a merger, consolidation, combination or majority share acquisition adopted or authorized by shareholder vote in compliance with the provisions of Article SEVENTH of these Articles of Incorporation and Sections 1701.78, 1701.79 or 1701.83 of the Ohio Revised Code if the Corporation is a party to the agreement of merger, consolidation or acquisition, as the case may be;
(v) Under such circumstances that the acquisition does not result in the Person acquiring shares of the Corporation being entitled, immediately thereafter and for the first time, directly or indirectly, to exercise or direct the exercise of voting power of the Corporation in the election of directors within the range of one-fifth or more but less than one-third of such voting power, or within any of the ranges of voting power specified in Section (6)(b)(1)(i), (ii) or (iii) which is higher than the range of voting power applicable to such Person immediately prior to such acquisition;
(vi) Prior to October 18, 1988; or
(vii) Pursuant to a contract existing prior to October 18, 1988.
The acquisition by any Person of shares of the Corporation in
a manner described under this Section (6)(b)(2) shall be deemed to be a
Control Share Acquisition authorized pursuant to this Article EIGHTH
within the range of voting power specified in Section (6)(b)(1)(i),
(ii) or (iii) that such Person is entitled to exercise after such
acquisition, provided that, in the case of an acquisition in a manner
described under Section (6)(b)(1)(i), (ii) or (iii), the transferor of
shares to such Person had previously obtained any authorization of
shareholders required under this Article EIGHTH in connection with such
transferor's acquisition of shares of the Corporation.
(b)(3) The acquisition of shares of the Corporation in good faith and not for the purpose of circumventing this Article EIGHTH from any Person whose Control Share Acquisition had previously been authorized by shareholders in compliance with this Article EIGHTH, or from any Person whose previous acquisition of shares would have constituted a Control Share Acquisition but for Section (6)(b)(2), does not constitute a Control Share Acquisition for the purpose of this Article EIGHTH unless such acquisition entitles any Person, directly or indirectly, alone or with others, to exercise or direct the exercise of voting power of the Corporation in the election of directors in excess of the range of such voting power authorized pursuant to this Article EIGHTH, or deemed to be so authorized under Section (6)(b)(2).
(c) "Interested Shares" means Voting Stock with respect to which any of the following persons may exercise or direct the exercise of the voting power:
(1) any Person whose Notice prompted the calling of a special meeting of shareholders pursuant to Section (2);
(2) any officer of the Corporation elected or appointed by the directors of the Corporation; and
(3) any employee of the Corporation who is also a director of the corporation.
(d) "Voting Stock" means all securities of the Corporation entitled to vote generally in the election of directors, and, for purposes of Sections (5) and (10) of this Article EIGHTH, shall mean securities of the Corporation immediately convertible into securities entitled to vote generally in the election of the directors.
(7) Proxies. No proxy appointed for or in connection with the shareholder authorization of a Control Share Acquisition pursuant to this Article EIGHTH is valid if it provides that it is irrevocable. No such proxy is valid unless it is sought, appointed, and received both:
(a) In accordance with all applicable requirements of law; and
(b) Separate and apart from the sale or purchase, contract or tender for sale or purchase, or request or invitation for tender for sale or purchase, of shares of the Corporation.
(8) Revocability of Proxies. Proxies appointed for or in connection with the shareholder authorization of a Control Share Acquisition pursuant to this Article EIGHTH shall be revocable at all times prior to the obtaining of such shareholder authorization, whether or not coupled with an interest.
(9) Amendments. Notwithstanding any other provisions of these Articles of Incorporation or the Regulations of the Corporation or any provision of law that might otherwise permit a lesser vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law, the Articles of Incorporation or the Regulations of the Corporation, the affirmative vote of the holders of at least eighty percent (80%) of the Voting Stock, voting as a single class, shall be required to alter, amend or repeal this Article EIGHTH or adopt any provisions in these Articles of Incorporation or the Regulations of the Corporation which are inconsistent with the provisions of this Article EIGHTH.
(10) Legend on Share Certificates. Each certificate representing Voting Stock of the Corporation shall contain the following legend:
Transfer of the securities represented by this Certificate is subject to the provisions of Article EIGHTH of the Corporation's Articles of Incorporation as the same may be in effect from time to time. Upon written request delivered to the Secretary of the Corporation at its principal place of business, the Corporation will mail to the holder of this Certificate a copy of such provisions without charge within five (5) days after receipt of written request therefor. By accepting this Certificate the holder hereof acknowledges that it is accepting same subject to the provisions of said Article EIGHTH as the same may be in effect from time to time and covenants with the Corporation and each holder thereof from time to time to comply with the provisions of said Article EIGHTH as the same may be in effect from time to time.
NINTH: The provisions of Section 1701.831 of the Ohio Revised Code, as amended from time to time, or any successor provision or provisions to said Section, shall not apply with respect to any particular Control Share Acquisition, as such is defined in said Section, regarding this Corporation so long as Article NINTH of these Articles of Incorporation, as such Articles of Incorporation may be amended from time to time, remains an Article of these Articles of Incorporation and remains substantially in full force and effect, disregarding any renumbering of such Article NINTH resulting from any amendment of these Articles of Incorporation.
TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation which may be contained in these articles of incorporation of a corporation organized under the laws of the State of Ohio, in the manner now or hereafter prescribed by statute or these Articles of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.
EXHIBIT 3(b)
CODE OF REGULATIONS
OF
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING.
All meetings of the shareholders shall be held at the offices of the Corporation in the City of Cleveland, Ohio, or elsewhere, within or without the State of Ohio, as may be decided from time to time by the Board of Directors and indicated in the notice of the meeting.
SECTION 2. ANNUAL MEETING.
The annual meeting of shareholders of the Corporation shall be held at 1:30 p.m., on the first Tuesday after the fifteenth day of October in each year, if not a legal holiday, but if a legal holiday, then on the next succeeding business day, or such other time and date as may be determined by the Board of Directors. Directors shall be elected thereat to succeed the directors whose terms are expiring that year, and such other business transacted as may be specified in the notice of the meeting, or as may properly be brought before the meeting. In the event that the annual meeting is not held or if directors are not elected thereat, a special meeting may be called and held for that purpose.
SECTION 3. SPECIAL MEETINGS.
Special meetings of the shareholders may be held on any business day when called by the Chairman of the Board, the President, the Board of Directors at a meeting, a majority of the directors acting without a meeting, or by holders of not less than fifty percent (50%) of the outstanding voting stock of the Corporation.
SECTION 4. NOTICE OF MEETINGS.
A written or printed notice of every annual or special meeting of the shareholders stating the time, place and purposes thereof shall be given to each shareholder entitled to vote thereat and to each shareholder entitled to notice as provided by law, which notice unless served upon a shareholder in person shall be mailed to his last address appearing on the records of the Corporation, not less than seven (7) days nor more than sixty (60) days prior to the date of the meeting. It shall be the duty of the Secretary to give written notice of the annual meeting, and of each special meeting when requested to do so by the officer, directors or shareholders calling such meeting. Any shareholder may waive in writing any notice of any meeting required to be given by law or under these Regulations and, by attendance or voting at any meeting without protesting the lack of proper notice, shall be deemed to have waived notice thereof.
SECTION 5. SHAREHOLDERS' LIST.
A complete list of the shareholders entitled to vote at a meeting of shareholders, arranged in alphabetical order, with the address of each and the number of shares held of record by each, shall be prepared by or at the instance of the Secretary and be available during the whole time of the meeting for inspection by any shareholder who is present.
SECTION 6. VOTING AND PROXIES.
At all meetings of shareholders, only such shareholders shall be entitled to vote, in person or by proxy, who appear upon the records of the Corporation as the holders of stock at the time possessing voting power, or if a record date be fixed as hereinafter provided, those appearing as such on such record date. Except as otherwise provided in the Corporation's Articles of Incorporation, at each meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing, subscribed by such shareholder and bearing a date not more than eleven (11) months prior to said meeting unless such instrument specifies the date on which it is to expire or the length of time it is to continue in force.
SECTION 7. QUORUM AND ADJOURNMENTS.
Except as may be otherwise required by law or by the Articles of Incorporation or by these Regulations, the holders of a majority of the then outstanding shares entitled to vote at a shareholders' meeting shall constitute a quorum to hold such meeting; provided, however, that any meeting duly called, whether a quorum is present or otherwise may, by vote of the holders of a majority of the voting stock represented thereat, adjourn from time to time and from place to place without notice other than by announcement at such meeting.
DIRECTORS
SECTION 8. NUMBER.
The number of directors of the Corporation may be determined by the vote of the holders of a majority of the shares represented at any annual meeting or special meeting called for the purpose of electing directors or by resolution adopted by affirmative vote of a majority of the directors then in office, provided that the number of directors shall in no event be fewer than nine (9) nor more than twelve (12). When so fixed, such number shall continue to be the authorized number of directors until changed by the shareholders or directors by vote as aforesaid. No decrease in the number of directors shall have the effect of removing any director prior to the expiration of the term for which he was elected.
SECTION 9. CLASSIFICATION, ELECTION AND TERM OF OFFICE.
The directors shall be divided into three (3) classes, designated Class 1, Class II and Class III, as nearly equal in size as possible, and one of the classes shall be elected for a three-year term of office at each annual shareholders meeting. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of such class, but in no case will a decrease in the number of directors in a particular class shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and his successor shall be elected and shall qualify, subject, however, to prior death, resignation, or removal from office.
SECTION 10. REMOVAL.
Except as otherwise provided by law, all the Directors or all the Directors of a particular class, or any individual Director, may be removed from office with or without assigning any cause, by the affirmative vote of at least eighty percent (80%) of the outstanding voting stock present in person or represented by proxy, entitled to vote in respect thereof, at an annual meeting or at any special meeting duly called.
SECTION 11. VACANCIES.
Whenever any vacancy shall occur among the directors, the
remaining Directors shall constitute the directors of the Corporation until such
vacancy is filled or until the number of Directors is changed pursuant to
Section 8 hereof. Except in cases where a Director is removed as provided by law
and these Regulations and his successor is elected by the shareholders, the
remaining directors may; by a vote of a majority of their number, fill any
vacancy for the unexpired term. A majority of the Directors then in office may
also fill any vacancy that results from an increase in the number of Directors.
SECTION 12. ORGANIZATION MEETING.
Immediately after each annual meeting of the shareholders, or each special meeting held in lieu thereof, the Board of Directors, including the newly elected members, if a quorum thereof is present, shall hold an organization meeting at the same place or at such other place within a 10 mile radius as may have been fixed by the Chairman of the Board or the President prior to such meeting of the shareholders, provided that the Directors and nominees present are advised of the different location, for the purpose of electing officers and transacting any other business. Notice of such meeting need not be given. If for any reason such organization meeting is not held at such time, a special meeting for such purpose shall be held as soon thereafter as practicable.
SECTION 13. REGULAR MEETINGS.
Regular meetings of the Board of Directors for the transaction of any business may be held at such times and places as may be determined by the Board of Directors. The Secretary shall give to each director at least five (5) days written notice of each such meeting.
SECTION 14. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be held at any time or place upon call by the Chairman of the Board, the President, or any five directors. Notice of each such meeting shall be given to each director by letter, telegram or telephone or in person not less than forty-eight (48) hours prior to such meeting; provided, however, that such notice shall be deemed to have been waived by the Directors attending or voting at any such meeting, without protesting the lack of proper notice, and may be waived in writing or by telegram by any Director either before or after such meeting. Unless otherwise limited in the notice thereof, any business may be transacted at any organization, regular or special meeting.
SECTION 15. QUORUM.
At all meetings of the Board of Directors a majority of the Directors in office at the time shall constitute a quorum for the transaction of business.
SECTION 16. COMPENSATION.
If so determined by the Board of Directors, all or any members of the Board of Directors or of any committee of the Board shall be paid for their services and given such benefits as may be determined from time to time by the Board of Directors; and such compensation may be in addition to that received by any director or any member of a committee as an officer or employee of the Corporation. Non-resident members may be reimbursed for expenses reasonably incurred by them in attending such meetings.
SECTION 17. APPOINTMENT.
The Board of Directors may from time to time, by resolution passed by a majority of the whole Board, appoint certain of its members, but not less than three (3) in any case, to act as a committee or committees in the intervals between meetings of the Board and may delegate to such committee or committees any of the authority of the Board, however conferred (subject to the control and direction of the Board) other than the power to fill any vacancy among the Directors or in any committee of the Directors. The authority of any committee of the directors shall be subject to any limitations and conditions set by the Board. Any act or authorization of an act by any such committee within the authority delegated to it shall be as effective for all purposes, as the act or authorized action of the Directors. All action or authorization of action by any committee shall be reported to the Board of Directors at its first meeting thereafter, and, if the rights of third parties have not intervened, shall be subject to revision or rescission by the Board. In every case, the affirmative vote of a majority or the consent of all of the members of
a committee shall be necessary for the approval of any action, but action may be taken by a committee without a formal meeting or written consent.
SECTION 18. EXECUTIVE COMMITTEE.
In particular, the Board of Directors may create from its membership and define the powers and duties of an Executive Committee. During the intervals between meetings of the Board of Directors, the Executive Committee shall possess and may exercise under the control and direction of the Board all of the powers of the Board of Directors in the management and control of the business of the Corporation. All action taken by the Executive Committee shall be reported to the Board of Directors at its first meeting thereafter, and, if the rights of third parties have not intervened, shall be subject to revision or rescission by the Board. In every case, the affirmative vote of a majority or the consent of all of the members of the Executive Committee shall be necessary for the approval of any action, but action may be taken by the Executive Committee without a formal meeting or written consent. The Executive Committee shall meet at the call of any member thereof.
OFFICERS
SECTION 19. OFFICERS DESIGNATED.
The officers of the Corporation shall be elected by the Board of Directors at their organization meeting or at a special meeting held in lieu thereof. The officers of the Corporation shall consist of the President, a Secretary and a Treasurer, and, if so determined by the Board of Directors, a Chairman of the Board, one or more Vice Presidents, a Controller and such other officers and assistant officers as the Board may determine. The Chairman of the Board shall be elected from among the directors. The other officers may, but need not be, elected from among the Directors. Any two offices may be held by the same person, but in any case where the action of more than one officer is required no one person shall act in more than one capacity.
SECTION 20. TENURE OF OFFICE.
The officers of the Corporation shall hold office until the next organization meeting of the Board of Directors and until their respective successors are chosen and qualified, except in case of resignation, death or removal. The Board of Directors may remove any officer at any time with or without cause by a majority vote of the directors in office at the time. A vacancy, however created, in any office may be filled by the Board of Directors.
SECTION 21. POWERS AND DUTIES OF OFFICERS IN GENERAL.
The powers and duties of the officers shall be exercised in all cases subject to such directions as the Board of Directors may see fit to give. The respective powers and duties
hereinafter set forth are subject to alteration by the Board of Directors. The Board of Directors is also authorized to delegate the duties of any officer to any other officer, employee or committee and to require the performance of duties in addition to those provided for herein.
SECTION 22. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at meetings of the Board of Directors and, if the Chairman of the Board is the chief executive officer of the Corporation, at meetings of the shareholders.
SECTION 23. PRESIDENT.
The President shall preside at all meetings of the shareholders and directors where the Chairman of the Board does not preside.
SECTION 24. VICE PRESIDENTS.
In the absence or disability of the President, the Vice Presidents, in the order designated by the Board of Directors, shall perform the duties of the President. If so determined by the Board of Directors, a Vice President may be designated as being in charge of a specified function or of a specified division.
SECTION 25. SECRETARY, TREASURER AND CONTROLLER.
The Secretary, the Treasurer and the Controller (if any) shall perform such duties as are indicated by their respective titles, subject to the provisions of Section 21 above. The Secretary shall have custody of the corporate seal, and shall have the duty to record the proceedings of the shareholders and directors in a book to be kept for that purpose.
SECTION 26. OTHER OFFICERS.
All other officers shall have such powers and duties as may be prescribed by the Board of Directors or, in the absence of their action, by the respective officers having supervision over them.
SECTION 27. COMPENSATION.
The Board of Directors is authorized to determine, or to provide the method of determining, or to empower a special committee of its members to determine, the compensation of all officers.
SECTION 28. SIGNING CHECKS AND OTHER INSTRUMENTS.
The Board of Directors is authorized to determine, or to provide the method of determining, the manner in which deeds, contracts and other obligations and instruments of the Corporation shall be signed. However, persons doing business with the Corporation shall be entitled to rely upon the action of the Chairman of the Board, the President, any Vice President, the Secretary, the Treasurer or the Controller in executing contracts and other obligations and instruments, other than deeds, of the Corporation as having been duly authorized and to rely upon the action of any two (2) of the Chairman of the Board, the President, any Vice President and the Secretary or any Assistant Secretary in executing deeds in the name of the Corporation as having been duly authorized. The Board of Directors of the Corporation is authorized to designate depositories of the funds of the Corporation and to determine, or provide the method of determining, the manner in which checks, notes, bills of exchange and similar instruments shall be signed, countersigned or endorsed.
INDEMNIFICATION
SECTION 29. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall indemnify any Director or officer, any former Director or officer of the Corporation and any person who is or has served at the request of the Corporation as a director, officer or trustee of another corporation, partnership, joint venture, trust or other enterprise (and his heirs, executors and administrators) against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him by reason of the fact that he is or was such director, officer or trustee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent and according to the procedures and requirements set forth in the Ohio General Corporation Law as the same may be in effect from time to time. The indemnification provided for herein shall not be deemed to restrict the right of the Corporation to (i) indemnify employees, agents and others as permitted by such Law, (ii) purchase and maintain insurance or provide similar protection on behalf of directors, officers or such other persons against liabilities asserted against them or expenses incurred by them arising out of their service to the Corporation as contemplated herein, and (iii) enter into agreements with such directors, officers, employees, agents or others indemnifying them against any and all liabilities (or such lesser indemnification as may be provided in such agreements) asserted against them or incurred by them arising out of their service to the Corporation as contemplated herein.
CORPORATE SEAL
SECTION 30.
The corporate seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation.
PROVISIONS IN ARTICLES OF INCORPORATION
SECTION 31. PROVISIONS IN ARTICLES OF INCORPORATION.
These Regulations are at all times subject to the provisions of the Articles of Incorporation of the Corporation as the same may be in effect from time to time.
LOST CERTIFICATES
SECTION 32. LOST CERTIFICATES.
The Directors may direct, or establish procedures for, the issuance of a new certificate in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon such terms and conditions as they may deem advisable.
RECORD DATES
SECTION 33. RECORD DATES.
For any lawful purpose, including, without limitation, the determination of the shareholders who are entitled to: (i) receive notice of or to vote at a meeting of shareholders; (ii) receive payment of any dividend or distribution; (iii) receive or exercise rights or purchase of or subscription for, or exchange or conversion of, shares or other securities, subject to contract rights with respect thereto; or (iv) participate in the execution of written consents, waivers, or releases, the directors may fix a record date which shall not be a date earlier than the date on which the record date is fixed and, in the cases provided for in clauses (i), (ii) and (iii) above, shall not be more than sixty (60) nor fewer than ten (10) days, unless the Articles of Incorporation specify a shorter or a longer period for such purpose, preceding the date of the meeting of the shareholders, or the date fixed for the payment of any dividend or distribution, or the date fixed for the receipt or the exercise of rights, as the case may be.
FISCAL YEAR
SECTION 34.
The fiscal year of the Corporation shall end on June 30 unless and until the Board of Directors shall otherwise determine.
AMENDMENTS
SECTION 35. AMENDMENTS.
(a) These Regulations may be altered, changed or amended in any respect or superseded by new Regulations in whole or in part, by the affirmative vote of the holders of a
majority of the voting stock of the Corporation present in person or by proxy at an annual or special meeting called for such purpose.
(b) Notwithstanding the provisions of Section 35(a) hereof and notwithstanding the fact that a lesser percentage may be specified by law or in any agreement with any national securities exchange or any other provision of these Regulations, the amendment, alteration, change or repeal of, or adoption of any provisions inconsistent with, Section 8, 9, or 10 of these Regulations shall require the affirmative vote of at least eighty percent (80%) of the outstanding voting stock of the Corporation, present in person or by proxy, at any annual meeting or special meeting duly called for the purpose of acting on any such amendment, alteration, change, repeal or adoption, unless such amendment, alteration, change, repeal or adoption has been recommended by at least two-thirds of the Board of Directors of the Corporation then in office, in which event the provisions of Section 35(a) hereof shall apply.
EXHIBIT 4(a)
CERTIFICATE OF MERGER
OF
BEARINGS, INC. (OHIO)
AND
BEARINGS, INC. (DELAWARE)
John R. Cunin and O. E. Seikel, being, respectively, the duly elected, qualified and acting Chairman and Secretary of Bearings, Inc., an Ohio corporation ("Bearings Ohio"), do hereby certify that the Agreement of Merger and Plan of Reorganization by and between Bearings, Inc., a Delaware corporation ("Bearings Delaware"), and Bearings Ohio, a copy of which is attached hereto as Exhibit A and made a part hereof, was authorized and approved pursuant to Ohio Revised Code Section 1701.801 by the Board of Directors of Bearings Ohio by unanimous action in writing without meeting dated September 6, 1988, and was executed by an authorized officer of Bearings Ohio effective September 6, 1988. Bearings Ohio will be the surviving corporation of the merger with Bearings Delaware and is a wholly owned subsidiary of Bearings Delaware and, in accordance with Ohio Revised Code Section 1701.801, no approval by the shareholder of Bearings Ohio is required for the adoption by Bearings Ohio of the Agreement of Merger and Plan of Reorganization attached hereto as Exhibit A.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of Merger this 18th day of October, 1988
BEARINGS, INC. (OHIO)
/s/ John R. Cunin -------------------------------------- John R. Cunin, Chairman /s/ O.E. Seikel -------------------------------------- O. E. Seikel, Secretary |
John R. Cunin and O. E. Seikel, being, respectively, the duly elected, qualified and acting Chairman and Secretary of Bearings, Inc., a Delaware corporation ("Bearings Delaware"), do hereby certify that the Agreement of Merger and Plan of Reorganization by and between Bearings, Inc., an Ohio corporation ("Bearings Ohio"), and Bearings Delaware, a copy of which is attached hereto as Exhibit A and made a part hereof, was authorized and approved pursuant to Ohio Revised Code Section 1701.801 and Section 253 of the Delaware Corporation Law by the Board of Directors of Bearings Delaware by unanimous action in writing without meeting dated September 2, 1988, and was executed by an authorized officer of Bearings Delaware effective September 6, 1988, and was submitted to the shareholders of Bearings Delaware entitled to vote thereon at a meeting called and held for such purpose on October 18, 1988, and that at such meeting a quorum was present and said Agreement of Merger and Plan of Reorganization was approved by the affirmative vote of the holders of a majority of the outstanding Common Stock of Bearings Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of Merger this 18th day of October, 1988
BEARINGS, INC. (DELAWARE)
/s/ John R. Cunin -------------------------------------- John R. Cunin, Chairman /s/ O.E. Seikel -------------------------------------- O. E. Seikel, Secretary |
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION ("Merger Agreement") is entered into as of September 6, 1988, by and between BEARINGS, INC., a Delaware corporation ("Bearings") and Bearings, Inc., an Ohio corporation ("New Bearings"; and together with Bearings sometimes collectively referred to as the "Constituent Corporations").
WITNESSETH:
Bearings, as the sole shareholder of New Bearings, desires to effect a merger of Bearings with and into New Bearings pursuant to the provisions of the General Corporation Law of the State of Delaware (the "DGCL") and the General Corporation Law of the State of Ohio (the "OGCL").
The authorized capital stock of New Bearings consists of (a) 100 shares of Common Stock, without par value, all of which are issued and outstanding and all of which are owned by Bearings and (b) 100 shares of Preferred Stock, without par value, none of which are issued or outstanding.
The respective Boards of Directors of the Constituent Corporations have determined that it is advisable and in the best interests of each of such corporations that Bearings merge with and into New Bearings upon the terms and subject to the conditions herein provided.
The Board of Directors of New Bearings has, by resolutions duly adopted, approved this Merger Agreement and directed that it be executed by the undersigned officers of New Bearings.
The Board of Directors of Bearings has, by resolutions duly adopted, approved this Merger Agreement and directed that it be executed by the undersigned officers of Bearings and that it be submitted to a vote of the stockholders of Bearings.
In consideration of the mutual agreements contained herein, the parties agree that Bearings shall be merged into New Bearings and that the terms and conditions of the merger, the mode of carrying the merger into effect, the manner of converting the shares of the Constituent Corporations and certain other provisions relating thereto shall be as hereinafter set forth.
ARTICLE I
THE MERGER
1.01 Surviving Corporation. Subject to the terms and provisions of this Merger Agreement, and in accordance with the DGCL and the OGCL, at the Effective Time (as defined in Section 1.09 hereof) Bearings shall be merged with and into New Bearings (the "Merger").
New Bearings shall be the surviving corporation (hereinafter sometimes called the "Surviving Corporation") of the Merger, and shall continue its corporate existence under the laws of the State of Ohio. At the Effective Time, the separate corporate existence of Bearings shall cease.
1.02 Effect of the Merger. At the Effective Time, the Merger shall have the effects provided for herein and in Section 1701.82 of the OGCL and Section 259 of the DGCL.
1.03 Articles of Incorporation. Prior to the Effective Time, the Articles of Incorporation of New Bearings shall be amended and restated so as to increase the number of shares of New Bearings' authorized Common Stock, without par value, to 15,000,000 and to increase the number of shares of New Bearings' authorized Preferred Stock, without par value, to 2,500,000. The Articles of Incorporation of New Bearings as so amended and restated and in effect immediately prior to the Effective Time are attached hereto as Exhibit 1 and shall be the Articles of Incorporation of the Surviving Corporation at and after the Effective Time until thereafter duly altered, amended or repealed in accordance with the provisions thereof and applicable law.
1.04 Code of Regulations. The Code of Regulations of New Bearings in effect immediately prior to the Effective Time, attached hereto as Exhibit 2, shall be the By-laws of the Surviving Corporation at and after the Effective Time until thereafter duly altered, amended or repealed in accordance with the provisions thereof, the Articles of Incorporation and applicable law.
1.05 Directors of the Surviving Corporation. Time the persons who were the directors of Bearings immediately prior to the Effective Time shall become the directors of the Surviving Corporation for the balance of the terms for which such persons were elected as directors of Bearings and until their successors are duly elected and qualified in the manner provided in the By-laws of the Surviving Corporation or as otherwise provided by law or until his earlier death, resignation or removal in the manner provided in the By-laws of the Surviving Corporation or as otherwise provided by law.
1.06 Officers of the Surviving Corporation. The persons who were the officers of Bearings immediately prior to the Effective Time shall be the officers of Surviving Corporation and each of them shall hold the same offices in the Surviving Corporation, in accordance with the By-laws thereof, as he held in Bearings immediately prior to the Effective Time.
1.07 Effect on Bearings' Stockholder Rights Plan. At the Effective Time, the rights ("Rights") issued under Bearings' Stockholders Rights Plan ("Rights Plan"), which currently accompany shares of Common Stock of Bearings, will be redeemed at $.01 per Right, and the Rights Plan will be terminated.
1.08 Cumulative Voting. At and after the Effective Time no holder of shares of New Bearings will be entitled to vote cumulatively in the election of directors.
1.09 Effective Time. The Merger shall become effective, in accordance with the provisions of Section 1701.81 of the OGCL and Section 253 of the DGCL, upon the later to occur of (a) the filing of a certificate of merger with the Secretary of State of Ohio, or (b) the filing of a certificate of merger with the Secretary of State of Delaware. The date and time when the Merger shall become effective is herein referred to as the "Effective Time".
1.10 Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, title to and possession of any property or right of Bearings
acquired or to be acquired by reason of, or as a result of, the Merger, or (b)
otherwise to carry out the purposes of this Merger Agreement, Bearings and its
proper officers and directors shall be deemed to have granted hereby to the
Surviving Corporation an irrevocable power of attorney to execute and deliver
all such proper deeds, assignments and assurances in law and do all things
necessary or proper to vest, perfect, or confirm title to and possession of such
property or rights in the Surviving Corporation and otherwise to carry out the
purposes of this Merger Agreement; and the proper officers and directors of the
Surviving Corporation are hereby fully authorized in the name of Bearings or
otherwise to take any and all such actions.
ARTICLE II
MANNER, BASIS AND EFFECT OF CONVERTING SHARES
2.01 Conversion of Shares. At the Effective Time:
(a) Each share of Common Stock of Bearings, without nominal or par value ("Delaware Common Stock"), issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into one fully paid and nonassessable share of common stock of New Bearings, without par value ("Ohio Common Stock");
(b) Each share of Delaware Common Stock held in the treasury of Bearings immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Bearings, be converted into one fully paid and nonassessable share of Ohio Common Stock and shall be held in the treasury of the Surviving Corporation; and
(c) Each share of Ohio Common Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled and retired and shall cease to exist.
2.02 Effect of Conversion. At and after the Effective Time, each share certificate which immediately prior to the Effective Time represented outstanding shares of Delaware Common Stock shall be deemed for all purposes to evidence ownership of, and to represent, the
number of shares of Ohio Common Stock into which the shares of Delaware Common Stock represented by such certificate immediately prior to the Effective Time have been converted pursuant to Section 2.01 hereof. The registered owner of a certificate representing Delaware Common Stock outstanding immediately prior to the Effective Time, as such owner appears in the books and records of Bearings or its transfer agent immediately prior to the Effective Time, shall, until such certificate is surrendered for transfer or exchange, have and be entitled to exercise any voting and other rights with respect to and, subject to Section 2.03 hereof, to receive any dividends or other distributions on the shares of Ohio Common Stock into which the shares represented by any such certificate have been converted pursuant to Section 2.01 hereof.
2.03 Exchange of Certificates. Each holder of a share certificate representing Delaware Common Stock shall, upon the surrender of such certificate to New Bearings or its transfer agent for cancellation after the Effective Time, be entitled to receive from New Bearings or its transfer agent a certificate representing the number of shares of Ohio Common Stock into which the Delaware Common Stock represented by the certificate so surrendered have been converted pursuant to Section 2.01 hereof. The Board of Directors of New Bearings may adopt such further procedures providing for New Bearings to withhold dividend payments to shareholders who have not delivered their certificates representing Delaware Common Stock for exchange within such time as the Board of Directors of New Bearings may establish, as it deems necessary or desirable for the purpose of administering the exchange of certificates contemplated by this Section 2.03 in a manner consistent with the provisions of the Articles of Incorporation and Regulations of New Bearings as in effect from and after the Effective Time.
2.04 Effect on Bearings Stock Option Plan and Other Employee Benefit Plans. Bearings 1982 Stock Option Plan will be continued and each outstanding option, issued pursuant thereto will be converted into an option to purchase the same number of shares of Ohio Common Stock as the number of shares of Delaware Common Stock which are purchasable under each such option, at the same option price per share and upon the same terms and subject to the same conditions as are in effect immediately prior to the Effective Time. Other employee benefit plans and arrangements of Bearings will be continued upon the same terms and subject to the same conditions except that where shares of Delaware Common Stock are permitted to be contributed to or purchased thereunder references to the Delaware Common Stock shall be deemed to be references to Ohio Common Stock.
ARTICLE III
APPROVAL; AMENDMENT; TERMINATION,MISCELLANEOUS
3.01 Approval. This Merger Agreement shall be submitted for approval by the stockholders of Bearings at an annual or special meeting of stockholders.
3.02 Waiver and Amendment. Subject to applicable law, this Merger Agreement may be amended, modified or supplemented by written agreement of the Constituent Corporations
at any time prior to the Effective Time; provided, however, that after a favorable vote by the shareholders or stockholders of a Constituent Corporation any such action shall be taken by that Constituent Corporation only if such action would not (a) alter or change the amount or kind of shares to be received by stockholders in the Merger, (b) alter or change any term of the Articles of Incorporation or Code of Regulations of New Bearings, or (c) alter or change any of the terms and conditions of this Merger Agreement if such alteration or change would adversely affect the shareholders or stockholders of either Constituent Corporation.
3.03 Abandonment. At any time prior to the Effective Time, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of either of Bearings or New Bearings, notwithstanding approval of this Merger Agreement by the stockholders of Bearings or the sole shareholder of New Bearings, or both.
3.04 Counterparts. This Merger Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and the same agreement.
3.05 Statutory Agents. The name and address of the statutory agent in Ohio upon whom any process, notice, or demand against Bearings or the Surviving Corporation may be served is as follows:
Bearings, Inc. c/o CT Corporation System 815 Superior Avenue, N.E.
Cleveland, Ohio 44114
3.06 Designated Agent in Delaware. The Surviving Corporation agrees that it may be served with process in the State of Delaware in any proceeding for enforcement of any obligation of Bearings, as well as for enforcement of any obligation of the Surviving Corporation arising from the Merger, and the Surviving Corporation irrevocably appoints the Delaware Secretary of State as its agent to accept service of process in any such suit or other proceedings; a copy of such process shall be mailed by the Delaware Secretary of State to:
Bearings, Inc. c/o CT Corporation System 815 Superior Avenue, N.E.
Cleveland, Ohio 44114
IN WITNESS WHEREOF, the parties to this Merger Agreement, pursuant to the approval and authority duly given by resolutions adopted by their respective Boards of Directors, have each caused this Merger Agreement to be executed and attested by its President and Chairman.
BEARINGS, INC. (a Delaware Corporation) Attest:
/s/ John R. Cunin
- --------------------------------- By /s/ George L. LaMore
John R. Cunin, Chairman --------------------------------------
George L. LaMore, President
BEARINGS, INC. (an Ohio Corporation)
Attest:
/s/ John R. Cunin By /s/ George L. LaMore
- --------------------------------- -------------------------------------
John R. Cunin, Chairman George L. LaMore, President
8
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CONFORMED EXECUTION COPY
Exhibit 4(b)
BEARINGS, INC.
NOTE PURCHASE AND PRIVATE SHELF FACILITY
WITH
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
$80,000,000 MAXIMUM AGGREGATE PRINCIPAL AMOUNT
Dated as of October 31, 1992,
As Amended on November 27, 1996
TABLE OF CONTENTS
(Not Part of Agreement)
Page
1. AUTHORIZATION OF ISSUE OF PRIVATE SHELF NOTES......................... 1
2. PURCHASE AND SALE OF NOTES............................................ 1
3. CONDITIONS OF CLOSING................................................. 5
4. PREPAYMENTS........................................................... 6
5. AFFIRMATIVE COVENANTS................................................. 7
6. NEGATIVE COVENANTS.................................................... 9
7. EVENTS OF DEFAULT..................................................... 12
8. REPRESENTATIONS, COVENANTS AND WARRANTIES............................. 15
9. REPRESENTATIONS OF THE PURCHASERS..................................... 18
10. DEFINITIONS........................................................... 19
11. MISCELLANEOUS......................................................... 25
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PURCHASER SCHEDULE
EXHIBIT A -- FORM OF PRIVATE SHELF NOTE
EXHIBIT B -- FORM OF REQUEST FOR PURCHASE
EXHIBIT C -- FORM OF CONFIRMATION OF ACCEPTANCE
EXHIBIT D-1 -- FORM OF OPINION OF COMPANY'S SPECIAL COUNSEL
(Initial Closing)
EXHIBIT D-2 -- FORM OF OPINION OF COMPANY'S COUNSEL
(Private Shelf Note Closings)
EXHIBIT E -- LIST OF AGREEMENTS RESTRICTING DEBT
EXHIBIT F -- LIST OF SUBSIDIARIES
EXHIBIT G -- LIST OF ENCUMBRANCES
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BEARINGS, INC.
3600 Euclid Avenue
Cleveland, Ohio 44115-2515
As of October 31, 1992,
As Amended on November 27, 1996
To: The Prudential Insurance Company
of America (herein called "PRUDENTIAL")
Each Prudential Affiliate which becomes bound by this Agreement as
hereinafter provided (together with Prudential, the "PURCHASERS")
c/o Prudential Capital Group
9700 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Gentlemen:
The undersigned, Bearings, Inc., an Ohio corporation (herein called the "COMPANY"), hereby agrees with you as set forth below. Reference is made to paragraph 10 hereof for definitions of capitalized terms used herein and not otherwise defined herein.
1. AUTHORIZATION OF ISSUE OF PRIVATE SHELF NOTES. The Company will authorize the issue of its senior promissory notes (herein called the "PRIVATE SHELF NOTES") in the aggregate principal amount of $80,000,000, to be dated the date of issue thereof, to mature, in the case of each Private Shelf Note so issued, no less than seven (7) years and no more than fifteen (15) years after the issuance thereof (and, unless otherwise agreed by the Company, Prudential and the applicable Purchasers, have an average life of approximately 6.75 years), to bear interest on the unpaid balance thereof from the date thereof at the rate per annum (and to have such other particular terms consistent with the terms of this Agreement) as shall be set forth in the Confirmation of Acceptance with respect to such Private Shelf Note delivered pursuant to paragraph 2E, and to be substantially in the form of Exhibit A attached hereto. The terms "PRIVATE SHELF NOTE" and "PRIVATE SHELF NOTES" as used herein shall include each Private Shelf Note delivered pursuant to any provision of this Agreement and each Private Shelf Note delivered in substitution or exchange for any such Private Shelf Note pursuant to any such provision. The terms "NOTE" or "NOTES" as used herein shall include each Private Shelf Note (whether designated a Series A Note, Series B Note or Series C Note, etc.) delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. Notes which have (i) the same final maturity, (ii) the same principal prepayment dates, (iii) the same principal prepayment amounts (as a percentage of the original principal amount of each Note), (iv) the same interest rate, (v) the same interest payment periods, and (vi) which are otherwise designated a "Series" hereunder or in the Confirmation of Acceptance whether or not the foregoing conditions are satisfied, are herein called a "SERIES" of Notes.
2. PURCHASE AND SALE OF NOTES.
2A. FACILITY. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties set forth herein, Prudential agrees to purchase and the Company agrees to issue Private Shelf Notes pursuant to the terms of this Agreement in an aggregate principal amount of $80,000,000 in increments of at least
$40,000,000 on or before December 24, 1992 (the "ISSUANCE PERIOD"). Prudential's agreement to purchase Private Shelf Notes hereunder is referred to herein as the "FACILITY". At any time, $80,000,000 minus the aggregate principal amount of Private Shelf Notes purchased and sold pursuant to this Agreement prior to such time is herein called the "AVAILABLE FACILITY AMOUNT" at such time. A maximum of two (2) draws may be made under the Facility which shall automatically expire concurrently with the second draw hereunder. Prudential agrees to use reasonable efforts to facilitate the prompt completion of the procedures specified in this Agreement for draws under the Facility.
2B. PERIODIC SPREAD INFORMATION. Not later than 9:30 A.M. (New York City local time) on a Business Day during the Issuance Period if there is an Available Facility Amount on such Business Day, the Company may request by telecopier or telephone, and within a reasonable time after such request, Prudential will, to the extent reasonably practicable, provide to the Company on such Business Day (or, if such request is received after 9:30 A.M. (New York City local time) on such Business Day, on the following Business Day), information (by telecopier or telephone) with respect to various spreads at which Prudential or Prudential Affiliates will consider purchasing Private Shelf Notes.
2C. REQUEST FOR PURCHASE. The Company may from time to time during the Issuance Period make requests for purchases of Private Shelf Notes (each such request being herein called a "REQUEST FOR PURCHASE"). Each Request for Purchase shall be made to Prudential by telecopier and confirmed by nationwide overnight delivery service, and shall (i) specify the aggregate principal amount of Private Shelf Notes covered thereby, which shall not be less than $40,000,000 and shall not be greater than the Available Facility Amount at the time such Request for Purchase is made, (ii) specify the final maturities, principal payment dates and amounts and interest payment periods (quarterly in arrears) of the Private Shelf Notes covered thereby, (iii) specify the use of proceeds of such Private Shelf Notes, (iv) specify the proposed day for the closing of the purchase and sale of such Private Shelf Notes, which shall be a Business Day during the Issuance Period not more than thirty (30) days after the making of such Request for Purchase and in any event no more than ten (10) days after any Acceptance with respect to such Request for Purchase under paragraph 2E, (v) specify the number of the account and the name and address of the depository institution to which the purchase prices of such Private Shelf Notes are to be transferred on the Private Shelf Closing Day for such purchase and sale, (vi) certify that the representations and warranties contained in paragraph 8 hereof are true on and as of the date of such Request for Purchase except to the extent of changes caused by the transactions herein contemplated and that there exists on the date of such Request for Purchase no Event of Default or Default (and that no Event of Default or Default shall arise as the result of the purchase and sale of such Private Shelf Notes), and (vii) be substantially in the form of Exhibit B attached hereto. Each Request for Purchase shall be in writing and shall be deemed made when received by Prudential.
2D. RATE QUOTES. As soon as practicable and in any event not later than five (5) Business Days after the Company shall have given Prudential a Request for Purchase pursuant to paragraph 2C, Prudential shall provide (by telephone and promptly thereafter confirmed by telecopier, in each case no earlier than 9:30 A.M. and no later than 1:00 P.M. New York City local time) interest rate quotes for the several principal amounts, maturities, prepayment schedules and interest payment periods of Private Shelf Notes specified in such Request for Purchase. Each quote shall represent the interest rate per annum payable on the outstanding principal balance of such Private Shelf Notes until such balance shall have become due and payable, at which Prudential or a Prudential Affiliate would be willing to purchase such Private Shelf Notes at 100% of the principal amount thereof. Such rate quotes shall be made and determined by Prudential in accordance with the internal methods and
procedures used by Prudential to price comparable transactions with companies similarly situated with similar credit risks.
2E. ACCEPTANCE. Within one hour after Prudential shall have provided any interest rate quotes pursuant to paragraph 2D or such shorter period as Prudential may reasonably specify to the Company (such period herein called the "ACCEPTANCE WINDOW"), the Company may, subject to the terms of paragraph 2F, elect to accept such interest rate quotes as to not less than $40,000,000 aggregate principal amount of the Private Shelf Notes specified in the applicable Request for Purchase. Such election shall be made by an Authorized Officer of the Company notifying Prudential by telephone or telecopier within the Acceptance Window (but not earlier than 9:30 A.M. or later than 2:00 P.M., New York City local time) that the Company elects to accept such interest rate quotes, specifying the Private Shelf Notes (each such Private Shelf Note being herein called an "ACCEPTED NOTE") as to which such acceptance (herein called an "ACCEPTANCE") relates. The day the Company notifies Prudential of an Acceptance with respect to any Accepted Notes is herein called the "ACCEPTANCE DAY" for such Accepted Notes. Any interest rate quotes as to which Prudential does not receive an Acceptance within the Acceptance Window shall expire, and no purchase or sale of Private Shelf Notes hereunder shall be made based on such expired interest rate quotes. In the event the closing with respect to any Accepted Notes fails to occur within ten (10) days of the Acceptance Day for any reason (other than Prudential's failure to fund the purchase price of the Private Shelf Notes after all conditions to closing specified in paragraph 3A have been satisfied on or before 11:30 A.M. New York City local time on the last Business Day preceding the end of such ten day period), the interest rate applicable to such Accepted Notes may increase based upon the costs of the delayed closing to Prudential as reasonably determined by Prudential. Subject to paragraph 2F and the other terms and conditions hereof, the Company agrees to sell to Prudential or a Prudential Affiliate, and Prudential agrees to purchase, or to cause the purchase by a Prudential Affiliate of, the Accepted Notes at 100% of the principal amount of such Notes. Prior to the close of business on the Business Day next following the Acceptance Day, the Company, Prudential and each Prudential Affiliate which is to purchase any such Accepted Notes will execute a confirmation of such Acceptance substantially in the form of Exhibit C attached hereto (herein called a "CONFIRMATION OF ACCEPTANCE").
2F. Market Disruption. Notwithstanding the provisions of paragraph 2E, if Prudential shall have provided interest rate quotes pursuant to paragraph 2E and thereafter, prior to the time an Acceptance with respect to such quotes shall have been notified to Prudential in accordance with paragraph 2E, there shall occur a general suspension, material limitation, or significant disruption of trading in securities generally on the New York Stock Exchange or in the market for U.S. Treasury securities and other financial instruments, then such interest rate quotes shall expire, and no purchase or sale of Private Shelf Notes hereunder shall be made based on such expired interest rate quotes. If the Company thereafter notifies Prudential of the Acceptance of any such interest rate quotes, such Acceptance shall be ineffective for all purposes of this Agreement, and Prudential shall promptly notify the Company that the provisions of this paragraph 2F are applicable with respect to such Acceptance.
2G. PRIVATE SHELF CLOSING. Not later than 11:30 A.M. (New York City local time) on the Private Shelf Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at the offices of Prudential Capital Group, 9700 Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606 Attention: Law Department, the Private Shelf Notes to be purchased by such Purchaser in the form of a single Accepted Note for the Accepted Notes which have exactly the same terms (or such greater number of Notes in authorized denominations as such Purchaser may request) dated the Private Shelf Closing Day and registered in such
Purchaser's name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the Company's account specified in the Request for Purchase of such Private Shelf Notes. If the Company fails to tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on the scheduled Private Shelf Closing Day for such Accepted Notes as provided above in this paragraph 2G, or any of the conditions specified in paragraph 3A shall not have been fulfilled by the time required on such scheduled Private Shelf Closing Day, the Company shall, prior to 1:00 P.M., New York City local time, on such scheduled Private Shelf Closing Day notify such Purchaser in writing whether (x) such closing is to be rescheduled (such rescheduled date to be a Business Day during the Issuance Period not less than one Business Day and not more than 30 Business Days after such scheduled Private Shelf Closing Day (the "RESCHEDULED CLOSING DAY")) and certify to such Purchaser that the Company reasonably believes that it will be able to comply with the conditions set forth in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the Delayed Delivery Fee, if any, in accordance with paragraph 2H(2) or (y) such closing is to be canceled as provided in paragraph 2H(3). In the event that the Company shall fail to give such notice referred to in the preceding sentence, such Purchaser may at its election, at any time after 1:00 P.M., New York City local time, on such scheduled Private Shelf Closing Day, notify the Company in writing that such closing is to be canceled as provided in paragraph 2H(3).
2H. FEES.
2H(1). FACILITY FEE. The Company agrees to pay Prudential in immediately available funds a fee (the "FACILITY FEE") on December 24, 1992 in an amount equal to one-eighth of one percent (.125%) of the Unused Facility Amount which will exist as of the close of business on such date; provided, however, that the Facility Fee shall be canceled if the Unused Facility Amount is less than or equal to $40,000,000 on December 24, 1992. The term "UNUSED FACILITY AMOUNT" shall mean, at any time, the Available Facility Amount at such time plus the aggregate principal amount of Accepted Notes which have not been purchased and sold hereunder prior to such time.
2H(2). DELAYED DELIVERY FEE. If the closing of the purchase and sale of any Accepted Note is delayed for any reason (other than Prudential's failure to fund the purchase price of the Accepted Notes after all conditions to closing specified in paragraph 3A have been satisfied on or before 11:30 A.M. New York City local time on the last Business Day preceding the 31st day after the Acceptance Day) beyond the original Closing Day for such Accepted Note, the Company will pay to Prudential on the last Business Day of each calendar month, commencing with the first such day to occur more than 30 days after the Acceptance Day for such Accepted Note and ending with the last such day to occur prior to the Cancellation Date or the actual closing date of such purchase and sale, and on the Cancellation Date or actual closing date of such purchase and sale (if such Cancellation Date or closing date occurs more than 30 days after the Acceptance Day for such Accepted Note), a fee (herein called the "DELAYED DELIVERY FEE") calculated as follows:
(BEY - MMY) X DTS/360 X Full Price
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note; "MMY" means Money Market Yield, i.e., the yield per
annum on an alternative investment selected by Prudential on the date Prudential
receives notice of the delay in the closing for such Accepted Notes having a
maturity date or dates the same as, or closest to, the Rescheduled Closing Day
or Rescheduled Closing Days (a new alternative investment being selected by
Prudential each time such closing is delayed); "DTS" means Days to Settlement,
i.e., the number of actual days elapsed from and including the thirty first day
after the Acceptance Day of such Accepted Note (in the case of the first such
payment
with respect to such Accepted Note) or from and including the date of the immediately preceding payment (in the case of any subsequent delayed delivery fee payment with respect to such Accepted Note) to but excluding the date of such payment; and "Full Price" means the principal amount, i.e., the principal amount of the Accepted Note for which such calculation is being made. If the Delayed Delivery Fee is zero or negative, there will be no Delayed Delivery Fee. Nothing contained herein shall obligate any Purchaser to purchase any Accepted Note on any day other than the Closing Day for such Accepted Note, as the same may be rescheduled from time to time in compliance with paragraph 2G.
2H(3). CANCELLATION FEE. If the Company at any time notifies Prudential in writing that the Company is canceling the closing of the purchase and sale of any Accepted Note, or if Prudential notifies the Company in writing under the circumstances set forth in the last sentence of paragraph 2G that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period (the date of any such notification, or the last day of the Issuance Period, as the case may be, being herein called the "CANCELLATION DATE"), the Company will pay Prudential in immediately available funds an amount (the "CANCELLATION FEE") calculated as follows:
PI X Full Price
where "PI" means Price Increase, i.e., the quotient (expressed in decimals) obtained by dividing (a) the excess of the ask price (as determined by Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid price (as determined by Prudential) of the Hedge Treasury Note(s) on the Acceptance Day for such Accepted Note by (b) such bid price; and "Full-Price" has the meaning set forth in paragraph 2H(2), above. The foregoing bid and ask prices shall be as reported by Telerate Systems, Inc. (or, if such data for any reason ceases to be available through Telerate Systems, Inc., any publicly available source of similar market data selected by Prudential). Each price shall be based on a U.S. Treasury security having a par value of $100.00 and shall be rounded to the second decimal place. If the Price Increase is zero or negative, there will be no Cancellation Fee.
3. CONDITIONS OF CLOSING. Prudential's and any Purchaser's obligation to purchase and pay for any Private Shelf Notes, is subject in each case to the satisfaction, on or before the applicable Closing Day for such Notes, of the conditions set forth in paragraph 3A and the Company's obligation to issue any Private Shelf Note is subject to the conditions set forth in paragraph 3B.
3A(1). OPINION OF COMPANY'S COUNSEL. On the Initial Closing Day, Prudential shall have received from Thompson, Hine and Flory, special counsel for the Company, a favorable opinion satisfactory to Prudential and substantially in the form of Exhibit D-1 attached hereto.
3A(2). OPINION OF COMPANY'S COUNSEL. On each Private Shelf Closing Day, each Purchaser shall have received from Robert C. Stinson, Esq., general counsel of the Company (or other counsel reasonably acceptable to the Purchasers), a favorable opinion satisfactory to the Purchasers and substantially in the form of Exhibit D-2 attached hereto.
3A(3). REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph 8 hereof shall be true on and as of the applicable Closing Day, except to the extent of changes caused by the transactions herein contemplated; there shall exist on the applicable Closing Day no Event of Default or Default; and the Company shall have delivered to each Purchaser an Officer's Certificate, dated the applicable Closing Day, to both such effects.
3A(4). FEES. On or before each Private Shelf Closing Day, the Company shall have paid in full to Prudential any fee required by paragraph 2H(1) and to the Purchasers any fee required by paragraph 2H(2) or 2H(3).
3A(5). PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Notes to be purchased on the applicable Closing Day on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject any Purchaser to any material tax (other than ordinary income taxes), material penalty, material liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as such Purchaser may have requested no less than 5 days before any scheduled closing to establish compliance with this condition.
3A(6). LEGAL MATTERS. Counsel for the Purchasers shall be satisfied as to all legal matters in all material respects relating to such purchase and sale.
3A(7). PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in substance and form to each Purchaser, and each Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request.
3A(8). SALE OF NOTES OF SAME SERIES TO OTHER PURCHASERS. The Company shall have tendered to the other Purchasers (if any) the Notes of the same Series to be purchased by them at the closing.
3B. CONDITIONS TO COMPANY'S OBLIGATION UNDER PARAGRAPH . The Company's obligation to issue Private Shelf Notes shall be subject to the following conditions:
(i) the rate quotes provided by Prudential to the Company pursuant to paragraph 2D shall not exceed 131 basis points above the interpolated Treasury rate corresponding to the weighted average life of the applicable Notes;
(ii) in the event that the interest rate quote provided by Prudential to the Company pursuant to paragraph 2D equals or exceeds 9.63% per annum, then the Company's obligation to offer Notes for purchase in an aggregate principal amount of $80,000,000 under paragraph 1 shall be reduced to $20,000,000;
(iii) if the conditions specified in paragraph 2F are applicable, then the Company's obligations to offer Notes for purchase under paragraph 2A shall be suspended until such conditions are no longer applicable but the Company obligation to offer Notes shall in no event continue beyond January 31, 1993; and
(iv) after all conditions to closing under paragraph 3A have been satisfied, the applicable Purchaser shall fund the purchase price of the Notes on the applicable Closing Day.
4. PREPAYMENTS. The Notes shall be subject to prepayment with respect to the required prepayments specified in paragraph 4A and under the circumstances specified in paragraphs 4B and 4E.
4A. REQUIRED PREPAYMENT OF PRIVATE SHELF NOTES. Until each respective Series of Private Shelf Notes shall be paid in full, each respective Series of Private Shelf Notes shall be subject to such required prepayments, if any, as are specified for such Series of Private Shelf Notes in accordance with the provisions of paragraph 2C hereof. Any prepayment made by the Company pursuant to any other provision of this paragraph 4 shall not reduce or otherwise affect its obligation to make any prepayment as specified in the respective Series of Private Shelf Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. Subject to the limitations set forth below, the Notes shall be subject to prepayment, in whole at any time or from time to time in part (in $100,000 increments and not less than $2,000,000 per occurrence), at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each Note so prepaid. Any partial prepayment of the Notes pursuant to this paragraph 4B shall be applied in satisfaction of required payments of principal in the inverse order of their scheduled due dates.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give to the holder
of each Note of a Series irrevocable written notice of any optional prepayment
pursuant to paragraph 4B with respect to such Series not less than 30 days prior
to the prepayment date, specifying (i) such prepayment date, (ii) the aggregate
principal amount of the Notes of such Series to be prepaid on such date, (iii)
the principal amount of the Notes of such holder to be prepaid on that date, and
(iv) stating that such optional prepayment is to be made pursuant to paragraph
4B. Notice of optional prepayment having been given as aforesaid, the principal
amount of the Notes specified in such notice, together with interest thereon to
the prepayment date and together with the Yield-Maintenance Amount, if any, with
respect thereto, shall become due and payable on such prepayment date.
4D. PARTIAL PAYMENTS PRO RATA. In the case of each prepayment pursuant to paragraphs 4A or 4B of less than the entire unpaid principal amount of all outstanding Notes of any Series, the amount to be prepaid shall be applied pro rata to all outstanding Notes of such Series (including, for the purpose of this paragraph 4D only, all Notes of such Series prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates other than by prepayment pursuant to paragraphs 4A or 4B) according to the respective unpaid principal amounts thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than (i) by prepayment pursuant to paragraphs 4A or 4B or (ii) upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, except as provided in paragraph 4D. In the event that (i) the Company at any time requests in writing the approval by the holders of the Notes of a merger, acquisition, recapitalization or reorganization, the consummation of which would result in an Event of Default or Default hereunder, and (ii) the Required Holders shall have failed to grant such approval within ninety (90) days of the date of such written request, then the Company may, subject to the terms of the first sentence of this paragraph 4E and simultaneously with the consummation of such prohibited transaction, prepay the Notes of the nonconsenting holders at 100% of the principal amount so prepaid plus interest thereon to the
prepayment date and the Yield-Maintenance Amount, if any, with respect to such Note within one hundred fifty (150) days of the date of the written request.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 60 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i);
(ii) as soon as practicable and in any event within 120 days after the end of each fiscal year, consolidated statements of income, stockholders' equity, and cash flows of the Company and its Subsidiaries for such year, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Required Holder(s) and, reported on by independent public accountants of recognized national standing selected by the Company whose report shall be without limitation as to scope of the audit and satisfactory in substance to the Required Holder(s); provided, however, that delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii);
(iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission), excluding registration statements on Form S-8;
(iv) promptly upon receipt thereof, a copy of each other report submitted to the Company or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary; and
(v) with reasonable promptness, such other financial data as such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Subsidiaries with the provisions of paragraph 6 and stating
that, to the best of their knowledge based upon reasonable inquiry, there exists
no Event of Default or Default, or, if any Event of Default
or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each Significant Holder a report of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards.
The Company also covenants that immediately after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each Significant Holder an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit any Person designated by any Significant Holder in writing, at such Significant Holder's expense, to visit and inspect any of the properties of the Company and its Subsidiaries, to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants and, if a Default or Event of Default shall be continuing, to examine the corporate books and financial records of the Company and its Subsidiaries and obtain copies thereof or extracts therefrom, all at such reasonable times as the Company and such Significant Holder shall agree but in any event within three Business Days from request of any Purchaser and during normal business hours.
5D. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it
or any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6B(1) (unless the prior written consent to the
creation or assumption thereof shall have been obtained pursuant to paragraph
11C), it will make or cause to be made effective provision whereby the Notes
will be secured by such Lien equally and ratably with any and all other Debt
thereby secured so long as any such other Debt shall be so secured.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it and each Subsidiary shall maintain, with financially sound and reputable insurers, insurance in such amounts and against such liabilities and hazards as is ordinarily carried by companies similarly situated in the same or similar lines of business.
6. NEGATIVE COVENANTS. Unless the Required Holders shall otherwise consent in writing, the Company agrees to observe and perform each of the negative covenants set forth below so long as any Note shall remain outstanding.
6A(1). LIQUIDITY. The Company covenants that it will not permit Consolidated Current Assets less Consolidated Current Liabilities determined at the end of any fiscal quarter to fall below an amount equal to $125,000,000.
6A(2). CURRENT RATIO. The Company covenants that it will not permit the ratio (expressed as a percentage) of Consolidated Current Assets to Consolidated Current Liabilities determined at the end of any fiscal quarter to fall below 150%.
6A(3). CONSOLIDATED TANGIBLE NET WORTH. The Company covenants that it will not permit Consolidated Tangible Net Worth determined at the end of any fiscal quarter to fall below $115,000,000 PLUS an amount equal to 30% of annual Consolidated Net Income (less 0% in the event of a loss), applied at the end of each fiscal year commencing with the fiscal year ending June 30, 1996.
6B. CREDIT AND OTHER RESTRICTIONS. The Company covenants that it will not and will not permit any Subsidiary to:
6B(1). LIEN RESTRICTIONS. Create, incur, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired (whether or not provision is made for the equal and ratable securing of Notes in accordance with the provisions of paragraph 5D hereof), except:
(i) Liens for taxes or other governmental charges not yet due or which are being actively contested in good faith by appropriate proceedings;
(ii) Liens incidental to the conduct of its business or the ordinary operation or use of its property which were not incurred in connection with the borrowing of money or obtaining credit or advances;
(iii) Liens on property or assets of a Subsidiary to secure obligations of such Subsidiary to the Company or another Subsidiary;
(iv) Liens identified on EXHIBIT G to the Existing Agreement a copy of which is attached hereto;
(v) Liens relating to the ledger balances, consignments, and other similar arrangements and other Liens (including Liens consisting of Capitalized Lease Obligations and/or purchase money security interests) to secure Debt, provided that (x) the Debt to which the Lien relates is permitted by paragraph 6B(2) and (y) the aggregate amount of Debt (plus, without duplication, the aggregate amount of such ledger balances, consignments and other similar arrangements) secured by such Liens does not exceed at any time 20% of Consolidated Tangible Net Worth; and
(vi) Liens consisting of survey exceptions, minor encumbrance easements and rights of way, or zoning or other restrictions as to the use of real properties; provided, however, that such Liens in the aggregate do not materially impair the usefulness of such property in the business of the Company and its Subsidiaries, taken as a whole.
6B(2). DEBT RESTRICTION. Create, incur, assume or suffer to exist any Debt, except:
(i) Debt in existence on March 28, 1996;
(ii) Debt of any Subsidiary to the Company or to any other Subsidiary; and
(iii) additional Debt of the Company and/or any Subsidiary subject to the proviso set forth below;
PROVIDED, HOWEVER, (x) that the aggregate principal amount of consolidated Debt of the Company and its Subsidiaries shall not exceed at any time an amount equal to 58% of Consolidated Capitalization and (y) Priority Debt shall not exceed at any time an amount equal to 20% of Consolidated Tangible Net Worth.
6B(3). LOANS, ADVANCES AND INVESTMENTS. Make or permit to remain outstanding loans or advances to, or own, purchase or acquire any stock obligations or securities of, or any other interest in, or make any capital contributions to, any Person (collectively, "INVESTMENTS"), except that the Company or any Subsidiary may:
(i) make or permit to remain outstanding loans or advances to any Subsidiary;
(ii) own, purchase or acquire stock, obligations or securities of a Subsidiary or of a corporation which immediately after such purchase or acquisition will be a Subsidiary;
(iii) acquire and own (a) stock of the Company so long as no Default or Event of Default exists after giving effect to the acquisition thereof and (b) stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Company or any Subsidiary;
(iv) own, purchase or acquire prime commercial paper, banker's acceptances and certificates of deposit in the United States and Canadian commercial banks (having capital resources in excess of $100 million U.S.), repurchase agreements with respect to the foregoing, in each case due within one year from the date of purchase and payable in the United States in United States dollars, obligations of the United States Government or any agency thereof, and obligations guaranteed by the United States Government;
(v) make or permit to remain outstanding relocation, travel and other like advances to officers and employees in the ordinary course of business;
(vi) permit to remain outstanding Investments existing on March 28, 1996; and
(vii) make other Investments not in excess of 15% of Consolidated Tangible Net Worth.
6B(4). DISPOSITION OF CERTAIN ASSETS. Sell, lease, transfer or otherwise dispose of any assets of the Company or any Subsidiary other than in an Excluded Transfer, unless the net book value of the assets sold, leased, transferred or otherwise disposed of outside of the ordinary course of business in the then most recent 24 month period together with the net book value of any assets then proposed to be sold, leased, transferred or otherwise disposed of outside of the ordinary course of business do not exceed 30% of Consolidated Tangible Net Worth. For purposes of this paragraph and paragraph 6B(2), a sale of the Company's or its Subsidiaries' receivables in connection with financing of the Company or any of its Subsidiaries under a securitization program shall be deemed to constitute Debt of the Company or any such Subsidiary and not a sale of assets.
6B(5). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose of, or part with control of, any shares of stock or debt of any Subsidiary, except to the Company or any Subsidiary, and except that all shares of stock and debt of any Subsidiary at the time owned by or owed to the Company and all Subsidiaries may by sold as an entirety for fair market value (as determined in good faith by the Board of Directors of the Company) provided that the net book value of the assets of such Subsidiary, together with the net book value of the assets of the Company and any other Subsidiaries sold during the then most recent 24 month period do not exceed 30% of Consolidated Tangible Net Worth.
6B(6). MERGER AND CONSOLIDATION. Merge with or consolidate into any other company, except (i) Subsidiaries may be merged into the Company, (ii) the Company may merge with another entity provided that the Company is the surviving corporation and no Default or Event of Default under this Agreement would exist after giving effect to the merger or as a result thereof, (iii) any Subsidiary may be merged with or into another corporation provided that the surviving corporation is a Subsidiary (in the case of a merger that does not involve the Company) or the Company and no Default or Event of Default would exist after giving effect to the merger or as a result thereof, or (iv) the Company may be merged into a Subsidiary or a newly created entity organized under the laws of any state of the United States which has conducted no previous business and at the time of such merger shall have no liabilities, if, in either case, the surviving corporation assumes the obligations of the Company under the Notes in a manner reasonably satisfactory to the Required Holders of the Notes and no Default or Event of Default shall exist after giving effect to the merger or as a result thereof.
6B(7). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, discount or pledge any of its notes receivable or accounts receivable other than receivables sold constituting Debt under clause (vii) of the definition thereof provided that (i) the aggregate face amount of all such receivables sold shall not exceed $70,000,000, and (ii) after giving effect to such sale, the Company is in compliance with paragraph 6B(2).
6B(8). LEASE OBLIGATIONS. Lease real property or personal property (excluding data processing equipment, vehicles, and other equipment leased in the ordinary course of business) for terms exceeding three years if after giving effect thereto the aggregate amount of all payments in any fiscal year payable by the Company and its Subsidiaries would exceed an aggregate of 15% of Consolidated Tangible Net Worth.
6B(9). RESTRICTED TRANSACTIONS. Deal directly or indirectly with an Affiliate, any Person related by blood, adoption, or marriage to any Affiliate or any Person owning 5% or more of the Company's stock, provided that (i) the Company may deal with such Persons in the ordinary course of business at arm's length, (ii) the Company may make loans or advances to officers permitted by paragraph 6B(3) and (iii) in addition to the foregoing, so long as the stock of the Company is publicly held, the Company may deal with such Persons so long as the aggregate amount of such transactions does not exceed $1,000,000 in any fiscal year.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal of, or Yield-Maintenance Amount payable with respect to, any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any Note for more than five (5) days after the date due; or
(iii) (A) (1) the Company or any Subsidiary defaults (whether
as primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other obligation for money borrowed
(including any obligation under a conditional sale or other title
retention agreement entered into as a means of acquiring the subject
property, any obligation issued or assumed as full or partial payment
for property if secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions of
credit) beyond any period of grace provided with respect thereto, or
(2) the Company or any Subsidiary fails to perform or observe any other
agreement, term or condition contained in any agreement under which any
of the foregoing obligations are issued or created (or if any other
event thereunder or under any such agreement shall occur and be
continuing), and the effect of such default under clause (1) above or
failure or event under clause (2) above is to cause, or to permit the
holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due (or to be
repurchased by the Company or any Subsidiary) prior to any stated
maturity, provided that the aggregate amount of all obligations as to
which such a payment default shall occur and be continuing or such a
failure or other event causing or permitting acceleration (or resale to
the Company or any Subsidiary) shall occur and be continuing exceeds
$5,000,000; or (B) the Company or any Subsidiary fails to perform or
observe any term or condition of any agreement or lease (other than
those specified in clause (A) of this paragraph 7A(iii)) beyond any
applicable grace period with respect thereto (or if any other event
thereunder shall occur and be continuing beyond any applicable grace
period), if the effect of such failure or event is to cause, or permit
the holder or holders of such obligation (or trustee on behalf of such
holder or holders) to cause, such obligation to become due prior to any
stated maturity or require the repurchase, redemption or defeasance of
such obligation, provided that the aggregate amount of all obligations
as to which such failure or other event causing or permitting
acceleration or requiring the repurchase, redemption or defeasance
shall exceed $10,000,000; or
(iv) any representation or warranty made by the Company herein or by the Company or any of its officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made; or
(v) the Company fails to perform or observe any agreement contained in paragraph 6; or
(vi) the Company fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within 30 days after any Responsible Officer obtains actual knowledge thereof; or
(vii) the Company or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Subsidiary, or of any substantial part of the assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days; or
(xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or
(xii) any one or more unpaid or unsatisfied judgments or
decrees in excess of $5,000,000 in the aggregate at any one time
outstanding is entered against the Company and/or its Subsidiaries,
excluding those judgments or decrees (A) that shall have been stayed,
vacated or bonded, (B) which are not final and non-appealable, provided
that the Company or such Subsidiary is contesting any such judgment or
decree in good faith and by appropriate proceedings diligently pursued,
(C) for and to the extent the Company or any Subsidiary is insured and
with respect to which the insurer specifically has assumed
responsibility in writing therefor, (D) for and to the extent the
Company or any Subsidiary are otherwise indemnified if the terms of
such indemnification are satisfactory to the Required Holders or (E)
that have been outstanding for less than 60 days;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, the holder of any Note (other than the Company or any of its Subsidiaries or Affiliates) may at its option, by notice in writing to the Company, declare such Note to be, and such Note shall thereupon be and become, immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (c) if such event is not an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, the Required Holder(s) of any Series of Notes may at its or their option, by notice in writing to the Company, declare all of the Notes of such Series to be, and all of the Notes of such Series shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note of such Series, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, provided that the Yield-Maintenance Amount, if any, with respect to each Note of such Series shall be due and payable upon such declaration only if (x) such event is an Event of Default specified in any of clauses (i) to (vi), inclusive, or (xi) or (xii) of this paragraph 7A, (y) the Required Holders of such Series shall have given to the Company, at least 10 Business Days before
such declaration, written notice stating its or their intention so to declare the Notes of such Series to be immediately due and payable and identifying one or more such Events of Default whose occurrence on or before the date of such notice permits such declaration, and (z) one or more of the Events of Default so identified shall be continuing at the time of such declaration.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes of a Series shall have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s) of such Series may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes of such Series, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes of such Series which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes of such Series, (ii) the Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Events of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes of such Series or this Agreement (as this Agreement pertains to the Notes of such Series). No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants as follows:
8A. ORGANIZATION. The Company is a corporation duly organized and existing in good standing under the laws of the State of Ohio, each Subsidiary is a corporation existing and in good standing under the laws of the jurisdiction in which it is incorporated, and the Company has and each Subsidiary has the corporate power to own its respective property and to carry on its respective business as now being conducted. The names and jurisdictions of incorporation of each Subsidiary are set forth on Exhibit F.
8B. FINANCIAL STATEMENTS. The Company has furnished Prudential and each Purchaser of any Accepted Notes with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as of the last day in each of the five fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to
such Purchaser (other than fiscal years completed within 120 days prior to such date for which audited financial statements have not been released) and a consolidated statement of income, stockholders' equity and statement of cash flows of the Company and its Subsidiaries for each such year, all certified by Deloitte & Touche for such other accounting firm as may be reasonably acceptable to such Purchaser); and (ii) a consolidated balance sheet of the Company and its Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 60 days prior to such date for which financial statements have not been released) and the comparable quarterly period in the preceding fiscal year and consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the statements of income and statements of cash flows fairly present the results of the operations of the Company and its Subsidiaries for the periods indicated. There has been no material adverse change in the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole since the end of the most recent fiscal year for which such audited financial statements have been furnished.
8C. ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary or any properties or rights of the Company or any Subsidiary, by or before any court, arbitrator or administrative or governmental body which could be reasonably expected to result in any material adverse change in the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Neither the Company nor any Subsidiary has any Debt outstanding except as permitted by paragraph 6B(2). There exists no payment default or other default in any material respect under the provisions of any instrument evidencing such Debt or of any agreement relating thereto.
8E. TITLE TO PROPERTIES. To the best knowledge of the Responsible Officers based upon reasonable inquiry, the Company has, and each Subsidiary has, good and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6B(1). The Company and each Subsidiary enjoys peaceful and undisturbed possession of all leases necessary in any material respect for the conduct of their respective businesses, none of which contains any unusual or burdensome provisions which could be reasonably expected to materially affect or impair the operation of such businesses. All such leases are valid and subsisting and are in full force and effect.
8F. TAXES. To the best knowledge of the Responsible Officers based upon reasonable inquiry, the Company has, and each Subsidiary has, filed all Federal, State and other income tax returns which are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, or financial condition. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), nor to the best of the Responsible Officers' knowledge based upon reasonable inquiry, any instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or any of its Subsidiaries, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, indebtedness of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in EXHIBIT E attached hereto.
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than Institutional Investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
Section 5 of the Securities Act or to the registration provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. REGULATION G, ETC. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock"). The proceeds of the sale of any Private Shelf Notes will be used for the purposes stated in the relevant Request for Purchase. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, as amended, in each case as in effect now or as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the Pension Benefit Guaranty Corporation has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. Neither
the Company, any Subsidiary or any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the Company and its Subsidiaries taken as a whole. The execution and delivery of this Agreement and the issuance and sale of the Notes will be exempt from, or will not involve any transaction which is subject to the prohibitions of, section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of each Purchaser's representation in paragraph 9B.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the date of closing with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions of this Agreement.
8L. ENVIRONMENTAL COMPLIANCE. To the best knowledge of the Responsible Officers based upon reasonable inquiry, the Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations relating to protection of the environment except, in any such case, where failure to comply would not result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
8M. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any Notes will be used to finance a Hostile Tender Offer.
8N. DISCLOSURE. Neither this Agreement nor any other document, certificate or statement furnished to any Purchaser by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, property or assets, or financial condition of the Company and its Subsidiaries taken as a whole and which has not been set forth in this Agreement or in the other documents, certificates and statements furnished to the Purchasers by the Company prior to the date hereof in connection with the transactions contemplated hereby.
9. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to be purchased by it hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of such Purchaser's property shall at all times be and remain within its control.
9B. SOURCE OF FUNDS. No part of the funds used by such Purchaser to pay the purchase price of the Notes being purchased by such Purchaser hereunder constitutes assets allocated to any separate account maintained by such Purchaser. For the purpose of this paragraph 9B, the term "separate account" shall have the meaning specified in section 3 of ERISA.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in paragraphs 1 and 2 shall have the respective meanings specified therein, and the following terms shall have the meanings specified with respect thereto below:
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4A or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (calculated on the same periodic basis as that on which interest on such Note is payable) equal to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4A or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero.
10B. OTHER TERMS.
"ACCEPTANCE" shall have the meaning specified in paragraph 2E.
"ACCEPTANCE DAY" shall have the meaning specified in paragraph 2E.
"ACCEPTANCE WINDOW" shall have the meaning specified in paragraph 2E.
"ACCEPTED NOTE" shall have the meaning specified in paragraph 2E.
"AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.
"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its chief executive officer, its chief operating officer, its chief financial officer, its corporate secretary, and any vice president of the Company designated as an "Authorized Officer" of the Company for the purpose of this Agreement in an Officer's Certificate executed by the Company's chief executive officer or chief financial officer and delivered to Prudential, and (ii) in the case of Prudential, Allen Weaver, Regional Vice President, Jean Hamilton, President, Len Lillard, Vice President and any officer of Prudential designated as its "Authorized Officer" for the purpose of this Agreement in a certificate executed by one of its Authorized Officers or a member of its Law Department. Any action taken under this Agreement on behalf of the Company by any individual who on or after the date of this Agreement shall have been an Authorized Officer of the Company and whom Prudential in good faith believes to be an Authorized Officer of the Company at the time of such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company, and any action taken under this Agreement on behalf of Prudential by any individual who on or after the date of this Agreement shall have been an Authorized Officer of Prudential and whom the Company in good faith believes to be an Authorized Officer of Prudential at the time of such action shall be binding on Prudential even though such individual shall have ceased to be an Authorized Officer of Prudential.
"AVAILABLE FACILITY AMOUNT" shall have the meaning specified in paragraph 2A.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday, (ii) a day on which commercial banks in New York City are required or authorized to be closed and (iii) for purposes of paragraph 2C hereof only, a day on which The Prudential Insurance Company of America is not open for business.
"CANCELLATION DATE" shall have the meaning specified in paragraph 2H(3).
"CANCELLATION FEE" shall have the meaning specified in paragraph 2H(3).
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which, under generally accepted accounting principles, is or will be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expenses) in accordance with such principles.
"CLOSING DAY" shall mean the Initial Closing Day or a Private Shelf Closing Day, as the case may be.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIRMATION OF ACCEPTANCE" shall have the meaning specified in paragraph 2E.
"CONSOLIDATED CAPITALIZATION" shall mean Consolidated Tangible Net Worth of the Company and its Subsidiaries plus Debt.
"CONSOLIDATED CURRENT ASSETS" and "CONSOLIDATED CURRENT LIABILITIES" shall mean the consolidated current assets and consolidated current liabilities of the Company and its Subsidiaries each determined in accordance with generally accepted accounting principles, provided that inventory shall be valued at current cost. The current portion of Funded Debt shall not be included in the calculation of Consolidated Current Liabilities.
"CONSOLIDATED NET INCOME" shall mean consolidated net income of the Company and its Subsidiaries as determined in accordance with generally accepted accounting principles.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean the sum of (i) the par value (or value stated on the books of the Company) of the capital stock of all classes of the Company, plus (or minus in the case of a surplus deficit) (ii) the amount of the consolidated surplus, whether capital or earned, of the Company and its Subsidiaries, plus (iii) the amount of paid in capital, less the sum of treasury stock, unamortized debt discount and expense, goodwill, trademarks, trade names, patents, non-current deferred charges and other intangible assets and any write-up of the value of any asset, all determined on a consolidated basis for the Company and all Subsidiaries in accordance with generally accepted accounting principles.
"DEBT" shall mean and include, (i) any obligation payable for borrowed money (including capitalized lease obligations but excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation); (ii) indebtedness payable which is secured by any lien on property owned by the Company or any Subsidiary; (iii) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) in connection with the obligation, stock or dividends of any Person; (iv) obligations under any contract providing for the making of loans, advances or capital contributions to any Person, in each case in order to enable such Person primarily to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses; (v) ledger balances, consignments and other similar arrangements but only to the extent required to be shown as debt on the consolidated balance sheet of the Company in accordance with generally accepted accounting principles; and (vi) obligations under any other contract which, in economic effect, is substantially equivalent to a guarantee; all as determined in accordance with generally accepted accounting principles. The term Debt shall not include obligations under the Company's compensation or benefit plans in effect from time to time to the extent not required to be shown as debt on the consolidated
balance sheet of the Company prepared in accordance with generally accepted accounting principles.
"DELAYED DELIVERY FEE" shall have the meaning specified in paragraph 2H(2).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same controlled group of corporations as the Company within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "Default" shall mean any of such events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FACILITY" shall have the meaning specified in paragraph 2A.
"FACILITY FEE" shall have the meaning specified in paragraph 2H(1).
"FUNDED DEBT" shall mean with respect to any Person, all Debt of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable, more than one year from, or is directly or indirectly renewable or extendible at the option of the debtor to a date more than one year (including an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year) from, the date on which Funded Debt is to be determined.
"HEDGE TREASURY NOTE(S)" shall mean, with respect to any Accepted Note, the United States Treasury Note or Notes whose duration (as determined by Prudential) most closely matches the duration of such Accepted Note.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of any Note, any offer to purchase, or any purchase of, shares of capital stock of any corporation or equity interests in any other entity, or securities convertible into or representing the beneficial ownership of, or rights to acquire, any such shares or equity interests, if such shares, equity interests, securities or rights are of a class which is publicly traded on any securities exchange or in any over-the-counter market, other than purchases of such shares, equity interests, securities or rights representing less than 5% of the equity interests or beneficial ownership of such corporation or other entity for portfolio investment purposes, and such offer or purchase has not been duly approved by the board of directors of such corporation or the equivalent governing body of such other entity prior to the date on which the Company makes the Request for Purchase of such Note.
"INITIAL CLOSING DAY" shall mean October 31, 1992.
"INSTITUTIONAL INVESTOR" shall mean Prudential, any Prudential Affiliate or any bank, bank affiliate, financial institution, insurance company, pension fund, endowment or other organization which regularly acquires debt instruments for investment.
"ISSUANCE PERIOD" shall have the meaning specified in paragraph 2A.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" shall have the meaning specified in paragraph 1.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by an Authorized Officer of the Company.
"PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any ERISA Affiliate.
"PRIVATE SHELF CLOSING DAY" for any Accepted Note shall mean the Business Day specified for the closing of the purchase and sale of such Private Shelf Note in the Request for Purchase of such Private Shelf Note, provided that if the closing of the purchase and sale of such Accepted Note is rescheduled pursuant to paragraph 2G, the Private Shelf Closing Day for such Accepted Note, for all purposes of this Agreement except paragraph 2H(3), shall mean the Rescheduled Closing Day with respect to such Closing.
"PRIVATE SHELF NOTE" and "PRIVATE SHELF NOTES" shall have the meanings specified in paragraph 1.
"PRUDENTIAL" shall mean The Prudential Insurance Company of America.
"PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all of the Voting Stock (or equivalent voting securities or interests) of which is owned by Prudential either directly or through Prudential Affiliates.
"PURCHASERS" shall mean, with respect to any Accepted Notes the Persons, either Prudential or a Prudential Affiliate, who is purchasing such Accepted Notes.
"REQUEST FOR PURCHASE" shall have the meaning specified in paragraph 2C.
"REQUIRED HOLDER(S)" shall mean, with respect to the Notes of any series, at any time, the holder or holders of at least 50.01% of the aggregate principal amount of the Notes of such series outstanding at such time.
"RESCHEDULED CLOSING DAY" shall have the meaning specified in paragraph 2G.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company or any other officer of the Company involved principally in its financial administration or its controllership function.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES" shall have the meaning specified in paragraph l.
"SIGNIFICANT HOLDER" shall mean (i) Prudential or any Prudential Affiliate, so long as Prudential or any Prudential Affiliate shall hold any Note or any amount remains available under the Facility or (ii) any other holder of at least 10% of the aggregate principal amount of any Series of Notes from time to time outstanding. To the extent that any notice or document is required to be delivered to the Significant Holders under this Agreement, such requirement shall be satisfied with respect to Prudential and all Prudential Affiliates by giving notice, or delivery of a copy of any such document, to Prudential (addressed to Prudential and each such Prudential Affiliate).
"SUBSIDIARY" shall mean any corporation organized under the laws of any state of the United States or Canada which conducts the major portion of its business in and makes the major portion of its sales to Persons located in the United States and Canada, and 80% of the stock of every class of which, except directors' qualifying shares, is owned by the Company either directly or through Subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement.
"UNUSED FACILITY AMOUNT" shall have the meaning specified in paragraph 2H(1).
"VOTING STOCK" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in this Agreement to "general accepted accounting principles" shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles. Notwithstanding the foregoing, if any change in generally accepted accounting principles from those applied in the preparation of the financial statements referred to in paragraph 8B is occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions), the initial application of which change is made after the date of this Agreement, and any such change results in a change in the method of calculation of financial covenants, standards or terms found in this Agreement, the parties hereto agree that until such time as the parties hereto agree upon an amendment to this Agreement addressing such change, such financial covenants, standards and terms shall be construed and calculated as though such change had not taken place. The parties hereto agree to enter into good faith negotiations in order to amend the affected provisions so as to reflect such accounting changes with the desired result that the criteria for evaluating the Company's financial
condition shall be the same after such changes as if such changes had not been made. When used herein, the term "financial statement" shall include the notes and schedules thereto.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on and any
Yield-Maintenance Amount payable with respect to such Note, which comply with
the terms of this Agreement, by wire transfer of immediately available funds for
credit (not later than 12:00 Noon, New York City local time, on the date due) to
(i) the account or accounts specified in the applicable Confirmation of
Acceptance (in the case of any Private Shelf Note) or (ii) such other account or
accounts in the United States as such Purchaser may designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. Each Purchaser agrees that, before disposing of any Note, such
Purchaser will make a notation thereon (or on a schedule attached thereto) of
all principal payments previously made thereon and of the date to which interest
thereon has been paid. The Company agrees to afford the benefits of this
paragraph 11A to any Transferee which shall have made the same agreement as each
Purchaser has made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential, each
Purchaser and any Transferee harmless against liability for the payment of, all
out-of-pocket expenses arising in connection with such transactions, including
(i) all document production and duplication charges and the fees and expenses of
any special counsel engaged by the Purchasers or any Transferee in connection
with this Agreement (other than with respect to the costs incurred in connection
with the Initial Closing Day or any draw under the Facility), the transactions
contemplated hereby and any subsequent proposed modification of, or proposed
consent under, this Agreement, whether or not such proposed modification shall
be effected or proposed consent granted, and (ii) the costs and expenses,
including attorneys' fees, incurred by any Purchaser or any Transferee in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Notes or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or the
transactions contemplated hereby or by reason of any Purchaser's or any
Transferee's having acquired any Note, including without limitation costs and
expenses incurred in any bankruptcy case. The obligations of the Company under
this paragraph 11B shall survive the transfer of any Note or portion thereof or
interest therein by any Purchaser or any Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) of the Notes of each Series except that, (i) with the written consent of the holders of all Notes of a particular Series, and if an Event of Default shall have occurred and be continuing, of the holders of all Notes of all Series, at the time outstanding (and not without such written consents), the Notes of such Series may be amended or the provisions thereof waived to change the maturity thereof, to change or affect the principal thereof, or to change or affect the rate or time of payment of interest on or any Yield Maintenance Amount payable with respect to the Notes of such Series, (ii) without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to or waiver of the provisions of this Agreement shall change or affect the provisions of paragraph 7A or this paragraph 11C insofar as such provisions relate to proportions of the principal amount of the Notes of any Series, or the rights of any individual holder of Notes, required with respect to any declaration of Notes to be due and payable or with respect to any consent, amendment, waiver or declaration, (iii) with the written consent of Prudential
(and not without the written consent of Prudential) the provisions of paragraph
2 may be amended or waived (except insofar as any such amendment or waiver would
affect any rights or obligations with respect to the purchase and sale of Notes
which shall have become Accepted Notes prior to such amendment or waiver), and
(iv) with the written consent of all of the Purchasers which shall have become
obligated to purchase Accepted Notes of any Series (and not without the written
consent of all such Purchasers), any of the provisions of paragraphs 2 and 3 may
be amended or waived insofar as such amendment or waiver would affect only
rights or obligations with respect to the purchase and sale of the Accepted
Notes of such Series or the terms and provisions of such Accepted Notes. Each
holder of any Note at the time or thereafter outstanding shall be bound by any
consent authorized by this paragraph 11C, whether or not such Note shall have
been marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein and in the Notes, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The Notes are issuable as registered notes without coupons in denominations of at least $1,000,000 except as may be necessary to reflect any amount not evenly divisible by $l,000,000; provided, however, that no such minimum denomination shall apply to Notes issued to, or issued upon transfer by any holder of the Notes to, Prudential or one or more Prudential Affiliates or accounts managed by Prudential or Prudential Affiliates or to any other entity or group of affiliates with respect to which the Notes so issued or transferred shall be managed by a single entity. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Each installment of principal payable on each installment date upon each new Note issued upon any such transfer or exchange shall be in the same proportion to the unpaid principal amount of such new Note as the installment of principal payable on such date on the Note surrendered for registration of transfer or exchange bore to the unpaid principal amount of such Note. No reference need be made in any such new Note to any installment or installments of principal previously due and paid upon the Note surrendered for registration of transfer or exchange. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest on, and any Yield-Maintenance Amount payable with respect to, such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. The Company shall not assign its rights under paragraph 2.
11H. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that
Prudential, each Purchaser and each holder of any Note may deliver copies of any
financial statements and other documents delivered to it, and disclose any other
information disclosed to it, by or on behalf of the Company or any Subsidiary in
connection with or pursuant to this Agreement to (i) its directors, officers,
employees, agents and professional consultants, (ii) any Purchaser or holder of
any Note, (iii) any Institutional Investor to which it offers to sell any Note
or any part thereof other than a Competitor, (iv) any Institutional Investor to
which it sells or offers to sell a participation in all or any part of any Note
other than a Competitor, (v) any Institutional Investor from which it offers to
purchase any security of the Company, (vi) any federal or state regulatory
authority having jurisdiction over it, (vii) the National Association of
Insurance Commissioners or any similar organization, or (viii) any other Person
to which such delivery or disclosure may be necessary (a) in compliance with any
law, rule, regulation or order applicable to it, (b) in response to any subpoena
or other legal process or informal investigative demand, (c) in connection with
any litigation to which it is a party or (d) in order to enforce its rights
under this Agreement. Subject to the disclosure permitted in the first sentence
of this paragraph, Prudential, each such Purchaser, each such holder and any
Person designated by any of the foregoing Persons under paragraph 5C each agree
to use their best efforts to hold in confidence and not to disclose any
Confidential Information. "Confidential Information" shall mean financial
statements and reports delivered pursuant to paragraph 5A and other non-public
information regarding the Company which was obtained pursuant to paragraph 5B or
paragraph 5C; PROVIDED, HOWEVER, that such term shall not include information
(x) which was publicly known, or otherwise known to you at the time of
disclosure, (y) which subsequently becomes publicly known through no act or
omission by you or any of your agents or (z) which otherwise becomes known to
you other than through disclosure by the Company to you. For purposes of this
paragraph, "Competitors" shall mean any Person which has (1) any of the
following Standard Industrial Classification Codes ("SIC Codes"): 5084, 5085,
and 5063, or (2) a pension or benefit plan maintained by a Person which has any
of the foregoing SIC Codes. Prudential and each
Purchaser shall be entitled to rely on a certificate from a Person that it is not a "Competitor" of the Company. The Company shall be entitled to modify or supplement in writing the foregoing SIC Codes with the consent of the Required Holders which consent shall not be unreasonably denied.
11I. NOTICES. All written communications provided for hereunder (other than communications provided for under paragraph 2) shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) or by hand delivery or telecopy and (i) if to Prudential, addressed to Prudential at the address specified for such communications in the Purchaser Schedule attached hereto or to such other address as Prudential shall have specified in writing to the Company, (ii) if to any Purchaser (other than Prudential), addressed to such Purchaser at the address specified in the Confirmation of Acceptance (in the case of any Private Shelf Notes), or at such other address as any Purchaser shall have specified in writing to the Company, and (iii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified in writing to the Company or, if any such other holder shall not have so specified an address to the Company, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Company, and (iv) if to the Company, addressed to it at Bearings, Inc., 3600 Euclid Avenue, Cleveland, Ohio 44115, Attention: John R. Whitten, Vice President-Finance and Treasurer, or at ouch other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, at the option of the Person sending such communication, be delivered by any other means either to the Company at its address specified above or to any officer of the Company.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on, or Yield-Maintenance Amount payable with respect to, any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day.
11K. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11L. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
11M. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser, to any holder of Notes or to the Required Holder(s), the determination of such satisfaction shall be made by such Purchaser, such holder or the Required Holder(s), as the case may be, in the reasonable judgment (exercised in good faith) of the Person or Persons making such determination.
11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF ILLINOIS.
11O. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
11P. BINDING AGREEMENT. When this Agreement is executed and delivered by the Company and Prudential, it shall become a binding agreement between the Company and Prudential. This Agreement shall also inure to the benefit of each Purchaser which shall have executed and delivered a Confirmation of Acceptance, and each such Purchaser shall be bound by this Agreement to the extent provided in such Confirmation of Acceptance.
Very truly yours,
BEARINGS, INC.
By: /s/ John R. Whitten Title: Vice President & Treasurer |
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Leonard H. Lillard IV
- -------------------------------
Vice President
|
PURCHASER SCHEDULE
Bearings, Inc.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(1) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Investment Administration Unit Telecopy: (201) 802-8055
(2) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
9700 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Regional Vice President Telecopy: (312) 454-8222
(3) Recipient of telephonic prepayment notices:
Manager, Asset Management Unit
Telephone: (201) 802-6429
Telecopy: (201) 802-8055
(4) Tax Identification No.: 22-1211670
BEARINGS, INC.
SENIOR NOTE
(Fixed Rate)
SERIES ________
No. _________
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES: 1
FINAL MATURITY DATE:
PRINCIPAL INSTALLMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, BEARINGS, INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Ohio, hereby promises to pay to ______________________________, or registered
assigns, the principal sum of ______________________________ DOLLARS ton the
Final Maturity Date specified above] [, payable in installments on the Principal
Installment Dates and in the amounts specified above, and on the Final Maturity
Date specified above in an amount equal to the unpaid balance of the principal
hereof,] with interest (computed on the basis of a 360-day year--30-day month)
(a) on the unpaid balance thereof at the Interest Rate per annum specified
above, payable on each Interest Payment Date specified above and on the Final
Maturity Date specified above, commencing with the Interest Payment Date next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest, and any overdue payment of any
Yield-Maintenance Amount (as defined in the Note Agreement referred to below),
payable on each Interest Payment Date as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) 2% plus the Interest Rate specified above or (ii) 2%
over the rate of interest publicly announced by Morgan Guaranty Trust Company of
New York from time to time in New York City as its Prime Rate.
Payments of principal of, and interest on, and any Yield-Maintenance Amount payable with respect to, this Note are to be made at the main office of Morgan Guaranty Trust Company of New York in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of October 31, 1992 (herein called the "Agreement"), between the Company, on the one hand, and The Prudential Insurance Company of America and each "Prudential Affiliate" (as defined in the Agreement) which becomes a party thereto, on the other hand, and is entitled to the benefits thereof. As
provided in the Agreement, this Note is subject to prepayment, in whole or from time to time in part on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.
This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the law of such State.
BEARINGS, INC.
EXHIBIT B
[FORM OF REQUEST FOR PURCHASE]
BEARINGS, INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the "Agreement"), dated as of October 31, 1992, between Bearings, Inc. (the "Company"), and The Prudential Insurance Company of America and each Prudential Affiliate which becomes a party thereto. All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement.
Pursuant to Paragraph 2C of the Agreement, the Company hereby makes the following Request for Purchase:
1. Aggregate principal amount of the Notes covered hereby (the "Notes") .......................... $_________________
2. Individual specifications of the Notes:
Principal
Final Installment Interest
Principal Maturity Dates and Payment
Amount * Date Amounts Period
- --------- -------- ----------- --------
|
3. Use of proceeds of the Notes:
4. Proposed day for the closing of the purchase and sale of the Notes:
______________, or, if earlier, the last Business Day which is no
more than ten (10) days after the Acceptance Day for the Notes
covered by this Request for Purchase.
5. The purchase price of the Notes is to be transferred to:
Name, Address Name and and ABA Routing Number of Telephone No. Number of Bank Account of Bank Officer - -------------- --------- --------------- |
6. The Company certifies (a) that the representations and warranties contained in paragraph 8 of the Agreement are true on and as of the date of this Request for Purchase except to the extent of changes caused by the transactions contemplated in the Agreement and (b) that there exists on the date of this Request for Purchase no Event of Default or Default.
Dated: BEARINGS, INC.
By:________________________________
Authorized Officer
[FORM OF CONFIRMATION OF ACCEPTANCE]
BEARINGS, INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the "Agreement"), dated as of October 31, 1992 between Bearings, Inc. (the "Company") and The Prudential Insurance Company of America. All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement.
Prudential or the Prudential Affiliate which is named below as a Purchaser of Notes hereby confirms the representations as to such Notes set forth in paragraph 9 of the Agreement, and agrees to be bound by the provisions of paragraphs 2E and 2G of the Agreement relating to the purchase and sale of such Notes.
Pursuant to paragraph 2E of the Agreement, an Acceptance with respect to the following Accepted Notes is hereby confirmed:
I. Accepted Notes: Aggregate principal amount $_____________
(A) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal installment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on
attached Purchaser Schedule
(B) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal installment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on
attached Purchaser Schedule
|
[(C), (D)....... same information as above.]
II. Closing Day: [Must be within 10 days of the date of this Confirmation of Acceptance.]
Dated: BEARINGS, INC.
By:______________________________
Title:___________________________
[THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA]
|
By:_______________________________ Vice President
[PRUDENTIAL AFFILIATE]
By:_______________________________
Vice President
[TH&F LETTERHEAD]
October 31, 1992
The Prudential Insurance Company of America
c/o Prudential Capital Group
9700 Sears Tower
233 South Wacker
Drive Chicago, IL 60606
Dear Sirs:
We have acted as counsel for Bearings, Inc., an Ohio corporation (the "Company"), in connection with the Note Purchase and Private Shelf Facility, dated as of October 31, 1992, between the Company and you (the Agreement). All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement.
In this connection, we have examined such certificates of public officials, certificates of officers of the Company and copies certified to our satisfaction of corporate documents and records of the Company and of other papers, and have made such other investigations, as we have deemed relevant and necessary as a basis for our opinion hereafter set forth. We have relied upon such certificates of public officials and of officers of the Company with respect to the accuracy of material factual matters contained therein which were not independently established. With respect to the opinion expressed in paragraph 3 below, we have also relied upon the representation made by you in paragraph 9A of the Agreement. With respect to the opinion expressed in para graph 4 below, we have relied solely upon the opinion of Robert C. Stinson, Vice President-General Counsel of the Company and upon our review of the Company's Amended and Restated Articles of Incorporation and Code of Regulations.
Based on the foregoing, it is our opinion that:
1. The Company is validly existing in good standing under the laws of the State of Ohio. The Company has the corporate power to carry on its business as now being conducted.
2. The Agreement has been duly authorized by all requisite
corporate action and duly executed and delivered by authorized officers of the
Company, and is a valid obligation of the Company, legally binding upon and
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(b) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement to register the Notes under the Securities Act or to qualify an indenture in respect of the Notes under the Trust Indenture Act of 1939, ask amended.
The Prudential Insurance Company of America
4. Insofar as is known to us after having made due inquiry with respect thereto, the execution and delivery of the Agreement, the offering of the Notes and fulfillment of and compliance with the provisions of the Agreement do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company pursuant to, or require any authorization, consent, approval, exemption, or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the charter or by-laws of the Company, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or any mortgage, deed of trust, indenture, loan agreement or other material agreement (including, without limitation, any agreement listed in Exhibit E to the Agreement), instrument, order, judgment or decree known to us to which the Company or any of its Subsidiaries is a party or otherwise subject.
The opinions set forth above are subject to the following qualifications and assumptions:
A. We are admitted to practice in the State of Ohio and have reviewed and relied upon Ohio law and the federal laws of the United States only, and we have undertaken no review of the laws or applications of laws of any other jurisdiction. Accordingly, this opinion is limited to the laws and application thereof of Ohio and the federal laws of the United States. For purposes of this opinion, we have assumed that Illinois law is substantively equivalent to Ohio law although we have not reviewed Illinois law.
B. As used in this letter, the phrases "to our knowledge" or "known to us" with reference to matters of fact, mean that after inquiries of officers of the Company and on the basis of information that has come to our attention during the course of our representation of the Company in connection with the Agreement, we find no reason to believe that the opinions expressed herein are factually incorrect; beyond that we have made no independent factual investigations for the purpose of rendering this opinion.
C. We have assumed that the Agreement is a valid, binding and enforceable obligation of Prudential which has been duly authorized, executed and delivered by it.
D. We express no opinion as to the availability of any specific remedy upon breach of any of the agreements, documents or obligations referred to herein beyond the practical realization of the benefits intended to be provided to you thereby. In addition, we express no opinion with respect to the recoverability of attorneys' fees pursuant to any provision requiring the payment thereof.
Very truly yours,
[BEARINGS, INC. LETTERHEAD]
[Dates of Draws]
The Prudential Insurance Company of America
c/o Prudential Capital Group
9700 Sears Tower
233 South Wacker Drive
Chicago, IL 60606
[Names and addresses of other purchasers]
Dear Sir:
I am the general counsel of Bearings, Inc., an Ohio corporation (the "Company"), and have acted as counsel for the Company in connection with the $80,000,000 Maximum Aggregate Principal Amount Private Shelf Facility, dated as of October 29, 1992, between the Company and you (the "Agreement.), pursuant to which the Company has issued to you today its Series _____ Private Shelf Notes in the aggregate principal amount of $______________ (the "Notes"). All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement.
In this connection, I have examined such certificates of public officials, certificates of officers of the Company and copies certified to my satisfaction of corporate documents and records of the Company and of other papers, and have made such other investigations, as I have deemed relevant and necessary as a basis for our opinion hereafter set forth. We have relied upon such certificates of public officials and of officers of the Company with respect to the accuracy of material factual matters contained therein which were not independently established. With respect to the opinion expressed in paragraph 3 below, I have also relied upon the representation made by you in paragraph 9A of the Agreement.
Based on the foregoing, it is my opinion that:
1. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Ohio. Each Subsidiary is a corporation validly existing in good standing under the laws of its jurisdiction of incorporation. The Company has, and each Subsidiary has, the corporate power to carry on its business as now being conducted.
2. The Agreement and the Notes have been duly authorized by all requisite corporate action and duly executed and delivered by authorized officers of the Company, and is a valid obligation of the Company, legally binding upon and enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement to register the Notes
The Prudential Insurance Company of America
under the Securities Act or to qualify an indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended.
4. The extension, arranging and obtaining of the credit represented by the Notes do not result in any violation of regulation G, T or X of the Board of Governors of the Federal Reserve System.
5. Insofar as is known to me after having made due inquiry with respect thereto, the execution and delivery of the Agreement, the offering of the Notes and fulfillment of and compliance with the provisions of the Agreement do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company pursuant to, or require any authorization, consent, approval, exemption, or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the charter or by-laws of the Company, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or any mortgage, deed of trust, indenture, loan agreement or other material agreement (including, without limitation, any agreement listed in Exhibit E to the Agreement), instrument, order, judgment or decree known to me to which the Company or any of its Subsidiaries is a party or otherwise subject.
The execution and delivery of the Agreement, the offering, issuance and sale of the Notes and fulfillment of and compliance with the respective provisions of the Agreement and the Notes do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company pursuant to, or require any authorization, consent, approval, exemption, or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the charter or by-laws of the Company, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or (insofar as is known to me after having made due inquiry with respect thereto) any agreement (including, without limitation, any agreement listed in Exhibit E to the Agreement), instrument, order, judgment or decree known to me to which the Company or any of its Subsidiaries is a party or otherwise subject.
The opinions set forth above are subject to the following qualifications and assumptions:
A. I am admitted to practice in the State of Ohio and have reviewed and relied upon Ohio law and the federal laws of the United States only, and I have undertaken no review of the laws or applications of laws of any other jurisdiction. Accordingly, this opinion is limited to the laws and application thereof of Ohio and the federal laws of the United States. For purposes of this opinion, I have assumed that Illinois law is substantively equivalent to Ohio law although I have not reviewed Illinois law.
B. As used in this letter, the phrase known to men with reference to matters of fact, mean that after inquiries of officers of the Company and on the basis of information that has come to my attention during the course of our representation of the Company in connection with the Agreement, I find no reason to believe that the opinions expressed herein are factually incorrect; beyond that I have made no independent factual investigations for the purpose of rendering this opinion.
The Prudential Insurance Company of America
C. I have assumed that the Agreement is a valid, binding and enforceable obligation of Prudential which has been duly authorized, executed and delivered by it.
D. I express no opinion as to the availability of any specific remedy upon breach of any of the agreements, documents or obligations referred to herein beyond the practical realization of the benefits intended to be provided to you thereby. In addition, I express no opinion with respect to the recoverability of attorneys' fees pursuant to any provision requiring the payment thereof.
Very truly yours,
LIST OF AGREEMENTS RESTRICTING DEBT
Director borrowing resolutions in effect from time to time may limit the total amount of indebtedness which the Company is authorized to incur. Presently those resolutions limit total borrowings to $140,000,000 (with temporary authority up to $190,000,000 through 12/31/92).
Other than that none.
LIST OF SUBSIDIARIES
Dixie Bearings, Incorporated
Bruening Bearings, Inc.
King Bearing, Inc.
Bearings, Inc. (TN)
Bearings Continental, Inc.
Bearings Pan American, Inc.
Bearing Sales & Service, Inc.
The Ohio Ball Bearing Company
Industrial Distributions, Inc.
Bearings, Inc. (AL)
LIST OF ENCUMBRANCES
1. Possible liens of landlords for rents arising under applicable state laws.
2. Restrictions, easements, reservations and other encumbrances on real properties owned by the Company or any Subsidiary, none of which materially interfere with the operations of such properties.
3. Liens arising out of Ledger Balance Inventories, consignments and similar arrangements with suppliers.
4. Rights, if any, of creditors of customers to inventories on consignment with customers where no UCC filing has been made by the Company.
5. Financing statements, if any, filed in connection with equipment leases, none of which are material to the financial condition to the Company or its subsidiaries.
6. Guarantee by Company to Dunn & Bradstreet and its customers with respect to debt of subsidiaries.
7. Statutory liens, including mechanics liens, on vehicles, real estate and other equipment, none of which are material to the financial condition of the Company or its subsidiaries.
Exhibit 5(a)
Exhibit 5(a) is to be filed by Amendment.
EXHIBIT 10(a)
Applied Industrial Technologies, Inc.
3600 Euclid Avenue
Cleveland, Ohio 44115
,
---------------- ----
Dear:
Applied Industrial Technologies, Inc. (the "Company")
|
considers it essential to the best interest of the Company and its shareholders that its management be encouraged to remain with the Company and to continue to devote full attention to the Company's business. In this connection, the Company recognizes that the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Company's Board of Directors (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Company's management, including yourself, to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company
until the occurrence of any "change in control of the Company" (as defined in
Section 2 hereof), this letter agreement ("Agreement") sets forth the severance
benefits which this Company agrees will be provided to you in the event your
employment with the Company is terminated within the two year period immediately
following any change in control of the Company for any reason other than your
death or normal retirement in accordance with the Company's retirement policy
generally applicable to its salaried executive employees. In the event that a
change in control of the Company shall not have occurred, your severance
benefits, if any, shall be determined without regard to this Agreement.
Nothing herein shall be construed so as to prevent either you or the Company from terminating your employment at any time, for cause or otherwise, subject only to the specific payment and other provisions hereinafter provided for under certain circumstances in the event a change in control of the Company shall have occurred prior to the date your termination becomes effective. In addition, this agreement shall be deemed terminated, and of no further force and effect, in the event that you cease to be a Board-elected officer or an appointed officer of the Company prior to a change in control. You hereby specifically acknowledge that your employment by the Company is employment-at-will, subject to termination by you, or by the
Company, at any time with or without cause. You also acknowledge that such employment-at-will status cannot be modified except in a specific writing which has been authorized or ratified by the Board of Directors of the Company.
1. CONTINUED EMPLOYMENT. This confirms that you have advised the Company that, in consideration of, among other things, the Company's entering into this Agreement with you, it is your present intention to remain in the employ of the Company unless and until there occurs a change in control of the Company.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless a change in control of the Company shall have occurred and your employment by the Company shall have been terminated within two years thereafter by either you or the Company other than by reason of your death or Retirement. For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or any similar item or successor schedule, form, or report) promulgated under the Securities Exchange Act of 1934 as amended ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if and at such times as (i) any "person" (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company's then outstanding securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. Termination by the Company or you of your employment for "Retirement" shall mean any termination at or after your normal retirement age determined in accordance with the Company's retirement policy generally applicable to its salaried executive employees, which normal retirement age, for the purpose of this Agreement, shall be deemed to be attainment of age 65. Except in the case of Retirement or death, termination of your employment shall be effective only as of the earliest date (hereinafter referred to as the "Date of Termination") specified by either you or the Company in a written notice of termination ("Notice of Termination") to the other party hereto. Notwithstanding any provision herein to the contrary, if at any time prior to a change of control you receive notice from the Company that you shall be placed in an income continuation status (i.e. where the Company agrees to (i) continue to pay your then existing salary or a modified level of salary continuation and/or all or some of your then existing employee benefits and (ii) relieve you of your obligation to render services to the Company) your employment for the purpose of this Agreement only, shall be deemed terminated as of the date of such notice and no benefits shall be payable to you hereunder.
3. SEVERANCE PAY. If a change in control of the Company shall have occurred and within two years thereafter your employment by the Company shall have been terminated for any reason other than your Retirement or death, then in addition to all other
benefits which you have earned prior to termination or to which you are otherwise entitled, the Company shall pay to you as severance pay in a lump sum on or before the fifth day following the Date of Termination, the following amounts:
(a) your full base salary through the Date of Termination at the rate in effect ten days prior to the date Notice of Termination is given;
(b) in lieu of any further salary for periods subsequent to the Date of Termination, an amount equal to the product of (i) the sum of your annual base salary at the highest rate in effect at any time since any change in control of the Company (your "base compensation") multiplied by (ii) the lesser of the number ______ or a fraction the numerator of which is the number of months from and including the month in which the Date of Termination occurs to and including the month in which you would attain age sixty-five (65) and the denominator of which is twelve (12);
(c) in lieu of shares of Common Stock of the Company, without par value ("Company Shares") issuable upon exercise of options ("Options"), if any, granted to you under any Company stock option plan (which Options shall be deemed canceled upon the making of the payment herein referred to), you shall receive an amount in cash equal to the aggregate spread between the exercise prices of all such Options that are outstanding and held by you (whether or not then fully exercisable) and the higher of (i) the mean of the high and low trading prices of Company Shares on the New York Stock Exchange on the Date of Termination or (ii) the highest price per Company Share actually paid in connection with any change in control of the Company; and
(d) an amount of cash equal to any unvested portion of your interest in any of the Company's benefit plans as of the Date of Termination.
4. BENEFIT PLANS. If a change in control of the Company shall have occurred and within two years thereafter your employment by the Company shall have been terminated for any reason other than your death or Retirement, then the Company shall maintain in full force and effect, for your continued benefit for two years after the Date of Termination, all group insurance, health and accident, disability and other employee benefit plans, programs and arrangements (but the provisions of this section shall not extend to any retirement plan of the Company), in which you were entitled to participate immediately prior to the Date of Termination, provided that your continued participation is possible under the general terms and provisions of such plans, programs and arrangements. In the event that your participation in any such plan, program or arrangement is barred, or any such plan, program or arrangement is discontinued or the benefits thereunder materially reduced, the Company shall arrange to provide you with benefits substantially similar to those which you were entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. At the end of the period of coverage hereinabove provided for, you shall have the option to have assigned to you
at no cost and with no apportionment of prepaid premiums, any assignable insurance owned by the Company and relating specifically to you.
5. NO MITIGATION REQUIRED. You shall not be required to mitigate the amount of any payment or benefit provided for in paragraph 3 or 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in paragraph 3 or 4 be reduced by any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise.
6. ADDITIONAL PAYMENTS.
(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined (as hereafter provided) that any payment or distribution to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement (including without limitation the Management Incentive Plan or any stock option agreement) or similar right (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive an additional payment or payments (a "Gross-Up Payment") in an amount such that, after payment by you of all taxes (including federal, state, and local taxes and any interest or penalties imposed with respect to such taxes and including any Excise Tax) imposed upon the Gross-Up Payment, you retain (or have withheld and credited on your behalf for tax purposes) an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 6(e) hereof, all determinations required to be made under this Section 6, (including whether an Excise Tax is payable by the Executive, the amount of such Excise Tax, whether a Gross-Up Payment is required, and the amount of such Gross-Up Payment) shall be made by a nationally-recognized legal or accounting firm (the "Firm") selected by you in your sole discretion. You agree to direct the Firm to submit its determination and detailed supporting calculations to both you and the Company within 15 calendar days after the Date of Termination, if applicable, or such earlier time or times as may be requested by you or the Company. If the Firm determines that any Excise Tax is payable by you and that a Gross-Up Payment is required, the Company shall pay you the required Gross-Up Payment within five business days after receipt of such determination and calculations. If the Firm determines that no Excise Tax is payable by you, it shall, at the same time as it makes such determination, furnish you with an opinion that you have substantial authority not to report any Excise Tax on your federal income tax return. Any determination by the Firm as to the amount of the Gross-Up Payment shall be binding upon you and the Company. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) at the time of the initial determination by the Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"). In
the event that the Company exhausts its remedies pursuant to Section 6(e) hereof and you thereafter are required to make a payment of any Excise Tax, you may direct the Firm to determine the amount of the Underpayment (if any) that has occurred and to submit its determination and detailed supporting calculations to both you and the Company as promptly as possible. Any such Underpayment shall be promptly paid by the Company to you, or for your benefit, within five business days after receipt of such determination and calculations.
(c) You and the Company shall each provide the Firm access to and copies of any books, records and documents in the possession of the Company or you, as the case may be, reasonably requested by the Firm, and otherwise cooperate with the Firm in connection with the preparation and issuance of the determination contemplated by Section 6(b) hereof.
(d) The fees and expenses of the Firm for its services in connection with the determinations and calculations contemplated by Section 6(b) hereof shall be borne by the Company. If such fees and expenses are initially paid by you, the Company shall reimburse you the full amount of such fees and expenses within five business days after receipt from you of a statement therefor and reasonable evidence of your payment thereof.
(e) You agree to notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than ten business days after you actually receive notice of such claim. You agree to further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by you). You agree not to pay such claim prior to the earlier of (i) the expiration of the 30-calendar-day period following the date on which you give such notice to the Company and (ii) the date that any payment or amount with respect to such claim is due. If the Company notifies you in writing at least five business days prior to the expiration of such period that it desires to contest such claim, you agree to:
(i) provide the Company with any written records or documents in your possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such claim,
provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 6(e), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 6(e) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that you may participate therein at your own cost and expense) and may, at its option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs you to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to you on an interest-free basis and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or income tax including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for your taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(f) If, after the receipt by you of an amount advanced by the Company pursuant to Section 6(e) hereof, you receive any refund with respect to such claim, you agree (subject to the Company's complying with the requirements of Section 6(e) hereof) to promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after your receipt of an amount advanced by the Company pursuant to Section 6(e) hereof, a determination is made that you are not entitled to any refund with respect to such claim and the Company does not notify you in writing of its intent to contest such denial of refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid pursuant to this Section 6.
7. SECURITY. To secure payment of the benefits herein provided for the Company agrees to maintain an irrevocable escrow account (the "Escrow Account") at Key Trust Company of Ohio, N.A. (the "Bank"), Cleveland, Ohio, and to keep on deposit in the Escrow Account such amount, if any, as shall at all times be at least equal to the required security hereinafter provided for. The maximum amount of required security to be kept on deposit at any time shall be (A) an amount equal to one (1) times your annualized base compensation, with such amount to be recalculated each November to reflect changes in your annualized base compensation, or (B) if there has been a determination with your written consent or by a final
arbitral award rendered in accordance with this Agreement that a specific lesser amount fully secures the Company's obligations under this Agreement, or that the Company has fully performed its obligations under this Agreement, then such specific lesser amount or, in the case that the Company has fully performed its obligations under this Agreement, nothing. The full maximum amount of required security shall be kept on deposit at all times after there shall have been a change in control of the Company. Unless and until such a change in control of the Company shall have occurred, however, the Company shall only be obliged to maintain on deposit in the Escrow Account an amount at least equal to 50% of the maximum amount of required security. Amounts deposited in the Escrow Account shall be paid out by the Bank only to you, in such amounts as you shall certify to the Bank as amounts that the Company is in default in paying to you under this Agreement, or to the Company, to the extent that the amount on deposit exceeds the maximum amount of required security as specified in joint written instructions from you and the Company to the Bank or in a final arbitral award rendered pursuant to paragraph 14 hereof.
8. SUCCESSORS, BINDING AGREEMENT. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substances satisfactory to you, 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. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder if the Company had terminated your employment after a change in control of the Company occurring at the time of succession, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devises, legates, or other designee or, if there be no such designee, to your estate.
9. CONTINUED STATUS AS ELECTED OFFICER OR APPOINTED OFFICER. Notwithstanding anything to the contrary elsewhere contained in this Agreement, if you cease to be a Board-elected officer or an appointed officer of the Company prior to a change in control, this Agreement shall be deemed terminated and of no further force and effect.
10. NOTICE. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
11. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board, provided, that the Company shall have the right to terminate its obligations to you under this Agreement by written notice given to you at least two years in advance of your Date of Termination. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof and, except to the extent a specific compensation program provides for benefits upon a change in control relative to that program, which provisions shall remain in effect, no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. Without limiting the generality of the foregoing, this Agreement supersedes and replaces in its entirety any prior agreement relating to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio.
12. VALIDITY. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of the American Arbitration Association then in effect and all arbitration expenses, shall be borne by the Company. Judgment may be entered on the arbitrators' award in any court having jurisdiction, provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. EFFECTIVE DATE. This letter Agreement will be effective as of __________________.
16. LEGAL FEES AND EXPENSES. It is the intent of the Company that you shall not be required to incur the expenses associated with the enforcement of your rights under this Agreement by arbitration, litigation or other legal action because the cost and expenses thereof would substantially detract from the benefits intended to be extended to you hereunder. Accordingly, if it should appear to you that the Company has failed to comply with any of its obligations under this Agreement or in the event the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any arbitration or litigation designed to deny, or to recover from, you the benefits intended to be provided to you hereunder, the Company irrevocably authorizes you from time to time to retain counsel of your choice, at the expense of the Company, to represent you in connection with the initiation or defense of any arbitration, litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to your entering into an attorney-client relationship with such counsel, and in that connection the Company and you agree that a confidential relationship shall exist between you and such counsel. The Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by you as a result of the Company's failure to perform this Agreement or any provision hereof (including this Section 16) or as a result of the Company or any person contesting the validly or enforceability of this Agreement or any provision hereof.
If this letter, correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of the letter which will then constitute our agreement on this subject.
Sincerely,
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
AGREED TO EFFECTIVE AS OF
Schedule Pursuant to
Item 2 of Item 601(a) of Regulation S-K
The Executive Severance Agreements ("Agreements") presently in effect for eight
(8) executive officers are substantially identical in all material respects.
This revised schedule is included pursuant to Instruction 2 of Item 601(a) of
Regulation S-K for the purpose of setting forth the material details in which
the specific Agreements differ from the form of Agreement:
"Base Compensation"
Multiple Pursuant
Name Title to Paragraph 3(b)
J. C. Dannemiller Chairman, Chief
Executive Officer &
President Three (3)
J. C. Robinson Vice Chairman Three (3)
F. A. Martins Vice President-Sales &
Field Operations Two (2)
B. L. Purser Vice President-Marketing
& National Accounts Two (2)
R. C. Shaw Vice President-Communications, Two (2)
Organizational Learning &
Quality Standards
R. C. Stinson Vice President-Administration, Two (2)
Human Resources,
General Counsel & Secretary
J. R. Whitten Vice President-Finance &
Treasurer Two (2)
M. O. Eisele Controller Two (2)
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The continuation of employee benefit plans, programs and arrangements set forth in Paragraph 4 is three (3) years for Messrs. Dannemiller and Robinson, and two (2) years for the other executive officers listed.
Draft: 4/29/97 EXHIBIT 10(b)
CONSULTING, NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
This CONSULTING, NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (this "Agreement") is entered into as of _________, 1997 by and among APPLIED INDUSTRIAL TECHNOLOGIES, INC., an Ohio corporation (the "Company"), [J. MICHAEL MOORE CONSULTING] (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 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%.
(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 principles of conflict of laws of such State.
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 _________________________________
Its ________________________________
[J. MICHAEL MOORE CONSULTING]
EXHIBIT 10(c)
COMPENSATION OF DIRECTORS
Corporate officers do not receive any additional compensation for service as a director. Non-employee directors receive a quarterly retainer of $4,500, a fee of $1,500 for the first directors' meeting or committee meeting attended on a given day, and $500 for each additional meeting attended on the same day, up to a maximum of $2,500 per day. The directors may be similarly compensated if they attend other meetings or conferences at the request of the Chairman or President. In addition, the directors receive $500 for any action taken by unanimous written consent or via telephone conference of less than 30 minutes in duration, and directors who serve as chairmen of committees receive an additional quarterly retainer of $400. All non-employee directors are eligible to participate in the Deferred Compensation Plan for Non-employee Directors described below. Participants in the plan may elect to receive their director compensation in the form of Common Stock of the Corporation, in which case they receive an additional amount equal to 25% of the compensation so deferred. The amount of compensation received by non-employee directors is reviewed from time to time by the Corporation's management. If management believes that a change in the amount of non-employee director compensation is required to make the level of such compensation competitive relative to the size and nature of the Corporation's business, management recommends the change to the Board of Directors and approval of any such change requires the affirmative vote of a majority of the directors then serving in office. The directors participate in the Corporation's travel accident plan and may also elect to participate in the Corporation's contributory health insurance plan.
Exhibit 10(d)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(JANUARY 1, 1997 RESTATEMENT)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(JANUARY 1, 1997 RESTATEMENT)
Section Page
------- ----
ARTICLE I
DEFINITIONS
1.1 Definitions............................................2
1.2 Construction...........................................3
ARTICLE II
ELECTIONS BY DIRECTORS
2.1 Election to Defer......................................4
2.2 Effectiveness of Elections.............................4
2.3 Amendment and Termination of Elections.................4
ARTICLE III
ACCOUNTS AND INVESTMENTS
3.1 Establishment of Accounts..............................6
3.2 Amount of Deferrals....................................6
3.3 Adjustment of Accounts.................................6
ARTICLE IV
DISTRIBUTION OF ACCOUNTS
4.1 Method of Distribution.................................7
4.2 Time of Payments.......................................7
4.3 Hardship Distribution..................................7
4.4 Distributions Upon Death...............................8
4.5 Taxes..................................................8
ARTICLE V
BENEFICIARIES 9
ARTICLE VI
MISCELLANEOUS
6.1 Amendment and Termination of the Plan.................10
6.2 Non-Alienation........................................10
6.3 Payment of Benefits to Others.........................10
6.4 Plan Non-Contractual..................................10
6.5 Taxability of Plan Benefits...........................11
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6.6 Funding.............................................11 6.7 Section 16b Procedures..............................11 6.8 Severability........................................12 6.9 Governing Law.......................................12 |
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(JANUARY 1, 1997 RESTATEMENT)
WHEREAS, the Bearings, Inc. Deferred Compensation Plan for Non-Employee Directors was established, effective as of July 1, 1991, by Bearings, Inc. to provide non-employee members of the Board of Directors of Bearings, Inc. the option to defer receipt of all or a portion of the compensation payable to them for services as Directors; and
WHEREAS, the Bearings, Inc. Deferred Compensation Plan for Non- Employee Directors was amended subsequently on two occasions; and
WHEREAS, effective as of January 1, 1997, Bearings, Inc. changed its name to Applied Industrial Technologies, Inc.; and
WHEREAS, it is desired to amend and restate the Bearings, Inc. Deferred Compensation Plan for Non-Employee Directors to reflect such plan name sponsor change;
NOW, THEREFORE, effective as of January 1, 1997, the Bearings, Inc. Deferred Compensation Plan for Non-Employee Directors is hereby renamed the Applied Industrial Technologies, Inc. Deferred Compensation Plan for Non-Employee Directors and is amended and restated in the manner hereinafter set forth.
ARTICLE I
1.1 DEFINITIONS As used herein, the following words shall have the meanings hereinafter set forth unless otherwise specifically provided.
(1) The term "BENEFICIARY" shall mean the person or persons who, in accordance with the provisions of Article V, is entitled to receive a distribution hereunder in the event a Participant dies before his interest under the Plan has been distributed to him in full.
(2) The term "BOARD" shall mean the Board of Directors of the Company.
(3) The term "COMMITTEE" shall mean the Executive Organization and Compensation Committee of the Board, or such other committee of the Board that is designated by the Board to administer the Plan. The Committee shall be constituted so as to satisfy any applicable legal requirements including the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any similar rule which may subsequently be in effect. The members shall be appointed by, and serve at the pleasure of, the Board and any vacancy on the Committee shall be filled by the Board.
(4) The term "COMMON SHARES" shall mean the common stock of the Company.
(5) 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 any corporation into or with which it is merged or consolidated.
(6) The term "DEFERRAL" shall mean that portion of the compensation a Participant elects to defer pursuant to the terms of the Plan.
(7) The term "DEFERRAL ACCOUNT" shall mean the bookkeeping account established under the Plan in the name of each Participant to reflect the Deferrals of such Participant.
(8) The term "DIRECTOR" shall mean any non-employee director of the Company.
(9) The term "FAIR MARKET VALUE" shall mean the average of the high and low prices of a Common Share as reported on the composite tape for securities listed on the New York Stock Exchange for the date in question, provided that if no sales of Common Shares were made on said exchange on that date, the average of the high and low prices of a Common Share as reported on said composite tape for the preceding day on which sales of Common Shares were made on said Exchange.
(10) The term "FISCAL YEAR" shall mean the fiscal year of the Company, which as of January 1, 1997, begins on each July 1 and ends on the subsequent June 30.
(11) The term "FUND" shall mean any investment fund designated by the Committee in which Deferrals can be deemed to be invested; provided, however, that one such Fund shall be deemed to be invested in Common Shares.
(12) The term "PARTICIPANT" shall mean a Director who elects to defer all or any portion of his compensation under the Plan pursuant to the provisions of Article II.
(13) The term "PLAN" shall mean Applied Industrial Technologies, Inc. Deferred Compensation Plan For Non-Employee Directors (formerly known as the Bearings, Inc. Deferred Compensation Plan For Non-Employee Directors), as amended and restated herein, effective as of January 1, 1997, with all amendments, supplements, and modifications hereafter made.
(14) The term "TRUST" shall mean the trust maintained pursuant to the terms of the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits Trust Agreement (formerly known as the Bearings, Inc. Supplemental Executive Retirement Benefits Trust Agreement).
(15) The term "VALUATION DATE" shall mean June 30 of each Fiscal Year and any other date as may be designated as such by the Committee.
1.2 CONSTRUCTION. Where necessary or appropriate to the meaning herein, the singular shall be deemed to include the plural and the masculine pronoun to include the feminine.
ARTICLE II
2.1 ELECTION TO DEFER. Prior to the first day of any Fiscal Year quarter (July 1, October 1, January 1, and April 1) a Director may elect to defer receipt of all or a portion of the compensation payable to him for future services as a Director as a Deferral under the Plan. If a Director becomes a Director after the beginning of any Fiscal Year quarter, the Director may elect to defer receipt of all or a portion of the compensation payable to him for future services as a Director as a Deferral under the Plan. Any election under this Section 2.1 shall be made on in the form (an "Election Form") and manner specified by the Committee and acceptable to the Company. In addition, such election shall indicate the allocation of the Deferral to be deemed invested in the Funds.
2.2 EFFECTIVENESS OF ELECTIONS. Subject to the provisions of Sections
2.3 and 4.3, elections shall be effective and irrevocable upon the delivery of
an Election Form to the Committee. Subject to the provisions of Article IV and
Section 6.7, amounts deferred pursuant to any election hereunder shall be
invested and distributed in the manner and at the time set forth in such
election.
2.3 AMENDMENT AND TERMINATION OF ELECTIONS. A Director may terminate or amend his election to defer receipt of compensation as a Deferral under the Plan with respect to subsequent Fiscal Year quarters in a written notice delivered to the Committee prior to commencement of the Fiscal Year quarter with respect to which such compensation will be earned and such notice will be effective. Amendments which serve only to change the designation of a Beneficiary shall be permitted at any time and as often as necessary. Amounts credited to a Participant's Deferral Account pursuant to Section 3.1 prior to the
effective date of any termination or amendment shall not be affected thereby and shall be paid at a time and in the manner specified in the Election Form in effect when the Deferral occurred.
ARTICLE III
3.1 ESTABLISHMENT OF ACCOUNTS. The Deferral Account of each Participant shall have subaccounts which shall reflect the Funds into which Deferrals are deemed invested and credited pursuant to the applicable Election Form filed by the Participant with the Committee.
3.2 AMOUNT OF DEFERRALS. If a Participant elects to have compensation deferred under the Plan as a Deferral invested in a Fund, other than a Fund comprised of Common Shares, 100% of the amount of such Deferral deemed so invested in Fund shall be credited to his Deferred Account and subaccounts in accordance with his duly filed Election Form. If the Participant elects to have some or all of his compensation deferred under the Plan as a Deferral invested in a Fund comprised of Common Shares, 125% of the amount of such Deferral deemed so invested in such a Fund shall be credited to his Deferred Account and subaccounts in accordance with the terms of his duly filed Election Form. In the event any Deferral or portion thereof is deemed to be invested in a Fund, such crediting shall be made within 30 days after the date on which the Deferral would otherwise have been payable to the Participant. Common Shares of a Fund so credited to a Deferral Account shall be valued at Fair Market Value.
3.3 ADJUSTMENT OF ACCOUNTS. As of each Valuation Date, the value of each Deferral Account shall be adjusted to reflect deemed earnings, losses and dividends determined by the Committee. Common Shares of a Fund credited to any Deferral Account shall be valued at Fair Market Value.
ARTICLE IV
4.1 METHOD OF DISTRIBUTION. The value of a Participant's Deferral
Account deemed invested in a fund comprised of Common Shares shall be
distributed in Common Shares and the value of a Participant's Deferral Account
deemed otherwise invested shall be distributed in cash. Such value shall be
determined as of the most recent Valuation Date. Subject to the provisions of
Section 4.2, distribution of a Participant's Deferral Account shall be made
either in a lump sum or in equal annual installments over a period of not more
than ten years as specified in such Participant's Election Form.
4.2 TIME OF PAYMENTS. Except as otherwise provided in this Section 4.2 or Section 4.3, distribution of the value of a Participant's Deferral Account shall commence on the date specified in his Election Form. Notwithstanding any other provision of the Plan to the contrary, a Participant may elect to change the manner and the time of distribution of the value of his Deferral Account during the period which commences no earlier than 90 days prior to his termination as a Director and ends no later than 30 days prior to his termination as a Director; provided, however, that in the event a Participant is terminated as a Director with less than 30 days notice, such Participant may elect to change the manner and time of distribution of the value of his Deferral Account during the period which commences as of the day he receives notice of his termination as a Director and ends ten days thereafter.
4.3 HARDSHIP DISTRIBUTION. Prior to the time the Deferral Account of a Participant becomes payable under Section 4.2, the Committee, in its sole discretion, may elect to distribute all or a portion of the a Participant's Deferral Account on account of severe financial hardship of the Participant. For purposes of the Plan, severe financial
hardship shall be deemed to exist in the event the Committee determines that the Participant requires a distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected illness or accident of the Participant or a member of his or her family, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. A distribution based on financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship and the income taxes resulting from such distribution.
4.4 DISTRIBUTIONS UPON DEATH. Upon the death of a Participant, the balance of his or her Deferral Account shall be paid to his Beneficiary pursuant to the provisions of Article V.
4.5 TAXES. In the event any taxes are required by law to be withheld or paid from any payments made pursuant to the Plan, the Committee shall cause such amounts from such payments and shall transmit the withheld amounts to the appropriate taxing authority.
ARTICLE V
In the event a Participant dies before his interest under the Plan in his or her Deferral Account has been distributed in full, any remaining interest shall be distributed pursuant to Article IV to his Beneficiary, who shall be the person designated as such in writing by the Participant in the form and manner specified by the Company. In the event a Participant does not designate a Beneficiary or his designated Beneficiary does not survive him, his beneficiary shall be his estate.
ARTICLE VI
6.1 AMENDMENT AND TERMINATION OF THE PLAN. The Company reserves the right to amend or terminate the Plan at any time; provided, however, that no amendment or termination shall affect the rights of Participants to amounts previously credited to their Deferral Accounts pursuant to Section 3.2.
6.2 NON-ALIENATION. No benefit under the Plan shall at any time be subject in any manner to alienation or encumbrance. If any Participant or 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 Committee may select.
6.3 PAYMENT OF BENEFITS TO OTHERS. If any Participant or 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 5.3 shall be a complete discharge of any liability of the Plan with respect to the benefit so paid.
6.4 PLAN NON-CONTRACTUAL. Nothing contained herein shall be construed as a commitment or agreement on the part of any person employed by the Company 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 such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established.
6.5 TAXABILITY OF PLAN BENEFITS. This Plan is intended to be treated as an unfunded deferred compensation plan under the Internal Revenue Code of 1986, as amended. It is the intention of the Company that the amounts deferred pursuant to the Plan shall not be included in the gross income of the Participants or their Beneficiaries until such time as the deferred amounts are distributed from the Plan. If, at any time, it is determined that amounts deferred pursuant to the Plan are currently taxable to a Participant or his Beneficiary, the amounts credited to such Participant's Deferral Account which become so taxable shall be distributed immediately to him; provided, however, that in no event shall amounts so payable under the Plan to a Participant exceed the value of his Deferral Account.
6.6 FUNDING. The Company may cause Plan benefits to be paid from the Trust which is a grantor trust that provides full funding of the Plan benefits in the event of a potential change in control or change in control. Subject to the provisions of the Trust, the obligation of the Company under the Plan to provide a Participant or Beneficiary with a benefit 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.
6.7 SECTION 16B PROCEDURES. In conjunction with rules promulgated by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as amended, the Company has established Section 16b Procedures which affect certain transactions under the Plan involving Employer Securities held for the benefit of a Director. Such Procedures, which are hereby incorporated into the Plan shall constitute for all purposes a part of the Plan. In the event that the Procedures conflict with any other provision of the Plan, the Procedures shall override such other provision and shall be controlling. For purposes of this Section, the following terms shall have the meaning hereinafter set forth.
(a) The term "Employer Security" shall mean any qualifying employer security as defined in Section 407(d)(5) of ERISA which is also an equity security as defined under the Securities Exchange Act of 1934, as amended.
(b) The term "Officer" shall mean any person who is designated as an "Officer" of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) The term "Section 16b Procedures" or "Procedures" shall mean the Administrative Procedures Applicable to Officers and Directors Under
Employee Benefit Plans Maintained by Applied Industrial Technologies, Inc., effective as of January 1, 1997, with all amendments and thereafter made.
6.8 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.
6.9 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 11th day of February, 1997.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
By: /s/ John C. Robinson
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Title: Vice Chairman
And: /s/ Fred D. Bauer
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Title: Assistant Secretary
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EXHIBIT 10(e)
NON-CONTRIBUTORY LIFE & ACCIDENTAL DEATH & DISMEMBERMENT INSURANCE
The Company maintains ongoing Non-Contributory Life & Accidental Death & Dismemberment Insurance for its executive officers, which provides benefits equal to two and one-half (2-1/2) times annual compensation, but in no event more than $250,000. The Company also provides its executive officers with travel and accident insurance in the amount of $500,000. All such insurance has certain reductions after age 65.
Exhibit 10(f)
LONG-TERM DISABILITY INSURANCE
The Company's long-term disability insurance plan provides for long-term disability coverage to all employees of the Company who become eligible after a one-year waiting period based on plan requirements. Under the plan, eligible employees who become totally disabled as defined in the plan would receive 60% of monthly earnings, subject to a maximum schedule amount of $5,000 per month without evidence of insurability. The Corporation's executive officers, including its five most highly compensated officers, are covered under the plan, subject to a maximum schedule amount of $18,000 per month.
EXHIBIT 10(g)
This Agreement made as of this ___ day of ______, ____, between Applied Industrial Technologies Inc., an Ohio corporation (the "Company") and _______________, a director, officer or representative (as hereinafter defined) of the Company (the "Indemnitee");
WHEREAS, the Company and the Indemnitee are each aware of the exposure to litigation of officers, directors and representatives of the Company as such persons exercise their duties to the Company;
WHEREAS, the Company and the Indemnitee are also aware of conditions in the insurance industry that have affected and may continue to affect the Company's ability to obtain appropriate directors' and officers' liability insurance on an economically acceptable basis;
WHEREAS, the Company desires to continue to benefit from the services of highly qualified, experienced and otherwise competent persons such as the Indemnitee;
WHEREAS, the Company desires to provide and the Indemnitee desires to obtain the broadest indemnification protection available under Ohio law to its directors, officers or other representatives;
WHEREAS, the Indemnitee desires to serve or to continue to serve the Company as a director, officer or as a director, officer, trustee or other fiduciary of another corporation, joint venture, trust or other enterprise in which the Company has a direct or indirect ownership interest, for so long as the Company continues to provide on an acceptable basis adequate and reliable indemnification against certain liabilities and expenses which may be incurred by the Indemnitee.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:
1. INDEMNIFICATION
The Company shall indemnify the Indemnitee with respect to his activities as a director or officer of the Company and/or as a person who is serving or has served on behalf of the Company ("representative") as a director, officer, trustee, or other fiduciary of another corporation, joint venture, trust or other enterprise, domestic or foreign, in which the Company has a direct or indirect ownership interest (an "affiliated entity") against expenses (including, without limitation, attorneys' fees, judgments, fines, and amounts paid in settlement) actually and reasonably incurred by him ("Expenses") in connection with any claim against the Indemnitee, the Company or any other party which is the subject of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, investigative or otherwise and whether formal or informal (a "Proceeding"), to which the Indemnitee was, is, or is threatened to be made a party to or witness or other participant in by reason of facts which include
Indemnitee's being or having been such a director, officer or representative, to the extent of the highest and most advantageous to the Indemnitee, as determined by the Indemnitee, of one or any combination of the following:
(a) The benefits provided by the Company's Code of Regulations in effect on the date hereof, a copy of the relevant portions of which are attached hereto as Exhibit I;
(b) The benefits provided by the Articles of Incorporation or Code of Regulations or their equivalent of the Company in effect at the time Expenses are incurred by Indemnitee;
(c) The benefits allowable under Ohio law in effect at the date hereof;
(d) The benefits allowable under the law of the jurisdiction under which the Company exists at the time Expenses are incurred by the Indemnitee;
(e) The benefits available under liability insurance obtained by the Company; and
(f) Such other benefits as are or may be otherwise available to Indemnitee.
Combination of two or more of the benefits provided by (a) through
(f) shall be available to the extent that the Applicable Document, as
hereinafter defined, does not require that the benefits provided therein be
exclusive of other benefits. The document or law providing for the benefits
listed in items (a) through (f) above is called the "Applicable Document" in
this Agreement. Company hereby undertakes to use its best efforts to assist
Indemnitee, in all proper and legal ways, to obtain the benefits selected by
Indemnitee under items (a) through (f) above.
If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses arising from or relating to a Proceeding but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans for employees of the Company or of any affiliated entity without regard to ownership of such plans; references to "fines" shall include any excise taxes assessed on the Indemnitee with respect to any employee benefit plan; references to "serving on behalf of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, the Indemnitee with respect to an employee benefit plan, its participants or beneficiaries; references to the masculine shall include the feminine; references to the singular shall include the plural and vice versa; and if the Indemnitee acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan he shall be deemed to have acted in a manner
consistent with the standards required for indemnification by the Company under Applicable Documents.
2. INSURANCE
The rights of the Indemnitee hereunder shall also be in addition to any other rights Indemnitee may now or hereafter have under policies of insurance maintained by the Company or otherwise. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director, officer or representative. The parties hereby acknowledge that the appropriate standard of directors' and officers' liability insurance that should be provided by the Company to its directors and officers is the standard established under the policy attached to this Agreement as Exhibit III. The Company shall maintain such policy for so long as Indemnitee's services are covered hereunder, provided and to the extent that such insurance is available on a basis acceptable to the Company. In the event that such insurance is unavailable in the amount of the present policy limits or in the present scope of coverage at premium costs and on other terms acceptable to the Company, then the Company may forego maintenance of such insurance coverage. However, in the event of any reduction in (or cancellation of) such insurance coverage (whether voluntary or involuntary), the Company shall, and hereby agrees to, stand as a self-insurer with respect to the coverage, or portion thereof, not retained, and shall indemnify the Indemnitee against any loss arising out of the reduction in or cancellation of such insurance coverage.
3. PAYMENT OF EXPENSE
At Indemnitee's request, after receipt of written notice pursuant to Section 6 hereof and an undertaking in the form of Exhibit II attached hereto by or on behalf of Indemnitee to repay such amounts so paid on Indemnitee's behalf if it shall ultimately be determined under the Applicable Document that Indemnitee is not entitled to be indemnified by the Company for such Expenses, the Company shall pay the Expenses as and when incurred by Indemnitee. That portion of Expenses which represents attorneys' fees and other costs incurred in defending any Proceeding shall be paid by the Company within thirty (30) days of its receipt of such request, together with reasonable documentation (consistent, in the case of attorneys' fees, with Company practice in payment of legal fees prior to a Change in Control, as hereinafter defined) evidencing the amount and nature of such Expenses, subject to its also having received such a notice and undertaking.
4. ESCROW
In the event of a Change in Control, as collateral security for its obligations hereunder and under similar agreements with other directors, officers and representatives, the Company shall dedicate and maintain, for a period of five (5) years following the Change in Control, an escrow reserve in the aggregate of Two Million Dollars ($2,000,000) by depositing assets or bank letters
of credit in escrow or reserving lines of credit that may be drawn down by an escrow agent in said amount (the "Escrow Reserve"). Promptly following establishment of the Escrow Reserve, the Company shall (i) provide Indemnitee with a true and complete copy of the Agreement relating to the establishment and operation of the Escrow Reserve, together with such additional documentation or information with respect to the Escrow Reserve as Indemnitee may from time to time reasonably request and (ii) deliver an executed copy of this Agreement to the escrow agent for the Escrow Reserve to evidence to that agent that Indemnitee is a beneficiary of that Escrow Reserve and shall deliver to Indemnitee the escrow agent's signed receipt evidencing that delivery. The Company may from time to time increase the minimum amount that is required to be placed in the Escrow Reserve in the event of a Change in Control. In its sole discretion the Company may also from time to time place funds on deposit in the Escrow Reserve and withdraw funds from the Escrow Reserve absent a Change in Control event.
For purposes of this Agreement, a "Change in Control" of the Company shall have occurred if at any time during the Term (as hereafter defined) any of the following events shall occur:
(a) The Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than eighty percent (80%) of the outstanding voting securities of the surviving or resulting corporation are owned in the aggregate by the shareholders of the Company immediately prior to such merger or consolidation;
(b) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report) each as promulgated pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act") disclosing the acquisition of twenty percent (20%) or more of the voting stock of the Company in a transaction or series of transactions by any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act);
(c) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 6(a) of Schedule 14A thereunder (or any similar item of a successor schedule, form or report) that a Change in Control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or
(d) During any period of twenty-four (24) consecutive months, individuals who at the beginning of any such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director of the Company was approved by a vote of at least two-thirds (2/3) of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.
5. ADDITIONAL RIGHTS
The indemnification provided in this Agreement shall not be exclusive of any other indemnification or right to which Indemnitee may be entitled and shall continue after Indemnitee has ceased to occupy a position as an officer, director or representative as described in Section 1 above with respect to Proceedings relating to or arising out of Indemnitee's acts or omissions during his service in such position.
6. NOTICE TO COMPANY
Indemnitee shall provide to the Company prompt written notice of any Proceeding brought, threatened, asserted or commenced against Indemnitee, the Company or any other party with respect to which Indemnitee may assert a right to indemnification hereunder; provided that failure to provide such notice shall not in any way limit Indemnitee's rights under this Agreement.
7. COOPERATION IN DEFENSE AND SETTLEMENT
Indemnitee shall not make any admission or effect any settlement without the Company's written consent unless Indemnitee shall have determined to undertake his own defense in such matter and has waived the benefits of this Agreement. The Company shall not settle any proceeding to which Indemnitee is a party in any manner which would impose any expense on Indemnitee without his written consent. Neither Indemnitee nor the Company will unreasonably withhold consent to any proposed settlement. Indemnitee and the Company shall cooperate to the extent reasonably possible with each other and with the Company's insurers, in attempts to defend and/or settle such Proceeding.
8. ASSUMPTION OF DEFENSE
Except as otherwise provided below, to the extent that it may wish, the Company jointly with any other indemnifying party similarly notified will be entitled to assume Indemnitee's defense in any Proceeding, with counsel mutually satisfactory to Indemnitee and the Company. After notice from the Company to Indemnitee of the Company's election so to assume such defense, the Company will not be liable to Indemnitee under this Agreement for Expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at Indemnitee's expense unless:
(a) The employment of counsel by Indemnitee has been authorized by the Company;
(b) Counsel employed by the Company initially is unacceptable or later becomes unacceptable to Indemnitee and such unacceptability is reasonable under then existing circumstances;
(c) Indemnitee shall have reasonably concluded that there may be a conflict of interest between Indemnitee and the Company in the conduct of the defense of such Proceeding; or
(d) The Company shall not have employed counsel promptly to assume the defense of such Proceeding;
in each of which cases the fees and expenses of counsel shall be at the expense of the Company and subject to payment pursuant to this Agreement. The Company shall not be entitled to assume the defense of Indemnitee in any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made either of the conclusions provided for in clauses (b) or (c) above.
9. REVIEWING PARTY DETERMINATIONS AND ENFORCEMENT
(a) GENERAL RULES. Notwithstanding the provisions of Section 1,
(i) the obligations of the Company under Section 1 shall be subject to the
condition that the Reviewing Party (defined below) shall not have determined (in
a written opinion, in any case in which the special independent counsel referred
to in Section 9(f) below is involved) that Indemnitee would not be permitted to
be indemnified under applicable law, and (ii) the obligation of the Company to
make an advance pursuant to Section 3 relating to Expenses referred to in
Section 1 shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for the advance of any Expense until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed).
(b) SELECTION OF REVIEWING PARTY. The Reviewing Party shall be any person or body consisting of a member or members of the Company's Board of Directors or any other person or body, including the special independent counsel referred to in Section 9(f) below, who is not a party to the particular Proceeding for which Indemnitee is securing indemnification. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors. If there has been such a Change in Control, the Reviewing Party shall be the special independent counsel referred to in Section 9(f) below.
(c) JUDICIAL REVIEW. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Ohio having subject matter jurisdiction thereof and in which
venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. The prevailing party shall be entitled to prompt reimbursement of any costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in connection with such legal action; provided, however, that Indemnitee shall not be obligated to reimburse the Company unless the court determines that Indemnitee acted in bad faith in bringing such action.
(d) BURDEN OF PROOF. In connection with any determination by the Reviewing Party pursuant to Section 9(a), or by a court of competent jurisdiction pursuant to Section 9(c) or otherwise, as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.
(e) NO PRESUMPTION. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.
(f) CHANCE IN CONTROL. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and advances for Expenses under this Agreement or under any other agreement, Company regulation, statute or rule of law now or hereafter in effect relating to any Proceeding, the Company shall seek legal advice only from special independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company within the last five (5) years (other than in connection with such matters) or Indemnitee. Unless Indemnitee has theretofore selected counsel pursuant to this Section 9 and such counsel has been approved by the Company, the firms on the attached Exhibit IV hereto shall be deemed to satisfy the requirements set forth above, except with respect to any such firms which the Company or Indemnitee shall have engaged for any purpose at any time within the five years preceding such engagement (other than, in the case of the Company, with respect to matters concerning the rights of Indemnitee (or of other indemnitees under similar indemnity agreements) to indemnity payments and advances of Expenses). The Company agrees to pay the reasonable fees of the special independent counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
10. EXCLUSIONS
Notwithstanding the scope of indemnification which may be available to Indemnitees from time to time under any Applicable Document, no indemnification, reimbursement or payment shall be required of the Company hereunder with respect to:
(a) Any claim or part thereof as to which Indemnitee shall have been adjudged by a court of competent jurisdiction from which no appeal is or can be taken to have acted in willful misfeasance, or willful disregard of his duties, except to the extent that such court shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper;
(b) Any claim or any part thereof arising under Section 16(b) of the Exchange Act pursuant to which Indemnitee shall be obligated to pay any penalty, fine, settlement or judgment;
(c) Any obligation of Indemnitee based upon or attributable to the Indemnitee gaining in fact any personal gain, profit or advantage to which he was not entitled; or
(d) Any Proceeding initiated by Indemnitee without the consent or authorization of the Board of Directors of the Company, provided that this exclusion shall not apply with respect to any claims brought by Indemnitee to enforce his rights under this Agreement or in any Proceeding initiated by another person or entity whether or not such claims were brought by Indemnitee against a person or entity who was otherwise a party to such Proceeding.
Nothing in this Section 10 shall eliminate or diminish Company's
obligations to advance that portion of Indemnitee's Expenses which represent
attorneys' fees and other costs incurred in defending any Proceeding pursuant to
Section 3 of this Agreement.
11. EXTRAORDINARY TRANSACTIONS
The Company covenants and agrees that, in the event of any merger, consolidation or reorganization in which the Company is not the surviving entity, any sale of all or substantially all of the assets of the Company or any liquidation of the Company (each such event is hereinafter referred to as an "extraordinary transaction"), the Company shall:
(a) Have the obligations of the Company under this Agreement expressly assumed by the survivor, purchaser or successor, as the case may be, in such extraordinary transaction; or
(b) Otherwise adequately provide for the satisfaction of the Company's obligations under this Agreement, in a manner acceptable to Indemnitee.
12. NO PERSONAL LIABILITY
Indemnitee agrees that neither the Directors nor any officer, employee, representative or agent of the Company shall be personally liable for the satisfaction of the Company's obligations under this Agreement, and Indemnitee shall look solely to the assets of the Company and the escrow referred to in Section 4 hereof for satisfaction of any claims hereunder.
13. SEVERABILITY
If any provision, phrase, or other portion of this Agreement should be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable, in whole or in part, and such determination should become final, such provision, phrase or other portion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portion of the Agreement enforceable, and the Agreement as thus amended shall be enforced to give 'effect to the intention of the parties insofar as that is possible.
14. SUBROGATION
In the event of any payment under this Agreement, the Company shall be subrogated to the extent thereof to all rights to indemnification or reimbursement against any insurer or other entity or person vested in the Indemnitee, who shall execute all instruments and take all other actions as shall be reasonably necessary for the Company to enforce such rights.
15. GOVERNING LAW
The parties hereto agree that this Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio.
16. NOTICE
All notices, requests, demands and other communications hereunder shall be in writing and shall be considered to have been duly given if delivered by hand and receipted for by the party to whom the notice, request, demand or other communication shall have been directed, or mailed by certified mail, return receipt requested, with postage prepaid:
(a) If to the Company,
to: Applied Industrial
Technologies, Inc.
3600 Euclid Avenue
Cleveland, OH 44115
Attention: Chief Executive
Officer
(b) If to the Indemnitee,
|
to:
or to such other or further address as shall be designated from time to time by the Indemnitee or the Company to the other.
17. TERMINATION
This Agreement may be terminated by either party upon not less
than sixty (60) days prior written notice delivered to the other party, but such
termination shall not in any way diminish the obligations of the Company
hereunder (including the obligation to maintain the escrow referred to in
Section 4 hereof) with respect to Indemnitee's activities prior to the effective
date of termination.
18. AMENDMENTS
This Agreement and the rights and duties of Indemnitee and the Company hereunder may not be amended, modified or terminated except by written instrument signed and delivered by the parties hereto.
This Agreement is and shall be binding upon and shall inure to the benefit of the parties thereto and their respective heirs, executors, administrators, successors and assigns.
IN WITNESS HEREOF, the undersigned have executed this Agreement in triplicate as of the date first above written.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
INDEMNITEE
EXHIBIT I
Section 29. Indemnification of Directors and Officers.
The Corporation shall indemnify any Director or officer, any former Director or officer of the Corporation and any person who is or has served at the request of the Corporation as a director, officer or trustee of another corporation, partnership, joint venture, trust or other enterprise (and his heirs, executors and administrators) against expenses, including attorneys fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him by reason of the fact that he is or was such director, officer or trustee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent and according to the procedures and requirements set forth in the Ohio General Corporation law as the same may be in effect from time to time. The indemnification provided for herein shall not be deemed to restrict the right of the Corporation to (i) indemnify employees, agents and others as permitted by such Law, (ii) purchase and maintain insurance or provide similar protection on behalf of directors, officers or such other persons against liabilities asserted against them or expenses incurred by them arising out of their service to the Corporation as contemplated herein, and (iii) enter into agreements with such directors, officers, employees, agents or others indemnifying them against any and all liabilities (or such lesser indemnification as may be provided in such agreements) asserted against them or incurred by them arising out of their service to the Corporation as contemplated herein.
EXHIBIT II
THIS UNDERTAKING has been entered into by ________________________ (hereinafter "Indemnitee") pursuant to an Indemnification Agreement dated ________________, 19___ (the "Indemnification Agreement") between Applied Industrial Technologies, Inc. (hereinafter "Company"), an Ohio corporation, and Indemnitee.
W I T N E S S E T H:
WHEREAS, pursuant to the Indemnification Agreement, Company agreed to pay Expenses (within the meaning of the Indemnification Agreement) as and when incurred by Indemnitee in connection with any claim against Indemnitee the Company or any other party which is the subject of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, to which Indemnitee was, is, or is threatened to be made a party to or witness or other participant in by reason of facts which include Indemnitee's being or having been a director, officer or representative (within the meaning of the Indemnification Agreement) of Company;
WHEREAS, such a claim has arisen with respect to the Indemnitee
and Indemnitee has notified Company thereof in accordance with the terms of
Section 6 of the Indemnification Agreement (hereinafter the "proceeding");
WHEREAS, Indemnitee believes that Indemnitee is entitled to indemnification smith respect to this Proceeding, and it is in the interest of both Indemnitee and Company to defend Indemnitee against any claim against Indemnitee thereunder;
NOW, THEREFORE, Indemnitee hereby agrees that in consideration of Company's advance payment of Indemnitee's Expenses incurred prior to a final disposition of the Proceeding, Indemnitee hereby undertakes to reimburse Company for any and all Expenses paid by Company on behalf of the Indemnitee prior to a final disposition of the Proceeding in the event that Indemnitee is determined under the Applicable Document (within the meaning or the Indemnification Agreement) not to be entitled to indemnification for such Expenses pursuant to the Indemnification Agreement and applicable law; provided that if Indemnitee is entitled under the Applicable Document to indemnification for some or a portion of such Expenses, Indemnitee's obligation to reimburse Company shall be only for those Expenses for which Indemnitee is determined not to be entitled to indemnification. Such reimbursement or arrangements for reimbursement by Indemnitee shall be consummated within ninety (90) days after a determination that Indemnitee is not entitled to indemnification and reimbursement pursuant to the Indemnification Agreement and applicable law.
IN WITNESS WHEREOF, the undersigned has set his hand this _____
day of ________________, 19___.
INDEMNITEE
Schedule Pursuant to Item 601(a) of Regulation S-K Identifying those Officers and Directors Party to Indemnification Agreements
The Director and Officer Indemnification Agreements presently in effect for the Company's directors and executive officers are identical in all material respects. The Directors having executed such form of Agreement are:
W. G. Bares
R. D. Blackwell
W. E. Butler
J. C. Dannemiller
R. B. Every
R. R. Gifford
L. T. Hiltz
J. J. Kahl
J. C. Robinson
J. S. Thornton
The Officers having executed such form of Agreement are (in addition to Messrs. Dannemiller and Robinson):
F. A. Martins - Vice President-Sales & Field Operations
B. L. Purser - Vice President-Marketing & National Accounts
R. C. Shaw - Vice President-Communications, Organizational
Learning & Quality Standards
R. C. Stinson - Vice President-Administration, Human Resources,
General Counsel & Secretary
J. R. Whitten - Vice President-Finance & Treasurer
M. O. Eisele - Controller
|
EXHIBIT 10(h)
BEARINGS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(JULY 1, 1993 RESTATEMENT)
TABLE OF CONTENTS
Section Page No.
- ------- --------
ARTICLE I
DEFINITIONS
1.1 Definitions...........................................................1
ARTICLE II
PARTICIPATION
2.1 Participants..........................................................2
2.2 Designation of Participants...........................................2
ARTICLE III
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS
3.1 Eligibility...........................................................2
3.2 Amount................................................................3
ARTICLE IV
PAYMENT OF BENEFITS
4.1 Commencement of Benefits..............................................3
4.2 Optional Methods of Payment...........................................3
4.3 Effect of various Circumstances Upon an Option........................5
4.4 Payment Under an Option...............................................5
ARTICLE V
SURVIVOR BENEFITS
5.1 Eligibility for Survivor Benefit......................................5
5.2 Survivor Benefit Amount...............................................5
5.3 Payment of Survivor Benefit...........................................5
ARTICLE VI
AMENDMENT AND TERMINATION 6
ARTICLE VII
MISCELLANEOUS
7.1 Non-Alienation of Retirement Rights or Benefits.......................6
7.2 Payment of Benefits to Others.........................................6
7.3 Plan Non-Contractual..................................................6
7.4 Funding...............................................................6
7.5 Actuarially Equivalent Benefits.......................................7
7.6 Claims of Other Persons...............................................7
7.7 Severability..........................................................7
7.8 Governing Law.........................................................7
|
BEARINGS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(JULY 1, 1993 RESTATEMENT)
WHEREAS, the Bearings, Inc. Supplemental Executive Retirement Benefits Plan (hereinafter referred to as the "Plan") was established by Bearings, Inc. (hereinafter referred to as the "Company") on January 21, 1988, for the benefit of certain of the officers and key executives; and
WHEREAS, the Plan has been amended from time to time on seven occasions; and
WHEREAS, the Company now desires to amend and restate the Plan as of July 1, 1993;
NOW, THEREFORE, the Plan is hereby amended and restated effective as of July 1, 1993, as hereinafter set forth.
ARTICLE I
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:
(a) The term "BENEFICIARY" shall mean the person or persons who is designated by a Participant to receive a survivor benefit pursuant to the provisions of Article V in the event such Participant and, if applicable, his Contingent Annuitant or Term-Certain Beneficiary die prior to payment of the actuarial present value of such Participant's benefit under the Plan.
(b) The term "COMPANY" shall mean Bearings, Inc., a Delaware corporation, its corporate successors, and the surviving corporation resulting from any merger of Bearings, Inc. with any other corporation or corporations.
(c) The term "CONTROLLED GROUP" shall mean the group of related corporations of which the Company is a member as determined under Section 1563(a) of the Internal Revenue Code of 1954, as amended.
(d) The term "EFFECTIVE DATE" shall mean January 21, 1988, the date that the Plan was established.
(e) The term "HIGHEST FINAL AVERAGE COMPENSATION" shall mean the aggregate amount of the highest of base compensation of a Participant from the Controlled Group with respect to the three consecutive years during the last ten calendar years of the Participant's employment which produces a higher average than any other three-year period including any amounts which would otherwise be paid as base compensation but which are deferred by a Participant pursuant to any qualified or unqualified deferred compensation program sponsored by the Controlled Group, but excluding any deferred compensation received during any such year but credited under the Plan to the Participant for a prior year.
(f) The term "NORMAL RETIREMENT DATE" shall mean the date on which a Participant attains 65 years of age.
(g) The term "PARTICIPANT" shall mean an employee of the Company designated to participate in the Plan pursuant to Article II of the Plan.
(h) The term "PLAN" shall mean the Bearings, Inc. Supplemental Executive Retirement Benefits Plan as amended and restated herein effective as of July 1, 1993, with all amendments, modifications, and supplements hereafter made.
(i) The term "SERVICE" shall mean the period of time that a Participant is employed as an employee by any member of the Controlled Group.
(j) The term "CHANGE IN CONTROL" shall mean the occurrence of either of the following events:
(1) When any "person" (as such term is used in
Section 13(d)(3) and 14(d)(2) of the
Exchange Act) becomes the "beneficial owner"
(as such term is used in Rule 13d-3 under
the Securities and Exchange Act of 1934) of
securities of the Company representing 40
percent or more of the combined voting power
of the Company's then outstanding
securities, or,
(2) When individuals who at the beginning of any two-year period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's shareholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.
ARTICLE II
2.1 PARTICIPANTS. The Participants in the Plan shall be such officers and other key executives of the Company as shall be designated as Participants from time to time by the Board of Directors of the Company.
2.2 DESIGNATION OF PARTICIPANTS. The designation of an individual as a Participant shall be made by action of the Board of Directors of the Company.
ARTICLE III
3.1 ELIGIBILITY. Any Participant who terminates his employment with the Controlled Group shall be eligible for a monthly supplemental executive retirement benefit at or after attainment of age 55 determined in accordance with the provisions of Section 3.2.
3.2 AMOUNT. The monthly supplemental executive retirement benefit payable to an eligible Participant shall be equal to 45% of his Highest Final Average Compensation reduced by 1/20th for each year his service is less than 20; provided, however, that in no event shall such annual benefit payable to, or with respect to, the following participants to be less than the amounts set forth below:
Participant Annual Benefit at Age 65 ----------- ------------------------ J. C. Dannemiller 70,000 T. L. Bradley 50,000 F. L. Mohr 50,000 J. L. Mugnano 25,000 J. C. Robinson 35,000 R. C. Stinson 25,000 J. R. Whitten 25,000 |
and provided further that in addition to the amount of annual supplemental executive retirement benefit described above, J. R. Cunin shall receive the amount of $20,000 annually upon retirement.
ARTICLE IV
4.1 COMMENCEMENT OF BENEFITS. Supplemental executive retirement benefits shall be payable monthly to an eligible Participant commencing with the later of the month next following the month in which he becomes eligible for such benefit or the month designated by him in writing to the Company and, subject to the provisions of Section 4.2 and Article V, terminating with the month in which the death of such Participant occurs; provided, however, that in the event the employment of a Participant is terminated for any reason, other than death, within three years after a Change in Control, such Participant shall receive the actuarial equivalent of his monthly supplemental executive retirement benefit in a lump sum as soon as practicable, but in no event later than 60 days after such termination. Notwithstanding the foregoing, in the event of a Change in Control, any Participant who is receiving, or who is eligible to receive, a monthly supplemental executive retirement benefit, shall receive the actuarial equivalent of such supplemental executive retirement benefit, or the remaining portion thereof, in a lump sum as soon as practicable, but in no event later than 60 days after such Change in Control occurs.
4.2 OPTIONAL METHODS OF PAYMENT. Any Participant who becomes eligible under the Plan for a supplemental executive 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 retirement benefit payable to such Participant for his lifetime following his retirement, 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 retirement benefit payable to such Participant for his lifetime following his retirement, 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 participants benefit commences.
OPTION C A reduced monthly retirement benefit payable to such participant for his lifetime following his retirement, 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 retirement benefit payable to such participant for his lifetime following his retirement, with the continuance to the persons designated by him or such reduced amount after his death for the remainder, if any, of the ten-year term 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 equal to 50%, 75%, or 100% of the annuity payable during the joint lives of the Participant and such Participant's Contingent Annuitant.
The Contingent Annuitant of a Participant under Option, A, B. C, or G or the Term-Certain Beneficiary under Option D or H 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 7.5. 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 a company selected by the Participant and distributed to such Participant. Upon the distribution of any amount used to purchase the annuity contract the 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 non-transferable, 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. Notwithstanding the form of payment selected with respect to a Plan benefit, the value of such benefit shall be the actuarial equivalent of the value of the benefit under Section 4.1 to which the particular Participant is entitled.
4.3 EFFECT OF VARIOUS CIRCUMSTANCES UPON AN OPTION. The election of an option under Section 4.2 shall become effective for all purposes only upon the commencement of monthly payments to an eligible Participant thereunder, as provided in Section 4.4. 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.
4.4 PAYMENT ORDER AN OPTION. A monthly benefit payment shall be made to an eligible Participant who has elected under Section 4.2 an option commencing at the same time as the monthly benefit payment otherwise payable to him under the Plan would have commenced, the last such monthly payment being for the month in which his death occurs. Monthly benefit payments which become payable to a Participant's Contingent Annuitant 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 the 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 7.5.
ARTICLE V
5.1 ELIGIBILITY FOR SURVIVOR BENEFIT. Upon the death of a Participant, his Beneficiary shall be eligible for a survivor benefit determined under Section 5.2.
5.2 SURVIVOR BENEFIT AMOUNT. The survivor benefit payable to the Beneficiary of such a deceased Participant shall be equal to the present actuarial value of such deceased Participant's benefit under the Plan as of the earlier of the date payments commence
to him or his death minus the aggregate payments, if any, paid with respect to such Participant and, if applicable, his Contingent Annuitant or Term-Certain Beneficiary.
5.3 PAYMENT OF SURVIVOR BENEFIT. In the event the Beneficiary of deceased Participant is eligible for a survivor benefit determined under this Article V payment of such benefit shall be made in a lump sum to such Beneficiary.
ARTICLE VI
The Company reserves the right to amend or terminate the Plan at any time by action of its Board of Directors; provided, however, that no such action shall adversely affect any Participant who is receiving supplemental executive retirement benefits under the Plan or who has accrued a supplemental executive retirement benefit under the Plan, unless an equivalent benefit is otherwise provided under another plan or program sponsored by the Company.
ARTICLE VII
7.1 NON-ALIENATION OF RETIREMENT RIGHTS OR 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.
7.2 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 7.2 shall be a complete discharge of any liability of the Plan with respect to the benefit so paid.
7.3 PLAN NON-CONTRACTUAL. Nothing contained herein shall be construed as a commitment or agreement on the part of any person employed by the Company 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 such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established.
7.4 FUNDING. In order to provide a source of payment for its obligations under the Plan, the Company has established a grantor trust which provides for full funding of Plan benefits in the event of a potential change in control or change in control, as set forth in the trust agreement under which said "rust is maintained. In addition thereto, the Company
may fund Plan benefits through the purchase of annuity contract. In the event any portion of a Plan benefit is provided through an annuity contract, the Plan shall have no further liability with respect to the benefits provided under such an annuity contract and a certificate evidencing such annuity shall be distributed to the applicable Participant. Notwithstanding any other provision of the Plan, in the event any portion of a Participant's benefit under the Plan is satisfied by the purchase of an annuity, the benefit otherwise payable under the Plan to such Participant shall be reduced by an amount equal to the benefit purchased under the annuity contract. Subject to the provisions of the trust agreement or annuity contract, the obligation of the Company under the Plan to provide a Participant, Contingent Annuitant, or Term-Certain Beneficiary with a benefit 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.
7.5 ACTUARIALLY EQUIVALENT BENEFITS. Actuarially equivalent benefits under the Plan shall be determined using (i) the UP-1984 Mortality Table, (ii) the interest rates utilized by the Pension Benefit Guaranty Corporation in effect on the date a determination of a lump sum benefit is made with respect to immediate annuities (except that in no event shall such rate be less than 8%), and (iii) an interest rate of 8% for all other purposes.
7.6 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 as 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.
7.7 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.
7.8 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 ____ day of ______________, 1993.
BEARINGS, INC.
EXHIBIT 10(i)
FIRST AMENDMENT
TO
BEARINGS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN
(JULY 1, 1993 RESTATEMENT)
WHEREAS, the Bearings, Inc. Supplemental Executive Retirement Benefits Plan (hereinafter referred to as the "Plan") was established by Bearings, Inc. (hereinafter referred to as the "Company") on January 21, 1988, for the benefit of certain of the officers and key executives; and
WHEREAS, the Plan was amended and restated as of July 1, 1993; and
WHEREAS, the Company now desires to amend the Plan effective as of December 31, 1993, to vest participants in their accrued benefits thereunder;
NOW, THEREFORE, the Plan is hereby amended, effective as of December 31, 1993, by the addition of a new Section 3.3 to provide as follows:
3.3 VESTING Each Participant shall be 100% vested in his accrued supplemental executive retirement benefit under the Plan.
Executed at Cleveland, Ohio, this ____ day of December, 1993.
BEARINGS, INC.
By: /s/ John C. Dannemiller
------------------------------------
Title
John C. Dannemiller
|
Exhibit 10(j)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
(JANUARY 1, 1997 RESTATEMENT)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
(JANUARY 1, 1997 RESTATEMENT)
Section Page
------- ----
ARTICLE I
DEFINITIONS
1.1 Definitions............................................2
1.2 Construction...........................................4
ARTICLE II
ELECTIONS BY ELIGIBLE EMPLOYEES
2.1 Election to Defer......................................5
2.2 Effectiveness of Elections.............................5
ARTICLE III
ACCOUNTS AND INVESTMENTS
3.1 Establishment of Accounts..............................6
3.2 Amount of Deferrals....................................6
3.3 Adjustment of Accounts.................................6
ARTICLE IV
DISTRIBUTION OF ACCOUNTS
4.1 Method of Distribution.................................7
4.2 Time of Payments.......................................7
4.3 Hardship Distribution..................................7
4.4 Distributions Upon Death...............................8
4.5 Taxes..................................................8
ARTICLE V
BENEFICIARIES 9
ARTICLE VI
MISCELLANEOUS
6.1 Amendment and Termination of the Plan.................10
6.2 Non-Alienation........................................10
6.3 Payment of Benefits to Others.........................10
6.4 Plan Non-Contractual..................................10
6.5 Taxability of Plan Benefits...........................11
6.6 Funding...............................................11
6.7 Section 16b Procedures................................11
|
6.8 Severability....................................12 6.9 Governing Law...................................12 |
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
DEFERRED COMPENSATION PLAN
(JANUARY 1, 1997 RESTATEMENT)
WHEREAS, the Bearings, Inc. Deferred Compensation Plan was established, effective as of July 1, 1993, by Bearings, Inc. to provide key executives of Bearings, Inc. and its affiliates with a means by which to defer receipt of all or a portion of their incentive compensation payable under the Bearings, Inc. Management Incentive Plan; and
WHEREAS, the Bearings, Inc. Deferred Compensation Plan was amended subsequently on two occasions; and
WHEREAS, effective as of January 1, 1997, Bearings, Inc. changed its name to Applied Industrial Technologies, Inc.; and
WHEREAS, it is desired to amend and restate the Bearings, Inc. Deferred Compensation Plan to reflect such plan sponsor name change;
NOW, THEREFORE, effective as of January 1, 1997, the Bearings, Inc. Deferred Compensation Plan is hereby renamed the Applied Industrial Technologies, Inc. Deferred Compensation Plan and is amended and restated in the manner hereinafter set forth.
ARTICLE I
1.1 DEFINITIONS. As used herein, the following words shall have the meanings hereinafter set forth unless otherwise specifically provided.
(1) 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 business 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.
(2) The term "ANNUAL INCENTIVE PLAN" shall mean any management incentive plan adopted by the Board with respect to any Fiscal Year.
(3) The term "AWARD" shall mean the aggregate benefit payable to a Plan Participant under an Annual Incentive Plan for a Fiscal Year.
(4) The term "BENEFICIARY" shall mean the person or persons who, in accordance with the provisions of Article V, is entitled to distribution hereunder in the event a Participant dies before his interest under the Plan has been distributed to him in full.
(5) The term "BOARD" shall mean the Board of Directors of the Company.
(6) The term "COMMITTEE" shall mean the Executive Organization and Compensation Committee of the Board, or such other committee of the Board that is designated by the Board to administer the Plan. The Committee shall be constituted so as to satisfy any applicable legal requirements including the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any similar rule which may subsequently be in effect. The members shall be appointed by, and serve at the pleasure of, the Board and any vacancy on the Committee shall be filled by the Board.
(7) The term "COMMON SHARES" shall mean the common stock of the Company.
(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 any corporation into or with which it is merged or consolidated.
(9) The term "COMPREHENSIVE PLAN" shall mean the Applied Industrial Technologies, Inc. Deferred Compensation and Supplemental Benefit Plan (formerly known as the Bearings, Inc. Comprehensive Deferred Compensation and Supplemental Benefit Plan.)
(10) The term "DEFERRAL" shall mean that portion of an Award which a Participant elects to defer pursuant to the terms of the Plan.
(11) The term "DEFERRAL ACCOUNT" shall mean the bookkeeping account established under the Plan in the name of each Participant to reflect the Deferrals of such Participant.
(12) The term "ELIGIBLE EMPLOYEE" shall mean any highly compensated or select management employee of the Company or an Affiliate who is designated by the Committee to participate in an Annual Incentive Plan with respect to a particular Fiscal Year.
(13) The term "FAIR MARKET VALUE" shall mean the average of the high and low prices of a Common Share as reported on the composite tape for securities listed on the New York Stock Exchange for the date in question, provided that if no sales of Common Shares were made on said exchange on that date, the average of the high and low prices of a Common Share as reported on said composite tape for the nearest preceding day on which sales of Common Shares were made on said Exchange.
(14) The term "FISCAL YEAR" shall mean the fiscal year of the Company, which as of January 1, 1997, begins on each July 1 and ends on the subsequent June 30.
(15) The term "FUND" shall mean any investment fund designated by the Committee in which Deferrals can be deemed to be invested; provided, however, that one such Fund shall be deemed to be invested in Common Shares.
(16) The term "PARTICIPANT" shall mean an Eligible Employee who elects to defer all or any portion of an Award under the Plan pursuant to the provision of Article II.
(17) The term "PLAN" shall mean Applied Industrial Technologies, Inc. Deferred Compensation Plan (formerly known as the Bearings, Inc. Deferred Compensation Plan), as amended and restated herein, with all amendments, supplements, and modifications hereafter made. The Plan is part of the Comprehensive Plan and listed on Exhibit A attached thereto.
(18) The term "TRUST" shall mean the trust maintained pursuant to the terms of the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits Trust Agreement (formerly known as the Bearings, Inc. Supplemental Executive Retirement Benefits Trust Agreement).
(19) The term "VALUATION DATE" shall mean the last day of each Fiscal Year quarter and any other date as may be designated as such by the Committee.
1.2 CONSTRUCTION. Where necessary or appropriate to the meaning herein, the singular shall be deemed to include the plural and the masculine pronoun to include the feminine.
ARTICLE II
2.1 ELECTION TO DEFER. Prior to the January 1 following the adoption by the Board of an Annual Incentive Plan, an Eligible Employee may elect to defer receipt of all or a portion of the Award that he may receive under such Annual Incentive Plan as a Deferral under the Plan. Any election under this Section 2.1 shall be made in the form (an "Election Form") and manner specified by the Committee and acceptable to the Company. In addition, such election shall indicate the allocation of the Deferral to be deemed invested in the Funds.
2.2 EFFECTIVENESS OF ELECTIONS. Subject to the provisions of Section
4.3, elections shall be effective and irrevocable upon the delivery of an
Election Form to the Committee. Subject to the provisions of Article IV and
Section 6.7, amounts deferred pursuant to any election hereunder shall be
invested and distributed in the manner and at the time set forth in such
election.
ARTICLE III
3.1 ESTABLISHMENT OF ACCOUNTS. The Deferral Account of each Participant shall have subaccounts, which shall reflect the Funds into which Deferrals are deemed invested and credited pursuant to the applicable Election Form filed by the Participant with the Committee.
3.2 AMOUNT OF DEFERRALS. If a Participant elects to have less than 50% of his Award deferred under the Plan as a Deferral, the amount of such Deferral shall be credited to his Deferral Account and subaccounts in accordance with his duly filed Election Form. If, however, the Participant elects to have at least 50% of his Award deferred under the Plan as a Deferral and elects to have at least 50% of his Award deemed to be invested in a Fund comprised of Common Shares, 110% of the amount of such Deferral deemed so invested in Common Shares, and 100% of the amount of such Deferral deemed to be invested in any other Fund, shall be credited to his Deferral Account and subaccounts in accordance with the terms of his duly filed Election Form. In the event any Deferral or portion thereof is deemed to be invested in a Fund, such crediting shall be made within 30 days after the date on which the Deferral would otherwise have been payable to the Participant under the applicable Annual Incentive Plan and Common Shares of a Fund so credited to a Deferral Account shall be valued at Fair Market Value.
3.3 ADJUSTMENT OF ACCOUNTS. As of each Valuation Date, the value of each Deferral Account shall be adjusted to reflect deemed earnings, losses and dividends determined by the Committee. Common Shares of a Fund credited to any Deferral Account shall be valued at Fair Market Value.
ARTICLE IV
4.1 METHOD OF DISTRIBUTION. The value of a Participant's Deferral
Account deemed invested in a Fund comprised of Common Shares shall be
distributed in Common Shares and the value of a Participant's Deferral Account
deemed otherwise invested shall be distributed in cash. Such value shall be
determined as of the most recent Valuation Date. Subject to the provisions of
Section 4.2, distribution of a Participant's Deferral Account shall be made
either in a lump sum or in equal annual installments over a period of not more
than ten years as specified in such Participant's Election Form.
4.2 TIME OF PAYMENTS. Except as otherwise provided in this Section 4.2 or Section 4.3, distribution of the value of a Participant's Deferral Account shall commence on the date specified in his Election Form. Notwithstanding any other provision of the Plan to the contrary, a Participant may elect to change the manner and the time of distribution of the value of his Deferral Account during the period which commences no earlier than 90 days prior to his termination of employment and ends no later than 30 days prior to his termination of employment; provided, however, that in the event a Participant's employment is terminated with less than 30 days notice, such Participant may elect to change the manner and time of distribution of the value of his Deferral Account during the period which commences as of the day he receives notice of his termination of employment and ends ten days thereafter.
4.3 HARDSHIP DISTRIBUTION. Prior to the time the Deferral Account of a Participant becomes payable under Section 4.2, the Committee, in its sole discretion, may elect to distribute all or a portion of the a Participant's Deferral Account on account of
severe financial hardship of the Participant. For purposes of the Plan, severe financial hardship shall be deemed to exist in the event the Committee determines that the Participant requires a distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected illness or accident of the Participant or a member of his or her family, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. A distribution based on financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship and the income taxes resulting from such distribution.
4.4 DISTRIBUTIONS UPON DEATH. Upon the death of a Participant, the balance of his or her Deferral Account shall be paid to his Beneficiary pursuant to the provisions of Article V.
4.5 TAXES. In the event any taxes are required by law to be withheld or paid from any payments made pursuant to the Plan, the Committee shall cause such amounts from such payments and shall transmit the withheld amounts to the appropriate taxing authority.
ARTICLE V
In the event a Participant dies before his interest under the Plan in his or her Deferral Account has been distributed in full, any remaining interest shall be distributed pursuant to Article IV to his Beneficiary, who shall be the person designated as such in writing by the Participant in the form and manner specified by the Company. In the event a Participant does not designate a Beneficiary or his designated Beneficiary does not survive him, his Beneficiary shall be his estate.
ARTICLE VI
6.1 AMENDMENT AND TERMINATION OF THE PLAN. The Company reserves the right to amend or terminate the Plan at any time; provided, however, that no amendment or termination shall affect the rights of Participants to amounts previously credited to their Deferral Accounts pursuant to Section 3.2.
6.2 NON-ALIENATION. No benefit under the Plan shall at any time be subject in any manner to alienation or encumbrance. If any Participant or 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 Committee may select.
6.3 PAYMENT OF BENEFITS TO OTHERS. If any Participant or 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 5.3 shall be a complete discharge of any liability of the Plan with respect to the benefit so paid.
6.4 PLAN NON-CONTRACTUAL. Nothing contained herein shall be construed as a commitment or agreement on the part of any person employed by the Company 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 such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established.
6.5 TAXABILITY OF PLAN BENEFITS. This Plan is intended to be treated as an unfunded deferred compensation plan under the Internal Revenue Code of 1986, as amended. It is the intention of the Company that the amounts deferred pursuant to the Plan shall not be included in the gross income of the Participants or their Beneficiaries until such time as the deferred amounts are distributed from the Plan. If, at any time, it is determined that amounts deferred pursuant to the Plan are currently taxable to a Participant or his Beneficiary, the amounts credited to such Participant's Deferral Account which become so taxable shall be distributed immediately to him; provided, however, that in no event shall amounts so payable under the Plan to a Participant exceed the value of his Deferral Account.
6.6 FUNDING. The Company may cause Plan benefits to be paid from the Trust which is a grantor trust that provides full funding of the Plan benefits in the event of a potential change in control or change in control. Subject to the provisions of the Trust, the obligation of the Company under the Plan to provide a Participant or Beneficiary with a benefit 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.
6.7 SECTION 16B PROCEDURES. In conjunction with rules promulgated by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as amended, the Company has established Section 16b Procedures which affect certain transactions under the Plan involving Employer Securities held for the benefit of a Director. Such Procedures, which are hereby incorporated into the Plan shall constitute for all purposes a part of the Plan. In the event that the Procedures conflict with any other provision of the Plan, the Procedures shall override such other provision and shall be controlling. For purposes of this Section, the following terms shall have the meaning hereinafter set forth.
(a) The term "Employer Security" shall mean any qualifying employer security as defined in Section 407(d)(5) of ERISA which is also an equity security as defined under the Securities Exchange Act of 1934, as amended.
(b) The term "Officer" shall mean any person who is designated as an "Officer" of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) The term "Section 16b Procedures" or "Procedures" shall mean the Administrative Procedures Applicable to Officers and Directors Under Employee Benefit Plans Maintained by Applied Industrial Technologies, Inc., effective as of January 1, 1997, with all amendments and thereafter made.
6.8 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.
6.9 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 11th day of February, 1997.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
By: /S/ John C. Robinson -------------------------------- Title: Vice Chairman And: /S/ Fred D. Bauer -------------------------------- Title: Assistant Secretary |
Exhibit 10(k)
BEARINGS, INC.
1990 LONG-TERM PERFORMANCE PLAN
1. OBJECTIVES
The Bearings, Inc. 1990 Long-Term Performance Plan (the "Plan") is designed to foster and promote the long-term growth and performance of the Company by: (a) strengthening the Company's ability to develop and retain an outstanding management team, (b) motivating superior performance by means of long-term performance related incentives and (c) enabling key management employees and outside directors to participate in the long-term growth and financial success of the Company. These objective will be promoted by awarding to such persons performance-based stock awards, restricted stock, stock options, stock appreciation rights and/or other performance or stock-based awards.
2. DEFINITIONS
(a) "Award" -- The grant of stock or any form of stock option, stock appreciation right, performance share, restricted stock, other stock-based award or cash whether granted singly, in combination or in tandem, to a Plan Participant pursuant to such terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan.
(b) "Award Agreement" -- An agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to an Award.
(c) "Board" -- The Board of Directors of the Company.
(d) "Common Shares" or "shares" -- Authorized and issued or unissued shares of common stock without par value of the Company.
(e) "Code" -- The Internal Revenue Code of 1986, as amended from time to time.
(f) "Committee" -- The Executive Organization and Compensation Committee of the Company's Board, or such other committee of the Board that is designated by the Board to administer the Plan. The Committee shall be constituted so as to satisfy any applicable legal requirements including the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") or any similar rule which may subsequently be in effect (Rule 16b-3). The members shall be appointed by, and serve at the pleasure of, the Board and any vacancy on the Committee shall be filled by the Board.
(g) "Company" -- Bearings, Inc., an Ohio corporation, and its direct and indirect subsidiaries.
(h) "Fair Market Value" -- The average of the high and low prices of Common Shares as reported on the composite tape for securities listed on the New York Stock Exchange for the date in question, provided that if no sales of Common Shares were made on said exchange on that date, the average of the high and low prices of Common Shares as reported on said composite tape for the preceding day on which sales of Common Shares were made on said Exchange.
(i) "Participant" -- Any employee of the Company, or other person whose selection the Committee determines to be in the best interests of the Company, to whom an award has been made under the Plan.
3. ELIGIBILITY
Persons eligible to be selected as Participants shall include employees of the Company who hold responsible managerial or professional positions and outside directors whose performance, in the judgment of the Committee, can contribute to the continued growth and success of the Company. The Election of Participants shall be within the sole discretion of the Committee. Grants may be made to the same Participant on more than one occasion.
4. COMMON SHARES AVAILABLE FOR AWARDS
The aggregate number of Common Shares which may be awarded under the Plan in each fiscal year of the Company, subject to adjustment as provided in Section 15 hereof, shall be two percent (2%) of the total outstanding Common Shares as of the first day of such year for which the Plan is in effect; provided that such number shall be increased in any year by the number of Common Shares available for grant hereunder in previous years but not the subject of Awards granted hereunder in such year; and provided further, that no more than two hundred thousand (200,000) Common Shares shall be cumulatively available for the grant of incentive stock options under the Plan. In addition, any Common Shares issued by the Company through the assumption or substitution of outstanding grants from an acquired corporation or entity shall not reduce the Common Shares available for grants under the Plan. Such Shares may consist, in whole or in part of authorized and unissued shares or treasury shares.
From time to time, the Board and appropriate officers of the Company shall take whatever actions are necessary to file required documents with government authorities and stock exchanges to make Common Shares available for issuance pursuant to Awards. Any Common Shares subject to an Option which for any reason is cancelled (excluding shares subject to an Option cancelled upon the exercise of a related stock appreciation right ("SAR") to the extent shares are issued upon exercise of such SAR) or terminated without having been exercised, or any shares of Restricted Stock or Performance Shares which are forfeited, shall again be available for Awards under the Plan. No fractional shares shall be issued, and the Committee shall determine the manner in which fractional share value shall be treated.
5. ADMINISTRATION
The Plan shall be administered by the Committee which shall have
full and exclusive power and authority to interpret the Plan, to grant waivers
of Plan restrictions and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper, all of which powers
shall be executed in the best interests of the Company and in keeping with the
objectives of the Plan. In particular, the Committee shall have the authority
to: (i) select eligible Participants as recipients of Awards; (ii) determine the
number and type of Awards to be granted; (iii) determine the terms and
conditions, not inconsistent with the terms hereof, of any Award Granted; (iv)
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable; (v) interpret
the terms and provisions of the Plan and any Award granted; (vi) prescribe the
form of any agreement or instrument executed in connection with any Award and
(vii) otherwise supervise the administration of the Plan. In addition, the Board
shall have authority, without amending the Plan, to grant Awards hereunder to
Participants who are foreign nationals or employed outside the United States or
both, on terms and conditions different from those specified herein as may in
the sole judgment and discretion of the Board, be necessary or desirable to
further the purpose of the Plan. All decisions made by the Committee pursuant to
the provisions hereof shall be made in the Committee's sole discretion and shall
be final and binding on all persons.
6. DELEGATION OF AUTHORITY
The Committee may to the extent that any such action will not prevent the Plan from complying with Rule 16b-3, delegate any of its authority hereunder to such persons as it deems appropriate.
7. AWARDS
The Committee shall determine the type or types of Award(s) to be made to each Participant and shall set forth in the related Award Agreement the terms, conditions and limitations applicable to each Award. Awards may include but are not limited to those listed in this Section 7. Awards may be granted singly; in combination or in tandem or in exchange for a previously granted Award; provided that the exercise price for stock options shall not be less than the Fair Market Value on the date of grant of the new Award. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under any other employee plan of the Company, including the plan of any acquired entity.
(a) Stock Option -- A grant of a right to purchase a specified number of Common Shares during a specified period and at a specified price not less than the Fair Market Value on the date of grant, as determined by the Committee. A stock option may be in the form of an incentive stock option ("ISO") which, in addition to being subject to applicable terms, conditions limitations established by the Committee, complies with Section 422A of the Code which, among other limitations, currently provides that the aggregate Fair Market Value (determined at the time the option is granted) of Common Shares exercisable for the first time by a Participant during any calendar year shall not exceed $100,000 (or such other limit as may be required by the Code); that the exercise price shall be not less than 100% of Fair Market Value on the date of the grant, that such options shall be exercisable for a period of not more than ten years and may be granted no later than ten years after the effective date of this Plan.
(b) Stock Appreciation Right or SAR -- A right to receive a payment, in cash and/or Common Shares, equal to the excess of the Fair Market Value or other specified valuation of a specified number of Common Shares on the date the SAR is exercised over the Fair Market Value or other specified valuation on the date of grant of the SAR as set forth in the applicable Award Agreement, except that where the SAR is granted in tandem with a stock option, the grant and exercise valuations must be no less than Fair Market Value.
(c) Stock Award -- An Award made in Common Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Common Shares. All or part of any stock award may be subject to conditions established by the Committee, and set forth in the Award Agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, increases in specified indices, attaining growth rates and other comparable measurements of Company performance. Such awards may be based on Fair Market Value or other specified valuation.
(d) Cash Award -- An Award denominated in cash with the eventual payment amount subject to future service and such other restrictions and conditions as may be established by the Committee, and as set forth in the Award Agreement, including, but not limited to, continuous service with the Company, achievement of specific business objectives, increases in specific indices, attaining growth rates and other comparable measurements of Company performance.
8. PAYMENT OF AWARDS
Payment of Awards may be made in the form of cash. Common Shares or combinations thereof and may include such restrictions as the Committee shall determine, including in the case of Common Shares, restrictions on transfer and forfeiture provisions. When transfer of shares is so restricted or subject to forfeiture provisions, such shares are referred to as "Restricted Stock". Further, with Committee approval, payments may be deferred, either in the form of installments or a future lump sun payment. The Committee may permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee to assure that such deferrals comply with applicable requirements of the Code including, at the choice of Participants the capability to make further deferrals for payment after retirement. Any deferred payment, whether elected by the Participant or specified by the Award Agreement or by the Committee, may require the payment to be forfeited in accordance with the provisions of Section 13 of the Plan. Dividends or dividend
equivalent rights may be extended to and made part of any Award denominated in shares or units of Shares subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for deterred payments denominated in shares or units of shares. At the discretion of the Committee, a Participant may be offered an election to substitute an Award for another Award or Awards of the same or different type, provided that Awards may not be made to substitute for previously granted stock options having higher exercise prices.
9. STOCK OPTION EXERCISE
The price at which shares may be purchased under a stock option shall be paid in full at the time of the exercise in cash or, if permitted by the Committee, by means of tendering Common Shares or surrendering another Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or by any other means which the Committee determines to be consistent with the Plan's objectives and applicable law and regulations. The Committee shall determine acceptable methods for tendering Common Shares or other Awards and may impose such conditions on the use of Common Shares or other Awards to exercise a stock option as it deems appropriate. In the event shares of Restricted Stock are rendered as consideration for the exercise of a stock option, a number of the shares issued upon the exercise of the stock option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted plus any additional restrictions that may be imposed by the Committee.
10. TAX WITHHOLDING
The Corporation shall have the authority to withhold, or to require a Participant to remit to the Corporation, prior to issuance or delivery of any shares or cash hereunder, an amount sufficient to satisfy federal, state and local tax withholding requirements associated with any Award. In addition, the Corporation may, in its sole discretion, permit a Participant to satisfy any tax withholding requirements, in whole or in part, by (i) delivery to the Corporation shares of Common stock held by such Participant having a Fair Market Value equal to the amount of the tax or (ii) directing the Corporation to retain Common Shares otherwise issuable to the amount of the tax or (ii) directing the Corporation to retain Common Shares otherwise issuable to the Participant under the Plan.. If Common Shares are used to satisfy the withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made.
11. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THIS PLAN
The Board may amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law. Subject to changes in law or other legal
requirements which would permit otherwise, the Plan may not be amended without
consent of the holders of the majority of the Common Shares then outstanding, to
(i) increase the aggregate number of Common Shares that may be issued under the
Plan (except for adjustments pursuant to the Plan), (ii) materially modify the
requirements as to eligibility for participation in the Plan, or (iii) withdraw
administration of the Plan from the Committee.
The Board may amend the terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any Participant without his consent. The Board may also make Awards hereunder in replacement of, or as alternatives to, Awards previously granted to Participants except for previously granted options having higher exercise prices, but including without limitation grants or rights under any other plan of the Company or of any acquired entity.
12. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all unexercised, deferred and unpaid Awards shall be exercisable or paid in accordance with the applicable Award Agreement, which may provide that the Committee may authorize, as it deems appropriate the acceleration and/or continuation of all or any part of Awards granted prior to such termination.
13. CANCELLATION AND RESCISSION OF AWARDS
Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred Awards at any time if the Participant is not in compliance with all other applicable provisions of the Award Agreement, the Plan and with the following conditions:
(a) A Participant shall slot render services for arty organization or engage directly or indirectly in any business which, in the judgment of the Chief Executive Officer of the Company or other senior officer designated by the Committee, is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company. For Participants whose employment has terminated, the judgement of the Chief Executive Officer shall be based on the Participants position and responsibilities while employed by the Company, the Participant's postemployment responsibilities and position with the other organization or business, the extent of past, current and potential competition or conflict between the Company and the other organization or business, the effect on the Company's customers, suppliers and competitors of the Participant's assuming the postemployment position, and such other considerations as are deemed relevant given the applicable facts and circumstances. A Participant who has retired shall be free, however, to purchase as an investment or otherwise, stock or other securities of such organization or business so long as they are listed upon a recognized securities exchange or traded over-the-counter, and such investment does not represent a substantial investment to the Participant or a greater than one percent (1%) equity interest in the organization or business.
(b) A Participant shall not, without prior written authorization from the Company, disclose to anyone outside the Company, or use in other than the Company's business, any confidential information or material relating to the business of the Company, acquired by the Participant either during or after employment with the Company.
(c) Upon exercise, payment or delivery pursuant to an Award, the Participant shall certify on a form acceptable to the Committee that he or she is in compliance with the terms and conditions of the Plan. Failure to comply with the provisions of paragraph (a), (b) or (c) of this Section 13 prior to, or during the six months after, any exercise, payment or delivery pursuant to an Award (except in the event of an intervening Change in Control as defined below) shall cause such exercise, payment or delivery to be rescinded. The Company shall notify the Participant in writing of any such rescission within two years after such exercise, payment or delivery. Within ten days after receiving such a notice from the Company, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise, payment or delivery pursuant to an Award. Such payment shall be made either in cash or by returning to the Company the number of Common Shares that the Participant received in connection with the rescinded exercise, payment or delivery.
14. NONASSIGNABILITY
Except as may be otherwise provided in the relevant Award Agreement, no Award or any benefit under the Plan shall be assignable or transferable, or payable to or exercisabLe by, anyone other than the Participant to whom it was granted.
15. ADJUSTMENTS; WAIVER OF RESTRICTIONS
(a) In the event of any change in capitalization of the Company by reason of a stock split, stock dividend, combination, reclassification of shares, recapitalization, merger, consolidation, exchange of shares, spin-off, spin-out or other distribution of assets to shareholders, or similar event, the Committee may adjust proportionally (i) the Common Shares (1) reserved under the Plan, (2) available for ISOs and (3) covered by outstanding Awards denominated in stock or units of stock; (ii) the stock prices related to outstanding Awards; and (iii) the appropriate Fair Market Value and other price determinations for such Awards. In the event of any other change affecting the Common Shares or any distribution (other than normal cash dividends) to holders of capital stock, such adjustments as may be deemed equitable by the Committee, shall be made to give proper effect to such event. In the event of a Corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee shall be authorized to issue or assume stock options, whether or not in a transaction to which Section 425(a) of the Code applies, by means of substitution of new options for previously issued options or an assumption of previously issued options.
(b) The Board may, in its sole discretion, based on such factors as the Board or the Award Agreement may deem appropriate, waive in whole or in part, any remaining restrictions or vesting requirements in connection with any Award hereunder.
16. CHANGE IN CONTROL
(a) In the event of a Change in Control (as defined below) of the Company, and except as the Board may expressly provide otherwise, (i) all Stock Options or Stock Appreciation Rights then outstanding shall become fully exercisable as of the date of the Change in Control, whether or not then exercisable, (ii) all restrictions and conditions of all Stock Awards then outstanding shall be deemed satisfied as of the date of the Change in Control, and (iii) all Cash Awards shall be deemed to have been fully earned as of the date of the Change in Control.
(b) A "Change in Control" of the Company shall have occurred when any Acquiring Person, alone or together with its Affiliates and Associates, shall become the beneficial owner of twenty percent (20%) or more of the Common Shares then outstanding or the Continuing Directors no longer constitute a majority of the Board.
(c) "Acquiring Person" means any person (any individual, firm, corporation or other entity), other than the Company, any Subsidiary or parent of the Company, any employee benefit plan of the Company or of any Subsidiary or parent of the Company, or any person or entity organized, appointed or established by the Company or any Subsidiary for or pursuant to the terms of any such plans.
(d) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
(e) "Continuing Director" means a member of the Board of Direction of the Company who either was a member of the Board of Directs of the Company on the effective date of this Plan or who subsequently became a director of the Company and whose initial election or initial nomination for election by the Company's shareholders subsequent to such date was approved by a vote of a majority of the Continuing Directors then on the Board of Directors of the Company.
17. NOTICE
Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Chief Financial Officer or to the Chief Executive Officer of the Company, and shall become effective when it is received by the office of the Chief Financial Officer or the Chief Executive Officer.
18. UNFUNDED PLAN
Insofar as it provides for Awards of cash and Common Shares, the plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash. Common Shares or rights hereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Shares or rights thereto, nor shall the Plan be construed as providing for such segregation, nor shall the Company nor the Board nor the Committee be deemed to be a trustee of any cash, Common Shares or rights thereto to be granted under the Plan. Any liability of the Company to any Participant with respect to a grant of cash. Common Shares or rights thereto under the Plan shall be based solely upon any contractual obligations that may be created by the Plan and any Award Agreement; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan.
19. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the Code or the securities laws of the United States, shall be governed by the law of the State of Ohio and construed accordingly.
20. RIGHTS OF EMPLOYEES
Nothing in the Plan shall interfere with or limit in anal way the right of the Corporation or any subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continued employment with the Corporation or any subsidiary.
21. STATUS OF AWARDS
Awards hereunder shall not be deemed compensation for purpose of computing benefits under any retirement plan of the Company and shall not affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation.
22. EFFECTIVE AND TERMINATION DATES
The Plan shall become effective on the date it is approved by the holders of a majority of the Common Shares then outstanding. The Plan shall continue in effect until terminated by the Board pursuant to Section II.
Exhibit 10(l)
MANAGEMENT INCENTIVE PLAN
The annual Management Incentive Plan, adopted under the Long-Term Performance Plan, is the Corporation's program for compensating executive officers for the achievement of goals set for a particular fiscal year. Under the Management Incentive Plan, each executive officer, including the Chief Executive Officer and the other executive officers named in the Summary Compensation Table, presents the Committee with individual goals for the fiscal year. Corporate goals for the fiscal year are also presented to the Committee. The Committee reviews and discusses the goals with the executive officers and then sets the goals for the year. Both the individual and the corporate goals are expressed in terms of threshold, target (midpoint) and maximum levels of required performance.
In fiscal 1996, Messrs. Dannemiller and Robinson had the corporate goals as their individual goals. The corporate goals for fiscal 1996 included objectives based on the Corporation's pre-tax return on assets, pre-tax income, and sales, distribution and administrative expenses as a percentage of net sales. These goals were weighted 40%, 40% and 20%, respectively. The other executive officers, including Messrs. Whitten, Stinson and Martins, had individual goals (in addition to the corporate goals) relating specifically to their job responsibilities. These goals may vary in relative weight. The size of the Management Incentive Plan payment for any of the executive officers depends on the amount of performance achieved on both the individual and the corporate goals. Although all or some of the individual goals under the Plan were met in fiscal 1990, 1991 and 1992, corporate goals were not met and, for that reason, no payments were made under the Plan in those years. Because the corporate goals were met in fiscal 1993, 1994, 1995 and 1996, payments were made pursuant to the Management Incentive Plans in those years.
Assuming that corporate and individual goals are met, the amount of the individual award is based on a formula, the components of which are the 50th percentile market base salary and a responsibility percentage assigned to the executive officer. The responsibility percentages are set by the Committee. Thus, the Chief Executive Officer target incentive payment set by the Committee in fiscal 1996 was $301,000, being 70% (the responsibility percentage) multiplied by the market base salary. The annual base salary set by the Committee, plus the target incentive payment, has generally been less than the 50th percentile market total cash compensation. For Mr. Dannemiller, the market total cash compensation at the 50th percentile was $810,000 effective for the twelve-month period commencing November 1, 1995, the date on which executive compensation changes are made each year. Mr. Dannemiller's actual annual base salary for fiscal 1996 was $439,167, his target incentive was $301,000, and total cash compensation assuming target performance under the Management Incentive Plan was $740,167. If, however, performance for corporate and individual goals exceeds the target level set by the Committee, the executive officers, including the Chief Executive Officer and the named executive officers, can earn above the 50th percentile for total cash compensation. Thus, because 94% of maximum performance was achieved on his goals in fiscal 1996, Mr. Dannemiller received total cash compensation of $875,127 ($439,167 base salary, plus $435,960 under the Management Incentive Plan), as compared with the 50th percentile market total cash compensation of $810,000. A similar philosophy applies to the other
executive officers. Responsibility percentages for the other executive officers during fiscal 1996, including those named in the Summary Compensation Table, ranged from 36% to 50%.
The Deferred Compensation Plan, approved by the shareholders in October 1993, was adopted in part to encourage increased investment in Corporation Common Stock by the Corporation's executive officers. All but one of the participants in the 1996 Management Incentive Plan elected under the Deferred Compensation Plan to defer a portion of their Management Incentive Plan awards, with deferral percentages ranging from 20% to 85%. All but one of those persons elected to have their deferred awards invested solely in the Corporation's Common Stock, with the remaining participant electing to invest more than one-half of his total award in Common Stock.
Exhibit 10(m)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
(JANUARY 1, 1997 RESTATEMENT)
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
(JANUARY 1, 1997 RESTATEMENT)
Section Page
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ARTICLE I
DEFINITIONS
1.1 Definitions ................................................................... 2
1.2 Construction .................................................................. 4
ARTICLE II
ELIGIBILITY FOR PLAN PARTICIPATION 5
ARTICLE III
SUPPLEMENTAL CONTRIBUTIONS
3.1 Supplemental 401(k) Contributions ............................................. 6
3.2 Supplemental Matching Contributions ........................................... 6
3.3 Vesting of Supplemental Matching
Contributions................................................................ 6
3.4 Years of Vesting Service....................................................... 7
ARTICLE IV
SEPARATE ACCOUNTS
4.1 Types of Separate Accounts .................................................... 8
4.2 Adjustment of Separate Accounts ............................................... 8
4.3 Investment Elections for Supplemental
401(k) Contributions......................................................... 8
4.4 Investment Change of Future Supplemental
401(k) Contributions......................................................... 9
4.5 Election to Transfer Invested Past
Supplemental 401(k) Contributions............................................ 9
4.6 Investment of Matching Contributions........................................... 9
|
ARTICLE V
DISTRIBUTION
5.1 Distribution Upon Termination of Employment ................................... 10
5.2 Method of Distribution ........................................................ 10
5.3 Times of Payments.............................................................. 10
5.4 Hardship Distribution.......................................................... 11
5.5 Distributions Upon Death....................................................... 11
5.6 Taxes.......................................................................... 11
ARTICLE VI
BENEFICIARIES 13
ARTICLE VII
ADMINISTRATIVE PROVISIONS
7.1 Administration ................................................................ 14
7.2 Powers and Authorities of the Committee ....................................... 14
7.3 Indemnification ............................................................... 14
7.4 Section 16b Procedures......................................................... 15
ARTICLE VIII
AMENDMENT AND TERMINATION 16
ARTICLE IX
MISCELLANEOUS
9.1 Non-Alienation of Benefits .................................................... 17
9.2 Payment of Benefits to Others ................................................. 17
9.3 Plan Non-Contractual .......................................................... 17
9.4 Funding ....................................................................... 18
9.5 Claims of Other Persons ....................................................... 18
9.6 Severability .................................................................. 18
9.7 Governing Law ................................................................. 18
|
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
(JANUARY 1, 1997 RESTATEMENT)
WHEREAS, Bearings, Inc. established the Bearings, Inc. Supplemental Defined Contribution Plan, effective as of January 1, 1996, for the benefit of a select group of management or highly compensated employees; and
WHEREAS, the Bearings, Inc. Supplemental Defined Contribution Plan was amended subsequently on two occasions; and
WHEREAS, effective as of January 1, 1997, Bearings, Inc. changed its name to Applied Industrial Technologies, Inc.; and
WHEREAS, it is desired to amend and restate the Bearings, Inc. Supplemental Defined Contribution Plan to reflect such plan sponsor name change;
NOW, THEREFORE, effective as of January 1, 1997, the Bearings, Inc. Supplemental Defined Contribution Plan is hereby renamed the Applied Industrial Technologies, Inc. Supplemental Defined Contribution Plan and is amended and restated in the manner hereinafter set forth:
ARTICLE I
1.1 DEFINITIONS. Except as otherwise required by the context, the terms used in the Plan shall have the meaning hereinafter set forth.
(1) 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.
(2) The term "BENEFICIARY" shall mean the person or persons who, in accordance with the provisions of Article VI, is entitled to receive a distribution hereunder in the event a Participant dies before his interest under the Plan has been distributed to him in full.
(3) The term "BOARD" shall mean the Board of Directors of the Company.
(4) The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section.
(5) 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.
(6) The term "COMPANY STOCK" shall mean the common stock of the Company.
(7) The term "COMPANY STOCK FUND" shall mean the Fund consisting primarily of Company Stock.
(8) The term "COMMITTEE" shall mean the Applied Industrial Technologies, Inc. Supplemental Excess Defined Contribution Plan Committee (formerly the Bearings, Inc. Supplemental Excess Defined Contribution Plan Committee) which shall be comprised of the same individuals who serve on the administrative committee for the Retirement Savings Plan and which shall administer the Plan in accordance with the provisions of Article VII.
(9) The term "COMPENSATION" shall mean the total wages which are paid to a Participant during a Plan Year by an Employer for his services as an Employee while he is a Participant, including incentive compensation, commissions, bonuses, and elective contributions made on behalf of such Participant under the Plan or any other plan that are not includible in gross income under Sections 125 and 402(e)(3) of the Code, but excluding moving or educational reimbursement expenses, amounts deferred under any non-qualified deferred compensation program, amounts realized from the exercise of stock options, imputed income attributable to any fringe benefit, and any amounts received in lieu of benefits under a plan that meets the requirements of Section 125 of the Code.
(10) The term "COMPREHENSIVE PLAN" shall mean the Applied Industrial Technologies, Inc. Deferred Compensation and Supplemental Benefit Plan (formerly known as the Bearings, Inc. Comprehensive Deferred Compensation and Supplemental Benefit Plan).
(11) The term "FUND" shall mean any of the funds maintained for the investment of Plan assets in accordance with the provisions of Article VII.
(12) The term "PARTICIPANT" shall mean any employee of the Company or an Affiliate, who participates in the Plan pursuant to Article II of the Plan.
(13) The term "PLAN" shall mean the Applied Industrial Technologies, Inc. Supplemental Defined Contribution Plan (formerly known as the Bearings, Inc. Supplemental Defined Contribution Plan) as amended and restated herein, effective as of January 1, 1997, with all amendments, modifications and supplements hereinafter made. The Plan is part of the Comprehensive Plan and listed on Exhibit A attached thereto.
(14) The term "RETIREMENT SAVINGS PLAN" shall mean the Applied Industrial Technologies, Inc. Retirement Savings Plan
(formerly the Bearings, Inc. Retirement Savings Plan), as amended from time to time.
(15) The term "SEPARATE ACCOUNT" shall mean each of the
accounts maintained in the name of a Participant pursuant to
Section 4.1 of the Plan.
(16) The term "SUPPLEMENTAL MATCHING ACCOUNT" shall mean the Separate Account to which Supplemental Matching Contributions are credited in accordance with the provisions of Sections 3.2 and 4.1 of the Plan.
(17) The term "SUPPLEMENTAL MATCHING CONTRIBUTIONS" shall mean the contributions credited to a Participant under the Plan pursuant to Section 3.2.
(18) The term "SUPPLEMENTAL 401(K) CONTRIBUTION ACCOUNT" shall mean the Separate Account to which Supplemental 401(k) Contributions are credited in accordance with the provisions of Sections 3.1 and 4.1 of the Plan.
(19) The term "SUPPLEMENTAL 401(K) CONTRIBUTIONS" shall mean the contributions credited to a Participant under the Plan pursuant to Section 3.1.
(20) The term "TRUST" shall mean the trust maintained pursuant to the terms of the Applied Industrial Technologies, Inc. Supplemental Executive Retirement Benefits Trust Agreement (formerly known as the Bearings, Inc. Supplemental Executive Retirement Benefits Trust Agreement).
(21) The term "VALUATION DATE" shall mean each business day of each calendar month.
(22) The term "YEARS OF VESTING SERVICE" shall mean service credited to a Participant under the provisions of Section 3.4.
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.
ARTICLE II
Any select management or highly compensated employee of the
Company or an Affiliate who is determined to be highly compensated pursuant to
procedures established by the Company and whose contributions under the
Retirement Savings Plan are limited due to the provisions of Section 401(a)(17),
Section 401(k), Section 401(m), Section 402(g), or Section 415 of the Code,
shall become a Participant in the Plan upon the filing of a written election in
the form and manner prescribed by the Company to reduce his Compensation for the
purpose of making Supplemental 401(k) Contributions under the Plan.
ARTICLE III
3.1 SUPPLEMENTAL 401(K) CONTRIBUTIONS. The Supplemental 401(k)
Contribution Account of each Participant shall be credited with Supplemental
401(k) Contributions equal to the amount deferred from his Compensation in
accordance with a completed Compensation reduction authorization with respect to
the Plan pursuant to procedures established by the Company. Such Compensation
reduction authorization may be revised with respect to future Supplemental
401(k) Contributions as of any January 1 or July 1, provided that such revision
occurs prior to such effective date.
3.2 SUPPLEMENTAL MATCHING CONTRIBUTIONS. The Supplemental Matching Account of each Participant who is employed by the Company or an Affiliate shall be credited each year with Supplemental Matching Contributions equal to the amount with respect to which Matching Contributions under the Retirement Savings Plan are limited for such year due to the requirements of the provisions of Sections 401(k) and 401(m) of the Code.
3.3 VESTING OF SUPPLEMENTAL MATCHING CONTRIBUTIONS. A Participant shall become vested in the balance of his Supplemental Matching Account pursuant to the following schedule.
Years Of Vesting Service Percentage Vested ------------------------ ----------------- Less than one 0% One but less than two 25% Two but less than three 50% Three but less than four 75% Four or more 100% |
Notwithstanding the foregoing, a Participant who is employed by the Company or an Affiliate shall become 100 percent vested in his Supplemental Matching Account upon the earlier of: (i) attainment of age 65, (ii) disability, (iii) death, or (iv) a Change of Control.
3.4 YEARS OF VESTING SERVICE. For purposes of determining the vested interest of a Participant in his Supplemental Matching Account, a Participant shall be credited with Years of Vesting Service equal to the Years of Service with which he is credited under the Retirement Savings Plan.
ARTICLE IV
4.1 TYPES OF SEPARATE ACCOUNTS. Each Participant shall have established in his name Separate Accounts which shall reflect the type of contributions credited to him pursuant to Article III. Such Separate Accounts shall be as follows:
(a) a Supplemental 401(k) Account which shall reflect the Supplemental 401(k) Contributions credited to a Participant pursuant to Section 3.1 as well as any amount transferred from the King Bearing, Inc. Nonqualified Supplemental Executive Retirement Plan and any adjustment thereto pursuant to Section 4.2; and
(b) a Supplemental Matching Account which shall reflect the Supplemental Matching Contributions credited to a Participant pursuant to Section 3.2 and any adjustment thereto pursuant to Section 4.2.
4.2 ADJUSTMENT OF SEPARATE ACCOUNTS. The Separate Accounts of a
Participant shall be adjusted as of each Valuation Date to reflect the deemed
investment of such Separate Accounts in the Funds as determined by the
Committee.
4.3 INVESTMENT ELECTIONS FOR SUPPLEMENTAL 401(K) CONTRIBUTIONS.
Each Participant, upon becoming a Participant under the Plan in accordance with
the provisions of Article II, shall make an investment election directing the
manner in which his Supplemental 401(k) Contributions shall be deemed to be
invested in the Funds. The investment election of a Participant shall specify a
combination, which in the aggregate equals 100 percent and conforms with
procedures prescribed by the Company, indicating in which Funds his Supplemental
401(k) Contributions shall be deemed to be invested. The investment option so
elected by a Participant shall remain in effect until he changes his investment
election pursuant to Section 4.4 or receives distribution of his Separate
Accounts.
4.4 INVESTMENT CHANGE OF FUTURE SUPPLEMENTAL 401(K) CONTRIBUTIONS. Each Participant may elect to change the manner in which contributions credited to his Supplemental 401(k) Contribution Account are to be deemed invested. Any such change in the investment election of a Participant with respect to his Supplemental 401(k) Contributions shall specify a combination among the Funds which in the aggregate equals 100 percent. Such election shall be made in the manner specified by the Company and in accordance with procedures prescribed by the Company. The investment option so elected by a Participant shall remain in effect until he makes another election change with respect to future contributions in accordance with the provisions of the Plan. Any such election which directs a change in an investment election heretofore in effect shall become effective in accordance with procedures prescribed by the Company. Amounts credited to the Separate Accounts of such Participant as of any date prior to the date on which such change is to become effective shall not be affected by any such change.
4.5 ELECTION TO TRANSFER INVESTED PAST SUPPLEMENTAL 401(K) CONTRIBUTIONS. Subject to any procedures adopted by the Company, a Participant may elect to have the balance of his Supplemental 401(k) Contribution Account transferred from the Fund or Funds in which it is deemed invested to one or more of the other Funds. Any such election shall be made in accordance with procedures prescribed by the Company. Upon receipt of such election, the Company shall cause the transfer of such amount as of the effective date of the election of the Participant from the Fund or Funds in which it is deemed invested to the Fund or Funds so elected and designated by the Participant.
4.6 INVESTMENT OF MATCHING CONTRIBUTIONS. All Matching Contributions shall be deemed to be invested in the Company Stock Fund.
ARTICLE V
5.2 METHOD OF DISTRIBUTION. Except as otherwise may be provided in Sections 5.3 and 5.4, the benefits payable under the Plan from a Participant's Separate Accounts shall be paid to the Participant, or his Beneficiary, if applicable, in a single sum cash payment or in equal annual installment payments over a period of not more than three years and shall be determined as of the most recent Valuation Date.
5.3 TIME OF PAYMENTS. Except as otherwise may be provided in the Trust or as provided in Section 5.4, distribution of the value of a Participant's Separate Accounts shall commence upon a date which is not more than 30 days after the earlier of (i) the Participant's termination of employment due to resignation, retirement, death or other reason, or (ii) the date he receives his interest under the Retirement Savings Plan. Notwithstanding any other provision of the Plan to the contrary, a Participant, subject to approval of the Company, may elect to change the manner and the time of distribution of the value of his Separate Accounts during the period which commences no earlier than 90
days prior to his termination of employment and terminates no later than 30 days prior to his termination of employment.
5.4 HARDSHIP DISTRIBUTION. Prior to the time the Separate Accounts of a Participant become payable under Section 5.3, the Company, in its sole discretion, may elect to distribute all or a portion of the Participant's Separate Accounts on account of severe financial hardship of the Participant. For purposes of the Plan, severe financial hardship shall be deemed to exist in the event the Company determines that the Participant requires a distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected illness or accident of the Participant or a member of his or her family, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. A distribution based on financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship and the income taxes resulting from such distribution.
5.5 DISTRIBUTIONS UPON DEATH. Upon the death of a Participant, the balance of his Separate Accounts shall be paid to his Beneficiary pursuant to the provisions of Section 5.3 and Article VI.
5.6 TAXES. In the event any taxes are required by law to be withheld or paid from any payments made pursuant to the Plan, the Company shall cause the withholding of such amounts from such payments and shall transmit the withheld amounts to the appropriate taxing authority. In addition, it is the intention of the Company that benefits credited to a Participant under the Plan shall not be included in the gross income of the Participants or their Beneficiaries until such time as benefits are distributed under the
provisions of the Plan. If, at any time, it is determined that benefits under the Plan are currently taxable to a Participant or his Beneficiary, the amounts credited to the Participant's Separate Accounts which become so taxable shall be distributable immediately to him; provided, however, that in no event shall amounts so payable to a Participant exceed the value of his Separate Accounts.
ARTICLE VI
In the event a Participant dies before his interest under the Plan in his Separate Accounts has been distributed in full, any remaining interest shall be distributed pursuant to Article V to his Beneficiary, who shall be the person designated as such in writing by the Participant in the form and manner specified by the Company. In the event a Participant does not designate a Beneficiary or his designated Beneficiary does not survive him, his beneficiary under the Retirement Savings Plan shall be his Beneficiary for Plan purposes.
ARTICLE VII
7.1 ADMINISTRATION. The Plan shall be administered by the Company in a manner that is generally consistent with the administration of the Retirement Savings Plan, as from time to time amended, except that the Plan shall be administered as an unfunded plan not intended to meet the qualification requirements of Section 401 of the Code.
7.2 POWERS AND AUTHORITIES OF THE COMMITTEE. The Company shall have full power and authority to interpret, construe and administer the Plan and its interpretations and construction hereof, and actions hereunder, including the timing, form, amount or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. The Company may delegate any of its powers, authorities, or responsibilities for the operation and administration of the Plan to any person or to the 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. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. Members of the Committee shall not participate in any action or determination regarding their own benefits, if any, payable under the Plan.
7.3 INDEMNIFICATION. In addition to whatever rights of indemnification a member of the Committee, or any other person or persons to whom any power, authority, or responsibility is delegated pursuant to Section 7.2, may be entitled under the articles of incorporation, regulations, or by-laws of the Company, under any provision of law, or under
any other agreement, the Company shall satisfy any liability actually and reasonably incurred by any such member or such other person or persons, including expenses, attorneys' fees, judgments, fines, and amounts paid in settlement, in connection with any threatened, pending, or completed action, suit, or proceeding which is related to the exercise or failure to exercise by such member or such other person or persons of any of the powers, authority, responsibilities, or discretion provided under the Plan.
7.4 SECTION 16B PROCEDURES. In conjunction with rules promulgated by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934, as amended, the Company has established Section 16b Procedures which affect certain transactions under the Plan involving Employer Securities held for the benefit of an Officer. Such Procedures, which are hereby incorporated into the Plan shall constitute for all purposes a part of the Plan. In the event that the Procedures conflict with any other provision of the Plan, the Procedures shall override such other provision and shall be controlling. For purposes of this Section 7.4, the following terms shall have the meaning hereinafter set forth.
(a) The term "Employer Security" shall mean any qualifying employer security as defined in Section 407(d)(5) of ERISA which is also an equity security as defined under the Securities Exchange Act of 1934, as amended.
(b) The term "Officer" shall mean any person who is designated as an "Officer" of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) The term "Section 16b Procedures" or "Procedures" shall mean the Administrative Procedures Applicable to Officers and Directors Under Employee Benefit Plans Maintained by Applied Industrial Technologies, Inc., effective as of January 1, 1997, with all amendments and modifications thereafter made.
ARTICLE VIII
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 who is receiving benefits under the Plan or whose Separate Accounts are credited with any contributions thereto, unless an equivalent benefit is provided under another plan or program sponsored by the Company or an Affiliate.
ARTICLE IX
9.1 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 or Beneficiary shall attempt to, or shall, alienate or in any way encumber his 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 Board may select.
9.2 PAYMENT OF BENEFITS TO OTHERS. If any Participant or Beneficiary to whom a benefit is payable 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, or sister, or any other individual deemed by the Board to be maintaining or responsible for the maintenance of such person. Any payment made in accordance with the provisions of this Section 9.2 shall be a complete discharge of any liability of the Plan with respect to the benefit so paid.
9.3 PLAN NON-CONTRACTUAL. Nothing herein contained shall be construed as a commitment or agreement on the part of any person employed by the Company 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 such person for any period, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been established.
9.4 FUNDING. The Company may cause Plan benefits to be paid from the Trust, which is a grantor trust that provides for full funding of Plan benefits in the event of a potential change in control or a change in control. Subject to the provisions of the trust agreement governing such trust fund, the obligation of the Company under the Plan to provide a Participant or a Beneficiary with a benefit 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.
9.5 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 as 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.
9.6 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.
9.7 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 11th day of February, 1997.
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
By: /S/ John C. Robinson
--------------------------------
Title: Vice Chairman
And: /S/ Fred D. Bauer
--------------------------------
Title: Assistant Secretary
|
LEASE
between
CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY, Lessor
and
BEARINGS, INC., Lessee
Dated as of March 1, 1996
TABLE OF CONTENTS
(This Table of Contents is not a part of the Lease but rather is for convenience of reference only.)
Page
----
Preambles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
Section 1.1 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.4 Captions and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II
LEASE OF PROJECT
Section 2.1 Lease; Lease Term; Possession and Use . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2 Loan Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.3 Representations of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.4 Representations of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.5 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS
Section 3.1 Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.2 Additional Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.3 Place of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.4 Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.5 Past Due Rent, Additional Payments and Rentals . . . . . . . . . . . . . . . . . . . . 14
Section 3.6 Assignment of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.7 No Abatement of Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV
LESSEE'S OWN PERSONAL PROPERTY
Section 4.1 Installation of the Lessee's Own Personal Property . . . . . . . . . . . . . . . . . . 15
ARTICLE V
MAINTENANCE AND USE OF PROJECT
Section 5.1 Compliance with Legal and Insurance Requirements . . . . . . . . . . . . . . . . . . . 17
Section 5.2 Maintenance and Use of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.3 Alterations, Additions and Improvements . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.4 Removals and Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.6 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.7 Performance by Lessor of Lessee's Requirements . . . . . . . . . . . . . . . . . . . . 21
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ARTICLE VI
TAXES, MECHANICS' LIENS AND INSURANCE
Section 6.1 Taxes, Other Governmental Charges and
Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.2 Mechanics' and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.4 Workers' Compensation and Unemployment Coverage . . . . . . . . . . . . . . . . . . . . 23
Section 6.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.6 Payment of Amounts Not Paid by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1 Damage to or Destruction of Project . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.2 Use of Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.3 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.4 Investment and Disbursement of Net Proceeds . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.5 Lessee's Own Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII
FURTHER REPRESENTATIONS AND AGREEMENTS
RESPECTING THE PROJECT
Section 8.1 Right of Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.2 Lessee to Maintain its Corporate Existence;
Conditions Under Which Exceptions Permitted . . . . . . . . . . . . . . . . . . . . 27
Section 8.3 Title of Project Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.5 No Warranty of Condition or Suitability . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IX
TERMINATION OF LEASE
Section 9.1 Option to Terminate on Payment of Rental
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.2 Termination of Lease on Substantial Casualty
or Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.3 Option to Purchase Lessor's Interest in Project . . . . . . . . . . . . . . . . . . . . 30
Section 9.4 Conveyance on Exercise of Option to Purchase . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE X
EVENTS OF DEFAULT
Section 10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.3 No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.4 Lessee to Pay Attorneys' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.5 No Additional Waiver Implied by One Waiver . . . . . . . . . . . . . . . . . . . . . . 35
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ARTICLE XI
ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE
OF PORTIONS OF PROJECT
Section 11.1 Subleasing by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.2 Mortgage and Assignment of Lease by Lessor . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.3 Restrictions on Transfer and Encumbrance of
Project by the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.4 Release of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.5 Granting Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.6 No Abatement or Diminution of Payments . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.7 Payment on Release or Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.8 Lessor to Apply Lease Payments to Debt Amortization
During Any Extension of Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XII
MISCELLANEOUS
Section 12.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.2 Surrender of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.5 Amendments, Changes and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.6 Execution Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.8 Extent of Covenants; No Personal Liability . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.11 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.12 Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.13 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.14 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.15 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.16 Extension of Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Exhibit A - PROJECT FACILITIES
Exhibit B - PROJECT SITE
Exhibit C - RENTAL PAYMENT AMOUNTS
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LEASE
THIS LEASE made and entered into as of March 1, 1996, between CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY, as lessor (the "Lessor"), a body corporate and politic, duly organized and validly existing under the laws of the State of Ohio, and BEARINGS, INC., as lessee (the "Lessee"), a corporation for profit organized and existing under the laws of the State of Ohio (all terms used as defined terms being used as defined in Article I of this Lease),
WITNESSETH:
WHEREAS, pursuant to and in accordance with the provisions of the Ohio Constitution and the Act, and a resolution adopted by the Legislative Authority on March 25, 1996, the Lessor has determined, upon the terms and conditions hereinafter set forth, to lease the Project to the Lessee and the Lessee desires, upon the terms and conditions hereinafter set forth, to lease the Project from the Lessor; and
WHEREAS, the Lessor and the Lessee each have full right and lawful authority to enter into this Lease and to perform and observe the provisions hereof on their respective parts to be performed and observed;
NOW THEREFORE, in consideration of the premises and the mutual agreements hereinafter contained, the parties hereto agree as follows:
(Balance of Page Intentionally Left Blank)
ARTICLE I
DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and terms elsewhere defined in this Lease or by reference to the Project Bond Indenture, the words and terms set forth in Section 1.2 of this Lease shall have the meanings set forth therein unless the context or use indicates another or different meaning or intent and such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms herein:
Section 1.2. DEFINITIONS. As used herein:
"Act" means Sections 4582.01 to 4582.20, both inclusive, of the Ohio Revised Code, as enacted and amended.
"Additional Bonds" means the Additional Bonds of the Lessor which may be issued under and as defined in the Project Bond Indenture.
"Additional Payments" means the amounts required to be paid by the Lessee pursuant to the provisions of Section 3.2 hereof.
"Assignment of Lease" means the Assignment of Lease, dated as of even date herewith, transferring all right, title and interest of the Lessor in and to this Lease to the Project Bond Trustee.
"Authorized Lessee Representative" means the person at the time designated to act on behalf of the Lessee by written certificate furnished to the Lessor containing the specimen signature of such person and signed on behalf of the Lessee by the Chair, the President, a Vice President, the Treasurer, the Secretary or the Assistant Secretary of the Lessee. Such certificate may designate an alternate or alternates who shall have the same authority, duties and powers as the Authorized Lessee Representative. In the event that all such incumbents become unavailable or unable to act and the Lessee fails to designate at least one replacement within ten business days after notice to the Lessee from the Lessor of such unavailability or inability to act, the Lessor may appoint a successor.
"Bonds" means the Project Bonds and any Additional Bonds.
"Bond Service Charges" means, for any period or payable at any time, the principal of and interest and any premium due on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption.
"CDP" means Cleveland Development Partnership I, Limited Partnership, a Delaware limited partnership.
"CDP Note" means the revenue note issued by the Lessor to evidence the Lessor's limited obligation to repay a loan made to the Lessor by CDP in the aggregate principal amount of $2,500,000.
"City" means the City of Cleveland, Ohio, a municipal corporation organized and existing under its Charter and the Constitution and laws of the State.
"City of Cleveland Notes" means, collectively, the City of Cleveland UDAG Note, the City of Cleveland NDIF Note and the City of Cleveland J.C. Hub Note.
"City of Cleveland J.C. Hub Note" means the revenue note which will be issued by the Lessor, if needed and subject to the approval of Cleveland City Council, to evidence its limited obligation to repay a loan to be made to the Lessor by the City in the principal amount of $900,000.
"City of Cleveland NDIF Note" means the revenue note issued by the Lessor to evidence its limited obligation to repay a loan made to the Lessor by the City in the principal amount of $3,000,000.
"City of Cleveland UDAG Note" means the revenue note issued by the Lessor to evidence its limited obligations to repay a loan made to the lessor by the City in the principal amount of $1,000,000.
"City Grant" means the grant in the amount of $1,000,000 made by the State and assigned by the City to the Lessor to be used for acquisition of a portion of the Project Site.
"Completion Date" means the date specified as such in the certificate furnished pursuant to Sections 2.2 and 4.6 of the Project Service Agreement.
"Consumer Price Index Increase" means the percentage of increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as finally issued for Cleveland, Ohio by the Bureau of Labor Statistics of the United States Department of Labor, or any successor thereto, from that index as issued for the month of the execution and delivery of this Lease. In the event such index should be abolished and no substitute provided, then any index, service or publication which, in the judgment of the Lessor, most nearly provides the measurement now being provided by the Consumer Price Index shall be used in place of the Consumer Price Index.
"County" means the County of Cuyahoga, Ohio, a county and political subdivision organized and existing under the Constitution and laws of the State.
"County Bond Holder" means any registered owner of all or a portion of the County's $1,800,000 Taxable Development Revenue Bonds, Series 1996 (Bearings, Inc. Project), the proceeds of which were used by the County to make a loan to the Lessor, repayment of which is evidenced by the County Note.
"County Grant" means the grant in the amount of $300,000 approved by the County for the purpose of providing funds for the acquisition of personal property included in the Project Facilities.
"County Note" means the revenue note issued by the Lessor to evidence its limited obligation to repay a loan made to the Lessor by the County in the aggregate principal amount of $1,800,000.
"Director" means The Director of Development of the State of Ohio, acting on behalf of the State.
"Discounted Rent" shall mean the amount of the Rental Payments, determined in the manner set forth in Section 9.2 of this Lease, to be paid in full satisfaction of the Lessee's obligation to pay the remaining Rental Payments hereunder in the event that, as a result of the occurrence of any of the events described in Section 9.2 of this Lease, the Lessee shall have
certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate the Lease.
"Engineer" means Gilberti Spittler International, Cleveland, Ohio or another individual or firm qualified to practice the profession of engineering or architecture under the laws of the State, designated by the Lessor and acceptable to the Lessee.
"Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances, liens, costs, and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, and of any good faith settlement of judgment, of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, including without limitation reasonable attorneys' fees and disbursements and consultants' fees, any of which are incurred at any time as a result of the existence of Hazardous Materials upon, about, beneath the Project Site or migrating or threatening to migrate to or from the Project Site, or the existence of a violation of Environmental Requirements pertaining to the Project Site, regardless of whether the existence of such Hazardous Materials or the violation of Environmental Requirements arose prior to the present ownership or operation of the Project Site, and including without limitation:
(i) Fees incurred for the services of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of such Hazardous Materials or violation of Environmental Requirements including, but not limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration or monitoring work required by any federal, state or local governmental agency or political subdivision, or reasonably necessary to make full economic use of the Project Site or any other property [in a manner consistent with its current use] or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing this agreement or collecting any sums due hereunder; and
(ii) Liability to any third person or governmental agency to indemnify such person or agency for costs expended in connection with the items referenced in subparagraph (i) herein.
"Environmental Requirements" means all applicable present and future statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items, of all governmental agencies, departments, commissions, boards, bureaus, or instrumentalities of the United States, states and political subdivisions thereof and all applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation:
(i) All requirements, including but not limited to those pertaining to reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials or wastes whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials, or wastes, whether solid, liquid, or gaseous in nature; and
(ii) All requirements pertaining to the protection of the health and safety of employees or the public.
"Essential Lessor Personal Property" has the meaning assigned in
Section 5.2(f).
"Event of Default" means any of the events described as an event of default in Section 10.1 hereof.
"Fair Market Value" of any property as of any date shall mean the
rental payment in money or the cash price that would be obtained in an
arm's-length lease or sale, as the case may be, between an informed and willing
third party lessee or buyer (under no compulsion to lease or purchase) and an
informed and willing lessor or seller (under no compulsion to lease or sell) of
the property in question, and shall be determined on the basis that the Project
has been maintained in accordance with the requirements of this Lease (but
otherwise on an "as-is" basis). Whenever Fair Market Value is to be determined
hereunder and the parties cannot agree on the Fair Market Value, the
determination shall be made according to the arbitration provision set forth in
Section 12.13 hereof. Fair Market Value shall be determined without regard to
and exclusive of modifications (other than substitutions) and additions to the
Project during the Lease Term paid for by the Lessee.
"Grants" means, collectively, the County Grant, the City Grant and the State Grant.
"Hazardous Materials" means any substance:
(i) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law;
(ii) which is or becomes defined as a "hazardous waste,"
"hazardous substance," pollutant or contaminant under any
federal, state or local statute, regulation, rule or
ordinance or amendments promulgate thereto including,
without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C.
section 9601 ET SEQ.), as amended by the Superfund
Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 ET
SEQ., the Hazardous Materials Transportation Act, 49
U.S.C. Section 6901 ET SEQ., the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251 ET SEQ., the Clean
Air Act, 42 U.S.C. Section 741 ET SEQ., the Clean Water
Act, 33 U.S.C. Section 7401 ET SEQ., the Total
Substances Control Act, 15 U.S.C. Section Section
2601-2629 and the Safe Drinking Water Act, 42 U.S.C.
Section Section 300f-300j;
(iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or become regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of Ohio or any political subdivision;
(iv) the presence of which on the Project Site causes or threaten to cause a nuisance upon the Project Site or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Project Site;
(v) without limitation which contains gasoline, diesel fuel or other petroleum hydrocarbons;
(vi) without limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation; or
(vii) without limitation asbestos and radon gas.
"Holder" means the person in whose name a Bond is registered on the books kept and maintained for the registration and transfer of Bonds pursuant to the Project Bond Indenture.
"Independent Counsel" means an attorney acceptable to the Lessor duly admitted to practice law before the highest court of the State and who is not a salaried employee of the Lessor or the Lessee.
"Insurance Requirements" means all material provisions of any insurance policy covering or applicable to the Project or any part thereof, all material requirements of the issuer of any such policy, and all material orders, rules, regulations or other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Project or any part thereof.
"Interest Rate for Advances" means the rate of twelve percent (12%) per year or a rate which is two percent (2%) per year plus the annual interest rate then charged by the Project Bond Trustee to its most creditworthy commercial borrowers in its lending capacity as a bank, whichever is, in whole or in part, greater and lawfully chargeable.
"Lease" means this Lease, as it may be duly amended and supplemented from time to time in accordance with its terms.
"Lease Term" means the period commencing on the date of delivery of this Lease and, unless earlier terminated as herein provided, ending on March 1, 2016, or the date to which this Lease is extended pursuant to the provisions of this Lease, whichever is latest.
"Legal Requirements" means all laws, statutes, codes, acts, ordinances, resolutions, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, directions and requirements of all governments and departments, commissions, boards, courts, authorities, agencies, officials and officers of governments, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Project or any part thereof, or any use or condition of the Project or any part thereof.
"Legislative Authority" means the Board of Directors of the Lessor.
"Lenders" means, collectively, the Project Bond Trustee, the County Bond Holders, the City, the County, CDP and the Director.
"Lessor Personal Property" has the meaning assigned in Section 5.2(f) hereof.
"Loan Agreements" is used as defined in the Project Service Agreement.
"Moveable Personal Property" means, collectively or separately, the furniture, furnishings, equipment and other personal property to be acquired with the proceeds of the Project Debt, the Grants and any deposits made by the Lessee in the Corporation Account of the Project Fund created under the Project Bond Indenture, and installed in the Project Facilities and
generally described in part II of Exhibit A hereto (and more specifically identified in requests to disburse funds therefor pursuant to Section 4.2 of the Project Service Agreement, in the certificate to be given by the Authorized Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the Project Service Agreement), together with any substitutions therefor, less any removals of such personal property, all in the manner and to the extent provided in this Lease.
"Net Proceeds", when used with respect to any insurance proceeds or condemnation award, means the gross proceeds thereof less the payment of all expenses, including reasonable attorneys' fees, incurred in connection with the collection of such gross proceeds.
"Notes" means, collectively, the County Note, the City of Cleveland Notes, the CDP Note and the State Loan Note.
"Notice Address" means:
(a) As to the Lessee: Bearings, Inc. 3600 Euclid Avenue Cleveland, Ohio 44115 Attention: Chief Financial Officer
and a copy to the General Counsel at the same address
(b) As to the Lessor: Cleveland-Cuyahoga County Port Authority 101 Erieside Avenue Cleveland, Ohio 44114 Attention: Executive Director
and
Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A.
The Halle Building, Suite 900
1228 Euclid Avenue
Cleveland, Ohio 44115
Attention: Anthony Garofoli
(c) As to the Project The Huntington National Bank
Bond Trustee: 41 South High Street
Columbus, Ohio 43215
Attention: Corporate Trust Department
and
The Huntington National Bank
917 Euclid Avenue
Cleveland, Ohio 44115
Attention: Corporate Trust Department
and
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The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza Suite 5600 Chicago, Illinois 60601 Attention: Managing Director
(d) As to the Director: Director of Development Ohio Department of Development 77 South High Street - 29th Floor Columbus, Ohio 43215
(e) As to the County: Board of Cuyahoga County Commissioners County Administration Building 1219 Ontario Street Cleveland, Ohio 44113 Attention: County Administrator
and
The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza Suite 5600 Chicago, Illinois 60601 Attention: Managing Director
(f) As to the City: City of Cleveland Cleveland City Hall 601 Lakeside Avenue, N.E.
Cleveland, Ohio 44114
Attention: Director of Law
(g) As to CDP Cleveland Development Partnership I 1801 Euclid Avenue, Suite 1020 Cleveland, Ohio 44114 Attention: Director
or such different address notice of which is given under Section 12.3 hereof.
"Person" or words importing persons means firms, associations, partnerships (including, without limitation, general, limited and limited liability partnerships), joint ventures, societies, estates, trusts, corporations, limited liability companies, public or governmental bodies, other legal entities and natural persons.
"Plans and Specifications" means the plans and specifications for the Project as filed with the Lessor, and as such may be completed in accordance herewith and changed from time to time as herein provided.
"Project" means the Project Site and the Project Facilities together constituting "port authority facilities" as defined in the Act.
"Project Bond Indenture" means the Trust Indenture dated as of even date with this Lease between the Lessor and the Project Bond Trustee, as amended and supplemented from time to time.
"Project Bonds" means the $18,835,000 aggregate principal amount of revenue bonds of the Lessor designated "Taxable Headquarters Revenue Bonds, Series 1996 (Bearings, Inc. Project)", including both Series A and Series B thereof.
"Project Bond Trustee" means The Huntington National Bank, until a successor Project Bond Trustee shall have become such pursuant to the applicable provisions of the Project Bond Indenture, and thereafter "Project Bond Trustee" shall mean the successor Project Bond Trustee.
"Project Debt" means the Project Bonds, any Additional Bonds that may hereafter be issued, and the Notes.
"Project Facilities" means the facilities generally identified in Exhibit A hereto (and more particularly described in the Plans and Specifications or, with respect to personal property, to be more specifically identified in requests to disburse funds therefor pursuant to Section 4.2 of the Project Service Agreement, or in the certificate to be given by the Authorized Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the Project Service Agreement), together with any additions and improvements thereto, modifications thereof and substitutions therefor, less any removals of such property, all in the manner and to the extent in this Lease provided.
"Project Purposes" means acquiring, constructing, equipping, furnishing, improving and otherwise developing real and personal property, or any combination thereof, comprising port authority facilities to be used as the headquarters of the Lessee and as may otherwise be permitted by this Lease and the Project Service Agreement.
"Project Service Agreement" means the Project Service and Indemnity Agreement dated as of even date herewith among the Lessor, the Lessee and to the extent set forth therein, the Lenders named therein, as the same may be amended and supplemented from time to time.
"Project Site" means the real estate described in Exhibit B hereto and the Lessor's interest therein, together with any additions thereto and less any removals therefrom, in the manner and to the extent provided in this Lease.
"Rental Payments" means the rent required to be paid by the Lessee to the Lessor as provided in Sections 3.1 and 3.3 hereof.
"Rental Payment Date" means the last business day of each calendar month commencing with the last business day in June, 1997.
"Required Property Insurance Coverage" means at any time insurance in the amount of (i) the then full insurable value of the Project Facilities or (ii) the then total unpaid principal amount of the Bonds and the Notes then outstanding, whichever is greater, provided that the coverage shall not be less than an amount that would result in coinsurance, insuring the Project Facilities against loss or damage by fire and extended coverage risks and containing loss deductible provisions of not to exceed $1,000,000; provided that the amounts of such deductible may be increased on each January 1 by the Consumer Price Index Increase to the extent that such Consumer Price Index Increase had not previously been utilized to increase such deductible.
"Required Public Liability Insurance Coverage" means comprehensive general accident and public liability insurance with coverage limits in the minimum amounts of $10,000,000 as to death or bodily injury in each occurrence and $10,000,000 as to property damage with a loss deductible clause of not to exceed $5,000,000; provided that the amounts of coverage shall be, and any deductible may be, increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase.
"State" means the State of Ohio.
"State Grant" means the grant or grants in the amount of $500,000 approved by the State for the purpose of providing funds for the acquisition of personal property included in the Project Facilities and related improvements, which will be available on or about April 1, 1996.
"State Loan Note" means the revenue note issued by the Lessor to evidence its limited obligation to repay a loan made to the Lessor by the Director in the aggregate principal amount of $6,000,000.
Section 1.3. INTERPRETATION. Any reference herein to the Lessor, to the Legislative Authority or to any member or officer of either includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions.
Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Ohio Revised Code or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way a limitation, restriction or impairment of the rights or obligations of the Lessor or the Lessee under this Lease or the rights of any other person under this Lease.
Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Lease; and the term "hereafter" means after, and the term "heretofore" means before, the date of execution and delivery of this Lease. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise.
Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in this Lease are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof.
(End of Article I)
ARTICLE II
LEASE OF PROJECT
Section 2.1. LEASE; LEASE TERM; POSSESSION AND USE. Upon and subject to the provisions herein set forth, the Lessor does hereby lease to the Lessee, and the Lessee does hereby lease from the Lessor, the Project for the Lease Term. Possession of the Project shall be delivered by the Lessor and accepted by the Lessee on the Completion Date; provided that from and after the commencement of the Lease Term, the Lessee and its agents and independent contractors shall have the right to enter upon the Project Site for purposes of inspection and taking actions in accordance with this Lease to (i) determine that acquisition, construction, improvement, furnishing, equipping and development of the Project is being made in accordance with the Project Service Agreement and the Plans and Specifications and (ii) prepare to occupy and use the Project. Upon delivery of possession and during the Lease Term, the Lessee shall have the right to use the Project for the Project Purposes.
Section 2.2. LOAN AGREEMENTS. The Lessee hereby approves the Loan Agreements, and all commitments of the Lessor, and the Lessee thereunder, acknowledges all rights of the City, the County, CDP, the Director, the Project Bond Trustee, the Holders and the County Bond Holders under the Loan Agreements, and all obligations of the Lessor thereunder, and, for itself and its successors and assigns and any permitted sublessees, covenants and agrees to the extent set forth in the Loan Agreements, to abide by all covenants and agreements set forth therein with respect to the Lessee and covenants and agrees, subject to the express provisions of this Lease, to cooperate with the Lessor to, and not impair the ability of the Lessor to, satisfy its obligations thereunder and not to impede the City, the County, CDP, the Director, the Project Bond Trustee, any Holder or any County Bond Holder in the exercise of their respective rights thereunder.
Section 2.3. REPRESENTATIONS OF THE LESSOR. The Lessor represents that: (a) it is duly organized and validly existing under the laws of the State; (b) it is not in violation of or in conflict with any provisions of the laws of the State or any agreement or instrument to which the Lessor is a party or by which it is bound which would impair its ability to carry out its obligations contained in this Lease and the Project Service Agreement; (c) it is empowered to enter into the transactions contemplated by this Lease and the Project Service Agreement; and (d) it has duly authorized the execution, delivery and performance of this Lease and the Project Service Agreement.
Section 2.4. REPRESENTATIONS OF THE LESSEE. The Lessee represents that:
(a) It is a corporation for profit organized and existing under the laws of the State.
(b) It has full corporate power and authority to execute, deliver and perform this Lease and to enter into and carry out the transactions contemplated by this Lease. That execution, delivery and performance, and such entering into and carrying out of those transactions, do not, and will not, violate any provision of law applicable to the Lessee or the Lessee's Articles of Incorporation or its Code of Regulations and do not, and will not, conflict with or result in a default under any agreement or instrument to which the Lessee is a party or by which it is bound, which would impair its ability to carry out its obligations contained in this Lease or resulting from those transactions. This Lease has, and to the extent required the transactions contemplated by this Lease have, by proper action, been duly
authorized, and this Lease has been duly executed and delivered by the Lessee and all steps necessary have been taken to constitute this Lease a valid and binding obligation of the Lessee.
(c) The provision of financial assistance to be made available to it with respect to the Project, including the terms of this Lease and the commitments therefor made by the Lessor, have induced the Lessee to continue, within the boundaries of the Lessor, that business of the Lessee to be conducted by use of the Project and such business will preserve jobs and employment opportunities within the jurisdiction of the Lessor.
(d) It presently intends to use or operate the Project during the Lease Term in a manner consistent with the Project Purposes and knows of no reason why the Project will not be so operated. If, in the future, there is a cessation of that operation, it will use its best efforts to resume that operation or accomplish an alternative use by the Lessee or others which will be consistent with the Act and this Lease.
Section 2.5. RECORDATION. The Lessee, at its expense, shall cause financing statements, including all necessary amendments, supplements and appropriate continuation statements, to be filed, and to be kept filed, in such manner and in such places as may be required, and to take such other actions, in order to establish, preserve and protect the security interest created by this Lease with respect to the Moveable Equipment as a valid, perfected security interest therein (including without limitation, any such properties acquired after the execution hereof), and without limiting the generality of the foregoing, will execute, deliver and cause to be recorded such financing statements as shall be necessary or appropriate in connection with the acquisition, construction, furnishing, equipping and otherwise developing of the Project. If requested by the Lessor but in each case not more than once in each calendar year, the Lessee, at its expense, will furnish or cause to be furnished to the Lessor an opinion of Independent Counsel, specifying that the action required to be taken by the Lessee to comply with this Section 2.5 since the date of this Lease or the date of the most recent such opinion has been taken or stating that no such action is necessary.
(End of Article II)
ARTICLE III
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS
Section 3.1. RENTAL PAYMENTS. The Lessee shall make Rental Payments to the Lessor, whether or not construction of the Project has been completed, on or before each Rental Payment Date in immediately available funds commencing with the last business day of June, 1997 in the respective amounts shown for each such month in Exhibit C hereto.
Section 3.2. ADDITIONAL PAYMENTS. The Lessee agrees to make Additional Payments as follows:
(a) To the Lessor, payment for or reimbursement of any and all costs, expenses and liabilities incurred by the Lessor in satisfaction of any obligations of the Lessee hereunder not performed by the Lessee.
(b) To the Lessor, reimbursement for or prepayment of expenses paid or to be paid by the Lessor and incurred as a result of a request by the Lessee or in enforcing performance by or the obligations of the Lessee under this Lease.
Section 3.3. PLACE OF PAYMENTS. The Lessee shall make all Rental Payments and Additional Payments directly to the Lessor at its principal office or at such other office for the delivery of such payments as the Lessee is given notice of in writing (at least five business days before the applicable payment) in accordance with Section 12.3 hereof.
Section 3.4. OBLIGATIONS UNCONDITIONAL. The obligations of the
Lessee to make Rental Payments, Additional Payments and any other payments
required hereunder shall be absolute and unconditional and the Lessee shall
make such payments without abatement, diminution or deduction regardless of any
cause or circumstances whatsoever including, without limitation, any defense,
set-off, recoupment or counterclaim which the Lessee may have or assert against
the Lessor or any other Person. The Lessee (i) will not suspend or discontinue
any such payments, (ii) will perform and observe all of its other agreements
contained in this Lease and (iii) will not terminate this Lease except as
expressly permitted hereby, for any cause including, without limitation,
failure to complete the Project Facilities, failure of title to the Project or
any portion thereof, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Project, commercial frustration
of purpose, any change in the tax or other laws or administrative rulings of or
administrative actions by or under authority of the United States of America,
the State or any political subdivision thereof or any failure of the Lessor,
any Lender, any Holder, any County Bond Holder or any other person to perform
and observe any agreement, whether express or implied, or any duty, liability
or obligation arising out of or connected with this Lease, the Project Service
Agreement, the Loan Agreements or otherwise. The obligations and liabilities
of the Lessee hereunder shall in no way be released, discharged or otherwise
affected for any reason, including, without limitation: (i) any defect in the
condition, quality or fitness for use of the Project or any part thereof; (ii)
any damage to, removal, abandonment, salvage, loss, scrapping or destruction of
or any requisition or taking of the Project or any part thereof; (iii) any
restriction, prevention or curtailment of or interference with any use of the
Project or any part thereof; (iv) any defect in title to the Project or any
encumbrance on such title; (v) any change, waiver, extension, indulgence or
other action or omission in respect of any obligation or liability of Lessor;
(vi) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Lessor or Lessee
or any action taken with respect to this Lease by any trustee or receiver of
Lessor or Lessee, or by any court, in any such proceeding; (vii) any claim
which Lessee has or
might have against any person, including, without limitation, Lessor, any Lender, any Holder or any County Bond Holder; (viii) any failure on the part of Lessor or any other person to perform or comply with any of the terms hereof or of any other agreement, including, without limitation, any Loan Agreement; (ix) any invalidity or unenforceability or disaffirmance of this Lease or any provision hereof; or (x) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing; provided, however, that this provision does not represent a waiver of any claims that Lessee may have against Lessor, any Lender, any Holder or any County Bond Holder. This Lease shall be non-cancelable by Lessee and, to the extent permitted by law, Lessee waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease or the Project Facilities, or to any diminution or reduction of Rental Payments or Additional Payments payable by Lessee hereunder. All payments by Lessee made hereunder as required hereby shall be final, and, except as provided herein, Lessee will not seek to recover any such payment or any part thereof from Lessor or any other person. If for any reason whatsoever this Lease shall be terminated in whole or in part by operation of law or otherwise, Lessee will nonetheless pay an amount equal to each Rental Payment and any other amount payable by Lessee hereunder at the time and in the manner that such Rental Payment or other payment would have become due and payable under the terms of this Lease if it had not been terminated in whole or in part. Nothing contained in this Section shall be construed to release the Lessor from the performance of any of the agreements on its part contained in this Lease, and in the event the Lessor should fail to perform any such agreement on its part, the Lessee may institute such action against the Lessor as the Lessee may deem necessary to compel performance or recover its damages for nonperformance so long as such action shall not be inconsistent with the agreements of the Lessee contained in the preceding sentences. The Lessee may, however, at its own cost and expense and in its own name or, to the extent lawful, in the name of the Lessor, prosecute or defend any action or proceeding or take any other action involving third Persons which the Lessee deems reasonably necessary in order to secure or protect its right of possession, occupancy and use hereunder, and in such event the Lessor hereby agrees to cooperate fully with the Lessee, but at the Lessee's expense, and to take all action necessary to effect the substitution of the Lessee for the Lessor in any such action or proceeding if the Lessee shall so request.
Section 3.5. PAST DUE RENT, ADDITIONAL PAYMENTS AND RENTALS. If the Lessee fails to make any Rental Payment, Additional Payment or other payment hereunder, the item in default shall continue as an obligation of the Lessee until such payment shall have been fully paid. During the default period, the portion of any such Rental Payment, any Additional Payment or other payment in default shall bear interest at the Interest Rate for Advances until such amount (including all such interest) is paid.
Section 3.6. ASSIGNMENT OF LEASE. The Lessee acknowledges that the Lessor may sell, assign, transfer and convey all of its right, title and interest in and to this Lease, including the Rental Payments, to the Project Bond Trustee. The Lessee further acknowledges that, upon the execution and delivery of the Assignment of Lease, the Lessor, as assignor, will have neither any interest under this Lease, nor any obligations or rights with respect to this Lease, and all such interest, obligations and rights of the Lessor hereunder shall be vested irrevocably in the Project Bond Trustee, as assignee.
Section 3.7. NO ABATEMENT OF RENTAL PAYMENTS. Except as specifically provided in this Lease to the contrary, no action pursuant to any provision of this Lease shall abate in any way payment of Rental Payments or any Additional Payments payable hereunder.
(End of Article III)
ARTICLE IV
LESSEE'S OWN PERSONAL PROPERTY
Section 4.1. INSTALLATION OF THE LESSEE'S OWN PERSONAL PROPERTY. From time to time, in its sole discretion and at its own expense, the Lessee may, and may permit any of its licensees or sublessees to, install personal property on the Project Site or in the Project Facilities, including without limitation, personal property which becomes in whole or in part a fixture when installed. All personal property so installed shall remain the sole property of the Lessee or the licensee or sublessee, as the case may be, unless it is a fixture necessary to the structural integrity of the Project Facilities (other than a trade fixture) or is essential for the faithful and efficient administration, maintenance and operation of the Project Facilities, in which case such personal property shall become and be deemed to be property of the Lessor and part of the Project, and with that exception, the Lessor and the Lenders shall have no interest in that personal property. Any damage to the Project Facilities caused by the removal of the personal property or fixtures which remain the property of the Lessee shall be repaired by the Lessee at the Lessee's sole expense so as to restore the Project Facilities to their original condition.
The personal property which is the sole property of the Lessee or a licensee or sublessee may be modified or removed at any time, but without causing any damage to the Project, if there is then no Event of Default under this Lease, and if an Event of Default then exists, may be modified or removed if a certificate of the Authorized Lessee Representative has been delivered to the Lessor and the Project Bond Trustee stating that such modification or removal will not prevent the Project from being operated or used for the Project Purposes.
Nothing contained in this Lease shall prevent the Lessee or any of its licensees or sublessees from acquiring personal property (other than any personal property purchased pursuant to Section 4.7 of the Project Agreement) under a lease or under a conditional sale, installment purchase or lease sale contract, or subject to a vendor's lien or security agreement, as security for the unpaid portion of the purchase price thereof or to prevent a vendor so secured from exercising its remedies; provided, however, that no lien or security interest shall attach to any part of the Project.
The Lessee shall pay or cause to be paid, as they become due, the purchase price of, and all costs and expenses in connection with, the acquisition and installation of any personal property installed by the Lessee or any of its licensees or sublessees pursuant to this Section. The Lessee may, at its expense, in good faith contest those purchase prices, costs and expenses. In the event of a contest, the Lessee may permit the purchase prices, costs and expenses contested to remain unpaid during the period of the contest and any appeal unless the Lessor shall notify the Lessee that, in the reasonable opinion of Lessor, by nonpayment the interests of the Lessor or the Lessee in the Project Site or the Project Facilities will be materially endangered or the Project Site or the Project Facilities or any part of either or both will be subject to imminent loss or forfeiture, in which event those purchase prices, costs and expenses shall be paid promptly by the Lessee. The Lessor will cooperate fully with the Lessee, but at the Lessee's expense, in any such contest.
From time to time, the Lessor shall execute and deliver such documents as the Lessee may properly and reasonably request to evidence that particular items of personal property installed on or removed from the Project pursuant to this Section, are not part of the Project for purposes of this Lease or that fixtures have been removed as provided in this Lease. In the event any removal of property pursuant to this Section causes damage to any portion of
the Project, the Lessee shall restore the same or repair such damage to the condition existing prior to such removal at its sole expense.
The Lessee shall execute and deliver such documents (if any) as the Lessor may properly and reasonably request in connection with any action taken by the Lessee in conformity with this Section. Any action taken by the Lessee pursuant to this Section shall not entitle the Lessee to any abatement or diminution of the Rental Payments or Additional Payments payable hereunder.
Upon the termination of this Lease, any such personal property not removed from the Project Site by the Lessee pursuant to this Section 4.1 shall become the exclusive property of the Lessor.
(End of Article IV)
ARTICLE V
MAINTENANCE AND USE OF PROJECT
Section 5.1. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. The Lessee, at its expense, will promptly comply or cause compliance with all Legal Requirements and Insurance Requirements, and will procure, maintain and comply (or cause compliance) in all material respects with all permits, licenses and other authorizations required for any use of the Project or any part thereof then being made or anticipated to be made by the Lessee, and for the proper operation and maintenance of the Project or any part thereof during the Lease Term, and will comply in all material respects with any instruments of record as of the date of initial delivery of the Project Bonds in force and currently burdening the Project or any part thereof or hereafter approved in writing by the Lessee. The Lessee may, at its expense and after prior notice to the Lessor, contest by appropriate legal proceedings conducted in good faith and with due diligence any Legal Requirement and postpone compliance therewith pending the completion of such contest provided that such postponement does not, in the reasonable opinion of the Lessor, subject the Project, or any part thereof, to imminent loss or forfeiture or subject the Lessor to any criminal liability.
Section 5.2. MAINTENANCE AND USE OF PROJECT.
(a) Subject to Article VII hereof, the Lessee, at its expense, will keep or cause the Project to be kept in good repair, working order and condition (ordinary wear and tear excepted) and will make all necessary or appropriate repairs, replacements and renewals thereof, interior, exterior, structural and non-structural, ordinary and extraordinary and foreseen and unforeseen so that the Project can be used for the Project Purposes.
(b) The Lessee will not do, or permit to be done, any act or omission or thing which might materially impair the value or usefulness of the Project or any part thereof, will not commit or permit any material waste of the Project or any part thereof, and will not permit any unlawful occupation, business or trade to be conducted on the Project or any part thereof.
(c) The Lessee shall also, at its expense, promptly
comply with all rights of way or use, privileges, franchises,
servitudes, licenses, easements, tenements, hereditaments and
appurtenances forming a part of the Project and all instruments
creating or evidencing the same, in each case, to the extent that
(i) compliance therewith is required of the Lessee under the
terms thereof and (ii) the same are currently of record or
subsequently approved in writing by the Lessee.
(d) The Lessee shall remove regularly all trash, litter and debris from the Project Site at the Lessee's expense and shall maintain the Project Site in a neat and safe manner.
(e) The Lessee agrees to permit the Lessor and its employees and agents to enter upon the Project at all reasonable times to inspect the same, but no such inspection shall unreasonably interfere with the Lessee's operation and use of the Project and shall be subject to reasonable safety and security regulations, and no such inspection shall be conducted without reasonable prior notice and the failure of the Lessor to make any such inspection shall not impose any liability upon either for
its failure to do so. The Lessee shall have the right to have its representative in attendance at any such inspection.
(f) The Lessee covenants and agrees to obtain and
maintain within the Project Facilities all moveable equipment,
furnishings and other personal property (including any personal
property which upon installation becomes a fixture) acquired by
the Lessor, or acquired pursuant to disbursement requests
submitted pursuant to Section 4.2 of the Project Service
Agreement, and any property acquired pursuant to this Article V
as a substitution or replacement for any such property
(collectively, "Lessor Personal Property"). The Lessee further
covenants and agrees (notwithstanding clause (ii) of the first
sentence of Section 5.4 hereof) to replace promptly any worn out
or obsolete Lessor Personal Property with other personal property
of similar value and use if the worn out or obsolete Lessor
Personal Property is essential for the efficient or proper
operation or maintenance of the Project Facilities for the
Project Purposes in accordance herewith and as it is then being
used (the "Essential Lessor Personal Property"). The Lessee
further covenants and agrees that no Essential Lessor Personal
Property will be removed or relocated without securing a
replacement therefor. The Lessee further agrees that title to
any Lessor Personal Property acquired in replacement of Lessor
Personal Property pursuant to this Section, or in substitution
therefor pursuant to Section 5.4 hereof, shall vest immediately
in the Lessor and such personal property so acquired shall be and
be considered for all purposes a part of the Project Facilities
as if originally a part thereof. Without limiting the foregoing,
the Lessee shall promptly upon such replacement or substitution
deliver a bill of sale or other similar evidence of title to the
Lessor, and Lessor shall promptly deliver to the Lessee a release
of any interest in any Lessor Personal Property so replaced by
the Lessee. Any action taken by the Lessee pursuant to this
Section shall not entitle the Lessee to any abatement or
diminution of the Rental Payments or any Additional Payments
payable hereunder.
Section 5.3. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. The Lessee may, in its discretion and at its expense, make from time to time any alterations, additions, or improvements to the Project which it may deem desirable for its business purposes provided that no such alterations, additions, or improvements shall adversely affect the structural integrity or strength of any improvements constituting a part of the Project Facilities, substantially reduce the value of the Project or materially interfere with the use and operation thereof as a headquarters building. All alterations, additions, and improvements so made to the Project Facilities by the Lessee shall become and be deemed to be the property of Lessor and constitute a part of the Project. At the end of the Lease Term the Lessee shall have no obligation, but may, in its discretion and at its expense, remove any such alteration, addition or improvement, provided that upon such removal the Lessee is required to restore the Premises to their original condition. Any free standing buildings or other free standing structures erected and paid for by the Lessee shall be the property of the Lessee but shall be removed at the Lessee's expense at the expiration or termination of the Lease Term unless the Lessor shall have agreed to accept such buildings or structures in which event they need not be removed and shall become property of the Lessor at the conclusion of the Lease Term.
Section 5.4. REMOVALS AND SUBSTITUTIONS. Subject to the requirements of Section 5.2 with respect to Essential Lessor Personal Property, in any instance where the Lessee, in its reasonable discretion, determines that any item of Lessor Personal Property shall have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary or should otherwise be replaced, the Lessee may remove such items; provided, that such removal (taking into account any substitutions) shall not impair the operation of the Project and that any damage caused to any portion of the Project as a result of such removal is restored or repaired at Lessee's sole
cost; and provided, further, that the Lessee (i) substitutes and installs other
items of property having equal or greater value (but not necessarily having the
same function in the operation of the Project), which such substituted property
shall be free from liens and encumbrances and shall be the property of Lessor
and become part of the Project, without taking account of personal property
previously designated to be the property of Lessor as Lessor Personal Property
as required by Section 5.2 or 5.4 hereof, or (ii) in the case of removal of
property without substitution, promptly pays to the Lessor an amount equal to
(A) if the removed property is sold or scrapped, the proceeds of such sale or
the scrap value thereof, (B) if the removed property is used as a trade-in for
property not to be installed as part of the Project, the trade-in credit
received by the Lessee, or (C) in the case of the retention of such removed
property by the Lessee for use at locations other than at the Project, the Fair
Market Value, less the Excess Value, of such property. If, prior to or
concurrently with any such removal, the Lessee shall have acquired and
installed personal property with its own funds which has become a part of the
Project Facilities, the Lessee may credit the amount so spent, or, if such
property was acquired more than six (6) months prior to the date on which the
credit is to be made, the Fair Market Value of such property, against the
requirement that it either substitute other property or make payment under this
Section on account of such removal, provided that such previously acquired and
installed property meets the requirements for substituted property under clause
(i) of the next preceding sentence of this Section. "Excess Value" shall mean
the amount by which the then Fair Market Value of replacement Lessor Personal
Property exceeds the Fair Market Value of replaced Lessor Personal Property at
the time of its replacement. The Authorized Lessee Representative shall
promptly report to the Lessor each such removal, substitution, sale or other
disposition, shall take such actions as are required to vest title to any such
replacement or substitution property (including any property substituted
pursuant to the next preceding sentence) in the Lessor, and shall pay to the
Lessor such amounts as are required by the provisions of clause (ii) of the
second preceding sentence of this Section (but after taking into account any
credits available pursuant to the next preceding sentence) to be paid to the
Lessor promptly after the sale, trade-in or other disposition requiring such
payment; provided, however, that no such payment need be made until the amount
to be paid to the Lessor on account of all such sales, trade-ins or other
dispositions not previously paid aggregates at least $100,000. Except as
otherwise provided in the Project Bond Indenture, any amounts so paid shall be
made available to the Lessee for use for, alterations, additions or
improvements to the Project, or the acquisition and installation of personal
property within the Project Facilities, which alterations, additions,
improvements or personal property shall be the property of Lessor and become a
part of the Project for all purposes of this Lease, and the Lessee shall
promptly deliver to the Lessor a bill of sale or other appropriate evidence of
title thereto. Upon the request of the Lessee, the Lessor shall promptly
execute and deliver to the Lessee appropriate instruments releasing any
property removed pursuant to this Section from the Project and this Lease.
Section 5.5. INDEMNIFICATION. In order to induce the Lessor to undertake the duties, obligations and responsibilities set forth herein, the Lessee releases the Lessor from, agrees that the Lessor shall not be liable for, and indemnifies the Lessor against, all liabilities, obligations, claims, damages, costs and expenses (including, without limitation, reasonable attorney's fees and expenses except as may be limited by law or judicial decision or order) imposed upon, incurred or asserted against the Lessor on account of: (a) ownership of any interest in the Project; (b) any loss or damage to property or any accident or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to activities pursuant to Sections 4.1, 5.3 and 5.4 of this Lease or the maintenance, operation and use of the Project or any part thereof or the adjoining sidewalks, curbs, vaults and vault space, if any, streets, alleys or ways; (c) any use, disuse or condition of the Project or any part thereof or the adjoining sidewalks, curbs, vaults and vault space, streets, alleys or ways, or arising from any act or failure to act by the Lessee, or any of its agents, contractors, servants, employees, sublessees or licensees; (d) any failure of compliance of Lessee with the provisions of Section 4115.05 and
any other applicable provision of Chapter 4115, Ohio Revised Code; (e) without limitation on the provisions of Section 5.6 hereof, all risk of loss or expense arising out of the existence in, on or about the Project of Hazardous Materials, whether arising prior to or during the Lease Term and regardless of whether the same arise out of the release by the Lessee of such materials, and including without limitation civil and criminal fines and penalties, and (f) any claim, action or proceeding brought with respect to the matters set forth in (a), (b), (c), (d) and (e) above. The Lessee shall promptly notify the Lessor of any knowledge it may receive of any risk of loss or expense under clause (e) of the next preceding sentence.
The Lessee agrees to indemnify the Lessor for and to hold it harmless against all liabilities, claims, costs and expenses incurred without negligence or bad faith on the part of the Lessor on account of any action taken or omitted to be taken by the Lessor in accordance with the terms of this Lease or any related instruments or any action taken at the request of or with the consent of the Lessee, including the costs and expenses of the Lessor in defending itself against any such claim, action or proceeding brought in connection with the exercise or performance of any of its powers or duties under this Lease or any related instrument.
The Lessee agrees to indemnify the Lessor for and to hold it harmless against all liabilities, claims, costs and expenses incurred without negligence or bad faith on its part arising from the issuance, sale, trading or redemption or purchase of the Bonds, or performance by the Lessor of its obligations under the Project Bond Indenture with respect to, the Project Bonds, and the provision by the Lessee of any information or certification furnished in connection therewith concerning the Project Bonds, the Project or the Lessee.
In case any action or proceeding is brought against the Lessor in respect of which indemnity may be sought hereunder, the Lessor promptly shall give notice of that action or proceeding to the Lessee, and the Lessee upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure to give that notice shall not relieve the Lessee from any of its obligations under this Section except to the extent that such failure prejudices the defense of the action or proceeding by the Lessee. At its own expense, an indemnified party may employ separate counsel and participate in the defense. The Lessee shall not be liable for any settlement made without its consent.
The indemnifications set forth above are intended to and shall include the indemnification of all affected officials, directors, officers and employees of the Lessor. Those indemnifications are intended to and shall be enforceable to the full extent permitted by law and shall survive the termination or expiration of this Lease.
Section 5.6. ENVIRONMENTAL MATTERS. (a) Throughout the Lease Term, Lessee or its employees, contractors or agents shall
(i) not use or occupy or permit the Project Site to be used or occupied, nor do or permit anything to be done in or on the Project Site, in whole or in part, which will cause or be apt to cause structural damage to the Project Site, or will constitute a public or private nuisance or will cause pollution or contamination of the air, water and/or ground or will violate any applicable Environmental Requirements with respect to the Project Site.
(ii) not permit any material waste, damage or injury to the Project Site.
(iii) not unlawfully store at, dispose of, emit or release from, or locate, spill or leak in, upon, over or through the Project Site any toxic or Hazardous
Material waste, substance or material of any kind or nature, including without limitation, asbestos and radon.
Notwithstanding the foregoing, the Lessee shall not be deemed to be in default under this Section 5.2(a) for any violation of this subsection which does not require an investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law.
(b) Lessee, its successors and assigns agree to indemnify, defend, reimburse and hold harmless the Lessor from and against any and all Environmental Damages arising from the presence of Hazardous Materials upon, about or beneath the Project Site or migrating to or from the Project Site, or arising in any manner whatsoever out of the violation of any Environmental Requirements pertaining to the Project Site and activities thereon, or the breach of any warranty or covenant or the inaccuracy of any representation of Lessee contained in this Lease. Moreover, Lessee agrees to indemnify the Lessor for any and all Environmental Damages which are incurred by the Lessor which shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings, even if such claims, suits or proceedings are groundless, false or fraudulent, and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments, penalties or other sums due against the Lessor. The Lessor, at its sole expense, may employ additional counsel of its choice to associate with counsel representing Lessee.
(c) In the event Lessee shall become aware of or receive notice or other communication concerning any actual, alleged, suspected or threatened violation of Environmental Requirements, or liability of Lessee for Environmental Damages in connection with the Project Site or past or present activities of any person thereon, or that any representation set forth in this agreement is not or is no longer accurate, including but not limited to notice or other communication concerning any actual or threatened investigation, inquiry, lawsuit, claim, citation, directive, summons, proceeding, complaint, notice, order, writ, or injunction, relating to same, then Lessee shall deliver to the Lessor, within ten days of the receipt of such notice or communication by Lessee, a written description of said violation, liability, correcting information, or actual or threatened event or condition, together with copies of any documents evidencing same to the Notice Address for the Lessor. Receipt of such notice shall not be deemed to create any obligation on the part of Lessor to defend or otherwise respond to any such notification. Lessee's obligations and duties, which are set forth in this section, to the Lessor shall continue unabated until the Lessor has no environmental obligations or liabilities under any local, state or federal laws and any rules or regulations thereunder.
Section 5.7. PERFORMANCE BY LESSOR OF LESSEE'S REQUIREMENTS. If the Lessee shall fail to do or perform any act or thing required to be done by it under the terms of this Lease, the Lessor may, at its sole option, after reasonable notice to the Lessee with respect thereto and reasonable opportunity afforded to the Lessee to do and perform the same, itself or by its employees, enter the Project and do and perform the same on the Lessee's behalf and at the Lessee's cost and expense; and the Lessee shall, forthwith upon receipt of notice of the amount of such cost and expense, pay the same to the Lessor as Additional Payments under Section 3.2, together with interest thereon at the Interest Rate for Advances, from the date of each payment by the Lessor to the date of repayment (including such interest) by the Lessee.
(End of Article V)
ARTICLE VI
TAXES, MECHANICS' LIENS AND INSURANCE
Section 6.1. TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY CHARGES. This is a net lease and, in addition to paying the Rental Payments and Additional Payments hereunder, except to the extent that certain costs are paid pursuant to Section 4.2 of the Project Service Agreement, Lessee shall be responsible for and shall pay any and all expenses of owning, operating, maintaining and repairing the Project incurred from and after the date hereof until the expiration of the Lease Term and any and all other costs, charges, assessments, expenses and taxes of every kind and character, ordinary or extraordinary, arising out of or incurred in connection with the use or occupancy of the Project or the execution, delivery and performance by Lessee of this Lease, whether or not such cost, charge, assessment, expense or tax is expressly referred to herein, so as to allow the Lessor to receive the Rental Payments as net rent. Without limiting the generality of the foregoing, the Lessee shall pay, as the same respectively become due, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time during the Lease Term be lawfully assessed or levied against or with respect to the Project (including, without limitation, any taxes levied upon or with respect to the revenues, income or profits of the Lessee from the Project) which, if not paid, may become or be made a lien on the Project or any part thereof, or a charge on such revenues, income and profits therefrom, and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project during the Lease Term; provided, that with respect to special assessments or other governmental charges that lawfully may be paid in installments over a period of years, the Lessee shall be obligated to pay only such installments as are required to be paid during the Lease Term.
The Lessee may, at its expense, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, during the period of such contest and any appeal therefrom, may permit the taxes, assessments or other charges so contested to remain unpaid unless the Lessor shall notify the Lessee that, in the reasonable opinion of the Lessor, by nonpayment of any such items the Project or any part of the Project will be materially affected or the Project or any part thereof will be subject to imminent loss or forfeiture, in which event such taxes, assessments or charges shall be paid or provisions for payment by deposit or bonding shall be made promptly by the Lessee.
Section 6.2. MECHANICS' AND OTHER LIENS. The Lessee shall not suffer or permit any mechanics' or other liens to be filed or exist (i) against the Project, nor (ii) against any account or fund in which Rental Payments, Additional Payments or proceeds of the Bonds, the Notes or the Grants are deposited, by reason of work, labor, services or materials supplied or claimed to have been supplied to, for, or in connection with the Project or to the Lessee or anyone holding the Project or any part thereof through or under the Lessee, or otherwise; provided, however, that if any such liens shall at any time be filed, the Lessee shall, within ninety days after notice of the filing thereof but subject to the right to contest hereinafter set forth, cause the same to be discharged of record by payment, deposit, bonding, order of a court of competent jurisdiction or otherwise. The Lessee shall have the right, but at its own cost and expense, to contest the validity or the amount of any such lien by appropriate proceedings timely instituted, unless the Lessor shall notify the Lessee that, in the reasonable opinion of the Lessor, by nonpayment of any such items any part of the Project or moneys in such an account or fund will be subject to imminent loss or forfeiture, in which event the Lessee shall promptly cause such lien to be discharged as aforesaid. Lessor will cooperate fully with the Lessee, but at the Lessee's expense, in any such contest (except as any such lien is asserted by the Lessor in which event the Lessee shall have the right to contest such lien as if it were the owner of the Project).
If the Lessee shall fail to cause such lien to be discharged, or to contest the validity or amount thereof, within the period aforesaid, then, in addition to any other right or remedy of the Lessor, the Lessor may, but shall not be obligated to, discharge the same by deposit or by bonding.
Section 6.3. INSURANCE. The Lessee shall keep the Project Facilities continuously insured in the amount and with the coverage of the Required Property Insurance Coverage and shall keep and maintain, with respect to the Project, Required Public Liability Insurance Coverage, provided, that through the Completion Date, the Lessee shall provide all-risk builders risk insurance covering the then insurable value of the Project. Subject to the next paragraph of this section, such insurance shall name the Lessor, the Lenders, the Holders and the County Bond Holders as, with respect to Public Liability Required Insurance Coverage, additional insureds and, with respect to Required Property Insurance Coverage, the Lessor, the Lenders, the Holders and the County Bond Holders as loss payees, as their respective interests may appear, and shall be obtained and maintained by means of policies with generally recognized, responsible insurance companies qualified to do business in the State, in conjunction with other companies through an insurance trust or other arrangements reasonably satisfactory to the Lessor. The insurance to be provided may be by blanket policies. Each policy of insurance shall be written so as not to be subject to cancellation or substantial modification without not less than thirty days' advance written notice to the Lessor and the Lenders. The Lessee shall deposit with the Lessor certificates or other evidence reasonably satisfactory to the Lessor that the insurance required hereby has been obtained and is in full force and effect and, at least 30 days prior to the expiration of any such insurance, the Lessee shall furnish the Lessor with evidence reasonably satisfactory to the Lessor that such insurance has been renewed or replaced.
All policies providing the Required Property Insurance Coverage shall contain a clause requiring all proceeds resulting from any claim for loss or damage, if the proceeds of such claim are in excess of $500,000 (increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase not theretofore the subject of such increase), to be paid to the Lessor or its designee, and any Net Proceeds of insurance providing such coverage shall be paid and applied as provided in Section 7.2 hereof. The proceeds of insurance providing Required Public Liability Insurance Coverage shall be applied toward the extinguishment or satisfaction of the liability with respect to which such insurance proceeds have been paid.
Section 6.4. WORKERS' COMPENSATION AND UNEMPLOYMENT COVERAGE. The Lessee shall maintain, or cause to be maintained in connection with the Project, the workers' compensation and unemployment coverages required of it by the applicable laws of the State.
Section 6.5. WAIVER OF SUBROGATION. Notwithstanding any other provision of this Lease to the contrary, it is mutually agreed that the Lessor shall not be responsible for damage by fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief to the property of the Lessee and the Lessee shall not be responsible for damage to the property of the Lessor by the same perils as mentioned above regardless of the negligence of either party. The Lessee will cause each insurance carrier issuing any policy required by this Lease to waive all rights of subrogation against the Lessor, the Lenders and the Holders.
Section 6.6. PAYMENT OF AMOUNTS NOT PAID BY LESSEE. If the Lessee fails to (i) pay taxes, assessments and other governmental or utility charges as required by Section 6.1 hereof, (ii) pay or discharge mechanics' or other liens as required by Section 6.2 hereof, (iii) maintain and keep in force the insurance required by Section 6.3 hereof or (iv) maintain required workers' compensation and unemployment coverage as required by Section 6.4 hereof, the Lessor may (but shall not be obligated to) advance funds to pay any such required charges or
items after ten business days' prior written notice to the Lessee. Any funds so advanced shall be payable by the Lessee on demand as Additional Payments pursuant to Section 3.2 hereof and shall bear interest from the date of advancement to the date the Lessor is repaid (including such interest) at the Interest Rate for Advances.
(End of Article VI)
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. DAMAGE TO OR DESTRUCTION OF PROJECT. In case of any damage to or destruction of the Project Facilities or any part thereof, the Lessee will promptly give or cause to be given written notice thereof to the Lessor and the Lenders generally describing the nature and extent of such damage or destruction. Unless such damage or destruction is such that the Lessee shall have certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate this Lease in accordance with Article IX hereof, there shall be no abatement or diminution of Rental Payments and the Lessee shall, whether or not the Net Proceeds of insurance, if any, received on account of such damage or destruction shall be sufficient for such purpose, promptly commence and complete, or cause to be commenced and completed, repair or restoration of the Project Facilities as nearly as practicable to the value, condition and character thereof existing immediately prior to such damage or destruction, with such changes or alterations, however, as the Lessee may deem necessary for proper operation of the Project and to which the Lessor has consented, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Lessee may under certain circumstances relating to damage or destruction terminate this Lease and/or acquire the Project as set forth in Article IX.
Section 7.2. USE OF INSURANCE PROCEEDS. In connection with the repair or restoration of the Project Facilities pursuant to Section 7.1 hereof, Net Proceeds of Required Property Insurance Coverage not in excess of $500,000 (increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase not theretofore the subject of such increase) shall be paid to the Lessee for application of as much as may be necessary for such repair and restoration. If such Net Proceeds are in excess of $500,000 (increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase not theretofore the subject of such an increase) the Net Proceeds shall be paid to and held by the Lessor or its designee, as described in the second paragraph of Section 6.3 hereof, in a separate insurance loss account, for application of as much as may be necessary of the Net Proceeds for the payment of the costs of repair, rebuilding or restoration, either on completion thereof or as the work progresses as directed by the Lessee or otherwise provided in the Project Bond Indenture. Any balance of the Net Proceeds held by the Lessor or its designee remaining after payment of all costs of such repair, rebuilding or restoration shall, except as otherwise provided in the Project Bond Indenture, be made available to Lessee for alterations, additions or improvements to the Project thereafter during the Lease Term.
If, in lieu of repair and restoration, the Lessee has certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate this Lease in accordance with Article IX hereof, any Net Proceeds received by the Lessor or its designee prior to such prepayment shall be credited against the Discounted Rent payable by the Lessee pursuant to this Lease, and after such prepayment, no further Rental Payments shall be due hereunder.
Section 7.3. EMINENT DOMAIN. If title to or the temporary use of the Project, or any part thereof, shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the Lessee will promptly give or cause to be given written notice thereof to the Lessor, the Lenders, the Holders and the County Bond Holders describing the nature and extent of such taking. Any Net Proceeds received from any award made in such eminent domain proceedings shall be paid to and held by or on behalf of the Lessor or its designee in a separate condemnation award account and, unless the taking is such that the Lessee shall have certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate
this Lease in accordance with Article IX hereof, shall, except as otherwise provided in the Project Bond Indenture, be made available to Lessee to be applied in one of the following ways:
(a) The restoration of the Project Facilities to substantially the same condition as existing prior to the exercise of the power of eminent domain;
(b) The acquisition by construction or otherwise of other improvements acceptable to the Lessor and suitable for the Lessee's operations on the Project Site (which improvements shall be deemed property of the Lessor and a part of the Project).
The balance of any net Proceeds remaining after application to (a) and (b) above shall, except as otherwise provided in the Project Bond Indenture, be made available to the Lessee for alterations, additions and improvements to the Project thereafter during the Lease Term.
If the Lessee shall have certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate this Lease in accordance with Article IX hereof, any Net Proceeds received from any award made in such eminent domain proceeding shall be credited against the Discounted Rent payable by the Lessee pursuant to this Lease, and after such prepayment no further Rental Payments shall be due hereunder. If the Lessee shall not have so certified, there shall be no abatement or diminution of Rental Payments.
Section 7.4. INVESTMENT AND DISBURSEMENT OF NET PROCEEDS. All moneys received by or on behalf of the Lessor or its designee constituting Net Proceeds may, pending application, be invested and shall, to the extent to be used for repair, rebuilding, improvement, restoration, acquisition or construction, be disbursed as provided in or pursuant to the Project Bond Indenture and the Project Service Agreement for the investment and disbursement of moneys in the Proceeds Account of the Project Fund created under the Project Bond Indenture.
Section 7.5. LESSEE'S OWN PERSONAL PROPERTY. The Lessee or any permitted assignee or sublessee of the Lessee shall be entitled to the net proceeds of any insurance claims or eminent domain award for damage or destruction or taking of its personal property (including with respect to the net proceeds resulting from any taking, the value to the Lessee, if any, determined by the court to be represented by the Lessee's leasehold interest).
(End of Article VII)
ARTICLE VIII
FURTHER REPRESENTATIONS AND AGREEMENTS
RESPECTING THE PROJECT
Section 8.1. RIGHT OF ACCESS. The Lessee agrees that inspections may be made as provided in Section 5.2 hereof. The Lessee further agrees that the Lessor, the Lenders, the Holders and any County Bond Holder and their employees and agents shall be provided such access to the Project upon reasonable notice to the Lessee, as may be reasonably necessary to cause to be completed the Project Facilities and thereafter for the proper maintenance of the Project in the event of failure by the Lessee to perform any of its obligations.
Section 8.2. LESSEE TO MAINTAIN ITS CORPORATE EXISTENCE; CONDITIONS UNDER WHICH EXCEPTIONS PERMITTED. The Lessee agrees that during the Lease Term it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided, that the Lessee may, without violating the agreement contained in this Section, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, provided that if the surviving, resulting or transferee corporation, as the case may be, is other than the Lessee, such surviving, resulting or transferee corporation assumes in writing all of the obligations of the Lessee herein and either obtains the consent of the Lessor or has a net worth at least equal to that of the Lessee prior to dissolution, sale, consolidation or merger, and provided further that such consolidation, merger, sale or transfer does not violate any provision of any other agreement with any Lender, any Holder or any County Bond Holder to which the Lessee is a party. Net worth shall be determined in accordance with generally accepted accounting principles consistently applied.
If consolidation, merger or sale or other transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section.
Section 8.3. TITLE OF PROJECT SITE. Written evidence as to the status of title to the Project Site as of the date of delivery of this Lease has been made available to the Lessee and the Lessor. The Lessee and the Lessor agree that such title is satisfactory and that all defects in and liens and encumbrances on such title, as set forth in such evidence as exclusions from coverage and exceptions, do not materially impair the Lessee's use or the value of the Project Site.
Section 8.4. NO WARRANTY OF CONDITION OR SUITABILITY. The Lessor does not make any warranty, either express or implied, as to the suitability or utilization of the Project for the Project Purposes, or as to the condition of the Project or whether the Project is or will be suitable for the Lessee's purposes or needs. Lessor and Lessee agree that the Project is being leased to Lessee, and Lessee hereby accepts possession of the Project, "as-is, where-is, with all faults," with no right of set-off or reduction in the Rental Payments, and that such transaction shall be without representation or warranty of any kind or nature whatsoever by Lessor, or any officer, director, employee, agent or attorney of Lessor, or any other party related in any way to any of the foregoing (all of which parties are collectively referred to as the "Lessor Parties"), whether express, implied, statutory or otherwise, including, without limitation, title, warranty of income potential, operating expenses, uses, condition, merchantability, habitability,
compliance with designs, specifications or legal requirements, absence of latent defects, or fitness for a particular purpose, and Lessor, for itself and each of the other Lessor Parties does hereby disclaim and renounce any such representation or warranty. Nothing in this Section 8.4 shall affect the representations made by the Lessor under Section 2.3 hereof.
(End of Article VIII)
ARTICLE IX
TERMINATION OF LEASE
Section 9.1. OPTION TO TERMINATE ON PAYMENT OF RENTAL PAYMENTS. The Lessee shall have the option to terminate this Lease when payment of the Discounted Rent (as defined in Section 9.2 hereof but exclusive of clause (4) of that definition) shall have been made to the Lessor. Such option shall be exercised by the Lessee giving the Lessor, each of the Lenders, the Holders and the County Bond Holders notice of such termination and, upon such payments or, to the extent applicable, provision for payments, such termination shall forthwith become effective.
Section 9.2. TERMINATION OF LEASE ON SUBSTANTIAL CASUALTY OR CONDEMNATION. If the Project shall have been damaged or destroyed, or title to or the temporary use of all or substantially all of the Project shall have been taken under the exercise of the power of eminent domain by any governmental authority, or other Person acting under governmental authority, to such an extent that, in the opinion of the Board of Directors of the Lessee, it is not economically feasible to repair, rebuild, restore or replace the Project to substantially the condition thereof immediately preceding the damage, destruction or taking (because for example, without limitation, of the occurrence of an uninsurable casualty), then, within 90 days following the date on which the event authorizing that exercise occurred (the date of the occurrence of any damage or destruction or the date of entry of a final order in any eminent domain proceeding), the Authorized Lessee Representative shall provide the Lessor with a copy of the action of the Board of Directors making such determination and with its certification that (i) it will prepay all of the remaining Rental Payments by paying the Discounted Rent on the date required as set forth below, (ii) upon such payment it will terminate this Lease and (iii) the Lessee has irrevocably taken such steps as are necessary under the Project Service Agreement to terminate the Project Service Agreement, in accordance with its terms, on or prior to such date. Copies of those certificates shall be provided to the Lenders. In the event that such certification is given, such certifications shall be irrevocable and the Lessee shall pay the Discounted Rent (less any amounts on deposit with the Lessor or its designee and available therefor pursuant to Article VII hereof, including without limitation, the Net Proceeds of Required Property Insurance Coverage or Net Proceeds of any eminent domain or similar payments) to the Lessor on or prior to the business day preceding the next Interest Payment Date (as defined in the Project Bond Indenture) occurring at least 35 days after delivery of the certification (and all copies thereof) pursuant to the preceding two sentences, which date shall be specified in the certification of the Authorized Lessee Representative. The Discounted Rent is irrevocably agreed and acknowledged by the parties to be the sum of the following amounts (collectively being the "Discounted Rent" as used and defined herein):
(1) an amount of money which will be sufficient pursuant to the Project Bond Indenture to pay all outstanding principal of and premium with respect to the Bonds and to pay any accrued, but unpaid interest on the Bonds to such Interest Payment Date; and
(2) an amount of money which will be sufficient to pay all outstanding principal of the Notes plus any interest and service charges accrued, but unpaid, along with any premium on the Notes, to such Interest Payment Date; and
(3) an amount of money (or provision therefor satisfactory to the Lessor) equal to the Additional Payments and other amounts payable hereunder accrued and to accrue to such Interest Payment Date; and
(4) an amount of money sufficient to raze the damaged structures and level and seed the sites of such structures, which amount shall be placed in a segregated account to be so used solely for such purpose.
In the event the Net Proceeds of Required Property Insurance Coverage or the Net Proceeds of any eminent domain or similar payments are received subsequent to the payment by the Lessee of the Discounted Rent, such Net Proceeds shall be paid to the Lessee.
The mutual agreements contained in this Section 9.2 are independent of, and constitute an agreement separate and distinct from, any other provisions of this Lease and any other agreements between the Lessor and the Lessee and shall be unaffected by any fact or circumstance which might impair or be alleged to impair the validity of those other provisions. Upon acquisition of the Bonds and the Notes by the Lessee, the Bonds, and the Notes shall be surrendered for cancellation, this Lease shall be terminated (subject to survival of such provisions hereof as are intended to survive termination of this Lease), all right, title and interest of the Lessee or the Lessor in or to the Project will revert to and vest in the Lessor, as the fee owner of the Project Facilities and the Lessee shall terminate the Project Service Agreement.
Section 9.3. OPTION TO PURCHASE LESSOR'S INTEREST IN PROJECT. The Lessee is hereby granted an option to purchase all interests of the Lessor in the Project upon the termination of the Lease Term pursuant to Section 9.1 or 9.2 of this Lease, or at the expiration of the Lease Term, in any such case, by payment to the Lessor of the following sums, as applicable.
In the case of a termination pursuant to Section 9.1 of this Lease or at the expiration of the Lease Term (other than when the termination or expiration results from the insolvency or bankruptcy of either the Cleveland-Cuyahoga County Port Authority or the County of Cuyahoga), the Lessee shall pay to the Lessor the sum of
(x) $100.00; and
(y) an amount of money which is the greater of (a) the Fair Market Value of the Project (other than the Moveable Personal Property) minus an amount equal to the future value of the Lessee's original equity contribution to the acquisition of Permanent Parcel No. 103-07-036, as shown on the Cuyahoga County 1994 General Tax Duplicate, compounded monthly at an 8% annual interest rate from the date of the equity contribution to the date of purchase of the Project or (b) the amount required to retire in full the Bonds and the Notes plus any interest and service charges accrued, but unpaid, along with any premium on the Bonds and the Notes, to the specified purchase date.
In the case of a termination pursuant to Section 9.2 of this Lease (and assuming with respect to a condemnation proceeding that the Lessee has not taken steps to initiate or encourage the condemnation proceeding), or in the case of (a) a termination pursuant to Section 9.1 of this Lease or (b) at the expiration of the Lease Term and, in the case of either clause (a) or clause (b), resulting from the insolvency or bankruptcy of either the Cleveland-Cuyahoga County Port Authority or the County of Cuyahoga, the Lessee shall pay to the Lessor the sum of
(x) $100.00; and
(y) the amount of money required to retire in full the Bonds and the Notes plus any interest and service charges accrued, but unpaid, along with any premium on the Bonds and the Notes, to the specified purchase date.
Any amount required to the paid by the Lessee pursuant to this
Section 9.3 in order to purchase all interests of the Lessor in the Project
shall be reduced by the amount previously paid by the Lessee pursuant to either
Section 9.1 or Section 9.2 hereof as Discounted Rent (to the extent of clauses
(1) and (2) of that definition) in connection with the termination of the
Lease.
If the Lessee exercises its option to purchase in connection with its option pursuant to Section 9.2 of this Lease, it shall do so within the time and in the manner as is provided in that Section. If the Lessee exercises its option pursuant to this Section, the Lessee shall give written notice to the Lessor and the Lenders at least six months prior to the purchase date.
Section 9.4. CONVEYANCE ON EXERCISE OF OPTION TO PURCHASE. Upon exercise by the Lessee of its option under Section 9.3 hereof and upon payment of all amounts payable by the Lessee in connection therewith, the Lessor will deliver, or cause to be delivered, to the Lessee such quitclaim deeds, bills of sale, instruments and other documents conveying to the Lessee all of the Lessor's interests in the Project, as the Project then exists, subject to
(a) liens and encumbrances, if any, to which title to the Project was subject at the commencement of the Lease Term;
(b) liens and other encumbrances created by the Lessee or to or in the creation or suffering of which the Lessee consented or acquiesced or in the creation of which it participated;
(c) liens and other encumbrances for taxes, governmental charges or special assessments not then delinquent;
(d) liens and other encumbrances resulting from the failure of the Lessee to observe or perform any of its covenants, agreements or obligations under this Lease; and
(e) if the option under Section 9.3 hereof is exercised in
connection with the exercise by the Lessee of its option under
Section 9.2 hereof pursuant to the provisions of Section 9.2(a)
hereof, the rights and title of the condemning authority.
If the option under Section 9.3 hereof is exercised in connection with the exercise by Lessee of the option under Section 9.2 hereof pursuant to the provisions of paragraph (a) of that Section, the Lessee, upon payment of the option price to Lessor, shall be entitled to all insurance proceeds in connection with the damage or destruction or, at the Lessee's option, the Lessee shall be entitled to credit such net proceeds against the payment of the option price.
No further action of the Legislative Authority shall be required to authorize or to effect the conveyance contemplated in this Section, and upon the payment by the Lessee of all amounts payable by the Lessee in connection therewith and upon satisfaction by the Lessee of all other requirements therefor, the Executive, either alone or together with any other officer or
officers deemed by the Executive to be appropriate, is authorized and directed hereby to execute and deliver any instruments and documents necessary or advisable to effect the conveyance.
(End of Article IX)
ARTICLE X
EVENTS OF DEFAULT
Section 10.1. EVENTS OF DEFAULT. Each of the following shall be an "Event of Default":
(a) The Lessee shall fail (i) to pay in full any Rental
Payment on or prior to any Rental Payment Date and such failure
continues for a period of five (5) calendar days thereafter, or
(ii) to pay in full the Discounted Rent on or prior to the date
established for the payment thereof pursuant to Section 9.2 of
this Lease or (iii) to maintain any of the insurance required by
Section 6.3 of this Lease or fail to maintain the required levels
of insurance for a period of five (5) calendar days.
(b) The Lessee shall fail to make any payment, other than a Rental Payment or a payment of Discounted Rent, required to be made under this Lease or the Project Service Agreement, which failure shall continue for a period of 30 days after written notice (unless the Lessor shall agree in writing to an extension of such time prior to its expiration) specifying such failure and requesting that it be remedied, given by the Lessor to the Lessee.
(c) The Lessee shall fail to observe and perform any of its other covenants, conditions or agreements contained herein for a period of 60 days after written notice (unless the Lessor shall agree in writing to an extension of such time prior of its expiration) specifying such failure and requesting that it be remedied, given by the Lessor to the Lessee; provided, however, that if such failure is other than the payment of money and is of such a nature that it cannot be corrected within such 60 day period, then such failure shall not constitute an Event of Default so long as the Lessee notifies the Lessor of its intention to cure such failure as soon as possible after such 60 day period, institutes curative action within such 60 day period, diligently pursues such action to completion, and cures such failure within a reasonable period of time, not to exceed 120 days, after such 60 day period.
(d) Any representation or warranty by the Lessee contained in this Lease is false or misleading in any material respect.
(e) The Lessee shall: (A) (i) admit in writing its inability to pay its debts generally as they become due; or (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency act; or (iii) make an assignment for the benefit of creditors; or (iv) consent to the appointment of a receiver for itself or of the whole or any substantial part of its property; or (B) file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; or (C) if a petition in bankruptcy is filed against it, be adjudicated a bankrupt, or have a court of competent jurisdiction enter an order or decree appointing, without the consent of the Lessee, a receiver or trustee for the Lessee or for the whole or substantially all of its property, or have a court of competent jurisdiction enter an order or decree approving a petition filed against it seeking reorganization or arrangement of the Lessee under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, if any such adjudication, order or decree under this clause (C) shall not be vacated or set aside or stayed within 90 days from the date of the entry thereof.
(f) The Lessee shall fail, within 90 days after the commencement of any proceeding against the Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, to have such proceeding dismissed, or, within 90 days after the appointment without the consent or acquiescence of the Lessee, of any trustee, receiver or liquidator of the Lessee or any material part of its properties, to have such appointment vacated, or the Lessee shall be adjudicated as a bankrupt or insolvent.
(g) Any "Event of Default", as defined in the Inducement Agreement dated as of the date hereof, between the Lessee and the original purchaser of the Bonds shall have occurred.
Section 10.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall have happened and be subsisting, any one or more of the following remedial steps may be taken:
(a) The Lessor may declare all Rental Payments, together with any Additional Payments and other amounts payable hereunder to be immediately due and payable, whereupon, to the extent permitted by law, the same shall become immediately due and payable;
(b) The Lessor may re-enter and take possession of the Project without terminating the Lease and sublease the Project for the account of the Lessee, holding the Lessee liable for the difference between the rent and other amounts payable by such sublessee in such subleasing and the aggregate of the Rental Payments, Additional Payments and other amounts payable by the Lessee hereunder;
(c) The Lessor may terminate this Lease, exclude the Lessee from possession of the Project and lease the Project to another, but holding the Lessee liable for all Rental Payments, Additional Payments and other amounts payable hereunder up to the effective date of such leasing;
(d) The Lessor may have access to and inspect, examine and make copies of the books and records and any and all accounts, data and income tax and other tax returns of the Lessee, only, however, insofar as they pertain to the Project;
(e) The Lessor may take whatever action at law or in equity may appear necessary or desirable to collect the Rental Payments, Additional Payments and other amounts then due and thereafter to become due, or to enforce performance and observance of any other obligation or agreement of the Lessee, under this Lease.
After the termination of the Lease or of Lessee's right of
possession, the Lessor shall, to the extent required under applicable law, use
reasonable efforts to mitigate damages by reletting the Project, in whole or in
part, either in its own name or as agent for the Lessee, for a term or terms,
that at the Lessor's option, may be for the remainder of the then current Lease
Term or for any longer or shorter period. The Lessor may waive and rescind any
declaration made pursuant to subparagraph (a) of the first paragraph of this
Section and waive and rescind the consequences of such declaration and of the
Event of Default with respect to which such declaration has been made, provided
that no such waiver or rescission shall extend to or affect any subsequent or
other default or impair any right consequent thereon.
The Lessor and the Lessee acknowledge that the Lessor has borrowed money from several sources in order to provide the moneys necessary to acquire the Project Site and
construct, improve, furnish, equip and develop the Project Facilities and that the Lessor, with the knowledge of the Lessee, has contractually obligated itself to use the Rental Payments to repay its borrowings and that an Event of Default under Section 10.1 hereof would eliminate future Rental Payments and the source to be used to repay the Lessor's borrowings. The Lessor and the Lessee agree that amounts paid pursuant to paragraph (a) of this Section are liquidated damages and not a penalty and will permit the Lessor to repay the borrowings that would have been repaid from Rental Payments during the Lease Term so that the Lenders, the Holders and the County Bond Holders do not suffer any loss by reason of the breach by the Lessee of the terms of this Lease.
The Lessor shall give prompt notice to each of the Lenders of an Event of Default under this Lease and of any waiver thereof and of any rescission of an acceleration.
Section 10.3. NO REMEDY EXCLUSIVE. No remedy conferred or reserved by this Lease is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease or now or hereafter existing at law, in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Lessor to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be expressly required herein or by applicable law.
Section 10.4. LESSEE TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event of Default occurs and the Lessor, any Lender, any Holder or any County Bond Holder employs attorneys or incurs other expenses for the enforcement of any obligation or agreement of the Lessee contained herein or in any other agreement to which the Lessee is a party, the Lessee shall, on demand therefor and to the extent permitted by law, reimburse the reasonable fees of such attorneys and such other expenses so incurred.
Section 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event any agreement contained in this Lease should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder.
(End of Article X)
ARTICLE XI
ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE
OF PORTIONS OF PROJECT
Section 11.1. SUBLEASING BY LESSEE. The Project may be subleased in whole or in part, by the Lessee without the necessity of obtaining the consent of the Lessor; provided that if the Lessee and its subsidiaries are occupying and using less than 90 percent of the usable space of the Project Facilities, then ten business days prior to executing any sublease the Lessee shall provide notice to the Lessor specifying the name of the sublessee, the nature of its business, the use to be made of the subleased space, the number of persons anticipated to be employed in the subleased space, whether any hazardous or flammable materials will be located in the space and any remodeling that is to be accomplished to accommodate the sublessee; subject, however, to each of the following conditions:
(a) No subletting shall relieve the Lessee from primary liability for any of its obligations hereunder, and in the event of any such subletting the Lessee shall continue to remain primarily and fully liable for the Rental Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it.
(b) Any sublease from the Lessee must retain for the Lessee such rights and interests as will permit it fully to perform its obligations under this Lease.
(c) The Lessee shall, prior to the delivery thereof, furnish or cause to be furnished to the Lessor a true and complete copy of each such proposed sublease, together with, after delivery, a fully executed original counterpart of such sublease.
(d) Any sublease from the Lessee shall not materially impair fulfillment of the purposes of the Act to be accomplished by operation of the Project.
Section 11.2. MORTGAGE AND ASSIGNMENT OF LEASE BY LESSOR. In
accordance with applicable laws, the Lessor may grant a security interest or an
assignment of its interest in the Project, and may mortgage and grant a
security interest in the Project, to one or more of the Lenders and the County
Bond Holders, as security for payment of the Bonds and the Notes. If requested
by any such Lender or by the County Bond Holders, Lessee will execute and
deliver such agreement or agreements as may be reasonably required by such
Lender or by the County Bond Holders to subordinate Lessee's interest in this
Lease to any such mortgage, security interest or assignment and will join in
the execution of any such mortgage, security interest or assignment to the
extent necessary to subject any interest Lessee may have in any property for
which Lessee provided moneys pursuant to Section 4.7 of the Project Service
Agreement, any additions, modifications or improvements made pursuant to
Section 5.3 hereof, any replacements pursuant to Section 5.4 hereof, and any
property restored pursuant to Article VII hereof. Upon request of any such
Lender or the County Bond Holders, Lessee will agree to become a tenant to the
new owner of the Project after the purchase on any foreclosure sale or
conveyance in lieu of foreclosure on the same terms and conditions of this
Lease and will execute such instruments as may be necessary or appropriate to
evidence such agreement. It shall be a condition of any such mortgage,
security interest or assignment of interest in the Project that such Lender or
the County Bond Holders shall expressly agree in its mortgage, security
agreement or assignment, that (A) on behalf of itself, its successors and
assigns, in the event of foreclosure of the Project or conveyance of the
Project in lieu of foreclosure which occurs prior to the end of the Lease Term,
and provided that there is no outstanding Event of Default, Lessee shall have
the right
to remain in possession of the Project and no such foreclosure or conveyance in lieu of foreclosure shall divest, impair, modify, abrogate or otherwise adversely affect any interests or rights whatsoever of Lessee under this Lease, and (B) within fifteen (15) business days after a request therefor by Lessee, such Lender or the County Bond Holders shall execute a separate non-disturbance agreement with Lessee which shall contain the provisions required by the terms of clause (A) hereinabove.
Section 11.3. RESTRICTIONS ON TRANSFER AND ENCUMBRANCE OF PROJECT BY THE LESSOR. The Lessor agrees that, so long as no Event of Default has occurred and is continuing under this Lease and except as otherwise provided in this Lease, it will not, directly or indirectly, sell, assign, transfer, convey, grant any easement or encumbrance or otherwise dispose of the Project or any portion thereof during the Lease Term, nor will it create or suffer to be created by, through and under it any debt, lien or charge thereon (except the lien or charge for taxes, governmental charges or special assessments) or make any pledge or assignment of or create any lien or encumbrance upon the rents, revenues and receipts derived from the sale, lease or other use or disposition of the Project, other than as provided in Section 11.2 hereof, or as a result of foreclosure by a Lender or by the County Bond Holders on the interest of Lessor mortgaged as described in Section 11.2 or transfer in lieu of such foreclosure, or as approved by the Lessee.
Section 11.4. RELEASE OF PROJECT. The Lessee hereby reserves the right and the Lessor hereby agrees, at any time and from time to time, to amend this Lease to effect the release of and removal from this Lease and the leasehold estate created hereby of any part of or interest in the Project and the conveyance or transfer for Fair Market Value of such part or interest to the Lessee or one of its subsidiaries or to a grantee so long as that grantee is approved by the Lessee and the Lessor which approval shall not be unreasonably withheld or delayed; provided, that such amendment shall not be effective until and unless there are deposited with the Lessor the following:
(a) An executed copy of said amendment.
(b) A certificate of the Authorized Lessee
Representative (i) stating that to his knowledge no Event of
Default exists and the Lessee is not in default under any of the
provisions of this Lease, (ii) giving, if applicable, an adequate
legal description of that portion of the Project to be released,
(iii) stating the purpose for which the release is desired, (iv)
stating that the improvements, if any, to be constructed upon
that portion of the Project to be released are consistent with,
or not inconsistent with, the purposes of the Act, (v) requesting
such release and (vi) approving such amendment.
(c) Evidence of the authority of the officer of the Lessee who executed such amendment.
(d) A certificate of the Chair, the President or a Vice President of the Lessee or an opinion of counsel for the Lessee stating that, to the best of his or her knowledge after due inquiry, the Lessee is not in default under this Lease.
(e) A fully executed counterpart of the instrument conveying or transferring the interest proposed to be released.
(f) A certificate of an Engineer, acceptable to the Lessor, dated not more than sixty days prior to the date of the release and stating that, in the opinion of such Engineer, (i) the release of the portion of the Project so proposed to be released is
necessary or desirable in order to benefit the Project, or such portion is not needed for the operation of the Project, and (ii) the release so proposed to be made will not impair the usefulness of the Project as furthering the Project Purposes, and will not destroy or materially impair means of ingress to and egress from the Project.
(g) An appraisal from an appraiser satisfactory to the Lessee and the Lessor, establishing the Fair Market Value of that portion of the Project to be released.
The Lessor shall execute and deliver such documents as the Lessee may properly request in order to effect any release pursuant to this Section. Any release pursuant to this Section may be made for the purpose of conveying the part or interests released to the Lessee.
Section 11.5. GRANTING EASEMENTS. The Lessee may grant or release, as the case may be, those easements, licenses, rights-of-way or use (including without limitation, the dedication of public highways), party wall rights, rights of lateral support and other rights and privileges in the nature of easements with respect to the Project which may be lawful and which do not unreasonably interfere in the proper and efficient use and operation of the Project and do not materially impair the value of the Project. The Lessee covenants and agrees that it will deliver to the Lessor at least ten days prior to the effectiveness of the executed grant or release (a) a copy of the instrument of grant or release, and (b) a certificate of the Authorized Lessee Representative stating that in his opinion the grant or release (i) will not interfere with the proper and efficient use and operation of the Project for the Project Purposes and (ii) will not destroy or materially impair means of ingress to or egress from the Project or the Project Facilities.
Section 11.6. NO ABATEMENT OR DIMINUTION OF PAYMENTS. No grant, release, removal or conveyance effected under any of the provisions of this Lease shall entitle the Lessee to any abatement or diminution of the Rental Payments or Additional Payments payable hereunder.
Section 11.7. PAYMENT ON RELEASE OR CONVEYANCE. Any grant, release, removal or conveyance under Section 11.4 or 11.5 of this Lease shall be made only for consideration which is equal to or greater than the appraised value or which the Authorized Lessee Representative certifies, and the Lessor acknowledges, is a fair and adequate consideration. Any moneys received as such consideration shall be paid to the Lessor and used by the Lessor for, or made available to the Lessee (which shall promptly deliver a bill of sale or other similar evidence of title to the Lessor) for use for, capital alterations, additions or improvements to the Project or the acquisition of personal property for the Project (which capital alterations, additions or improvements and any such personal property shall become a part of the Project for all purposes of this Lease) thereafter during the Lease term.
Section 11.8. LESSOR TO APPLY LEASE PAYMENTS TO DEBT AMORTIZATION DURING ANY EXTENSION OF LEASE TERM. In the event that Lessee extends the Lease Term pursuant to Section 12.16 of this Lease, Lessor agrees to apply all Rental Payments received during that extension of the Lease Term to the amortization of debt issued by the Cleveland-Cuyahoga County Port Authority to refinance the Project Debt in accordance with the provisions contained in any trust indenture, loan agreement or similar instrument entered into by the Port Authority in connection with that refinancing directing the application of Rental Payments to debt amortization.
(End of Article XI)
ARTICLE XII
MISCELLANEOUS
Section 12.1. QUIET ENJOYMENT. The Lessor covenants with the Lessee that, so long as the Lessee shall have paid all Rental Payments, Additional Payments and other payments due hereunder, as and when due, and performed and observed the other covenants and agreements on its part to be performed and observed hereunder, the Lessee shall and may peaceably and quietly have, hold and enjoy the Project without let or hindrance from any Person whatsoever; provided that from and after delivery of the Assignment of Lease, with respect to the Project Bond Trustee, as assignee or its successors or assigns, such covenant to provide the peaceable and quiet enjoyment of the Project shall be limited to Persons claiming by, through or under the assignee.
Section 12.2. SURRENDER OF PROJECT. Upon the termination or
expiration of this Lease, the Lessee shall surrender peaceably and promptly
possession of the Project, leaving same in good condition and repair (ordinary
wear and tear excepted) and subject to damage, destruction and taking by
eminent domain if the Lessee has elected to terminate this Lease pursuant to
Section 9.1 of this Lease.
Section 12.3. NOTICES. All notices, certificates, requests or other communications hereunder shall be by first-class mail, postage prepaid, courier service, delivery charges prepaid, facsimile transmission (if the sender's system can confirm receipt of the transmission), or delivery addressed to the appropriate Notice Address and deemed effective on receipt, with a duplicate copy of such notice to be provided to any Lessor which shall have requested such notices and provided a Notice Address to the Lessor and the Lessee. The Lessee, the Lessor, and any other person to receive notices as provided in the definitions of Notice Address may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent.
Section 12.4. BINDING EFFECT. This Lease shall inure to the benefit of and shall be binding in accordance with its terms upon the Lessor, the Lessee, the Lenders, the Holders and the County Bond Holders and their respective successors and assigns.
Section 12.5. AMENDMENTS, CHANGES AND MODIFICATIONS. This Lease may not be effectively amended, changed, modified, altered or terminated except in writing signed by both the Lessor and the Lessee.
Section 12.6. EXECUTION COUNTERPARTS. This Lease may be executed in counterpart, and in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument.
Section 12.7. SEVERABILITY. If any provision of this Lease, or any covenant, stipulation, obligation, agreement, act, or action, or part thereof made, assumed, entered into, or taken thereunder or any application thereof, is for any reason held to be illegal or invalid, such illegality or invalidity shall not affect any other provision or any other covenant, stipulation, obligation, agreement, act or action or part thereof, made, assumed, entered into, or taken, each of which shall be construed and enforced as if such illegal or invalid portion were not contained herein. Nor shall such illegality or invalidity of any application thereof affect any legal and valid application thereof, and each such provision, covenant, stipulation, obligation, agreement, act, or action, or part shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law.
Section 12.8. EXTENT OF COVENANTS; NO PERSONAL LIABILITY. All covenants, stipulations, obligations and agreements of the Lessor contained in this Lease shall be effective to the extent authorized and permitted by applicable law. No covenant, stipulation, obligation or agreement contained in this Lease shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future member, officer, agent or employee of the Lessor or the Lessee in other than his official capacity, and neither the members of the Legislative Authority or any director or other officer of the Lessor or the Lessee shall be subject to any personal liability or accountability by reason of the covenants, stipulations, obligations or agreements contained in this Lease or other instruments referred to herein.
Section 12.9. CAPTIONS. The table of contents, captions and headings in this Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Lease.
Section 12.10. GOVERNING LAW. This Lease shall be governed exclusively by and construed in accordance with the laws of the State.
Section 12.11. ESTOPPEL CERTIFICATE. Upon the written request of either the Lessor or the Lessee, as the case may be, the Lessor and the Lessee agree to deliver to the other a statement in writing and certified that this Lease is a true and exact copy of the lease between the parties, that there are no amendments thereto (or stating what amendments there may be and attaching copies thereof), that to the extent the same are true this Lease is in full force and effect, there are no offsets, defenses or counterclaims with respect to the payment of any obligations under the terms of this Lease or under the performance of any other terms, covenants and conditions thereof, that there are no defaults or if there are defaults, setting forth the nature of such defaults, the status of the Rental Payments and other payments due under the terms of this Lease and such other information reasonably requested by the Lessor or the Lessee. The Lessor and the Lessee agree to promptly supply the aforesaid instrument to the other party but no later than ten days after receipt of a written request therefor. The Lessor and the Lessee agree that any statement as aforesaid may be relied upon by any prospective purchaser, mortgagee, assignee, sublessee or any other Person concerning the Project.
Section 12.12. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be deemed or construed by the parties hereto, or by any third party, as creating the relationship of principal and agent, or of partnership or joint venture between the parties hereto, it being understood and agreed that neither the method of computation of Rental Payments or Additional Payments nor any other provision contained in this Lease, nor any acts of the parties to this Lease, shall be deemed to create any relationship between the parties hereto other than the relationship of landlord and tenant.
Section 12.13. ARBITRATION. If any controversy concerning the determination of Fair Market Value ("Controversy") shall arise under this Lease which is not resolved by the parties hereto, at the request of either of the parties hereto, and unless otherwise prohibited by law, such Controversy shall be determined in Cleveland, Ohio by three disinterested arbitrators, one of whom shall be chosen by the Lessor, one by the Lessee and a third by the two so chosen. The arbitrators shall as promptly as possible determine the Fair Market Value. The Lessee shall pay the fees and expenses of that arbitration. Each arbitrator shall have at least 15 years experience in appraising commercial office projects.
The party hereto requesting arbitration, as aforesaid, shall give notice in writing to the other party of such desire, naming therein the arbitrator selected by it. In the event the other party shall fail, within a period of thirty business days after the giving of such notice, to notify the other in writing of the arbitrator selected by it, or in the event the two arbitrators chosen
shall fail, within fifteen business days after their selection, to agree upon the third, or if the arbitrator shall die, resign or become incapable of acting as an arbitrator, then a judge of the Probate Division of the Common Pleas Court of Cuyahoga County, Ohio shall, on request of the party not in default, appoint, within fifteen days after such request, an arbitrator or arbitrators, to fill the place or places remaining vacant.
The Ohio rules of evidence and civil procedure shall apply to any arbitration hereunder. Each side shall be limited in its rights of discovery to discovery permitted by the arbitrators. The decision of any two of the arbitrators in conformity with the foregoing direction shall be final and conclusive upon the parties hereto. The decision of the arbitrators shall be in writing, signed in duplicate by any two of said arbitrators, and a copy shall be delivered to each of the parties hereto. Judgment upon such decision may be entered in any court of competent jurisdiction and shall be specifically enforceable to the full extent permitted by law.
Except as hereinbefore in this Section provided, the rules of the American Arbitration Association (or of any successor thereto) shall apply to any arbitration proceeding hereunder.
Section 12.14. OTHER AGREEMENTS. Nothing herein shall be construed nor is intended to limit or in any manner adversely affect the rights, privileges or remedies afforded to any mortgagee of the Lessor or any other Person under any other agreement executed in connection with the execution and delivery of this Lease and the Project Service Agreement or the issuance of the Bonds and the Notes.
Section 12.15. NO MERGER. The acquisition by Lessee or Lessor, or any other Person, of any greater or lesser estate in the Project or any portion thereof shall in no event result in a merger or extinguishment of the estate created hereby.
Section 12.16. EXTENSION OF LEASE TERM. The Lessee is granted an option to extend the Lease Term for two (2) ten (10) year periods with the first such period commencing March 1, 2016 (the "first extension") and the second March 1, 2026 (the "second extension"). To exercise the option to extend this Lease, the Lessee must notify the Lessor that it is exercising the option, designating the period therein for which the option is exercised, not later than eighteen (18) months prior to the commencement of the period for which the option is exercised. The Rental Payment to be paid on the first business day of each month by the Lessee as rent for the Project during the first extension shall be that amount necessary to amortize, through a refinancing by the Cleveland-Cuyahoga County Port Authority (the "Authority"), the (i) Unamortized Debt (as defined in Section 9(g) of the resolution adopted by the Board of the Authority on March 25, 1996), (ii) deferred interest on the CDP Note (as deferred in the Project Service Agreement), (iii) the Amortized Principal (as defined in the Escrow and Transfer Agreement dated as of March 1, 1996 between the City and the Project Bond Trustee) and (iv) reasonable costs of issuance relating to the refinancing, such refinancing to be repayable over ten years in equal monthly installments of principal and interest and bearing interest at a Fair Market Interest Rate (but not to exceed a rate of 12% per year) plus an Authority fee of not to exceed 1/2 of 1% per year less the monthly amount required to amortize an amount of money equal to the amount, if any, provided by the Lessee under the Guaranty Agreement dated as of March 1, 1996 from the Lessee to the Trustee repayable over ten years in equal monthly installments of principal and interest and bearing interest at a Fair Market Interest Rate (but not to exceed a rate of 12% per year). As used herein, Fair Market Interest Rate means that rate of interest to be borne by the debt ("Debt") issued in connection with the refinancing referred to in the previous sentence which is determined by a reputable investment banking firm selected by the Authority to be a fair market rate of interest for securities of comparable maturity and credit quality as the Debt. The Rental Payment to be paid on the first business day of each month by the Lessee as rent for the Project during the second extension shall be $5.00 per square foot.
(End of Article XII)
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to be duly executed in their respective names, all as of the date hereinbefore written.
Signed and acknowledged in CLEVELAND-CUYAHOGA COUNTY the presence of: PORT AUTHORITY ______________________________ By: _____________________________________ Name: Chair ______________________________ Attest: _________________________________ Name: Secretary (Witnesses as to Lessor) Signed and acknowledged in BEARINGS, INC. the presence of: ______________________________ By: _____________________________________ Name: Vice President ______________________________ By: _____________________________________ Name: Assistant Secretary (Witnesses as to the Lessee) |
Approved as to form:
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
On this ______ day of March, 1996, before me a Notary Public in and for said County and State, personally appeared Reverend Sterling E. Glover and Howard W. Broadbent, Chair of the Board of Directors and Secretary of, the Cleveland-Cuyahoga County Port Authority, respectively, and acknowledged the execution of the foregoing instrument, and that the same is their voluntary act and deed on behalf of said Cleveland-Cuyahoga County Port Authority and the voluntary act and deed of said Cleveland-Cuyahoga County Port Authority.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my official seal on the day and year aforesaid.
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
On this _______ day of March, 1996, before me a Notary Public in and for said County and State, personally appeared Robert C. Stinson and Fred D. Bauer, Vice President and Assistant Secretary, respectively, of Bearings, Inc. the corporation which executed the foregoing instrument, who acknowledged that they did sign said instrument as such officer, for and on behalf of said corporation and by authority granted in its by-laws and by its Board of Directors; that the same is their voluntary act and deed on behalf of said corporation and the voluntary act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my official seal on the day and year aforesaid.
Notary Public
This instrument was prepared by: Richard K. Desmond, Esq.
Squire, Sanders & Dempsey
4900 Society Center
127 Public Square
Cleveland, Ohio 44114-1304
|
EXHIBIT A
[Description of Headquarters Building and Moveable Personal Property]
Exhibit B
PROJECT SITE
The land referred to in this policy is described as follows:
Situated in the City of Cleveland, County of Cuyahoga and State of Ohio and known as being a part of Original Ten Acre Lots Nos. 88, 89 and 90 and bounded and described as follows:
Beginning at a stone monument on the centerline of East 36th Street at a point North 00(Degree) 04' 35" East, 49.50 feet of the intersection of the centerlines of said East 36th Street (60 feet wide) and Euclid Avenue (99 feet wide);
Thence North 89(Degree) 57' 58" West, 30 feet to the principal place of beginning at the intersection of the westerly right of way line of said East 36th Street with the northerly right of way of said Euclid Avenue;
Thence North 89(Degree) 57' 58" West, 776.72 feet along the northerly right of way of said Euclid Avenue to the southeasterly corner of the property conveyed to Midtown Professional Center Partnership by Deed dated August 29, 1988 in Volume 88-4592, Page 31 of Cuyahoga County Records;
Thence North 00(Degree) 11' 39" East, 381.79 feet along the easterly property line of Midtown Professional Center Partnership to the southwesterly corner of the property conveyed to Teamsters Joint Council No. 41 by Deed dated July 16, 1986 in Volume 86-4345, Page 17 of Cuyahoga County Records;
Thence South 89(Degree) 57' 56" East, 161.95 feet along the southerly property line Teamsters Joint Council No. 41 to the southeasterly corner of said property;
Thence North 00(Degree) 10' 42" East, 230.97 feet along the easterly line of said Teamsters Joint Council No. 41 property to the northeasterly corner thereof;
Thence South 83(Degree) 46' 25" East, 486.87 feet along the former southerly right of way line of Chester Avenue (86 feet wide) to the northwesterly corner of the property conveyed to Donna E. Stratton by Deed dated January 24, 1990 in Volume 90-0447, Page 5 of Cuyahoga County Records;
Thence South 00(Degree) 08' 00" West, 225.67 feet along the westerly line of said Donna E. Stratton property to an angle point therein;
Thence South 44(Degree) 53' 25" East, 27.91 feet along the southwesterly line of said Donna E. Stratton property to an angle point therein;
Thence South 89(Degree) 55' 25" East, 65.00 feet along the southerly line of said Donna E. Stratton property to the southeasterly corner thereof;
Thence North 00(Degree) 04' 35" East, 75.00 feet along an easterly line of said Donna E. Stratton property to an angle point therein;
Thence South 89(Degree) 55' 25" East, 45.00 feet along a southerly line of said Donna E. Stratton property to a point on the westerly right of way line of East 36th Street (60 feet wide);
Thence South 00(Degree) 04' 35" West, 389.72 feet along said westerly right of way line of East 36th Street to the principal place of beginning and containing 8.962 acres, more or less, as determined by Ralph C. Tyler, Registered Surveyor No. 4236 State of Ohio, in August 1995, but subject to all legal highways and easements of record.
The basis of bearing of this description is Plat Volume 127, Page 11 of the Cuyahoga County Record of Plats.
EXHIBIT C
Year Amount Year Amount ---- ------ ---- ------ 07/01/97 156,622.28 03/01/2002 161,288.62 08/01/97 156,592.33 04/01/2002 201,633.66 09/01/97 156,562.36 05/01/2002 201,341.79 10/01/97 156,907.40 06/01/2002 201,049.91 11/01/97 156,877.45 07/01/2002 215,853.20 12/01/97 159,816.49 08/01/2002 215,561.32 01/01/98 159,786.35 09/01/2002 215,269.44 02/01/98 159,756.58 10/01/2002 214,977.57 03/01/98 159,726.62 11/01/2002 214,685.70 04/01/98 160,071.65 12/01/2002 214,393.82 05/01/98 160,041.70 01/01/2003 214,101.95 06/01/98 160,011.73 02/01/2003 213,810.08 07/01/98 159,981.79 03/01/2003 213,518.20 08/01/98 159,951.82 04/01/2003 213,226.32 09/01/98 159,921.87 05/01/2003 212,934.44 10/01/98 160,266.91 06/01/2003 212,642.56 11/01/98 160,236.95 07/01/2003 212,350.70 12/01/98 160,206.98 08/01/2003 212,058.82 01/01/99 160,177.04 09/01/2003 216,766.95 02/01/99 160,147.08 10/01/2003 216,442.65 03/01/99 160,117.11 11/01/2003 216,118.36 04/01/99 160,462.16 12/01/2003 215,794.07 05/01/99 160,432.19 01/01/2004 215,469.78 06/01/99 160,402.24 02/01/2004 215,145.49 07/01/99 160,372.29 03/01/2004 214,821.20 08/01/99 160,342.33 04/01/2004 219,496.90 09/01/99 160,312.37 05/01/2004 219,138.89 10/01/99 160,657.41 06/01/2004 218,780.90 11/01/99 160,627.45 07/01/2004 218,422.90 12/01/99 160,597.49 08/01/2004 218,064.90 01/01/2000 160,567.54 09/01/2004 217,706.91 02/01/2000 160,537.57 10/01/2004 217,348.90 03/01/2000 160,507.62 11/01/2004 216,990.89 04/01/2000 160,852.66 12/01/2004 216,632.90 05/01/2000 160,822.69 01/01/2005 216,274.90 06/01/2000 160,792.74 02/01/2005 215,916.90 07/01/2000 160,762.79 03/01/2005 215,558.90 08/01/2000 160,732.83 04/01/2005 215,200.90 09/01/2000 160,702.87 05/01/2005 214,842.89 10/01/2000 161,047.61 06/01/2005 214,484.90 11/01/2000 161,017.95 07/01/2005 219,126.90 12/01/2000 160,987.99 08/01/2005 218,736.49 01/01/2001 160,958.04 09/01/2005 218,346.07 02/01/2001 160,928.08 10/01/2005 217,955.65 03/01/2001 160,898.12 11/01/2005 217,565.24 04/01/2001 161,243.16 12/01/2005 217,174.81 05/01/2001 161,213.20 01/01/2006 216,784.41 06/01/2001 161,183.24 02/01/2006 216,393.99 07/01/2001 161,153.29 03/01/2006 216,003.57 08/01/2001 161,123.33 04/01/2006 215,613.15 09/01/2001 161,093.37 05/01/2006 215,222.73 10/01/2001 161,438.41 06/01/2006 214,832.31 11/01/2001 161,408.45 07/01/2006 214,441.91 12/01/2001 161,378.49 08/01/2006 214,051.49 01/01/2002 161,348.54 09/01/2006 213,661.07 02/01/2002 161,318.58 10/01/2006 213,270.65 |
Year Amount Year Amount ---- ------ ---- ------ 11/01/2006 212,880.23 09/01/2011 218,313.86 12/01/2006 212,489.81 10/01/2011 217,696.40 01/01/2007 212,099.41 11/01/2011 217,078.95 02/01/2007 211,708.99 12/01/2011 216,461.49 03/01/2007 221,318.57 01/01/2012 215,844.02 04/01/2007 220,865.77 02/01/2012 220,226.58 05/01/2007 220,412.98 03/01/2012 219,576.69 06/01/2007 219,960.19 04/01/2012 218,926.81 07/01/2007 219,507.40 05/01/2012 218,276.95 08/01/2007 219,054.61 06/01/2012 217,627.07 09/01/2007 218,601.81 07/01/2012 216,977.10 10/01/2007 218,149.02 08/01/2012 216,327.32 11/01/2007 217,696.24 09/01/2012 215,677.44 12/01/2007 217,243.44 10/01/2012 215,027.56 01/01/2008 216,790.65 11/01/2012 214,377.70 02/01/2008 216,337.86 12/01/2012 213,727.81 03/01/2008 215,885.07 01/01/2013 213,077.93 04/01/2008 215,432.27 02/01/2013 217,428.08 05/01/2008 214,979.48 03/01/2013 216,745.78 06/01/2008 219,526.69 04/01/2013 216,063.48 07/01/2008 219,040.18 05/01/2013 215,381.20 08/01/2008 223,553.69 06/01/2013 214,698.89 09/01/2008 223,034.78 07/01/2013 214,016.60 10/01/2008 222,515.86 08/01/2013 213,334.32 11/01/2008 221,996.94 09/01/2013 212,652.02 12/01/2008 221,478.03 10/01/2013 211,969.73 01/01/2009 220,959.11 11/01/2013 211,287.45 02/01/2009 220,440.19 12/01/2013 210,605.16 03/01/2009 219,921.28 01/01/2014 219,922.86 04/01/2009 219,402.36 02/01/2014 219,174.44 05/01/2009 218,883.44 03/01/2014 218,426.03 06/01/2009 218,364.53 04/01/2014 217,677.61 07/01/2009 217,845.61 05/01/2014 221,929.19 08/01/2009 217,326.69 06/01/2014 221,150.81 09/01/2009 216,807.78 07/01/2014 220,372.45 10/01/2009 216,288.86 08/01/2014 219,594.06 11/01/2009 220,769.94 09/01/2014 218,815.69 12/01/2009 220,218.61 10/01/2014 218,037.32 01/01/2010 219,667.28 11/01/2014 217,258.95 02/01/2010 219,115.94 12/01/2014 221,480.57 03/01/2010 218,564.61 01/01/2015 220,669.78 04/01/2010 218,013.28 02/01/2015 219,858.98 05/01/2010 217,461.95 03/01/2015 219,048.20 06/01/2010 216,910.61 04/01/2015 218,237.40 07/01/2010 216,359.27 05/01/2015 217,426.62 08/01/2010 215,807.95 06/01/2015 216,615.81 09/01/2010 215,256.61 07/01/2015 215,805.03 10/01/2010 214,705.27 08/01/2015 214,994.24 11/01/2010 214,153.94 12/01/2010 213,602.61 01/01/2011 218,051.28 02/01/2011 217,467.54 03/01/2011 216,883.78 04/01/2011 216,300.03 05/01/2011 215,716.28 06/01/2011 215,132.53 07/01/2011 219,548.78 08/01/2011 218,931.33 |
[The first sixty Lease rental payments are subsidized by $1,876,000 of proceeds from a Neighborhood Development Investment Fund loan made by the City of Cleveland to the Cleveland-Cuyahoga County Port Authority. As a result of these subsidies, each of the first sixty rental payments to be made by Bearings is $37,500 lower than the amount shown in Exhibit C.]
EXHIBIT 11 (a)
Computation of Net Income Per Share
(Thousands, except per share amounts)
Year Ended June 30,
1996 1995 1994
------- ------- -------
Average Shares Outstanding
1. Average common shares
outstanding 12,303(A) 11,551(A) 11,319(A)
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 264 197 231
------- ------- -------
3. Adjusted average common
shares outstanding for
fully diluted computation 12,567 11,748 11,550
======= ======= =======
Net Income
4. Net income as reported in
statements of consolidated
income $23,334 $16,909 $12,687
======= ======= =======
Net Income Per Share
5. Net income per average
common share outstanding
(4/1) $ 1.90 $ 1.46 $ 1.12
======= ======= =======
6. Net income per common
share on a fully
dilutive basis (4/3) $ 1.86(B) $ 1.44(B) $ 1.10(B)
======= ======= =======
(A) All per share data have been restated to reflect a three for two stock
split effective December 4, 1995.
(B) Amount is not presented in the statements as the dilutive effect is
less than 3%.
|
EXHIBIT 11 (a)
Nine Months Ended
March 31
1997 1996
------- -------
Average Shares Outstanding
1. Average common shares
outstanding 12,390 12,285
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 337 274
------- -------
3. Adjusted average common
shares outstanding for
fully diluted computation 12,727 12,559
======= =======
Net Income
4. Net income as reported in
statements of consolidated
income $18,163 $15,826
======= =======
Net Income Per Share
5. Net income per average
common share outstanding
(4/1) $ 1.47 $ 1.29
======= =======
6. Net income per common
share on a fully
dilutive basis (4/3) $ 1.43(A) $ 1.26(A)
======= =======
(A) Fully diluted net income per share is not presented as the dilutive
effect is less than 3%.
|
EXHIBIT 11 (b)
Computation of Net Income Per Share
(Unaudited)
Three Months Ended
March 31
1997 1996
---------- ----------
Average Shares Outstanding
1. Average common shares
outstanding 2,095,391 2,095,391
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 0 0
---------- ----------
3. Adjusted average common
shares outstanding for
fully diluted computation 2,095,391 2,095,391
========== ==========
Net Income
4. Net income as reported in
statements of consolidated
income $1,701,708 $1,707,050
========== ==========
Net Income Per Share
5. Net income per average
common share outstanding
(4/1) $ 0.81 $ 0.81
========== ==========
6. Net income per common
share on a fully
dilutive basis (4/3) $ 0.81(A) $ 0.81(A)
========== ==========
(A) Fully diluted net income per share is not presented as the dilutive
effect is less than 3%.
|
EXHIBIT 11 (b)
Year Ended December 31,
1996 1995 1994
---------- ---------- ----------
Average Shares Outstanding
1. Average common shares
outstanding 2,095,391 2,099,669 2,876,146
2. Net additional shares
outstanding assuming stock
options exercised and
proceeds used to purchase
treasury stock 0 0 0
---------- ---------- ----------
3. Adjusted average common
shares outstanding for
fully diluted computation 2,095,391 2,099,669 2,876,146
========== ========== ==========
Net Income
4. Net income as reported in
statements of consolidated
income $5,089,182 $4,214,934 $4,654,878
========== ========== ==========
Net Income Per Share
5. Net income per average
common share outstanding
(4/1) $ 2.43 $ 2.01 $ 1.62
========== ========== ==========
6. Net income per common
share on a fully
dilutive basis (4/3) $ 2.43(A) $ 2.01(A) $ 1.62(A)
========== ========== ==========
(A) Amount is not presented in the statements as the dilutive effect is
less than 3%.
|
Exhibit 21
Applied Industrial Technologies - Dixie, Inc. Tennessee Applied Industrial Technologies - Mainline, Inc. Wisconsin ESI Acquisition Corporation (dba Engineered Sales, Inc.) Ohio Applied Industrial Technologies - GA LP Delaware Applied Industrial Technologies - TN LP Delaware Applied Industrial Technologies - TX LP Delaware Applied Industrial Technologies - PA LLC Pennsylvania The Ohio Ball Bearing Company Ohio Bearings Continental, Inc. Ohio Bearings Sales and Services, Inc. Washington I.C. Acquisition Corp. Ohio |
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the use in this Registration Statement of Applied Industrial Technologies, Inc. on Form S-4 of our report dated August 6, 1996, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Applied Industrial Technologies, Inc., listed in Item 21(b). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
May 23, 1997
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Applied Industrial Technologies Inc. on Form S-4 of our report dated February 10, 1997 (April 29, 1997 as to Note 12) appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Detroit, Michigan
May 23, 1997
Exhibit 24
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
The undersigned, an officer or director of APPLIED INDUSTRIAL TECHNOLOGIES, INC., an Ohio corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Act of 1993, as amended, a Registration Statement on Form S-4 (together with any and all amendments, including post-effective amendments, the "Registration Statement") for the purpose of registering up to 2,300,000 shares of common stock, without par value, of the Company in connection with the merger of INVETECH Company with and into a wholly owned subsidiary of the Company, does hereby constitute and appoint Robert C. Stinson and Fred D. Bauer, and each of them, with full power of substitution and resubstitution, as his or her true and lawful attorney-in-fact, to execute and file on behalf of the undersigned, in his capacity as an officer or director of the Company, the Registration Statement and any and all amendments, exhibits or other documents to be filed with the Commission pertaining to the Registration Statement or the registration contemplated thereby, with full power and authority to do and perform any and all acts and things whatsoever necessary or advisable to be done in connection with the foregoing, as fully as to all intents and purposes as he could do in person, hereby ratifying and approving the acts of said attorneys-in-fact and any of them and any such substitution.
Executed at ________________________, ________, this ___ day of May, 1997.
NAME TITLE DATE
---- ----- ----
Chairman, Chief Executive May ___, 1997
- ------------------------------ Officer and President
John C. Dannemiller
Vice Chairman May ___, 1997
- ------------------------------
John C. Robinson
Vice President-Finance & May ___, 1997
- ------------------------------ Treasurer (Principal
John R. Whitten Financial Officer)
Controller (Principal May ___, 1997
- ------------------------------ Accounting Officer)
Mark O. Eisele
|
/s/ William G. Bares Director May 17, 1997
- ------------------------------
William G. Bares
/s/ William E. Butler Director May 17, 1997
- ------------------------------
William E. Butler
/s/ Russel B. Every Director May 16, 1997
- ------------------------------
Russel B. Every
/s/ L. Thomas Hiltz Director May 19, 1997
- ------------------------------
L. Thomas Hiltz
/s/ Roger D. Blackwell Director May 20, 1997
- ------------------------------
Dr. Roger D. Blackwell
/s/ Russel R. Gifford Director May 19, 1997
- ------------------------------
Russell R. Gifford
/s/ John J. Kahl Director May 17, 1997
- ------------------------------
John J. Kahl
/s/ Jerry Sue Thornton Director May 20, 1997
- ------------------------------
Dr. Jerry Sue Thornton
|
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUN 30 1996 |
| PERIOD END | JUN 30 1996 |
| CASH | 9,243 |
| SECURITIES | 0 |
| RECEIVABLES | 157,924 |
| ALLOWANCES | 2,400 |
| INVENTORY | 127,937 |
| CURRENT ASSETS | 295,138 |
| PP&E | 149,908 |
| DEPRECIATION | 63,574 |
| TOTAL ASSETS | 404,072 |
| CURRENT LIABILITIES | 143,182 |
| BONDS | 62,857 |
| COMMON | 10,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| OTHER SE | 179,292 |
| TOTAL LIABILITY AND EQUITY | 404,072 |
| SALES | 1,143,749 |
| TOTAL REVENUES | 1,143,749 |
| CGS | 848,682 |
| TOTAL COSTS | 848,682 |
| OTHER EXPENSES | 243,663 |
| LOSS PROVISION | 2,123 |
| INTEREST EXPENSE | 8,447 |
| INCOME PRETAX | 40,834 |
| INCOME TAX | 17,500 |
| INCOME CONTINUING | 23,334 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 23,334 |
| EPS PRIMARY | 1.90 |
| EPS DILUTED | 1.86 |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | JUN 30 1997 |
| PERIOD END | MAR 31 1997 |
| CASH | 15,521 |
| SECURITIES | 0 |
| RECEIVABLES | 154,337 |
| ALLOWANCES | 2,002 |
| INVENTORY | 118,172 |
| CURRENT ASSETS | 293,254 |
| PP&E | 153,263 |
| DEPRECIATION | 69,021 |
| TOTAL ASSETS | 397,779 |
| CURRENT LIABILITIES | 129,718 |
| BONDS | 57,143 |
| COMMON | 10,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| OTHER SE | 189,341 |
| TOTAL LIABILITY AND EQUITY | 397,779 |
| SALES | 854,431 |
| TOTAL REVENUES | 854,431 |
| CGS | 630,791 |
| TOTAL COSTS | 630,791 |
| OTHER EXPENSES | 188,167 |
| LOSS PROVISION | 599 |
| INTEREST EXPENSE | 4,134 |
| INCOME PRETAX | 30,740 |
| INCOME TAX | 12,577 |
| INCOME CONTINUING | 18,163 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 18,163 |
| EPS PRIMARY | 1.47 |
| EPS DILUTED | 1.43 |