UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 25, 2011
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
OHIO | 1-2299 | 34-0117420 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
||
One Applied Plaza, Cleveland, Ohio | 44115 | |||
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, Including Area Code: (216) 426-4000.
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a- 12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 5.02 | DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT O F CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS. |
The following events occurred on October 25, 2011:
1. | David L. Pugh, Chairman & Chief Executive Officer of Applied Industrial Technologies, Inc. (Applied), retired on October 25, 2011, at Applieds annual meeting of shareholders. His planned retirement was first reported in a Form 8-K filed on April 27, 2011. |
2. | Applieds Board of Directors elected Neil A. Schrimsher the new Chief Executive Officer. Information regarding Mr. Schrimsher required by Item 5.02(c) of Form 8-K, as well as a copy of his offer of employment, were included with a Form 8-K filed on October 17, 2011. |
3. | The Board of Directors also elected Mr. Schrimsher a director of Class III for a term of three years and a member of the Boards Executive Committee. |
4. | The Boards Executive Organization & Compensation Committee approved various grants, agreements, and plans for Mr. Schrimsher pursuant to his offer of employment. To the extent the grants, agreements, and plans are not materially consistent with previously disclosed forms, they are attached to this Form 8-K as exhibits. |
ITEM 5.07 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
An annual meeting of the shareholders of Applied was held on October 25, 2011. At that meeting, there were 42,377,687 shares of common stock entitled to vote. The shareholders voted on the matters submitted to the meeting as follows (as rounded):
1. | Election of three persons to be directors of Class III for a term of three years: |
Name |
Shares Voted For
Election |
Shares As To Which
Voting Authority Withheld |
Broker
Non-Votes |
|||||||||
Thomas A. Commes |
37,064,995 | 695,523 | 2,644,064 | |||||||||
John F. Meier |
37,041,753 | 718,766 | 2,644,064 | |||||||||
Peter C. Wallace |
36,576,994 | 1,183,524 | 2,644,064 |
The term of David L. Pugh, previously a director of Class III, expired at the meeting. The terms of the Class I directors, including Peter A. Dorsman, J. Michael Moore, and Dr. Jerry Sue Thornton, and the Class II directors, including William G. Bares, L. Thomas Hiltz, and Edith Kelly-Green, continued after the meeting.
2. | A nonbinding advisory vote on the compensation of Applieds named executive officers as described in Applieds proxy statement dated September 9, 2011: |
Shares Voted
|
Shares Voted Against |
Shares Abstained
From Voting |
Broker
Non-Votes |
|||||||||||
36,408,165 | 1,234,662 | 117,691 | 2,644,064 |
3. | A nonbinding advisory vote on the frequency of future votes on the compensation of Applieds named executive officer: |
Shares Voted For Every Year |
Shares Voted
For Every Two Years |
Shares Voted
For Every Three Years |
Shares
Abstained From Voting |
Broker
Non-Votes |
||||||||||||||
33,055,636 | 459,785 | 3,996,058 | 249,039 | 2,644,064 |
After reviewing its recommendation to the shareholders in favor of a frequency of every year, and the results of the vote at the annual meeting of shareholders, the Board of Directors decided on October 25, 2011, to hold a nonbinding advisory vote on the compensation of Applieds named executive officers every year until the next frequency vote of Applieds shareholders. |
4. | Approval of Applieds 2011 Long-Term Performance Plan: |
Shares Voted For |
Shares Voted Against |
Shares Abstained
From Voting |
Broker
Non-Votes |
|||||||||||
36,561,585 | 1,158,673 | 40,260 | 2,644,064 |
5. | Ratification of the Audit Committees appointment of Deloitte & Touche LLP as Applieds independent auditors for the fiscal year ending June 30, 2012. |
Shares Voted For Ratification |
Shares Voted
Against
Ratification |
Shares Abstained From
Voting |
||||||||
39,189,858 | 1,189,356 | 25,367 |
ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
(d) | Exhibits. |
10.1 | General Terms for Annual Incentive Plan for Neil A. Schrimsher |
10.2 | Severance Agreement for Neil A. Schrimsher |
10.3 | Change in Control Agreement for Neil A. Schrimsher |
10.4 | Terms and Conditions for Inducement Restricted Stock Units Award for Neil A. Schrimsher |
10.5 | Terms and Conditions for Inducement Stock Appreciation Rights Award for Neil A. Schrimsher |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. (Registrant) |
||||
By: |
/s/ Fred D. Bauer |
|||
Fred D. Bauer | ||||
Vice President-General Counsel & Secretary | ||||
Date: October 31, 2011 |
EXHIBIT 10.1
General Terms for Annual Incentive Plan for Neil A. Schrmisher
Authority
The annual Incentive Plan for Neil A. Schrimsher (the Plan) is established by the Boards Executive Organization & Compensation Committee (the Committee) under the 2007 Long-Term Performance Plan (the 2007 LTPP).
Objective
The Plans objective is to reward the participant for his contributions toward the achievement of Applieds business goals.
Plan Goals
The Committee shall establish the Plans goals. Notwithstanding the foregoing, in the event of (i) a merger, a consolidation, an acquisition or divestiture, the issuance or repurchase of a substantial amount of capital stock, a reorganization or restructuring, or any other transaction or series of transactions, or (ii) asset write-downs, or litigation or claim judgments or settlements, or foreign exchange gains or losses, or (iii) changes in tax laws, accounting principles, or other laws or provisions affecting reported results, or (iv) other extraordinary nonrecurring items, then the Committee, in its sole discretion, may adjust the Plan goals, in order to prevent diminution or enlargement of the benefits intended to be conferred, in such manner as the Committee determines is equitably required by the changes or events.
Eligibility for Awards
If Plan goals are met, to be eligible for an award under the Plan, a participant must comply with the terms and conditions of the 2007 LTPP. In addition, except as provided in the 2007 LTPP, the participant must be actively employed by Applied on the last day of the fiscal year, except that,
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Participants retiring at age 55 or older under an Applied retirement plan shall be eligible for a prorated award based on date of retirement (calculated using number of quarters and partial quarters Plan participation). |
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Participants who incur a separation from service due to death or disability shall be eligible for a prorated award based on date of separation from service (calculated using number of quarters and partial quarters Plan participation). |
Plan awards are intended to create an incentive for participants to act in Applieds best interests. Notwithstanding anything in these terms to the contrary,
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An award may be terminated or rescinded, and, if applicable, the participant may be required immediately to repay an award issued within the previous six months, if the Committee determines, in good faith, that during the participants employment with Applied or during the period ending six months following the participants separation from service, the participant has committed an act inimical to Applieds interests. Acts inimical to Applieds interest shall include willful inattention to duty; willful violation of Applieds published policies; acts of fraud or dishonesty involving Applieds business; solicitation of Applieds employees, customers or vendors to terminate or alter their relationship with Applied to Applieds detriment; unauthorized use or disclosure of information regarding Applieds business, employees, customers, or vendors; and competition with Applied. All determinations by the Committee shall be effective at the time of the participants act. |
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The Committee may, in its sole discretion, require a participant immediately to repay cash issued pursuant to the award within the previous 36 months (or any proceeds thereof) if (1) Applied restates its historical consolidated financial statements and (2) the Committee determines, in good faith, that (a) the restatement is a result of the participants, or another executive officers, willful misconduct that is unethical or illegal, and (b) the participants earnings pursuant to the award were based on materially inaccurate financial statements or materially inaccurate performance metrics that were invalidated by the restatement. |
The provisions of this section are a fundamental term of the award.
Change in Control
Notwithstanding the foregoing, in the event the participants employment with Applied is terminated during the fiscal year, following any Change in Control of Applied, either by the participant for Good Reason or by Applied Without Cause, then the award shall be deemed to be earned at the target incentive value, prorated based on the number of calendar days elapsed in the fiscal year through the date of termination.
For purposes of this award, Cause shall mean (i) the willful and continued failure by the participant to perform substantially the participants duties with Applied or one of its affiliates (other than for disability or Good Reason), after a written demand for substantial performance is delivered to the participant by the Board or the Chief Executive Officer of Applied which specifically identifies the manner in which the Board or Chief Executive Officer believes that the participant has not substantially performed the participants duties, or (ii) the willful engagement by the participant in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to Applied;
provided, however , that no act or failure to act shall be considered willful unless it is done, or omitted to be done, in bad faith or without the participants reasonable belief that such action or omission was in the best interests of Applied. Any act, or failure to act, based upon authority given the participant pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of Applied or based upon the advice of counsel for Applied shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of Applied. Termination of the participants employment with Applied shall not be deemed to be for Cause unless and until there shall have been delivered to the participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the participant and the participant is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the participant is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
For purposes of this award, Good Reason shall mean (i) a material diminution in the participants authority, duties, or responsibilities, (ii) a material diminution in the authority, duties, or responsibilities of the person to whom the participant reported immediately prior to a Change in Control, (iii) a material diminution by Applied of the annual base salary that was provided to the participant by Applied immediately prior to the Change in Control, (iv) a material change in the geographic location where the participant provides service to Applied, or (v) any failure of any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Applied, by agreement in form and substance satisfactory to the participant, to expressly assume and agree to comply with the terms of this award in the same manner and to the same extent that Applied would be required to perform it if no such succession had taken place; provided further , that, Good Reason shall not have occurred unless the participant gives Applied notice within 90 days of the initial existence of the condition claimed by the participant in good faith to constitute Good Reason and Applied has at least 30 days in which to remedy the condition. For purposes of this award, Good Reason shall not exist if you have given your prior written consent to any of the events that would otherwise constitute Good Reason.
Notwithstanding the definition in the Plan, a Change in Control of Applied shall have occurred for purposes of this award (to the extent this award does not constitute nonqualified deferred compensation within the meaning of Section 409A) when any of the following events shall occur:
(i) Applied is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of Applied immediately prior to such transaction;
(ii) Applied sells all or substantially all of its assets to any other corporation or other legal person, and, immediately after such sale, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of Applied immediately prior to such sale;
(iii) There is a report filed or required to be filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), disclosing that any person (as the term person is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term beneficial owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 30% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of Applied (Voting Stock);
(iv) Applied files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of Applied has occurred pursuant to any then-existing contract or transaction; or
(v) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of Applied cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (v), each director who is first elected, or first nominated for election by Applieds stockholders by a vote of at least two-thirds of the directors of Applied (or a committee thereof) then still in office who were directors of Applied at the beginning of any such period will be deemed to have been a director of Applied at the beginning of such period.
Notwithstanding the foregoing provisions of (iii) or (iv) hereof, unless otherwise determined in a specific case by majority vote of the Board, a Change in Control shall not be deemed to have occurred for purposes of this award solely because (i) Applied, (ii) an entity in which Applied directly or indirectly beneficially owns 50% or more of the voting securities or interest, or (iii) any Applied-sponsored employee stock ownership plan or any other employee benefit plan of Applied, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 30% or otherwise, or because Applied reports that a change in control of Applied has occurred or will occur in the future by reason of such beneficial ownership.
In addition, following a Change in Control of Applied, no provision hereof shall operate to limit any economic benefit to which the participant is entitled under this award or the Plan.
To the extent this award constitutes nonqualified deferred compensation within the meaning of Section 409A, a Change in Control of Applied shall mean a change in the ownership or effective control of Applied or a change in the ownership of a substantial portion of the assets of Applied that constitutes a change in control under Section 409A.
Other
The Committee has the authority to construe the Plan, to establish, amend, and rescind rules and regulations relating to the Plan, and to make all other determinations, in the Committees judgment, necessary or desirable for the Plans administration.
The Committee may correct any defect or supply any omission or reconcile any inconsistency with respect to the Plan in the manner and to the extent it shall deem expedient to carry the Plan into effect. All Committee action under these provisions shall be conclusive for all purposes.
The provisions of these terms and conditions are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
The validity, construction, interpretation, and enforceability of these terms and conditions shall be determined and governed by the laws of the State of Ohio without giving effect to the principles of conflicts of law.
Applied has made no warranties or representations to the participant with respect to the tax consequences (including but not limited to income tax consequences) related to the Plan, and the participant has been advised to consult with the participants attorney, accountant and/or tax advisor regarding the Plan. Moreover, the participant acknowledges that Applied has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for the participant.
(October 2011)
EXHIBIT 10.2
SEVERANCE AGREEMENT
Applied Industrial Technologies, Inc.
One Applied Plaza
Cleveland, Ohio 44115
October 18, 2011
Mr. Neil A. Schrimsher
320 Highgrove Drive
Fayetteville, GA 30215
Dear Neil:
As a material inducement to you joining Applied Industrial Technologies, Inc. (the Company), the parties desire to set forth in this Severance Agreement (the Agreement) their mutual agreements concerning the terms and conditions of any severance benefits in the event your employment with the Company is terminated within a year of the date hereof (the Term), subject to automatic annual renewal each year unless the Company gives you written notice 30 days in advance of expiration of the Term (as the same may be renewed from time-to time) of the Companys election not to renew, as determined in the sole discretion of the Board of Directors of the Company (the Board), including its duly authorized committees.
Nothing herein shall be construed to prevent either you or the Company from terminating your employment at any time, for cause or otherwise, subject only to the specific payment, if any, and other provisions hereinafter set forth in this Agreement.
1. Employment. The Company hereby agrees to employ you, and you agree to serve, as the Companys Chief Executive Officer during the Term (as the same may be renewed), subject to the supervisory powers of the Board. In the event your employment with the Company is terminated, the parties hereby agree that (a) you shall be entitled to severance payments from the Company only to the extent specifically provided for herein and (b) the Companys obligation to make any severance payments to you hereunder shall be conditioned upon your satisfaction of all terms and conditions relating to such payment. Notwithstanding the foregoing, if your employment with the Company is terminated for any reason, you shall be entitled to payment of all compensation and benefits earned and fully vested through your Date of Termination (as hereinafter defined) in accordance with the terms of any plan, agreement or terms and conditions relating to such compensation or benefits and that no such amount shall be deemed to be a severance payment.
2. Severance Payment Amount.
(a) If your employment with the Company is terminated within the Term (as the same may be extended by renewal), either by you for Good Reason or by the Company Without Cause, you shall be entitled to a severance payment equal to (i) your full base salary that would have been payable to you from your Date of Termination through the second anniversary of the date of this Agreement (or the latest renewal date hereof) (the Severance Period), at the highest rate in effect at any time on or after the date of this Agreement and (ii) 100% of your targeted annual incentive payment that would have been payable to you from your Date of Termination through the Severance Period, at the highest rate in effect at any time on or after the date of this Agreement, prorated based on the number of calendar days remaining during the Severance Period. You acknowledge that no severance payment shall be due under this Agreement to the extent you receive or are legally entitled to receive severance payments under any other agreement, plan or arrangement with the Company; provided, however, you may give notice to the Company of your election to decline severance payments hereunder in favor of severance payments under any other agreement, plan or arrangement with the Company or to accept severance payments hereunder and, thereby, decline severance payments under any other agreement, plan or arrangement with the Company.
(b) For purposes of this Agreement the term Without Cause shall mean termination of your employment for reasons other than your death, Retirement, Disability or Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure by you to perform substantially your duties with the Company or one of its affiliates (other than for Disability or Good Reason), after a written demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or
(ii) the willful engagement by you in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to the Company.
For purposes of this Section 2(b), no act or failure to act shall be considered willful unless it is done, or omitted to be done, in bad faith or without your reasonable belief that such action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given you pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company. Termination of your employment with the Company shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail;
(c) | For purposes of this Agreement, Good Reason shall mean: |
(i) a material diminution in your authority, duties, or responsibilities;
(ii) a material diminution in the authority, duties, or responsibilities of the person to whom you reported immediately prior to the Effective Date;
(iii) a material diminution by the Company of your annual base salary that was provided to you by the Company immediately prior to the Effective Date; or
(iv) a material change in the geographic location where you provide service to the Company
provided that, for purposes of this Section 2(c), Good Reason shall be interpreted to comply with Treas. Reg. §1.409A-1(n)(2)(ii) and shall not have occurred unless you give the Company notice within 90 days of the initial existence of the condition claimed by you in good faith to constitute Good Reason and the Company has at least 30 days in which to remedy the condition and provided further that such separation from service occurs no later than six months after one or more of the conditions constituting Good Reason occurs. For purposes of this Agreement, Good Reason shall not exist if you have given your prior written consent to any of the events that would otherwise constitute Good Reason.
(d) For purposes of this Agreement, except in the case of death, your Date of Termination) shall be the earlier of the date specified by either you or the Company in a written notice of termination to the other party hereto or the date that you incur a Separation from Service for purposes of Section 409A of the Internal Revenue Code, as amended, and the regulations issued thereunder (Section 409A).
3. Form and Time of Severance Payment .
(a) | Form of Severance Payment . Any severance payment made hereunder shall be paid in cash in a lump sum payment (or payments) at the time(s) provided in Section 3(b). |
(b) | Time of Payment(s) . |
(i) Specified Employee . In the event that on your Date of Termination you are a specified employee within the meaning of Section 409A (Specified Employee), the portion of your severance payment that does not exceed the amount specified in Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid within the first five business days following your Date of Termination and the remaining portion of your severance payment shall be made on the first day of the seventh calendar month following your Date of Termination. Each payment of your severance payment made hereunder shall be deemed to be a separate payment for purposes of applying the provisions of Section 409A.
(ii) Not Specified Employee . If you are not a Specified Employee on your Date of Termination, the Company will pay the amount described in Section 2(a) hereof within the first five business days following your Date of Termination.
4. No Mitigation Required . You shall not be required to mitigate the amount of any payment or benefit provided for in Section 2(a) by seeking other employment or otherwise.
5. Nonmerger of Restrictive Covenants. Regardless of whether any severance payment is payable to you pursuant to Section 2(a) of this Agreement, as a material inducement to the Company to enter into this Agreement, you specifically acknowledge that the covenants contained in Section 14 of your Offer of Employment executed as of October 14, 2011 (the Offer of Employment) shall survive termination of your employment and that no provision of any plan, agreement, award or other arrangement with the Company that contains covenants of a similar subject matter shall be deemed to amend, modify or terminate said covenants, except and solely to the extent specifically provided for by reference to such Section and Offer of Employment. In the event more than one plan, agreement, award or other arrangement with the Company contains covenants of a similar subject matter to those set forth in Section 14 of the Offer of Employment, the most favorable provisions to the Company of each such covenant, taken as a whole, shall govern.
6. Release of All Claims. The Companys obligation to make any payment under Section 2(a) of this Agreement shall be conditioned upon your delivering, in a form reasonably satisfactory to the Company, a release of all claims or causes of action that may have arisen out of your employment or the termination of his employment, any transaction, or any state of facts existing on or prior to the Date of Termination, including, but not limited to, any and all claims and causes of action arising under any severance plan, policy, or practice of the Company, against the Company or any of its affiliates, subsidiaries, successors, assigns, shareholders, employees, insurers, officers, directors, or agents, be they common law or statutory, legal or equitable, in contract or tort including claims under Title VII of the Civil Rights Act of 1964, the Vietnam Era Veterans Readjustment Assistance Act of 1974, the Uniformed Services Employment and Reemployment Rights Act, the Age Discrimination in Employment Act, the Fair Labor Standards, Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act of 1974, the Americans With Disabilities Act, and the fair employment practices acts and all other employment laws of the various states arising out of or relating in any way to your employment with the Company or the termination of that employment.
7. 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.
8. 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. 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. Except as otherwise provided herein, this Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof and 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. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to its conflict of laws provisions.
9. 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.
10. 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.
11. Jurisdiction . In the event of any dispute or controversy arising under or in connection with this Agreement, you and the Company hereby irrevocably consent to the jurisdiction of the Common Pleas Court of the State of Ohio (Cuyahoga County) or the United States District Court for the Northern District of Ohio.
12. Non-Alienation . No benefit under this Agreement shall at any time be subject in any manner to alienation or encumbrance. If you attempt to, or shall, alienate or in any way encumber your rights or benefits under the Agreement, 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 you, your 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.
13. Taxes . The Company (or any agent of the Company) shall report all income required to be reported, and withhold from any payment under the Agreement the amount of withholding taxes due, in the opinion of the Company, in respect of such income or payment and shall take any other action as may be necessary, in the opinion of the Company, to satisfy all obligations for the reporting of such income and payment of such taxes. Except as specifically provided herein, the Company shall not be held liable for any taxes, penalties, interest, or other monetary amounts owed by a Participant or other person, including any taxes, penalties, and/or interest under Section 409A, as a result of the payment or deferral of any amounts under the Agreement. Although the Company shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest under Section 409A, tax treatment of any payment under this Agreement is not warranted or guaranteed. The obligation of the Company shall constitute 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.
[The balance of this page has been left blank intentionally]
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.
Very truly yours, | ||
APPLIED INDUSTRIAL TECHNOLOGIES, INC. | ||
By: /s/ Fred D. Bauer, Vice President | ||
Date: October 25, 2011 |
ACCEPTED AND AGREED TO: |
/s/ Neil A. Schrimsher |
NEIL A. SCHRIMSHER |
EXHIBIT 10.3
CHANGE IN CONTROL AGREEMENT
Applied Industrial Technologies, Inc.
One Applied Plaza
Cleveland, Ohio 44115
October 25, 2011
Mr. Neil Schrimsher
320 Highgrove Drive
Fayetteville, GA 30215
Dear Neil:
Applied Industrial Technologies, Inc. (the Company) considers it essential to the best interest of the Company and its shareholders that the Companys management be encouraged to remain with the Company and to continue to devote their full attention to the Companys business. The Company recognizes that the possibility of a change in control of the Company 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 Companys 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 Companys management, including you, 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 termination of your employment in conjunction with a Change in Control of the Company (as defined in Section 2 hereof), this letter agreement (Agreement) sets forth the severance benefits that the 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 either by you for Good Reason or by the Company Without Cause (both as defined in Section 3 hereof). In the event that a change in control of the Company does not occur, 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 set forth in this Agreement in the event that a Change in Control of the Company occurs 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 that has been authorized or ratified by the Board.
1. Continued Employment . The parties agree that you have advised the Company that, in consideration of, among other things, the Companys 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.
2. Change in Control . No benefits shall be payable hereunder unless a Change in Control occurs and your employment with the Company is terminated within two years thereafter either by you for Good Reason or by the Company Without Cause. This Agreement is not intended to apply to termination of your employment by reason of Death, Disability or Retirement (as defined in Section 3 hereof). For purposes of this Agreement, a Change in Control of the Company shall mean:
(a) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction;
(b) The Company sells all or substantially all of its assets to any other corporation or other legal person, and, immediately after such sale, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale;
(c) There is a report filed or required to be filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), disclosing that any person (as the term person is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term beneficial owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 30% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company (Voting Stock);
(d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred or will occur in the future pursuant to any then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals who at the beginning of any such period are the directors of the Company cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this subparagraph (e), each director who is first elected, or first nominated for election by the Companys shareholders, by a vote of at least two-thirds of the directors of the Company (or a committee thereof) then still in
office who were directors of the Company at the beginning of any such period will be deemed to have been a director of the Company at the beginning of such period.
Notwithstanding the events specified in subparagraphs (c) and (d) above, unless otherwise determined in a specific case by majority vote of the Board, a Change in Control shall not be deemed to have occurred solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities or interest, or (iii) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 30% or otherwise, or because the Company reports that a change in control of the Company has occurred or will occur in the future by reason of such beneficial ownership.
The first date upon which a Change in Control takes place shall be known as the Effective Date. Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and if your employment with the Company is terminated prior to the date on which the Change in Control occurs, and if it is reasonably demonstrated by you that such termination (i) was at the request of a third party who had taken steps reasonably calculated to effect a Change in Control or (ii) was by the Company and arose with or in anticipation of a Change in Control, then for all purposes of this Agreement, your employment shall be deemed to have been terminated by the Company Without Cause under Section 3(f) of this Agreement and the Effective Date shall mean the date immediately prior to the Date of Termination (as defined in Section 3 hereof).
3. Termination of Employment . Your employment with the Company shall or may be terminated, as the case may be, for any of the following reasons; provided that in each case such termination of employment constitutes a separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the Code), and the regulations issued thereunder (Separation from Service):
(a) Death . Termination of your employment with the Company due to your death;
(b) Retirement . Termination of your employment with the Company at or after the attainment of age sixty-five (65);
(c) Disability . Termination of your employment with the Company either by you or the Company after you are physically or mentally incapacitated for a period of one hundred eighty (180) consecutive days such that you cannot substantially perform your duties of employment with the Company on a full-time basis;
(d) Cause . Termination of your employment with the Company at any time for Cause. For purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure by you to perform substantially your duties with the Company or one of its affiliates (other than for Disability or Good
Reason), after a written demand for substantial performance is delivered to you by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that you have not substantially performed your duties, or
(ii) the willful engagement by you in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to the Company.
For purposes of this Section 3(d), no act or failure to act shall be considered willful unless it is done, or omitted to be done, in bad faith or without your reasonable belief that such action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given you pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company. Termination of your employment with the Company shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail;
(e)(A) 409A Good Reason . You may separate from service with the Company for 409A Good Reason, provided that the notice and cure requirements set forth below are satisfied and provided further that such separation from service occurs no later than two years after one or more of the conditions constituting 409A Good Reason occurs. For purposes of this Agreement, 409A Good Reason shall mean:
(i) a material diminution in your authority, duties, or responsibilities;
(ii) a material diminution in the authority, duties, or responsibilities of the person to whom you reported immediately prior to the Effective Date;
(iii) a material diminution by the Company of your annual base salary that was provided to you by the Company immediately prior to the Effective Date;
(iv) a material change in the geographic location where you provide service to the Company; or
(v) any failure by the Company to comply with and satisfy Section 11 of this Agreement;
provided that, for purposes of this Section 3(e), 409A Good Reason shall not have occurred unless you give the Company notice within 90 days of the initial existence of the condition
claimed by you in good faith to constitute 409A Good Reason and the Company has at least 30 days in which to remedy the condition.
(B) Other Good Reason . You may terminate your employment with the Company for Other Good Reason. For purposes of this Agreement, Other Good Reason shall mean:
(i) the assignment of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;
(ii) any failure by the Company to continue to provide you with an annual base salary, employee benefits and an opportunity to earn incentive and bonus compensation equal or greater to that which was provided to you by the Company immediately prior to the Effective Date other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after the receipt of notice thereof given by you;
(iii) the Companys requiring you to be based at or generally work from any location other than the location that you were based at or generally worked from prior to the Effective Date or the Companys requiring you to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or
(iv) any failure by the Company to comply with and satisfy Section 11 of this Agreement.
For purposes of this Section 3(e)(B), your good faith determination of Other Good Reason shall be conclusive . You shall specify in your notice of separation from service with the Company under Section 3(e)(A) or termination of employment under Section 3(e)(B) whether your separation or termination is for 409A Good Reason or Other Good Reason. If you fail to specify whether your notice is given pursuant to Section 3(e)(A) or Section 3(e)(B), the Company will presume that the notice is given pursuant to Section 3(e)(B). Collectively, 409A Good Reason and Other Good Reason may be collectively referred to herein as Good Reason. For purposes of this Agreement, Good Reason shall not exist if you have given your prior written consent to any of the events that would otherwise constitute Good Reason.
(f) Without Cause . The Company may terminate your employment with the Company Without Cause. For purposes of this Agreement the term Without Cause shall mean termination of your employment for reasons other than for Death, Retirement, Disability or Cause. Notwithstanding any provision herein to the contrary, if, at any time prior to a Change in Control of the Company, you receive notice from the Company that you will be terminated Without Cause and will receive severance benefits under another arrangement between you and the Company, no benefits shall be payable to you hereunder.
(g) Date of Termination . Except in the case of Death, termination of your employment shall be effective as of the earlier of the date specified by either you or the Company in a written notice of termination (Notice of Termination) to the other party hereto or the date that you incur a Separation from Service (hereinafter referred to as the Date of Termination).
4. Severance Pay .
(a) Amount of Severance Pay . If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then in addition to all other benefits which you have earned prior to such termination or to which you are otherwise entitled, the Company shall pay to you the following amounts:
(i) (A) your full base salary earned through the Date of Termination at the rate in effect ten days prior to the date Notice of Termination is given, to the extent not theretofore paid and (B) 100% of your targeted annual incentive payment for the Companys fiscal year during which your Date of Termination occurs, prorated based on the number of calendar days elapsed in such fiscal year through the Date of Termination;
(ii) an amount equal to the product of (1) the higher of your annual base salary in effect prior to the Effective Date or your annual base salary at the highest rate in effect at any time since any Change in Control of the Company (including any annual base salary amounts deferred under any non-qualified deferred compensation program of the Company and any elective contributions of annual base salary that are made by or on behalf of you under any plan maintained by the Company that are not includible in gross income under Section 125 or 402(e) (3) of the Internal Revenue Code of 1986, as amended, but excluding moving or educational reimbursement expenses, amounts realized from the exercise of any stock options or stock appreciation rights (SARs), and imputed income attributable to any fringe benefit) and (2) the lesser of the number three 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 the age sixty-five and the denominator of which is twelve;
(iii) in lieu of annual incentive compensation, commissions, and bonuses that would otherwise be payable, an amount equal to the product of (1) your target annual incentive compensation, commissions, and bonuses (excluding amounts realized from the exercise of any stock options or SARs), based on the deemed achievement of performance goals at the 100% level, for the then-current fiscal year of the Company and (2) the lesser of the number three 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 the age sixty-five and the denominator of which is twelve; and
(iv) in lieu of either shares of Common Stock of the Company, without par value (Company Shares) issuable upon exercise of options (Options) and Company Shares issuable pursuant to any SARs, if any, granted to you under any Company stock option or equity incentive plan (which Options or SARs 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 and the aggregate value of such SARs that are outstanding and held by you that are then fully vested or exercisable and the mean of the high and low trading prices of Company Shares on the New York Stock Exchange on the Date of Termination;
provided, however, in the event it is determined 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 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 in lieu of such Payments, you shall be entitled to elect to receive the greatest amount of Payments to which you are entitled without triggering the Excise Tax and Applied will reasonably cooperate with you in designating those particular types of Payments (e.g., welfare benefits, cash compensation, or outplacement benefits) that shall be paid and those that shall be forfeited or rescinded so as to avoid triggering the Excise Tax.
(b) Form of Severance Payment . Severance amounts hereunder shall be paid in cash in a lump sum payment (or payments) at the time(s) provided in Section 4(c).
(c) Time of Payment(s) .
(i) Specified Employee . If at the Date of Termination you are a specified employee within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder (Specified Employee), no payment shall be made hereunder prior to the first day that is six months after the Date of Termination; provided that the Specified Employee six-month delay under this Section 4(c)(i) shall be effective only to the extent that payment would constitute nonqualified deferred compensation under Section 409A of the Internal Revenue Code, as amended, and the regulations issued thereunder (Section 409A). Any lump sum payment that is subject to the Specified Employee six-month delay shall be paid within the first five business days after the expiration of such six-month delay. Any amount that is not nonqualified deferred compensation under Section 409A shall be paid within the first five business days after the Date of Termination. Notwithstanding any other provision of this Section 4(c)(i), any payment under paragraph (iii) of Section 4(a) shall not be paid before the later of (1) the first five business days after the Date of Termination, or (2) the expiration of the Specified Employee six-month delay, if applicable.
(ii) Not Specified Employee . If you are not a Specified Employee at the Date of Termination, the Company will pay the amounts described in Section 4(a) hereof within the first five business days following the Date of Termination.
(d) No Age or Service Credit. You shall not be entitled to any additional age or service credits under any of the Companys employee benefit or retirement plans for any period after the Date of Termination of your employment.
5. Welfare Benefit Plans .
(a) If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then, in all cases subject to Sections 5(b) and 5(c), the Company shall maintain in full force and effect, for the continued benefit of you and your dependents, medical-related employee benefit plans, programs and arrangements in which you were entitled to participate immediately prior to the Date of Termination for the lesser of (i) three years from the Date of Termination or (ii) that number of years equal to a fraction (A) 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 the age sixty-five and (B) the denominator of which is twelve; provided that your continued participation is possible under the general terms and provisions of such welfare plans, programs and arrangements. In the event that your participation in any such welfare 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.
(b) Notwithstanding the provisions of Section 5(a), to the extent that any welfare benefits involve reimbursements or in-kind benefits:
(i) The amount of expenses eligible for reimbursement and the provision of in-kind benefits during any calendar year shall not affect the amount of expenses eligible for reimbursement or the provision of in-kind benefits in any other calendar year;
(ii) The reimbursement of an eligible expense shall be made on or before December 31 of the calendar year following the calendar year in which the expense was incurred; and
(iii) The right to reimbursement or right to in-kind benefit shall not be subject to liquidation or exchange for another benefit.
(c) Notwithstanding the provisions of Section 5(a), if at the Date of Termination you are a Specified Employee, no benefits shall be provided hereunder prior to the first day that is six months after the Date of Termination; provided that the Specified Employee six-month delay under this Section 5(c) shall be effective only to the extent that benefits would constitute
nonqualified deferred compensation under Section 409A. Any benefits subject to the Specified Employee six-month delay shall commence within the first five business days after the expiration of such six-month delay. Any benefits that are not nonqualified deferred compensation under Section 409A or not subject to the Specified Employee six-month delay shall commence within the first business day after the Date of Termination.
6. Outplacement Services . If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then the Company shall provide you reasonable outplacement services for a period of up to one year of a nature customarily provided at your executive officer level.
7. No Mitigation Required . You shall not be required to mitigate the amount of any payment or benefit provided for in Section 4 or 5 by seeking other employment or otherwise. Notwithstanding the foregoing, benefits otherwise receivable under Section 5 of this Agreement shall be reduced to the extent that and for any period during which you receive substantially similar benefits from another employer.
8. Noncompetition, Nonsolicitation and Nondisparagement . If a Change in Control occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, and you are receiving payments from the Company pursuant to this Agreement, then for a period of three years from the Date of Termination of your employment you agree that without the written consent of the Company, you will not, either directly or indirectly, (a) engage in, make any investment in, advise, assist or render any services to any person or entity in competition with the business of the Company or its subsidiaries, (b) solicit for employment or hire any individual who was employed by the Company or its subsidiaries at any time on or after that date which is six (6) months prior to the Date of Termination of your employment, or directly or indirectly, entice, solicit or seek to induce or influence any such individual to leave his or her employment, or (c) disparage the Company or its subsidiaries, or any of their respective directors, officers or associates, either publicly or privately, or otherwise make statements that cast any of the Company or its subsidiaries, or any of their respective directors, officers or associates, in an unfavorable light. Notwithstanding the foregoing, you may own less than one percent of the combined voting power of all issued and outstanding voting securities of any publicly held corporation whose stock is traded on a major stock exchange.
9. Confidential Information . You hereby agree that you shall not at any time (whether employed by the Company or not), either directly or indirectly, disclose or make known to any person or entity any confidential information, trade secret, or proprietary information that you acquired during the course of your employment with the Company which shall not have become public knowledge (other than by your actions in violation of this Agreement). You further agree that upon the termination of your employment with the Company or at any time upon the request of the Company you shall deliver to the Company any and all literature, documents, correspondence, and other materials and records furnished to or acquired by you from the Company during the course of your employment with the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement.
10. Security . To secure payment of the benefits herein provided for, the Company agrees to maintain in the Companys name an irrevocable escrow account in the form of an unfunded rabbi trust (the Escrow Account) at a national bank that is (a) a legal business entity organized and doing business under the laws of the United States or any State thereof, in good standing, having an office in the State of Ohio, that is authorized under such laws to exercise corporate trust powers and that has at the time of its appointment a combined capital and surplus of at least One Billion Dollars ($1,000,000,000) or (b) an affiliate of a national bank described in clause (a) of this sentence (the Bank), and to keep on deposit in the Escrow Account cash, securities or property with a fair market value, 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 three times your annualized Base Compensation (defined as your annual base salary and your target annual incentive compensation (based on achievement of performance goals at the 100% level)), 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 Companys 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. Unless and until such a Change in Control shall have occurred, however, the Company shall only be obliged to maintain on deposit in the Escrow Account 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 the Company shall certify in good faith 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 by the Company in good faith to the Bank or in a final settlement or judgment relating to this Agreement.
11. Successors, Binding Agreement . The Company shall 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 substance 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 that constitutes a Change in Control shall be a breach of this Agreement and shall entitle you to compensation from the Company, upon a termination by you for Other Good Reason in accordance with Section 3(e)(B), in the same amount and on the same terms as you would be entitled hereunder under Section 4. 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 Section 11 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 devisees, legatees, or other designee or, if there be no such designee, to your estate within 90 days of your death; provided that where such 90-day period begins in one calendar year and
ends in another calendar year, your devisees, legatees, other designee, or estate shall not be entitled to designate the taxable year of payment.
12. 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.
13. 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.
14. 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 any time prior to a Change in Control, so long as such termination is not done in anticipation of or in connection with a Change in Control. 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, without giving effect to its conflict of laws provisions.
15. 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.
16. 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.
17. Jurisdiction . In the event of any dispute or controversy arising under or in connection with this Agreement, you and the Company hereby irrevocably consent to the jurisdiction of the Common
Pleas Court of the State of Ohio (Cuyahoga County) or the United States District Court for the Northern District of Ohio.
18. Legal Fees and Expenses .
(a) 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, other legal action or negotiation to resolve any disputes 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, other legal action or negotiation to resolve any disputes whether by or against the Company or any director, officer, shareholder 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 also 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 Companys failure to perform this Agreement or any provision hereof (including this Section 18) or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision hereof.
(b) The payment or reimbursement of fees and expenses under this Section 18 shall be subject to the following conditions:
(i) You must incur any expense authorized by this Section 18 no later than three years after the Date of Termination;
(ii) The amount eligible for reimbursement and the provision of in-kind benefits during any calendar year shall not affect the amount eligible for reimbursement or the provision of in-kind benefits in any other calendar year;
(iii) The reimbursement of an eligible expense shall be made on or before December 31 of the calendar year following the calendar year in which the expense was incurred; and
(iv) The right to reimbursement or right to in-kind benefit shall not be subject to liquidation or exchange for another benefit.
(c) Notwithstanding the provisions of this Section 18, if at the Date of Termination you are a Specified Employee, no payment or reimbursement shall be provided under Section 18
prior to the first day that is six months after the Date of Termination; provided that the Specified Employee six-month delay under this Section 18 shall be effective only to the extent that payment or reimbursement would constitute nonqualified deferred compensation under Section 409A. Any payment or reimbursement otherwise due under this Section 18 and subject to the Specified Employee six-month delay shall commence within the first five business days after the expiration of such six-month delay. Any payment or reimbursement that is not nonqualified deferred compensation under Section 409A or not subject to the Specified Employee six-month delay shall be paid or reimbursed as otherwise provided herein.
19. Non-Alienation . No benefit under this Agreement shall at any time be subject in any manner to alienation or encumbrance. If you attempt to, or shall, alienate or in any way encumber your rights or benefits under the Agreement, 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 you, your 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.
20. Taxes . The Company (or any agent of the Company) shall report all income required to be reported, and withhold from any payment under the Agreement the amount of withholding taxes due, in the opinion of the Company, in respect of such income or payment and shall take any other action as may be necessary, in the opinion of the Company, to satisfy all obligations for the reporting of such income and payment of such taxes. Except as specifically provided herein, the Company shall not be held liable for any taxes, penalties, interest, or other monetary amounts owed by a Participant or other person, including any taxes, penalties, and/or interest under Section 409A, as a result of the payment or deferral of any amounts under the Agreement. Although the Company shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest under Section 409A, tax treatment of payment under this Agreement is not warranted or guaranteed.
21. This Agreement is intended to be treated as an unfunded deferred compensation arrangement under the Code. The obligation of the Company shall constitute 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.
[The balance of this page has been left blank intentionally]
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.
Very truly yours, | ||
APPLIED INDUSTRIAL TECHNOLOGIES, INC. | ||
By : /s/ Fred D. Bauer, Vice President | ||
Date: October 25, 2011 | ||
ACCEPTED AND AGREED TO: |
||
/s/ Neil Schrimsher |
||
NEIL SCHRIMSHER |
EXHIBIT 10.4
Restricted Stock Units Terms and Conditions
1. Award of Restricted Stock Units . The Executive Organization & Compensation Committee (the Committee) of the Board of Directors of Applied Industrial Technologies, Inc. (Applied) on the Grant Date awarded you a certain number of restricted stock units (the RSUs). Such award represents your right to receive an equal number of shares of Applied common stock (Shares), upon the expiration of the Restriction Period (as defined in Section 3 hereof). The terms and conditions of the RSUs as set forth herein (the Terms) together with the Applied Industrial Technologies, Inc. 2007 Long-Term Performance Plan (the Plan) govern your rights with respect to the RSUs. Notwithstanding the foregoing, however, in the event of any conflict between the provisions of the Plan and the Terms, the provisions of the Plan shall govern. Moreover, it should be noted that unless otherwise provided herein, capitalized words in the Terms shall have the same meanings as set forth in the Plan.
2. Rights during Restriction Period . You shall not have the right to sell, exchange, transfer, pledge, hypothecate, or otherwise encumber or dispose of the RSUs until all conditions with respect to vesting and distribution have been met. Nevertheless, during the Restriction Period and so long as no forfeiture has occurred, you shall be entitled to receive cash payments equal to the dividends and cash distributions paid on Shares underlying the RSUs (Dividend Equivalents) to the same extent and on the same date as if each RSU were a Share; provided, however, that no Dividend Equivalents shall be payable to you with respect to dividends or distributions the record date for which occurs on or after (i) the date on which a forfeiture of the RSUs has occurred, (ii) the date on which the Restriction Period has expired, or (iii) the date on which issuance of Shares to you has occurred. You shall not have voting rights with respect to the RSUs and, until the issuance of Shares in settlement of the RSUs, you shall not be treated as a shareholder with respect to the Shares.
3. Restriction Period . The term Restriction Period means the earlier of (a)(i) with respect to one-third of the RSUs awarded to you hereunder, the period from the Grant Date until the 1 st annual anniversary of the Grant Date, (ii) with respect to an additional one-third of the RSUs awarded to you hereunder, the period from the Grant Date until the 2 nd annual anniversary of the Grant Date, and (iii) with respect to the final one-third of the RSUs awarded to you hereunder, the period from the Grant Date until the 3 rd annual anniversary of the Grant Date or (b) with respect to 100% of the RSUs awarded to you hereunder, the period from the Grant Date to the date that your employment with Applied is terminated, either by you for Good Reason (as hereinafter defined but, for purposes of this section, after eliminating references in such definition to immediately prior to a Change in Control) or by the Company Without Cause. The term Without Cause shall mean termination of your employment by Applied for reasons other than your death, Retirement, Disability or Cause (each, as hereinafter defined).
4. Vesting . Except as specifically provided otherwise in Sections 5 and 6, you will be vested in the applicable percentage of the RSUs granted to you hereunder as of the end of the applicable Restriction Period; provided, however, that in the event you incur a Separation from Service during the Restriction Period after attaining age 55 and completing at least ten years of service with Applied, you will be
vested at the end of the Restriction Period in a pro rata portion of the RSUs equal to a fraction the numerator of which is the number of fiscal quarters (including a portion of a quarter) elapsed in the Restriction Period prior to the date of such Separation from Service and the denominator of which is twelve.
5. Separation from Service . Notwithstanding the provisions of Section 4, but subject to the provisions of paragraphs (a) and (b) hereunder, if, during any Restriction Period, you incur a Separation from Service (as defined in Section 409A) from Applied due to death or Disability (as defined under Section 409A) then (i) you (or your beneficiary designated to Applied in writing) shall be vested in 100% of the RSUs awarded to you hereunder. In the event, however, that you, during the Restriction Period, incur a Separation from Service from Applied for any reason other than (i) those specifically set forth above or in Section 6, or (ii) termination after attaining age 55 and completing at least ten years of service with Applied, then the portion of the award of RSUs hereunder still subject to a Restriction Period shall be forfeited and no amount shall be due or payable to you under the Terms.
Because awards of RSUs are intended to create an incentive for recipients to act in Applieds best interests, notwithstanding anything in the Terms to the contrary:
(a) Your award of RSUs may be terminated or rescinded, and if applicable, you may be required immediately to repay all Shares (and any dividends, distributions, and Dividend Equivalents thereon) issued pursuant to the award of RSUs hereunder within the previous six months (or any proceeds thereof), if the Committee determines, in good faith, that during your employment with Applied or during the period ending six months following the your Separation from Service, you committed an act inimical to Applieds interests. Acts inimical to Applieds interest shall include willful inattention to duty; willful violation of Applieds published policies; acts of fraud or dishonesty involving Applieds business; solicitation of Applieds employees, customers, or vendors to terminate or alter their relationship with Applied to Applieds detriment; unauthorized use or disclosure of information regarding Applieds business, employees, customers, or vendors; and competition with Applied. All determinations by the Committee shall be effective as of the time of your act.
(b) The Committee may, in its sole discretion, require you immediately to repay all Shares (and any dividends, distributions, and Dividend Equivalents thereon) issued pursuant to the award of RSUs hereunder within the previous 36 months (or any proceeds thereof) if (I) Applied restates its historical consolidated financial statements and (II) the Committee determines, in good faith, that (x) the restatement is a result of your, or another executive officers, willful misconduct that is unethical or illegal, and (y) your earnings pursuant to the award were based on materially inaccurate financial statements or materially inaccurate performance metrics that were invalidated by the restatement.
6. Change in Control . Notwithstanding the provisions of Sections 4 and 5, in the event your employment with Applied is terminated during the Restriction Period and within the two year period immediately following any Change in Control of Applied either by you for Good Reason or by Applied Without Cause, then all of the RSUs awarded hereunder to you shall be 100% vested.
For purposes of the RSUs, Cause shall mean (i) the willful and continued failure by you to perform substantially your duties with Applied or one of its affiliates (other than for Disability or Good Reason), after a written demand for substantial performance is delivered to you by the Board or the Chief Executive Officer of Applied which specifically identifies the manner in which the Board or Chief Executive Officer believes that you have not substantially performed your duties, or (ii) the willful engagement by you in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to Applied; provided, however , that no act or failure to act shall be considered willful unless it is done, or omitted to be done, in bad faith or without your reasonable belief that such action or omission was in the best interests of Applied. Any act, or failure to act, based upon authority given you pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior officer of Applied or based upon the advice of counsel for Applied shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of Applied. Termination of your employment with Applied shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
For purposes of the RSUs, Good Reason shall mean a separation from service that occurs no later than two years after (i) a material diminution in your authority, duties, or responsibilities, (ii) a material diminution in the authority, duties, or responsibilities of the person to whom you reported immediately prior to a Change in Control, (iii) a material diminution by Applied of your annual base salary that was provided to you by Applied immediately prior to the Change in Control, (iv) a material change in the geographic location where you provide service to Applied, or (v) any failure of any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Applied, by agreement in form and substance satisfactory to you, to expressly assume and agree to comply with these Terms in the same manner and to the same extent that Applied would be required to perform it if no such succession had taken place; provided further , that, Good Reason shall not have occurred unless you give Applied notice within 90 days of the initial existence of the condition claimed by you in good faith to constitute Good Reason and Applied has at least 30 days in which to remedy the condition. For purposes of this Agreement, Good Reason shall not exist if you have given your prior written consent to any of the events that would otherwise constitute Good Reason.
Notwithstanding the definition in the Plan, a Change in Control of Applied shall have occurred for purposes of the RSUs (to the extent the RSUs do not constitute nonqualified deferred compensation within the meaning of Section 409A) when any of the following events shall occur:
(i) Applied is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of Applied immediately prior to such transaction;
(ii) Applied sells all or substantially all of its assets to any other corporation or other legal person, and, immediately after such sale, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of Applied immediately prior to such sale;
(iii) There is a report filed or required to be filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), disclosing that any person (as the term person is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term beneficial owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 30% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of Applied (Voting Stock);
(iv) Applied files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a change in control of Applied has occurred pursuant to any then-existing contract or transaction; or
(v) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of Applied cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (v), each director who is first elected, or first nominated for election by Applieds stockholders by a vote of at least two-thirds of the directors of Applied (or a committee thereof) then still in office who were directors of Applied at the beginning of any such period will be deemed to have been a director of Applied at the beginning of such period.
Notwithstanding the foregoing provisions of (iii) or (iv) hereof, unless otherwise determined in a specific case by majority vote of the Board, a Change in Control shall not be deemed to have occurred for purposes of this Award solely because (i) Applied, (ii) an entity in which Applied directly or indirectly beneficially owns 50% or more of the voting securities or interest, or (iii) any Applied-sponsored employee stock ownership plan or any other employee benefit plan of Applied, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 30% or otherwise, or because Applied reports that a change in control of Applied has occurred or will occur in the future by reason of such beneficial ownership.
In addition, following a Change in Control of Applied, no provision hereof shall operate to reduce any time frame or to limit any economic benefit to which you are entitled with respect to the RSUs or under the Plan.
To the extent the RSUs constitute nonqualified deferred compensation within the meaning of Section 409A, a Change in Control of Applied shall mean a change in the ownership or effective control of Applied or a change in the ownership of a substantial portion of the assets of Applied that constitutes a change in control under Section 409A.
In addition, to the extent the RSUs are subject to Section 409A, Shares will be issued and distributed to you within 90 calendar days after vesting; provided that if such 90-day period begins in one calendar year and ends in another, you shall not have the right to designate the calendar year of payment. Notwithstanding the foregoing, if you are a Specified Employee, a distribution due to a separation from service may not be made until the 30-day period commencing with the first day of the seventh month following such Separation from Service or, if earlier, the date of your death, except in each case as may be otherwise permitted under Section 409A.
7. Adjustment of RSUs for Certain Events . In the event of a stock split, stock dividend, combination, reclassification, recapitalization, merger, consolidation, exchange, spin-off, spin-out, or other distribution of assets to shareholders, or other similar event or change in capitalization such that shares of Applied common stock are changed into or become exchangeable for a different number of shares, thereafter the number of RSUs will be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of common stock by reason of such change in corporate structure; provided, however, that the number of RSUs shall always be a whole number. If there occurs a stock split, combination, reclassification, recapitalization, merger, consolidation, as a result of which shares of Applied common stock are converted solely into cash or the right to receive cash, then the RSUs shall thereafter be converted into the right to receive cash in an amount equal to the cash that the number of shares of Applied common stock corresponding to the RSU would be
converted. If there occurs any other change in the number or kind of outstanding shares of common stock or other Applied securities, or of any shares of stock or other securities into which such shares of common stock shall have been changed or for which they shall have been exchanged, then Applied may adjust the number or kind of RSUs or other securities into which the RSUs may be settled, as the Committee, in its sole discretion, may determine is equitable, and such adjustment so made shall be effective and binding for all purposes.
8. Settlement of Award and Distribution of Shares . Your award of RSUs hereunder shall be settled in whole Shares. Fractional Shares shall not be issuable hereunder and any fractional Share shall be disregarded. Except as specifically provided otherwise in this Section 8, Shares subject to an award of RSUs hereunder shall only be issued and distributed to you in a single sum of whole Shares within the 75-day period after the end of the Restriction Period. Notwithstanding the foregoing, in the event that your RSUs become vested due to death, Disability or a Change in Control, the award of RSUs hereunder shall be settled in a single sum of whole Shares within the 75-day period after such vesting. In the event that any such 75-day period begins in one calendar year and ends in another, you (or your beneficiary as the case may be) shall not have the right to designate the calendar year of payment. Moreover, notwithstanding the foregoing, if you are a Specified Employee, a distribution of Shares may not be made until within the 30-day period commencing with the first day of the seventh month following the month of any Separation from Service for reasons other than Disability or a Change in Control, or, if earlier, your death, except as maybe otherwise permitted under Section 409A.
9. Payment of Taxes . Upon the vesting of the RSUs, Applied shall withhold Shares from your award for any federal, state or local taxes of any kind required by law to be withheld by Applied attributable to the award.
10. Section 409A Compliance . To the extent applicable, it is intended the Terms and the award of RSUs shall comply with or be exempt from the provisions of Section 409A and any interpretations of these terms shall be consistent with such intent.
11. Administration of the Plan . The Committee shall have conclusive authority, subject to the express provisions of the Plan as in effect from time to time and the Terms, to construe the Terms and the Plan, and to establish, amend, and rescind rules and regulations for the Plans administration. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Terms in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. Applieds Board of Directors (the Board) may from time to time grant to the Committee such further powers and authority as the Board shall determine to be necessary or desirable. Notwithstanding any other provision of these terms, any amendment, construction, establishment, rescission or correction of the type referred to above which is made or adopted following a Change in Control, and which amendment, construction, establishment or correction adversely affects your rights hereunder, shall be in writing and shall be effective only with your express and prior written consent .
12. Relationship to the Plan . The Terms are subject to the provisions of the Plan and any administrative policies adopted by the Committee. If there is any inconsistency between the Terms and the Plan or such policies, the Plan and the policies, in that order, shall govern. References in the Terms to Applied shall include Applieds subsidiaries.
13. Severability . The provisions of the Terms are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
14. No Guarantee of Employment . The Terms and your award shall not confer upon you any rights whatsoever other than those expressly set forth herein, in the Plan or in policies adopted by the
Committee. Nothing in the Terms shall (i) interfere with or limit in any way Applieds right to terminate your employment at any time, (ii) confer upon you any right to continued employment with Applied, or (iii) create any contractual or other right to receive additional awards or other Plan benefits in the future.
15. Requirements of Law . The granting of the RSUs hereunder shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agency, national securities exchange, or automated quotation system may be required. Notwithstanding any other provision of the Plan or the Terms, Applied shall not be obligated to issue, deliver or transfer any Shares, make any distribution of benefits under the Plan or the Terms, or take any other action, unless such delivery, distribution, or action, unless such delivery, distribution, or action is in compliance with all applicable laws, rules and regulations (including, but not limited to, the requirements of the Securities Act and Section 409A).
16. Successors . All obligations of Applied under the Terms with respect to the RSUs shall be binding upon any successor to Applied, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all, or substantially all, of the business and/or assets of Applied. Notwithstanding the provisions of Section 4, in the event any such successor does not agree to be bound by the Terms, the RSUs granted hereunder shall immediately become vested.
17. Applicable Law . The validity, construction, interpretation and enforceability of these Terms shall be determined and governed by the laws of the State of Ohio without giving effect to the principles of conflicts of law.
18. Tax Matters . Applied has made no warranties or representations to you with respect to the tax consequences (including but not limited to income tax consequences) related to the RSUs or the issuance, transfer or disposition of Shares pursuant to the RSUs, and you have been advised to consult with your attorney, accountant and/or tax advisor regarding the RSUs. Moreover, you acknowledge that Applied has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for you.
(October 2011)
EXHIBIT 10.5
Stock Appreciation Rights Award Terms and Conditions
Your Stock Appreciation Rights Award (the SARs or the Award) is made by Applied Industrial Technologies, Inc., an Ohio corporation (Applied). For purposes of these terms and conditions, employment by a parent, subsidiary, or an affiliate of Applied shall be considered employment by Applied.
1. Grant of SARs; Exercisability. The Award is governed by Applieds 2007 Long-Term Performance Plan (the Plan), including the policies adopted by the Executive Organization & Compensation Committee of Applieds Board of Directors (the Committee) under the Plan, and these terms and conditions. Upon valid exercise, the Award entitles you to receive such number of shares of Applied common stock (Shares) that have a fair market value equal to the difference (if positive) between the fair market value of (a) a Share on the date of exercise over (b) the Base Price, multiplied by (c) the number of Shares with respect to which the Award is exercised, subject to the following conditions:
(a) Except as otherwise provided in Sections 2 and 7, below, your Award will be exercisable only if and after you have remained in Applieds continuous employ from the Awards grant date (the Grant Date) to the vesting date of all or the specified portion of your Award. Your Award will vest with respect to 100% of the aggregate number of Shares to which it relates upon the earlier of (x) three years of continuous employment from the Grant Date or (y) the date your employment with Applied is terminated, either by you for Good Reason (as hereinafter defined but, for purposes of this section, after eliminating references in such definitions to immediately prior to a Change in Control) or by the Company Without Cause. The term Without Cause shall mean termination of your employment by Applied for reasons other than your death, Retirement, Disability or Cause (each, as hereinafter defined).
(b) Except as otherwise provided, your Award shall expire at the end of the 10-year period commencing with the Grant Date (the Term), or upon such earlier expiration or your separation from service date as may be provided by Sections 2 and 7 below. The SARs shall not be exercisable thereafter.
2. Termination of SARs. If, during the Term, you incur a separation from service from Applied for any reason, you may exercise your SARs, to the extent you were entitled to exercise them immediately prior to your separation from service, at any time within three months after your separation from service (but only during the Term); provided, however , that (i) if you Retire, then the SARs shall become fully exercisable and, at any time within three years after your retirement (but only during the Term), you may exercise the SARs; (ii) if you incur a separation from service due to your permanent and total disability, then the SARs shall become fully exercisable and, at any time within one year after your separation from service (but only during the Term), you may exercise the SARs; and (iii) if you die while employed by Applied, then the SARs shall become fully exercisable and, at any time within one year after your death (but only during the Term), the person entitled by will or applicable law to exercise the SARs may do so.
Awards are intended to create an incentive for recipients to act in Applieds best interests.
Notwithstanding anything in these terms to the contrary,
(a) | Your Award may be terminated or rescinded, and if applicable, you may be required to immediately repay all Shares (and any dividends and distributions thereon) issued pursuant to the Award within the previous six months (or any proceeds thereof), if the Committee determines, in good faith, that during your employment with Applied or during the period ending six months following your separation from service, you have committed an act inimical to Applieds interests. Acts inimical to Applieds interest shall include willful inattention to duty; willful violation of Applieds published policies; acts of fraud or dishonesty involving Applieds business; solicitation of Applieds employees, customers or vendors to terminate or alter their relationship with Applied to Applieds detriment; unauthorized use or disclosure of information regarding Applieds business, employees, customers, or vendors; and competition with Applied. All determinations by the Committee shall be effective at the time of your act. |
(b) | The Committee may, in its sole discretion, require you immediately to repay Shares (and any dividends and distributions thereon) issued pursuant to the Award within the previous 36 months (or any proceeds thereof) if (x) Applied restates its historical consolidated financial statements and (y) the Committee determines, in good faith, that (I) the restatement is a result of your, or another executive officers, willful misconduct that is unethical or illegal, and (II) your earnings pursuant to the Award were based on materially inaccurate financial statements or materially inaccurate performance metrics that were invalidated by the restatement. |
The provisions of this section are a fundamental term of the Award.
3. Method of Exercise; Rights of Holder. During your life, your Award may be exercised only by you, your guardian, or legal representative. Upon your death, your Award may be exercised by the person entitled by will or by the laws of descent and distribution.
Your SARs may be exercised by delivering to Applied at its principal executive offices (directed to the attention of the Chief Financial Officer or Corporate Secretary) a written notice (which may include facsimile transmission or electronic mail), signed by you or such other person entitled to exercise the SARs, of the election to exercise the SARs and stating the number of Shares as to which the SARs are being exercised. The SARs shall be deemed exercised as of the date Applied receives the notice. If the SARs are exercised, as provided herein, by any person other than you, the notice shall be accompanied by appropriate evidence of that persons right to exercise the SARs. As a condition to your valid exercise of the SARs, you hereby consent to Applied withholding from the Shares issuable upon exercise (if any), such number of Shares the fair market value of which Applied determines to be equal to the amount required to be withheld pursuant to applicable federal, state or local law, including tax withholding requirements. Promptly following the proper exercise of the SARs, Applied shall issue in the name of the person exercising the SARs, a certificate representing the Shares due hereunder. Your SARs may be exercised only with respect to a whole number of Shares, and may not be exercised in fractional amounts.
Notwithstanding the foregoing and the restrictions on exercise contained in Section 2, if, in the event your employment with Applied is terminated within the two-year period immediately following any Change in Control of Applied either by you for Good Reason or by Applied Without Cause, then your SARs then outstanding shall become fully exercisable as of the date immediately prior to the date of termination of your employment.
For purposes of this Award, Cause shall mean (i) the willful and continued failure by you to perform substantially your duties with Applied or one of its affiliates (other than for disability or Good Reason), after a
written demand for substantial performance is delivered to you by the Board or the Chief Executive Officer of Applied which specifically identifies the manner in which the Board or Chief Executive Officer believes that you have not substantially performed your duties, or (ii) the willful engagement by you in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to Applied; provided, however , that no act or failure to act shall be considered willful unless it is done, or omitted to be done, in bad faith or without your reasonable belief that such action or omission was in the best interests of Applied. Any act, or failure to act, based upon authority given you pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of Applied or based upon the advice of counsel for Applied shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of Applied. Termination of your employment with Applied shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
For purposes of this Award, Good Reason shall mean a separation from service that occurs no later than two years after (i) a material diminution in your authority, duties, or responsibilities, (ii) a material diminution in the authority, duties, or responsibilities of the person to whom you reported immediately prior to a Change in Control, (iii) a material diminution by Applied of your annual base salary that was provided to you by Applied immediately prior to the Change in Control, (iv) a material change in the geographic location where you provide service to Applied, or (v) any failure of any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Applied, by agreement in form and substance satisfactory to you, to expressly assume and agree to comply with the terms of this Award in the same manner and to the same extent that Applied would be required to perform it if no such succession had taken place; provided further , that, Good Reason shall not have occurred unless you give Applied notice within 90 days of the initial existence of the condition claimed by you in good faith to constitute Good Reason and Applied has at least 30 days in which to remedy the condition. For purposes of this Agreement, Good Reason shall not exist if you have given your prior written consent to any of the events that would otherwise constitute Good Reason.
Notwithstanding the definition in the Plan, a Change in Control of Applied shall have occurred for purposes of this Award (to the extent this Award does not constitute nonqualified deferred compensation within the meaning of Section 409A) when any of the following events shall occur:
(i) Applied is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of Applied immediately prior to such transaction;
(ii) Applied sells all or substantially all of its assets to any other corporation or other legal person, and, immediately after such sale, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of Applied immediately prior to such sale;
(iii) There is a report filed or required to be filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the Exchange Act), disclosing that any person (as the term person is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term beneficial owner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 30% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of Applied (Voting Stock);
(iv) Applied files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of Applied has occurred pursuant to any then-existing contract or transaction; or
(v) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of Applied cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (v), each director who is first elected, or first nominated for election by Applieds stockholders by a vote of at least two-thirds of the directors of Applied (or a committee thereof) then still in office who were directors of Applied at the beginning of any such period will be deemed to have been a director of Applied at the beginning of such period.
Notwithstanding the foregoing provisions of Section (iii) or (iv) hereof, unless otherwise determined in a specific case by majority vote of the Board, a Change in Control shall not be deemed to have occurred for purposes of this Award solely because (i) Applied, (ii) an entity in which Applied directly or indirectly beneficially owns 50% or more of the voting securities or interest, or (iii) any Applied-sponsored employee stock ownership plan or any other employee benefit plan of Applied, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 30% or otherwise, or because Applied reports that a change in control of Applied has occurred or will occur in the future by reason of such beneficial ownership.
In addition, following a Change in Control of Applied, no provision hereof shall operate to reduce any time frame or to limit any economic benefit to which you are entitled under this Award or the Plan, including the occurrence of any of the transactions described in Section 7(a) through (c) below. In the event of the occurrence of any of the transactions described in Section 7(a) through (c), the provisions in Section 7 purporting to terminate your SARs shall not apply and you shall have the option either to exercise your rights under Section 7 or to deem the SARs assumed by the successor within the meaning of Section 424(a) of the Internal Revenue Code, whichever is more favorable to you.
To the extent this Award constitutes nonqualified deferred compensation within the meaning of Section 409A, a Change in Control of Applied shall mean a change in the ownership or effective control of Applied or a change in the ownership of a substantial portion of the assets of Applied that constitutes a change in control under Section 409A.
In addition, to the extent this Award is subject to Section 409A, Shares will be issued and distributed to you within 90 calendar days after receipt by Applied of your written notice of exercise; provided that if such 90-day period begins in one calendar year and ends in another, you shall not have the right to designate the calendar year of payment. Notwithstanding the foregoing, if you are a Specified Employee, a distribution due to a Separation from Service may not be made until the 30-day period commencing with the first day of the seventh month following such Separation from Service or, if earlier, the date of your death, except in each case as may be otherwise permitted under Section 409A.
As an SAR holder, you shall have absolutely no rights as a shareholder, whether before or after vesting of all or any portion of your Award.
4. Limitations on Exercise. Your SARs shall not be exercisable if such exercise or the issuance of Shares pursuant to your Award would violate:
(a) Any state securities law;
(b) Any registration or other requirements under the Securities Act of 1933, as amended (the Act), the Securities Exchange Act of 1934, as amended, or any stock exchanges listing requirements; or
(c) Any other legal requirement of any governmental authority.
If your exercise of SARs is prevented by the terms of any of the foregoing subsections, and the Term of the SARs expires, then you may, within 30 days after Applied notifies you that your exercise is no longer prevented by this Section 4, exercise the SARs to the extent they would have been exercisable but for the operation of this Section 4.
Furthermore, if a registration statement with respect to Shares issuable upon exercise of the SARs is not in effect or if Applieds counsel otherwise deems it necessary or desirable in order to avoid possible violations of the Act, Applied may require, as a condition to its issuance and delivery of certificates for the Shares, the delivery to Applied of a commitment in writing by the person exercising the SARs that (i) at the time of the exercise it is his intention to acquire the Shares for his own account for investment only and not with a view to, or for resale in connection with, the distribution thereof; (ii) the person understands that the Shares may be restricted securities as defined in Rule 144 issued under the Act; and (iii) any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent rules and regulations thereunder. Applied may place on the certificates representing the Shares a legend reflecting that commitment and Applied may refuse to permit transfer of the Shares until it has been furnished evidence satisfactory to it that no violation of the Act or the rules and regulations thereunder would be involved in the transfer.
5. No Guaranty of Employment. The Award is not a guaranty of employment or commitment by Applied of continued employment. Nothing in the Award or these terms and conditions alters, limits or restricts any right Applied would otherwise have to terminate or modify the terms of your employment.
6. Nonassignability. The Award is not assignable or transferable, in whole or in part, and may not be otherwise disposed of by you, other than by will or by the laws of descent and distribution or with the prior written consent of Applied.
7. Liquidation, Dissolution, Merger, Sale of Substantially All Assets. If (a) Applied is to be merged, consolidated or reorganized into or with another entity so that Applied is not the surviving corporation and, immediately after such event, the holders of Shares immediately prior to the event hold, in the aggregate, less than a majority of the combined voting power of the then outstanding securities of the new entity, (b) Applied is to be dissolved or liquidated, or (c) substantially all of Applieds assets are to be sold, then the Committee shall give you 30 days prior written notice. Upon the giving of that notice, if you are employed by Applied, then the SARs shall become fully vested and exercisable. Within the 30-day period (but only during the Term), you shall have the right to exercise your SARs. Thereafter, notwithstanding any other provision of these terms and conditions, the SARs shall expire, unless assumed by another corporation within the meaning of Section 424(a) of the Internal Revenue Code.
8. Adjustments. In the event (a) of a stock dividend or stock split or (b) the Shares are changed into or exchanged for a different number or kind of securities of Applied or another entity, then the Shares purchasable or the Base Price hereunder shall be equitably adjusted so that the SARs represent the right to acquire Shares or the number and kind of other securities that are economically equivalent to what the Shares would have represented had the SARs been fully exercised immediately preceding such event.
In the event other changes or events relating to the Shares fundamentally change the value of the Shares or securities for which the SARs are exercisable, then the Committee may make, in its sole discretion, such adjustments in the terms of the SARs as the Committee may determine is equitably required by the change or event.
9. Committee Authority. The Committee shall have authority, subject to the Plans express provisions, to construe these terms and conditions and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the Committees judgment necessary or desirable for the Plans administration. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or these terms and conditions in the manner and to the extent it shall deem expedient to carry the Plan into effect. All Committee action under this Section shall be conclusive for all purposes.
10. Relationship to the Plan. In the event of any inconsistency between these terms and conditions and any provision of the Plan or the Committees policies, the Plan or the policies shall govern. Terms used but not otherwise defined in these terms and conditions shall have the meaning ascribed them in the Plan. Notwithstanding any provisions hereof, these terms and conditions and the SARs granted shall be subject to all of the Plans provisions in effect from time to time, which are incorporated herein by reference.
11. Severability . The provisions of these terms and conditions are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12 . Applicable Law . The validity, construction, interpretation and enforceability of these terms and conditions shall be determined and governed by the laws of the State of Ohio without giving effect to the principles of conflicts of law.
13 . Tax Matters . Applied has made no warranties or representations to you with respect to the tax consequences (including but not limited to income tax consequences) related to the Award or the issuance, transfer or disposition of Shares pursuant to the Award, and you have been advised to consult with your attorney, accountant and/or tax advisor regarding this Award. Moreover, you acknowledge that Applied has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for you.
(October 2011)