SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[APPLIED INDUSTRIAL TECHNOLOGIES LOGO]
ONE APPLIED PLAZA
CLEVELAND, OHIO 44115
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
We are pleased to invite you to the 2002 Annual Meeting of the Shareholders
of Applied Industrial Technologies, Inc. The meeting will be held at our
corporate headquarters, One Applied Plaza, East 36th Street and Euclid Avenue,
Cleveland, Ohio, on Tuesday, October 22, 2002, at 10:00 a.m., eastern time, for
the purposes of:
1. Electing four persons to be directors for a term of three years;
2. Ratifying the appointment of independent auditors for the fiscal year
ending June 30, 2003; and
3. Approval of the 1997 Long-Term Performance Plan to continue to qualify
certain awards thereunder as "performance-based" compensation under
Section 162(m) of the Internal Revenue Code.
If you were a shareholder of record at the close of business on August 27,
2002, you are entitled to notice of and to vote at the meeting. The transfer
books will not be closed. A list of the shareholders as of the record date will
be available for examination at the meeting.
By order of the Board of Directors.
FRED D. BAUER
Secretary
September 16, 2002
YOUR VOTE IS IMPORTANT! WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
PROMPTLY VOTE BY TELEPHONE, VIA THE INTERNET, OR BY EXECUTING AND RETURNING THE
ENCLOSED PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. VOTING EARLY WILL
HELP AVOID ADDITIONAL SOLICITATION COSTS.
[APPLIED INDUSTRIAL TECHNOLOGIES LOGO]
PROXY STATEMENT
------------------
SOLICITATION OF PROXIES
The Board of Directors of Applied Industrial Technologies, Inc. is
soliciting your proxy to vote at our Annual Meeting of Shareholders. The meeting
will be held at 10:00 a.m., eastern time, on Tuesday, October 22, 2002, at our
corporate headquarters, One Applied Plaza, East 36th Street and Euclid Avenue,
Cleveland, Ohio. This proxy statement summarizes information you need to know to
vote at the meeting. In this statement, "we," "our," "us," and "Applied" all
refer to Applied Industrial Technologies, Inc.
We will pay the cost of soliciting proxies. This statement and the
accompanying proxy card will be mailed to shareholders on or about September 16,
2002. We will also pay the standard charges and expenses of brokers, or other
nominees or fiduciaries, for forwarding these materials to and obtaining proxies
from registered shareholders and beneficial owners for whose accounts they hold
shares. Directors, officers, and other Applied employees, acting on our behalf,
may also solicit proxies, and Morrow & Co., Inc. has been retained, at an
estimated fee of $6,500 plus expenses, to aid in soliciting proxies from brokers
and institutional holders. In addition to using the mail, proxies may be
solicited personally and by telephone, facsimile, and electronic means.
VOTING AT THE MEETING
Only shareholders of record at the close of business on August 27, 2002,
may vote at the meeting. As of the record date, there were outstanding
19,171,924 shares of Applied Common Stock, without par value. The holders of a
majority of those shares will constitute a quorum to hold the meeting.
Each share is entitled to one vote. Abstentions and broker non-votes are
counted in determining the votes present at a meeting. A broker non-vote occurs
when a broker votes on some matters on the proxy card but not on others because
the broker does not have the authority to do so. An abstention or a broker
non-vote has the practical effect of a vote against a proposal, because each
abstention or broker non-vote is one less vote in favor of the proposal.
Whether or not you expect to attend the meeting, WE URGE YOU TO VOTE. You
may vote by telephone, via the Internet, or by mailing your signed proxy card in
the envelope provided. The card indicates the number of shares that you own.
Instructions for each voting method are also indicated on the card. Votes
submitted by telephone or via the Internet must be received by Sunday, October
20, 2002.
You may revoke your proxy before it is voted at the meeting by giving
notice of revocation to Applied's Secretary in writing, in open meeting, or by
other verifiable communication. Your presence at the meeting will not by itself
revoke your proxy.
If you plan to attend the meeting and vote in person, a ballot will be
available when you arrive. If, however, your shares are held in the name of your
broker, bank, or other nominee, you must bring an account statement or other
evidence that you were the beneficial owner of the shares on August 27, 2002.
3
ITEM 1 -- ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes. At the Annual
Meeting, directors of Class III are to be elected for a term of three years
expiring in 2005. The properly nominated candidates receiving the greatest
number of votes will be elected. The persons serving as directors of Class I for
a term expiring in 2003 and as directors of Class II for a term expiring in 2004
will continue in office.
The nominees for directors of Class III are William E. Butler, Russell R.
Gifford, L. Thomas Hiltz, and David L. Pugh. Messrs. Butler, Gifford, and Hiltz
were elected to their positions at an annual meeting of shareholders. Mr. Pugh
was elected by the Board in 2000.
The proxies named in the accompanying proxy card intend to vote for the
four nominees unless authority is withheld. If any of the nominees becomes
unavailable to serve as a director, the proxies reserve full discretion to vote
for any other person or persons that may be nominated at the meeting and/or to
vote to reduce the number of directors. We are not aware of any existing
circumstances that would cause a nominee to be unavailable to serve.
Information concerning the nominees and the directors continuing in office
is shown below. Unless otherwise stated, the nominees and directors have held
the positions indicated for the last five years.
NOMINEES FOR ELECTION AS DIRECTORS OF CLASS III FOR A TERM EXPIRING IN 2005
WILLIAM E. BUTLER
Director since 1987, member of Audit and Executive Organization & Compensation
Committees
BUSINESS EXPERIENCE: Until his retirement in 1995, Mr. Butler, age 71, was
Chairman and Chief Executive Officer of Eaton Corporation. Eaton is a global
diversified industrial manufacturer which is a leader in fluid power systems;
electrical power quality, distribution, and control; automotive engine air
management and fuel economy; and intelligent truck systems for fuel economy and
safety.
OTHER DIRECTORSHIPS: Borg-Warner Automotive, Inc., U. S. Industries, Inc.
RUSSELL R. GIFFORD
Director since 1992, member of Audit and Futures Committees
BUSINESS EXPERIENCE: Mr. Gifford, age 63, is a partner with The Gifford Group, a
corporate and customer relations consulting company. He was Chief Operating
Officer of the City of Cleveland Public School District from 1998 to 1999. He
was also President of CNG Energy Services Corp., a subsidiary of Consolidated
Natural Gas Company, until his retirement in 1997.
OTHER DIRECTORSHIP: The Davey Tree Expert Company
L. THOMAS HILTZ
Director since 1981, member of Corporate Governance and Executive Organization &
Compensation Committees
BUSINESS EXPERIENCE: Mr. Hiltz, age 56, is an attorney in Covington, Kentucky
and is one of five trustees of the H.C.S. Foundation, a charitable trust which
has sole voting and dispositive power with respect to 830,250 shares of Applied
Common Stock.
4
DAVID L. PUGH
Director since 2000, member of Executive Committee
BUSINESS EXPERIENCE: Mr. Pugh, age 53, is Applied's Chairman (since October
2000) and Chief Executive Officer (since January 2000). He was Applied's
President from January 1999 to October 2000 and Chief Operating Officer from
January 1999 to January 2000. From 1996 to 1998, he was Senior Vice President of
the Industrial Control Group of Rockwell Automation, a division of Rockwell
International Corporation.
PERSONS SERVING AS DIRECTORS OF CLASS I FOR A TERM EXPIRING IN 2003
THOMAS A. COMMES
Director since 1999, member of Audit, Corporate Governance, and Executive
Committees
BUSINESS EXPERIENCE: Until his retirement in 1999, Mr. Commes, age 60, was
President and Chief Operating Officer of The Sherwin-Williams Company, a
manufacturer, distributor, and retailer of paints and painting supplies, and
also a Sherwin-Williams director. His career includes service as that company's
Chief Financial Officer.
OTHER DIRECTORSHIP: Pioneer-Standard Electronics, Inc.
PETER A. DORSMAN
Director since July 2002, member of Executive Organization & Compensation and
Futures Committees
BUSINESS EXPERIENCE: Mr. Dorsman, age 47, is Executive Vice President & Chief
Operating Officer (since 2000) of The Standard Register Company, a leading
provider of information solutions for financial services, healthcare,
manufacturing, and other markets worldwide. He previously served as Senior Vice
President, Manufacturing Operations (from 1999 to 2000) and as Senior Vice
President, Document Management and Systems Division (from 1996 to 1999) of The
Standard Register Company.
J. MICHAEL MOORE
Director since 1997, member of Corporate Governance and Futures Committees
BUSINESS EXPERIENCE: Mr. Moore, age 59, is President (since 1997) of Oak Grove
Consulting Group, Inc. He was Chairman and Chief Executive Officer of Invetech
Company, a distributor of bearings, mechanical and electrical drive system
products, industrial rubber products, and specialty maintenance and repair
products, prior to its acquisition by Applied in August 1997.
DR. JERRY SUE THORNTON
Director since 1994, member of Corporate Governance and Executive Organization &
Compensation Committees
BUSINESS EXPERIENCE: Dr. Thornton, age 55, is President of Cuyahoga Community
College, the largest community college in Ohio, serving 22,000 college students
and 15,000 workforce training customers annually with 70 career and technical
programs.
OTHER DIRECTORSHIPS: American Greetings Corporation, National City Corporation,
OfficeMax, Inc., RPM, Inc.
5
PERSONS SERVING AS DIRECTORS OF CLASS II FOR A TERM EXPIRING IN 2004
WILLIAM G. BARES
Director since 1986, member of Audit, Corporate Governance, and Executive
Committees
BUSINESS EXPERIENCE: Mr. Bares, age 61, is Chairman, President, and Chief
Executive Officer of The Lubrizol Corporation. Lubrizol is a $1.8 billion fluid
technology company concentrating on high performance chemicals, systems, and
services for industry and transportation.
OTHER DIRECTORSHIPS: KeyCorp, The Lubrizol Corporation, Oglebay Norton Company
DR. ROGER D. BLACKWELL
Director since 1996, member of Executive Organization & Compensation and Futures
Committees
BUSINESS EXPERIENCE: Dr. Blackwell, age 62, is a Professor of Marketing at The
Ohio State University Fisher College of Business and President of Blackwell
Associates, Inc., a marketing consulting firm.
OTHER DIRECTORSHIPS: Airnet Systems, Inc., Anthony & Sylvan Pools Corporation,
Diamond Hill Investment Group, Inc., The Flex-funds, Frontstep, Inc., Max &
Erma's Restaurants, Inc.
EDITH KELLY-GREEN
Director since July 2002, member of Audit and Futures Committees
BUSINESS EXPERIENCE: Ms. Kelly-Green, age 49, is Vice President and Chief
Sourcing Officer of FedEx Express, the world's largest express transportation
company and a subsidiary of FedEx Corporation.
STEPHEN E. YATES
Director since 2001, member of Executive Organization & Compensation and Futures
Committees
BUSINESS EXPERIENCE: Mr. Yates, age 54, is President (since 1999) of USAA
Information Technology Company, which provides information technology and
telecommunications services to all USAA activities. USAA is a leading financial
services company, offering its 4.5 million members a comprehensive range of
insurance, banking, and investment products and services. From 1997 to 1999, Mr.
Yates was Vice President-Information Technology & Logistics of Rockwell
Automation, a division of Rockwell International Corporation. From 1989 to 1997,
he was Vice President-Information Technology for Brown & Root, Inc., a global
engineering and construction firm.
6
BENEFICIAL OWNERSHIP OF CERTAIN APPLIED SHAREHOLDERS AND MANAGEMENT
The following table shows the beneficial ownership of Applied Common Stock,
as of June 30, 2002, by: (a) each person known by us to own beneficially more
than 5% of Applied's outstanding shares; (b) all directors and nominees; (c)
each executive officer named in the Summary Compensation Table on page 8, except
Robert C. Stinson, who retired in March 2002; and (d) all directors, nominees,
and executive officers as a group.
COMMON SHARES
BENEFICIALLY OWNED PERCENT OF
NAME OF BENEFICIAL OWNER ON JUNE 30, 2002(1) CLASS(2)
------------------------ ------------------- ----------
Applied Industrial Technologies, Inc.
Retirement Savings Plan
c/o Key Trust Company of Ohio, N.A., Trustee
127 Public Square
Cleveland, Ohio 44114.................................. 1,727,667(3) 9.0%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, California 90401......................... 1,542,242(4) 8.0
William G. Bares......................................... 43,704(5)
Dr. Roger D. Blackwell................................... 29,237(6)
William E. Butler........................................ 10,025
Thomas A. Commes......................................... 24,979
Peter A. Dorsman......................................... 0
Russell R. Gifford....................................... 31,716(7)
L. Thomas Hiltz.......................................... 882,968(8) 4.6
James T. Hopper.......................................... 31,456
Edith Kelly-Green........................................ 0
J. Michael Moore......................................... 319,700(9) 1.7
David L. Pugh............................................ 210,580 1.1
Bill L. Purser........................................... 78,507
Jeffrey A. Ramras........................................ 28,718
Dr. Jerry Sue Thornton................................... 22,384
John R. Whitten.......................................... 124,834
Stephen E. Yates......................................... 6,381
All directors, nominees, and executive officers as a
group (22 individuals)................................. 2,023,560(10) 10.3
---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC"). Beneficial ownership may be
disclaimed for other purposes. Except as otherwise indicated, the
beneficial owner has sole voting and dispositive power over the shares. The
directors' and named executive officers' totals include shares that could
be acquired within 60 days after June 30, 2002, by exercising stock options
as follows:
Mr. Hopper -- 15,624; Mr. Pugh -- 145,000; Mr. Purser -- 54,749; Mr.
Ramras -- 13,624; Mr. Whitten -- 46,750; Mr. Yates -- 4,000; and the other
directors (excluding Mr. Dorsman and Ms. Kelly-Green) -- 8,000 per
director.
(2) Percent of class is not indicated if less than 1%.
(3) The Applied Industrial Technologies, Inc. Retirement Savings Plan holds
these shares for the benefit of plan participants. The shares are held in
custody by Key Trust Company of Ohio, N.A., the plan's trustee. The plan's
participants and the trustee possess shared voting power with respect to
the shares. Participants may vote all shares allocated to their accounts
and act as named fiduciaries with respect to unallocated shares. If no
voting direction is received from participants or if legally required, the
trustee has authority to vote the allocated and unallocated shares.
(4) Dimensional Fund Advisors, Inc. reported its share ownership in a Form 13F
filed with the SEC on August 6, 2002.
(5) Includes 2,250 shares owned by Mr. Bares' wife, who has sole voting and
dispositive power.
(6) Includes 225 shares owned by Dr. Blackwell's wife, who has sole voting and
dispositive power.
(7) Includes 321 shares owned by Mr. Gifford's wife, who has sole voting and
dispositive power.
(8) Includes 830,250 shares held by the H.C.S. Foundation, a charitable trust
of which Mr. Hiltz is one of five trustees, with sole voting and
dispositive power. Pursuant to a Schedule 13D filed by the H.C.S.
Foundation dated December 20, 1989, the trustees, including Mr. Hiltz,
disclaimed beneficial ownership of those shares.
(9) Includes 31,648 shares held by Mr. Moore's wife with sole voting and
dispositive power. Also includes 38,773 shares held in trusts for the
benefit of Mr. Moore's children. Mr. Moore's wife is trustee, with sole
voting and dispositive power.
(10) Includes 426,830 shares that could be acquired within 60 days after June
30, 2002, by exercising stock options. In determining the percentage of
share ownership, these stock option shares are added to both the
denominator and the numerator. Also includes 26,541 shares held by
Applied's Retirement Savings Plan for the benefit of executive officers;
these shares are included as well in the figure shown for the plan's
holdings.
7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes compensation earned during the fiscal years
ended June 30, 2002, 2001, and 2000, by those persons who were, for the fiscal
year ended June 30, 2002, Applied's Chief Executive Officer and the four other
most highly compensated executive officers serving in that capacity at the end
of fiscal 2002. The compensation of Robert C. Stinson, who retired in March
2002, is also disclosed because he was among the most highly compensated
executive officers in fiscal 2002.
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ---------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND BONUS COMPENSATION STOCK AWARD(S) UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1) (2) (3) OPTIONS (4)
------------------ ---- ------ ----- ------------ -------------- ---------- ------------
David L. Pugh 2002 $605,385 $ 0 $ 0 $ 0 150,000 $ 4,068
Chairman & Chief 2001 500,481 0 206 0 130,000 6,979
Executive Officer 2000 403,845 474,000 40,205 0 60,000 19,808
Bill L. Purser 2002 338,077 0 1,526 0 65,000 4,785
President & Chief 2001 266,539 0 531 0 60,000 10,352
Operating Officer 2000 190,769 167,400 820 0 30,000 4,517
John R. Whitten 2002 283,501 0 0 0 30,000 4,962
Vice President -- 2001 270,577 0 0 0 25,000 6,998
Chief Financial 2000 254,807 243,900 350 0 36,000 17,870
Officer & Treasurer
James T. Hopper 2002 184,138 0 0 0 5,000 4,133
Vice President -- 2001 174,732 0 0 0 5,000 9,105
Chief Information 2000 157,692 82,320 0 0 10,000 5,747
Officer
Jeffrey A. Ramras 2002 180,000 0 403 0 6,000 4,937
Vice President -- 2001 154,615 0 2,013 0 6,000 9,524
Supply Chain 2000 142,615 72,240 634 0 5,000 5,368
Management
Robert C. Stinson 2002 250,000 0 0 0 25,000 28,462
Vice President -- 2001 238,308 0 0 0 20,000 9,192
Chief 2000 224,231 208,800 327 0 32,000 16,450
Administrative
Officer & General
Counsel
---------------
(1) Amounts in this column are earnings under the annual Management Incentive
Plan, described in the Executive Organization & Compensation Committee
Report on pages 13-14.
(2) Amounts in this column for fiscal 2002 reflect the following: with respect
to Mr. Purser, an award for the achievements of a task force on which he
participated; and with respect to Mr. Ramras, a gross-up payment to cover
taxes related to spousal travel. Previous years' amounts included relocation
expense reimbursements and club initiation fees as well as gross-up
payments.
(3) At June 30, 2002, the persons listed above held the following number of
unvested shares of restricted stock, valued at $19.50 per share, the closing
market price on that date: Mr. Pugh, 50,000 shares, $975,000; Mr. Purser,
15,000 shares, $292,500; Mr. Whitten, 15,000 shares, $292,500; Mr. Hopper,
7,500 shares, $146,250; Mr. Ramras, 7,500 shares, $146,250; and Mr. Stinson,
3,542 shares, $69,069 (in connection with his retirement, Mr. Stinson was
permitted to retain these shares, which will vest in March 2003). All of the
shares are performance-accelerated restricted stock (described on pages
14-15), except for 10,000 shares awarded to Mr. Pugh, which shares will vest
in January 2003, subject to his continuous employment with Applied.
Dividends are paid on restricted stock at the same rate paid to all
shareholders.
(4) Amounts in this column for fiscal 2002 include contributions made by Applied
and credited to the officers' accounts in Applied's Retirement Savings Plan.
In addition, Messrs. Whitten and Ramras received $1,000 20-year service
awards and Mr. Stinson received a $25,000 transition allowance in connection
with his retirement.
8
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information concerning stock option grants made
in fiscal 2002 under the 1997 Long-Term Performance Plan by the Board's
Executive Organization & Compensation Committee to the officers named in the
Summary Compensation Table:
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES
NUMBER OF % OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
---- ---------- ------------- ----------- ---------- ---------- ----------
David L. Pugh............ 150,000 39.2% $17.825 8/9/11 $1,681,500 $4,261,200
Bill L. Purser........... 65,000 17.0 17.825 8/9/11 728,650 1,846,520
John R. Whitten.......... 30,000 7.8 17.825 8/9/11 336,300 852,240
James T. Hopper.......... 5,000 1.3 17.825 8/9/11 56,050 142,040
Jeffrey A. Ramras........ 6,000 1.6 17.825 8/9/11 67,260 170,448
Robert C. Stinson........ 25,000 6.5 17.825 3/31/05 86,700 185,350
---------------
(1) The options' exercise price is the market price of Applied Common Stock on
the date the options were granted. The options vest 25% on each of the first
through fourth anniversaries of the grant date, subject to continuous
employment with Applied. Mr. Stinson's options vested on his retirement and
expire three years from that date.
(2) The assumed rates of appreciation were selected by the SEC for illustrative
purposes and are not intended to predict or to forecast future stock prices.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table shows information concerning stock option exercises in
fiscal 2002 by the officers named in the Summary Compensation Table, and the
values of in-the-money options held by those individuals on June 30, 2002.
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SECURITIES UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
UNDERLYING OPTIONS AT FISCAL YEAR END(2) FISCAL YEAR END(2)
OPTIONS VALUE ------------------------------ ---------------------------
NAME EXERCISED REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ----------- ----------- ------------- ----------- -------------
David L. Pugh........ 0 $ 0 107,500 292,500 $326,168 $429,113
Bill L. Purser....... 0 0 38,499 127,834 97,973 175,589
John R. Whitten...... 17,325 151,282 39,250 71,750 146,193 134,953
James T. Hopper...... 3,375 32,655 14,374 15,334 61,198 32,914
Jeffrey A. Ramras.... 0 0 12,124 14,584 70,225 27,754
Robert C. Stinson.... 17,775 155,211 93,333 0 237,604 0
---------------
(1) The values shown are the differences between the per-share stock option
exercise prices and the fair market value of Applied Common Stock on the
exercise dates, multiplied by the number of shares covered by the exercised
options.
(2) The exercisability of unexercisable officer stock options is accelerated
upon the optionee's retirement, death, or permanent and total disability, or
upon a change in control of Applied.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
In fiscal 2002, in addition to stock options, the Board's Executive
Organization & Compensation Committee awarded performance grants to the
executive officers under the 1997 Long-Term Performance Plan. A target payout
opportunity (in dollars) was established for each officer. The officer can
receive a payout at the end of the three-year performance period based on
Applied's level of achievement on goals set for the period. The goals
established for the 2002 performance grants are based on sales growth, return on
sales, and total shareholder return. Payouts, if any, will be
9
made in a combination of Applied Common Stock and cash, as determined by the
committee at the end of the period.
The following table shows the performance grants awarded in fiscal 2002 to
the officers named in the Summary Compensation Table.
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
OTHER PERIOD UNTIL ----------------------------------
NAME MATURATION OR PAYOUT THRESHOLD(1) TARGET MAXIMUM
---- -------------------- ------------ -------- --------
David L. Pugh......................... 7/1/01 - 6/30/04 $200,000 $600,000 $900,000
Bill L. Purser........................ 7/1/01 - 6/30/04 85,000 255,000 382,500
John R. Whitten....................... 7/1/01 - 6/30/04 48,333 145,000 217,500
James T. Hopper....................... 7/1/01 - 6/30/04 16,667 50,000 75,000
Jeffrey A. Ramras..................... 7/1/01 - 6/30/04 13,333 40,000 60,000
Robert C. Stinson(2).................. 7/1/01 - 6/30/04 10,417 31,250 46,875
---------------
(1) Failure to achieve threshold performance would result in no payout.
(2) As a result of his retirement, Mr. Stinson's target payout opportunity was
prorated based on the number of quarters he served during the performance
period.
EQUITY COMPENSATION PLAN INFORMATION
The following equity compensation plans have been approved by Applied's
shareholders: the 1997 Long-Term Performance Plan, the Deferred Compensation
Plan, and the Deferred Compensation Plan for Non-Employee Directors. All of
these plans are currently in effect.
The following table sets forth information regarding the number of shares
of Applied Common Stock that may be issued pursuant to equity compensation plans
or arrangements of Applied as of June 30, 2002.
NUMBER OF WEIGHTED-
SECURITIES TO BE AVERAGE
ISSUED UPON EXERCISE NUMBER OF
EXERCISE OF PRICE OF SECURITIES REMAINING
OUTSTANDING OUTSTANDING AVAILABLE FOR FUTURE
OPTIONS, OPTIONS, ISSUANCE UNDER
WARRANTS AND WARRANTS AND EQUITY
PLAN CATEGORY RIGHTS RIGHTS COMPENSATION PLANS
------------- ---------------- ------------ --------------------
Equity compensation plans approved by
security holders.......................... 2,198,704 $16.80 *
Equity compensation plans not approved by
security holders.......................... 0 -- 0
Total....................................... 2,198,704 $16.80 *
---------------
* The aggregate number of shares available for issuance under the 1997 Long-Term
Performance Plan is described on page 21 in the section, "Item 3 -- Approval
of 1997 Long-Term Performance Plan," within the paragraph, "Limitations on
Awards." Shares issuable under the Deferred Compensation Plan and the Deferred
Compensation Plan for Non-Employee Directors depend on the dollar amount of
participant contributions deemed invested in Applied Common Stock. See
"Deferred Compensation Plan" and "Deferred Compensation Plan for Non-Employee
Directors" on pages 11 and 17, respectively, for more information about
Applied's contributions to those plans.
10
ESTIMATED RETIREMENT BENEFITS
UNDER SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS PLAN(1)
The following table shows estimated annual benefits payable upon retirement
at age 65 to participating executive officers under Applied's Supplemental
Executive Retirement Benefits Plan (the "SERP").
YEARS OF SERVICE(2)(3)
-----------------------------------------
REMUNERATION(4) 5 10 15 20
--------------- -------- -------- -------- --------
$ 200,000 $ 22,500 $ 45,000 $ 67,500 $ 90,000
300,000 33,750 67,500 101,250 135,000
400,000 45,000 90,000 135,000 180,000
500,000 56,250 112,500 168,750 225,000
600,000 67,500 135,000 202,500 270,000
700,000 78,750 157,500 236,250 315,000
800,000 90,000 180,000 270,000 360,000
900,000 101,250 202,500 303,750 405,000
1,000,000 112,500 225,000 337,500 450,000
1,100,000 123,750 247,500 371,250 495,000
1,200,000 135,000 270,000 405,000 540,000
---------------
(1) Amounts shown in the table are computed on the basis of a straight life
annuity and are not subject to deduction for Social Security or other offset
amounts; provided, however, Mr. Pugh's maximum SERP benefit shall be reduced
by the monthly benefit payable to him at age 65 in a single life form under
all former employer plans and then reduced further by 50 percent of his
primary Social Security benefit.
(2) The named executive officers have the following number of years of service
with Applied for purposes of the SERP: Messrs. Ramras and Whitten, more than
20; Mr. Purser, more than 15; Mr. Hopper, more than five; and Mr. Pugh, less
than five. Upon his retirement in 2002, Mr. Stinson was awarded 1.5 years of
service in addition to the 13 years he had accrued. Plan benefits are fully
accrued after 20 years of service. Mr. Pugh's annual straight life SERP
benefit at age 65 is guaranteed to be at least $50,000. Also, if, while
employed by Applied, he dies prior to the end of his fifth year of service
with Applied, he will be deemed to have five years of service.
(3) The maximum SERP benefits set forth in the table generally reflect an
aggregate limit of 45 percent of total cash compensation reduced ratably to
the extent a participant is not credited with at least 20 years of service;
however, if Mr. Pugh is credited with at least 10 years of service under the
SERP, his maximum SERP benefits will be subject to an aggregate limit of 60
percent of total cash compensation.
(4) Amounts in this column represent, and benefits are based on, average total
cash compensation for the highest three of the last 10 calendar years.
DEFERRED COMPENSATION PLAN
The Applied Industrial Technologies, Inc. Deferred Compensation Plan (the
"Plan") permits executives to defer a portion or all of the awards payable under
the annual Management Incentive Plan. The Plan's purpose is to promote increased
efforts on behalf of Applied through increased investment in Applied Common
Stock.
The Plan gives each Management Incentive Plan participant the opportunity
to defer payment of his or her cash award. Any participant who elects to make a
deferral may have the amounts invested in Applied Common Stock and/or in a money
market fund. If a participant elects to have an amount equal to at least 50% of
a Management Incentive Plan award invested in Common Stock, then Applied
contributes an additional amount equal to 10% of the amount so invested. These
deferral and investment opportunities and the incentive for investing in Applied
Common Stock, like those available to directors under the Deferred Compensation
Plan for Non-Employee Directors, are part of an overall effort to align
management with the interests of Applied's shareholders.
Distribution of deferrals are made in a lump sum or in installments over a
period not in excess of ten years, as specified in the participant's deferral
election form. Other than dates specified in the
11
deferral election forms, a withdrawal is permitted while employed only due to a
severe financial and unexpected hardship.
Two of the executive officers named in the Summary Compensation Table on
page 8 elected to participate in the Plan in 2002. Because no awards were
payable under the 2002 Management Incentive Plan, no deferrals were made into
the Deferred Compensation Plan.
OFFICER RETENTION PROGRAM
In 2000, the Board's Executive Organization & Compensation Committee
approved a retention award program for James T. Hopper, one of the officers
named in the Summary Compensation Table on page 8. Under that program, if Mr.
Hopper remains continuously employed by Applied until January 20, 2005, he will
be paid a cash award equal to the greater of (a) 15,000 multiplied by the
difference between $16 and the average closing price of Applied's common stock
for the 20 trading days immediately prior to January 20, 2005, or (b) $170,000.
CHANGE IN CONTROL AGREEMENTS
AND OTHER RELATED ARRANGEMENTS
Applied has change in control agreements with its executive officers. The
agreements obligate Applied to provide severance benefits to any executive
officer whose employment is terminated either by the officer for "good reason"
or by Applied "without cause" (each as defined in the agreements) if the
termination occurs within three years after a change in control, as defined in
the agreements. The officer, in turn, is obligated not to compete with Applied
for one year following the termination. The principal benefits to be provided
under the agreements to the executive officers are as follows:
(a) a lump sum severance payment equal to three times annual base
salary plus incentive pay (each as calculated pursuant to the
agreements), reduced proportionately if the officer reaches age 65
within three years after termination;
(b) a cash payment, instead of exercising any stock options held by
the officer on the date of termination, equal to the difference
between the exercise price and the higher of (i) the mean of the
high and low trading prices on the New York Stock Exchange on the
date of termination, and (ii) the highest price paid for Applied
Common Stock in connection with the change in control;
(c) continued participation in Applied's employee benefit plans,
programs, and arrangements, or equivalent benefits for three years
after termination at the levels in effect immediately before
termination; and
(d) outplacement services.
An escrow account has been established with Key Trust Company of Ohio,
N.A., to secure payment of the benefits. Applied has deposited a percentage of
the amounts that would be payable to the officers under the agreements.
Additional deposits may be made in future years. No officer may make a claim on
the escrow assets unless Applied is in default under the agreement. All earnings
on the escrow assets are payable to Applied. The agreements also provide that if
any covered executive is required to pay a "parachute" excise tax, Applied will
make an additional payment to the executive in an amount sufficient (after
payment of any taxes on the additional payment) to pay the excise tax.
The agreements are intended to reinforce and encourage the continued
attention and dedication of Applied's officers to their assigned duties without
distraction in the face of the potentially disturbing circumstances arising from
the possibility of a change in control. The agreements may make it more
expensive to accomplish a change in control and could under certain
circumstances adversely affect the shareholders' ability to benefit from a
change in control. The Board of Directors
12
approved the agreements, however, because it believes that the continued
attention and dedication of the officers to their duties under adverse
circumstances are ultimately in the best interests of Applied and its
shareholders, and can under some circumstances result in a higher price being
paid to shareholders in connection with a change in control.
In addition to the benefits provided by the agreements, the 1997 Long-Term
Performance Plan provides the following benefits to executive officers if a
change in control occurs: (a) all stock options outstanding will become fully
exercisable; (b) all restrictions and conditions of stock awards will be deemed
satisfied; and (c) all cash awards (including payments made under a Management
Incentive Plan) will be deemed to have been fully earned.
Also, under the Supplemental Executive Retirement Benefits Plan, if a
participant is terminated following a change in control or is receiving or is
eligible to receive a retirement benefit at the time of the change in control,
the participant is entitled to receive the actuarial equivalent of the
participant's retirement benefit in a lump sum. In addition, upon a change in
control, actively employed participants will be credited with additional years
of service and age (up to 10 years) for benefit calculation purposes, equal to
half of the difference between the participant's age and age 65. Mr. Pugh will
be deemed to have at least 10 years of service if a change in control occurs
while he is an actively employed participant.
REPORT OF THE EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
OVERVIEW
The Executive Organization & Compensation Committee consists entirely of
independent outside directors. The committee is responsible for setting
Applied's executive officer compensation policies. The purposes of the executive
officer compensation program are to attract and retain qualified executives and
to provide appropriate incentives, both monetary and stock-based, to achieve
Applied's business strategies and to enhance shareholder value over the long
term.
The major elements of Applied's executive officer compensation program are
annual base salary and awards under the 1997 Long-Term Performance Plan.
ANNUAL BASE SALARY
In setting the officers' annual base salaries and target incentives, the
committee uses a competitive pay analysis compiled by an independent, nationally
recognized compensation and benefits consulting firm (the "Independent
Consultant"). The analysis shows the median (50(th) percentile) market base
salary and total cash compensation for each officer position. These figures are
derived from data from a number of published and private surveys, both
broadbased and for comparable industries, with all data adjusted to reflect
comparable company size. The Independent Consultant's analysis also includes
compensation and financial performance data from a group of companies in or
related to Applied's industry, including companies identified in the performance
graph on page 16.
In addition to the analysis, the committee considers an officer's
performance and levels of experience and responsibility in the position in
setting the base salary. In general, the committee's objective is to pay
experienced officers a base salary at or near the market median for the
position.
1997 LONG-TERM PERFORMANCE PLAN
(a) MANAGEMENT INCENTIVE PLAN
The annual Management Incentive Plan, adopted under the 1997 Long-Term
Performance Plan, is Applied's program for compensating executive officers for
the achievement of fiscal year goals. In general, the committee seeks to provide
an annual incentive program that permits the opportunity to achieve
substantially above the market median total cash compensation for outstanding
performance.
13
The committee reviews and discusses proposed corporate and individual
officer goals and then sets the Management Incentive Plan goals for the year. In
fiscal 2002, the committee assigned certain executive officers, including
Messrs. Pugh, Purser, Whitten, and Stinson, the corporate goals (achievement of
earnings per share and return on assets objectives) as their individual goals.
Other executive officers, including Messrs. Hopper and Ramras, had individual
goals (in addition to the corporate goals) relating specifically to the business
unit or function for which the officer is responsible. These goals varied in
relative weight. The size of the Management Incentive Plan payments depended on
the level of performance achieved on both individual and corporate goals. In
fiscal 2002, if Applied did not achieve the threshold level of performance on
the earnings per share goal, no incentive payments would be made to the officers
(even if other goals were attained).
If corporate and individual goals are met, the individual incentive payment
is based on a formula, the components of which are the market median base salary
and the responsibility percentage. The committee assigns these figures to each
executive officer after considering the Independent Consultant's analysis. For
example, Mr. Pugh's target incentive as Chairman & Chief Executive Officer in
fiscal 2002 was $517,500, being his responsibility percentage of 75% multiplied
by the market median base salary of $690,000.
In fiscal 2002, payments could range from 0% to over 200% (for outstanding
achievement levels) of the target incentive, depending on performance in
relation to the goals. Applied did not achieve the threshold level of
performance on its earnings per share goal in fiscal 2002 and, consequently, the
officers did not earn incentive awards for the second consecutive year.
Accordingly, total cash compensation was substantially below market median
levels.
(b) STOCK-BASED AND OTHER LONG-TERM AWARDS
The committee also makes long-term compensation awards because of their
value in motivating executive officers and aligning their interests with
shareholders', and to be competitive in the marketplace for executive talent. In
recent years, the committee has made the following awards to the executive
officers based on the Independent Consultant's recommendations, considering
survey long-term compensation medians and levels of officer responsibility and
performance. Stock-based awards are limited by the number of shares available
for grant under the 1997 Long-Term Performance Plan -- 2% of shares outstanding
on the first day of the fiscal year, plus shares not awarded, if any, carried
forward from prior years.
(1) STOCK OPTIONS. Since 1999, the committee has awarded non-qualified
stock options to the officers annually. The options' exercise price
is the market price of Applied Common Stock on the grant date. The
options vest 25% on each of the first through fourth anniversaries
of the grant date, subject to continuous employment with Applied,
and expire on the tenth anniversary.
(2) PERFORMANCE GRANTS. In fiscal 2002, the committee established a
performance grant program for the officers. A target dollar payout
is established for each officer. The actual payout at the end of the
three-year performance period is calculated relative to the target
based on Applied's achievement on three objective performance goals
over that period. The goals established for the 2002 performance
grants are sales growth, return on sales, and total shareholder
return. Payouts, if any, will be made at the value earned, in a
combination of Applied Common Stock and cash, as determined by the
committee at the end of fiscal 2004.
(3) PERFORMANCE-ACCELERATED RESTRICTED STOCK. In 1997, the committee
awarded performance-accelerated restricted stock ("PARS") to the
officers. PARS are awards of restricted shares of Applied Common
Stock that will vest in 2003, six years after the grant date;
however, PARS would vest earlier if performance goals based on stock
price or pre-tax return on assets ("ROA") are reached. Fifty percent
of the PARS awarded in 1997 will vest if Applied achieves either a
fiscal year ROA of 13.5%, or a stock price of $33.33 per share for
20 consecutive days. The remaining 50% will vest on the
14
achievement of either an ROA of 17.5%, or a stock price of $37.33
per share for 20 consecutive days.
BENEFITS
Benefits provided to the executive officers are those generally provided to
Applied's other associates with variations consistent with executive benefits in
the competitive marketplace.
FEDERAL INCOME TAX DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code limits the amount of
compensation a publicly held corporation may deduct as a business expense for
federal income tax purposes. That limit, which applies to the chief executive
officer and the four other most highly compensated executive officers, is $1
million per individual per year, subject to certain exceptions. One exception is
for compensation that qualifies as "performance-based."
Applied believes that the Management Incentive Plan awards, gains realized
from the exercise of stock options, and payouts of performance grants qualify as
performance-based compensation. In general, the committee seeks to preserve the
deductibility of compensation paid to Applied's executive officers, but without
compromising the committee's flexibility in designing an effective and
competitive compensation program.
EXECUTIVE ORGANIZATION &
COMPENSATION COMMITTEE
L. Thomas Hiltz
Dr. Roger D. Blackwell
William E. Butler
Dr. Jerry Sue Thornton
Stephen E. Yates
15
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN OF APPLIED,
S&P 500 INDEX, AND PEER COMPANY GROUP
The graph below compares the five-year cumulative total return from
investing $100 on June 30, 1997 in each of Applied Common Stock, the Standard
and Poor's 500 Index, and a group of eight peer companies selected on a
line-of-business basis: Airgas, Inc., Genuine Parts Company, W.W. Grainger,
Inc., Kaman Corporation, Lawson Products, Inc., MSC Industrial Direct Co., Inc.,
The Timken Company, and WESCO International, Inc.
WESCO International, Inc. was added to the peer group this year, replacing
Federal-Mogul Corporation, which filed for bankruptcy protection in October
2001. Accordingly, we are presenting returns for both the peer group used in
previous years (including Federal-Mogul Corporation) and the new peer group
(including WESCO International, Inc.).
Cumulative total return assumes that all dividends are reinvested when
received. The returns of the companies in the peer group are weighted based on
the companies' relative stock market capitalization.
LINE GRAPH
APPLIED S&P 500 PEER GROUP (OLD) PEER GROUP (NEW)
------- ------- ---------------- ----------------
1997 100 100 100 100
1998 87.17 128.09 115.68 109.48
1999 83.18 155.24 103.1 101.31
2000 73.83 164.51 58.2 65.81
2001 83.34 138.47 74.04 87.96
2002 88.07 111.94 88.5 104.52
--------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
--------------------------------------------------------------------------------
Applied 100.00 87.17 83.18 73.83 83.34 88.07
S&P 500 100.00 128.09 155.24 164.51 138.47 111.94
Peer Group (old) 100.00 115.68 103.10 58.20 74.04 88.50
Peer Group (new) 100.00 109.48 101.31 65.81 87.96 104.52
Source: Value Line, Inc.
16
COMPENSATION OF DIRECTORS
Mr. Pugh, Applied's Chairman & Chief Executive Officer, does not receive
additional compensation for service as a director. Non-employee directors
receive a quarterly retainer of $4,500, a fee of $1,500 for the first Board or
committee meeting attended per day, and $500 for each additional meeting
attended on the same day, up to a maximum of $2,500 per day. Directors may be
similarly compensated if they attend other meetings or telephone conferences at
the Chairman's request. In addition, Applied pays directors $500 for any action
taken by unanimous written consent or via telephone conference of less than 30
minutes, and directors who serve as committee chairmen receive an additional
quarterly retainer of $400. All non-employee directors are eligible to
participate in the Deferred Compensation Plan for Non-Employee Directors
described below. If participants elect to receive their director compensation in
the form of Applied Common Stock, they receive an additional amount equal to 25%
of the compensation so deferred.
Annual stock option awards are made to the non-employee directors based on
recommendations by an outside compensation consultant. The awards improve the
competitiveness of our director compensation program and assist in recruiting
and retaining directors. In fiscal 2002, each non-employee director was awarded
2,000 options with an exercise price equal to the market price for Applied
Common Stock on the grant date. The options are exercisable immediately and
expire on the tenth anniversary of the grant date.
The compensation received by directors is reviewed from time to time by the
Board's Corporate Governance Committee. If the committee believes that a change
is necessary to make the level of compensation competitive relative to the size
and nature of our business, then the committee will present its recommendation
to the Board. Approval of the change requires the affirmative vote of a majority
of the directors. The directors also participate in our travel accident plan and
may elect to participate in our contributory health insurance plan.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The purposes of our Deferred Compensation Plan for Non-Employee Directors
are to allow non-employee directors to defer the receipt of compensation payable
for director services and to promote loyalty to Applied through increased
investment in Applied Common Stock.
Pursuant to the plan, a non-employee director may elect, prior to any
calendar quarter, to defer payment of his or her compensation for future
services as a director. Once an election is made, it is irrevocable with respect
to compensation earned. Directors may change their election to receive or defer
receipt of compensation for future services commencing with the calendar quarter
following the election.
Deferred fees are invested, at a director's option, in a money market fund
and/or Applied Common Stock. As directors' compensation would otherwise become
due and payable, Applied transfers the amount deferred, in either cash or
treasury shares (depending on which option the director chooses), to a trust
maintained by Key Trust Company of Ohio, N.A. If a director elects to have his
or her compensation invested in Common Stock, then Applied contributes an
additional amount equal to 25% of the amount so invested.
Distribution of a director's account commences as designated by the
director in his or her election on a date not more than 30 days after (a) the
director's termination due to resignation, retirement, death, or otherwise, or
(b) the director's attainment of the age (not younger than 55) specified in his
or her election form; or upon a change in control (as defined in the plan) of
Applied.
As of June 30, 2002, six non-employee directors defer all of their retainer
and meeting fees and invest those fees in Applied Common Stock.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Michael Moore, an Applied director, was Chairman and Chief Executive
Officer of Invetech Company, which we acquired in 1997. In connection with the
acquisition, Applied entered into a Consulting, Noncompetition and
Confidentiality Agreement with Mr. Moore and Oak Grove Consulting Group, Inc.,
which Mr. Moore owns and of which he is president.
Oak Grove and Mr. Moore received payments from Applied during fiscal 2002
as a consequence of the following provisions of the 1997 agreement: (a) Oak
Grove agreed to perform certain business consulting services for Applied for a
period of five years in exchange for an annual fee of $70,000; (b) Mr. Moore
agreed not to compete with Applied until the end of the one-year period
following the date of termination of all of Mr. Moore's relationships with
Applied (other than as a shareholder) in exchange for $2,550,000 payable in five
equal annual installments of $510,000 beginning on July 31, 1997; and (c)
Applied agreed to pay to Oak Grove, during Mr. Moore's and his spouse's lives,
$700 per month for health insurance to be obtained by Oak Grove for Mr. Moore,
his spouse, and eligible children. The only payments now remaining under the
1997 agreement are those for health insurance.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 2002, the Board of Directors had five meetings. Each director
attended at least 75% of the total number of meetings of the Board and all
committees on which he or she served. Among the Board's committees are the
Audit, Corporate Governance, and Executive Organization & Compensation
Committees.
The AUDIT COMMITTEE recommends the appointment of independent auditors,
reviews with the independent auditors the scope of their examination, reviews
the scope of non-audit services performed by the independent auditors and
considers the effect of those services on the auditors' independence, reviews
with management and the independent auditors the results of the audit, reviews
with management the adequacy of our internal accounting controls, and reviews
with management and the independent auditors the auditors' report on internal
accounting controls and other recommendations. Thomas A. Commes, William G.
Bares, William E. Butler, Russell R. Gifford, and Edith Kelly-Green (commencing
in August 2002) serve on the committee. The Audit Committee met three times
during fiscal 2002.
The CORPORATE GOVERNANCE COMMITTEE assists the Board in Applied's
governance by reviewing and evaluating the chief executive officer's
performance, Board governance matters, director compensation, compliance with
laws, public policy matters, and other issues. In addition, beginning in fiscal
2002, the committee assumed the responsibilities of the former Director
Nominating Committee, including reviewing and evaluating potential director
nominees. William G. Bares, Thomas A. Commes, L. Thomas Hiltz, J. Michael Moore,
and Dr. Jerry Sue Thornton serve on the committee. There are no procedures
established for director nominee submissions by shareholders; the committee
would, however, consider a qualified nominee submitted in writing by
shareholders. The Corporate Governance Committee met three times, and the former
Director Nominating Committee met once, during fiscal 2002.
The EXECUTIVE ORGANIZATION & COMPENSATION COMMITTEE reviews and makes
recommendations to the Board regarding both compensation of executives and
planning for executive organization and succession. The committee also
administers the 1997 Long-Term Performance Plan, including the Management
Incentive Plan. L. Thomas Hiltz, Dr. Roger D. Blackwell, William E. Butler,
Peter A. Dorsman (commencing in August 2002), Dr. Jerry Sue Thornton, and
Stephen E. Yates serve on the committee. The Executive Organization &
Compensation Committee met five times during fiscal 2002.
The Board of Directors also has standing Executive and Futures Committees.
18
REPORT OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
The Audit Committee is composed solely of independent directors, as defined
in the New York Stock Exchange listing standards, and operates under a written
charter, which was last amended by the Board in 2000.
In performing its responsibilities relating to the audit of Applied's
consolidated financial statements for fiscal 2002, the committee reviewed and
discussed the financial statements with management and Applied's independent
auditors, Deloitte & Touche LLP. The committee also discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees."
The independent auditors provided the letter and written disclosures
required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees." The committee discussed with Deloitte &
Touche their independence and also considered whether their provision of
non-audit services to Applied is compatible with maintaining their independence.
Based on the reviews and discussions described above, the committee
recommended to the Board of Directors that the audited financial statements be
included in Applied's fiscal 2002 Annual Report on Form 10-K for filing with the
SEC.
AUDIT COMMITTEE
Thomas A. Commes
William G. Bares
William E. Butler
Russell R. Gifford
ITEM 2 -- RATIFICATION OF AUDITORS
Deloitte & Touche LLP has served as our independent auditors for many years
and has been appointed by the Board of Directors, upon the Audit Committee's
recommendation and subject to shareholder ratification, to serve again in fiscal
2003. Applied has been advised by Deloitte & Touche that no partner of the firm
has had any direct financial interest or any material indirect financial
interest in Applied or its subsidiaries or any connection during the past three
years with Applied or its subsidiaries in the capacity of promoter, underwriter,
voting trustee, director, officer, or employee.
Aggregate fees billed to Applied for fiscal 2002 by Deloitte & Touche, the
member firms of Deloitte Touche Tohmatsu, and their respective affiliates, were
as follow:
Audit fees: $346,000
Financial information systems design and implementation
fees: 0
All other fees: 381,165
Unless otherwise indicated, the accompanying proxy will be voted in favor
of ratifying the appointment of Deloitte & Touche. The affirmative vote of a
majority of the shares represented at the meeting is sufficient to constitute
ratification. If Deloitte & Touche withdraws or otherwise becomes unavailable
for reasons not presently known, the persons named as proxies will vote for
other independent auditors as they deem appropriate.
One or more representatives of Deloitte & Touche are expected to be present
at the meeting. They will have the opportunity to make a statement and will be
available to respond to appropriate questions.
19
ITEM 3 -- APPROVAL OF THE 1997 LONG-TERM PERFORMANCE PLAN TO QUALIFY
CERTAIN AWARDS THEREUNDER AS "PERFORMANCE-BASED" COMPENSATION
UNDER SECTION 162(M) OF THE INTERNAL REVENUE CODE
BACKGROUND AND REASONS FOR THE PROPOSAL
At the Annual Meeting of Shareholders held in October 1997, Applied's
shareholders approved for purposes of Section 162(m) under the Internal Revenue
Code of 1986, as amended (the "Code"), the Applied Industrial Technologies, Inc.
1997 Long-Term Performance Plan (the "Plan"). Section 162(m) of the Code limits
the amount of executive compensation a publicly held corporation may deduct as a
business expense for federal income tax purposes. That compensation limit, which
applies to the chief executive officer and the four other most highly
compensated executive officers, is $1 million per individual per year, subject
to certain exceptions, including compensation that qualifies as
"performance-based" compensation under Section 162(m) of the Code. The
regulations promulgated by the Internal Revenue Service under Section 162(m) set
forth a number of requirements that must be satisfied in order for compensation
paid under the Plan to qualify as "performance-based." One of these requirements
is that shareholders approve the Plan at least once every five years. Applied
has previously sought and received shareholder approval of the Plan. Applied is
once again seeking shareholder approval of the Plan for the sole purpose of
qualifying certain compensation awarded under the Plan as "performance-based"
under Section 162(m) and, thereby, preserving for Applied the deductibility of
compensation paid to executive officers. Applied is not otherwise seeking to
amend the Plan.
SUMMARY OF MATERIAL TERMS OF THE PLAN
The following summary is a brief description of the Plan. This summary is
qualified in its entirety by reference to the Plan and is to be interpreted
solely in accordance with the Plan, a copy of which is attached as an Appendix
to this proxy statement.
GENERAL
The Plan is designed to foster and promote the long-term growth and
performance of Applied by (i) strengthening its ability to develop and retain an
outstanding management team, (ii) motivating superior performance by means of
long-term performance related incentives, and (iii) enabling key management
employees and outside directors to participate in the long-term growth and
financial success of Applied.
BENEFITS PAYABLE TO EXECUTIVE OFFICERS AND DIRECTORS
The Plan has been in continuous effect since 1997. Awards granted under the
Plan in any fiscal year are subject to the absolute discretion of the Committee,
subject to the terms of the Plan. The Plan does not provide for automatic award
grants and the amount and nature of awards granted can and do vary from year to
year. The benefits payable under the Plan in the most recently completed fiscal
year to certain executive officers are set forth in the Summary Compensation
Table, the Option Grants Table, and the Long-Term Incentive Plan Table on pages
8 through 10. The benefits that will be received under the Plan by the executive
officers named in the Summary Compensation Table or by all executive officers as
a group, and by the non-employee directors, are not currently determinable.
ADMINISTRATION
The Plan is administered by the Executive Organization & Compensation
Committee (the "Committee") of the Board. The Committee has full and exclusive
power and authority to interpret the Plan, to grant waivers of Plan
restrictions, and to adopt rules, regulations, and guidelines for carrying out
the Plan. In particular, the Committee has authority to (i) select eligible
participants for awards under the Plan; (ii) determine the number and type of
awards to be granted; (iii) determine the terms and conditions, consistent with
the terms of the Plan, of any awards granted; (iv) adopt, alter, and repeal
administrative rules, guidelines, and practices governing the Plan; (v)
interpret the
20
terms and provisions of the Plan and any awards granted; (vi) prescribe the form
of any agreement or instrument executed in connection with any award; and (vii)
otherwise supervise the administration of the Plan. All decisions made by the
Committee are final and binding on all persons. The Committee may delegate any
of its authority under the Plan to those persons it deems appropriate, provided
that its delegation will not prevent the Plan from complying with SEC Rule
16b-3.
PARTICIPANTS
All employees of Applied, or of any subsidiary or affiliate of Applied, who
hold responsible managerial or professional positions and outside directors
whose performance, in the judgment of the Committee, can contribute to Applied's
continued growth and success are eligible to participate in the Plan. The
selection of participants is within the sole discretion of the Committee. As of
June 30, 2002, approximately 750 persons were eligible to receive awards under
the Plan.
AWARDS
Under the Plan, the Committee is authorized to grant awards in the form of
stock, any form of stock option, stock appreciation rights, performance shares,
restricted stock, other stock-based awards, or cash. Awards may be granted
singly, in combination, or in tandem under the Plan.
PERFORMANCE AWARD CRITERIA
The business criteria upon which performance goals may be established by
the Committee at the time an award is granted may include one or more of the
following: sales, costs and expenses, cash flow, pre-tax income, net income,
operating profit and margin, earnings per share, retained earnings, return on
equity, return on assets, return on investment, asset turnover, liquidity,
capitalization, value created, stock price, total shareholder return, price
measures, market share, sales to targeted customers, customer satisfaction,
employee satisfaction, safety measures, quality measures, productivity, process
improvement, educational and technical skills of employees, changes in one or
more of the preceding, development of criteria for and programs related to
hiring and promotion, creation and acquisition of new business units,
development and implementation of business plans and programs relating to
product lines or business units, integration of acquired businesses, development
and implementation of employee training and development programs, implementation
of tax and accounting elections, and development and implementation of
communications and investor relations programs. All performance goals must be
objective performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m) of the Code. Performance
goals may be based on the attainment of levels of performance of Applied and/or
any of its affiliates under one or more of the measures described above relative
to the performance of other businesses.
LIMITATIONS ON AWARDS
The maximum number of shares of Applied Common Stock with respect to which
options, stock appreciation rights, or stock awards may be granted to any
individual in any calendar year may not exceed 300,000 shares. The maximum
amount of any cash awards that may be granted to any individual in any calendar
year may not exceed $2,000,000. Subject to these limitations and to the terms
and conditions of the Plan, the aggregate number of shares of Applied Common
Stock that may be awarded under the Plan in each fiscal year may not exceed (i)
two percent (2%) of the total outstanding shares of Applied Common Stock as of
the first day of such year for which the Plan is in effect plus (ii) the number
of shares available for grant under the Plan in previous years that were
available but not the subject of awards granted in such years. Shares issued by
Applied through the assumption or substitution of outstanding grants from an
acquired corporation or entity do not reduce the number of shares available for
grants under the Plan. Shares subject to an option that is canceled (other than
upon the exercise of a related stock appreciation right) or terminated without
having been exercised, or any shares of restricted stock or performance shares
that are forfeited, are also available for awards under the Plan.
21
CANCELLATION AND RESCISSION OF AWARDS
Unless an award otherwise provides, the Committee may cancel any unexpired,
unpaid, or deferred award at any time prior to any exercise, payment or delivery
of the award (except in the event of an intervening change in control) or may
rescind during the six months after exercise, payment or delivery of the award
if (i) a participant renders services for any organization or engages directly
or indirectly in any business which, in the judgment of the Chief Executive
Officer of Applied or other senior officer designated by the Committee, is or
becomes competitive with Applied, or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of Applied or if the
participant is not in compliance with all applicable provisions of the award and
the Plan; (ii) a participant discloses to anyone outside of Applied, or uses in
other than the Applied's business, any confidential information or material
relating to the business, acquired by the participant either during or after
employment with Applied; or (iii) if, upon exercise, payment or delivery
pursuant to an award, the participant fails to certify on a form acceptable to
the Committee that he or she is in compliance with the terms and conditions of
the Plan.
STOCK OPTIONS
Under the Plan, options to purchase shares of Applied Common Stock may be
granted at an exercise price that is not less than the fair market value on the
date of grant based upon the average of the high and low prices of Applied
Common Stock on the New York Stock Exchange, as determined by the Committee. A
stock option may be in the form of an incentive stock option that, in addition
to being subject to applicable terms, conditions and limitations established by
the Committee, complies with Section 422 of the Code. Section 422 of the Code
provides that the aggregate fair market value (determined at the time the option
is granted) of Applied Common Stock exercisable for the first time by a
participant during any calendar year shall not exceed $100,000; that the
exercise price shall be not less than 100% of fair market value on the date of
the grant; and that such options shall be exercisable for a period of not more
than ten years and may be granted no later than ten years after the effective
date of this Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses certain of the United States federal income
tax consequences associated with stock options or awards granted under the Plan.
This description of tax consequences is based on current federal tax laws and
regulations and does not purport to be a complete description of the federal
income tax consequences applicable to a participant under the Plan. Accordingly,
each participant should consult with his or her own tax advisor regarding the
federal, state, and local tax consequences of the grant of a stock option or
award and any subsequent exercise.
There are no federal income tax consequences associated with the grant of a
nonqualified stock option. Upon the exercise of a nonqualified stock option, the
optionee generally must recognize ordinary compensation income (taxable at
ordinary income rates) equal to the "spread" between the exercise price and the
fair market value of the shares on the date of exercise. At the time of the sale
of the shares acquired pursuant to the exercise of a nonqualified stock option,
appreciation (or depreciation) in value of the shares after the date of exercise
will be treated as either short-term or long-term capital gain (or loss),
depending on how long the shares have been held.
There will be no regular federal income tax liability upon the grant or
exercise of an incentive stock option. However, the "spread" between the
exercise price and the fair market value of the shares on the date of exercise
will be treated as an adjustment to income for federal alternative minimum tax
purposes and may subject the optionee to the alternative minimum tax in the year
of exercise. Any gain realized on disposition of shares purchased upon exercise
of an incentive stock option will be treated as long-term capital gain for
federal income tax purposes if the shares are held for at least twelve months
after the date of the issuance of the shares pursuant to the exercise of the
incentive stock option and at least two years after the date of grant of the
incentive stock option. If
22
the shares are disposed of within twelve months after the date of issuance of
the shares or within two years after the date of grant of the incentive stock
option, the optionee will recognize ordinary compensation income (taxable at
ordinary income rates) in the amount of the lesser of (i) the disposition price
of the stock over the exercise price of the incentive stock option, or (ii) fair
market value of such shares on the date of exercise over the exercise price of
the option, plus capital gain to the extent, if any, that the disposition price
exceeds the fair market value of such shares on the date of exercise. Generally,
a recipient of a stock award consisting of a stock bonus will recognize ordinary
income at grant equal to the fair market value of the shares at the time of
grant. If, however, the shares are subject to a substantial risk of forfeiture,
the fair market value of the shares will be subject to income tax upon the
termination or such risk in the same manner as other compensation. Gain or loss
from subsequent sales of shares will be treated as short-term or long-term
capital gain or loss depending on the holding period for such shares, and taxed
accordingly. A stock award consisting of a right to purchase restricted stock
will not be subject to U.S. federal income taxation at grant. Instead, the
recipient generally must recognize ordinary compensation income equal to the
"spread" between the purchase price and the fair market value of the restricted
stock on the date the stock is purchased. If, however, the shares are subject to
a substantial risk of forfeiture, the recipient will recognize ordinary
compensation on the date of termination of such risk equal to the difference
between the purchase price and the fair market value of the stock on the date
such risk terminates. Gains or losses from subsequent sales of such shares will
be treated as short-term or long-term capital gains or losses depending on the
holding period for such shares, and taxed accordingly. The exercise of any stock
award under the Plan is conditioned on the optionee's paying or making adequate
provision for any tax required by any governmental authority to be withheld and
paid over by Applied to such governmental authority for the account of such
person with respect to such options and the exercise thereof. To the extent
compensation income is recognized by an optionee in connection with the exercise
of a nonqualified stock option or a "disqualifying disposition" of stock
obtained upon exercise of an incentive stock option, Applied generally would be
entitled to a matching compensation deduction (assuming the requisite
withholding requirements are satisfied).
CHANGE IN CONTROL
In the event of a Change in Control (as defined in the Plan) of Applied,
and except as the Board may expressly provide otherwise, (i) all stock options
or stock appreciation rights then outstanding shall become fully exercisable as
of the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all stock awards then outstanding shall be deemed
satisfied as of the date of the Change in Control, and (iii) all cash awards
shall be deemed to have been fully earned as of the date of the Change in
Control.
A complete copy of the Plan as previously approved by shareholders appears
as an Appendix to this Proxy Statement.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Applied
Common Stock present and entitled to vote at the meeting is required to approve
the amendment. The Board of Directors recommends that the shareholders vote FOR
the amendment.
23
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Applied's executive officers and directors, and persons who beneficially
own more than 10% of Applied Common Stock, must file initial reports of
ownership and reports of changes in ownership with the SEC and the New York
Stock Exchange. Copies of the reports must be furnished to Applied.
Based solely on a review of copies of forms furnished to us and written
representations from Applied's executive officers and directors, we believe that
during fiscal 2002 all filing requirements were complied with on a timely basis.
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Proposals by shareholders for inclusion in our 2003 Annual Meeting Proxy
Statement must be received by Applied's Secretary at One Applied Plaza,
Cleveland, Ohio 44115, no later than May 19, 2003. Under Ohio law, only
proposals included in the notice of meeting may be raised at a meeting of
shareholders. If you wish to nominate a candidate for director or bring any
other business from the floor of the 2003 annual meeting, you must notify the
Secretary in writing by August 22, 2003.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at the meeting. If any other matters requiring a shareholder vote arise,
including the question of adjourning the meeting, the persons named in the
accompanying proxy will vote your shares according to their judgment in the
interests of Applied.
By order of the Board of Directors.
FRED D. BAUER
Secretary
Dated: September 16, 2002
APPENDIX - 1997 Long-Term Performance Plan
24
APPENDIX
APPLIED INDUSTRIAL TECHNOLOGIES, INC.
1997 LONG-TERM PERFORMANCE PLAN
1. OBJECTIVES
The Applied Industrial Technologies, Inc. 1997 Long-Term Performance Plan
(the "Plan") is designed to foster and promote the long-term growth and
performance of the Company by: (a) strengthening the Company's ability to
develop and retain an outstanding management team, (b) motivating superior
performance by means of long-term performance related incentives and (c)
enabling key management employees and outside directors to participate in the
long-term growth and financial success of the Company. These objectives will be
promoted by awarding to such persons performance-based stock awards, restricted
stock, stock options, stock appreciation rights and/or other performance or
stock-based awards.
2. DEFINITIONS
(a) "Award" -- The grant of stock or any form of stock option, stock
appreciation right, performance share, restricted stock, other stock-based award
or cash whether granted singly, in combination or in tandem, to a Plan
Participant pursuant to such terms, conditions and limitations as the Committee
may establish in order to fulfill the objectives of the Plan.
(b) "Award Agreement" -- An agreement between the Company and a Participant
that sets forth the terms, conditions and limitations applicable to an Award.
(c) "Board" -- The Board of Directors of the Company.
(d) "Common Shares" or "shares" -- Authorized and issued or unissued shares
of common stock without par value of the Company.
(e) "Code" -- The Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" -- The Executive Organization and Compensation Committee of
the Company's Board, or such other committee of the Board that is designated by
the Board to administer the Plan. The Committee shall be constituted so as to
satisfy any applicable legal requirements including the requirements of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any similar rule which may subsequently be in effect ("Rule
16b-3"). The members shall be appointed by, and serve at the pleasure of, the
Board and any vacancy on the Committee shall be filled by the Board.
(g) "Company" -- Applied Industrial Technologies, Inc., an Ohio
corporation, and its direct and indirect subsidiaries.
(h) "Fair Market Value" -- The average of the high and low prices of Common
Shares as reported on the composite tape for securities listed on the New York
Stock Exchange for the date in question, provided that if no sales of Common
Shares were made on said exchange on that date, the average of the high and low
prices of Common Shares as reported on said composite tape for the preceding day
on which sales of Common Shares were made on said exchange.
(i) "Participant" -- Any employee of the Company, or other person whose
selection the Committee determines to be in the best interests of the Company,
to whom an Award has been made under the Plan.
(j) "Section 162(m) Employee" -- Any employee with respect to which
compensation paid is subject to the restrictions imposed by Section 162(m) of
the Code, or any similar or successor restrictions.
3. ELIGIBILITY
Persons eligible to be selected as Participants shall include employees of
the Company who hold responsible managerial or professional positions and
outside directors whose performance, in the judgment of the Committee, can
contribute to the continued growth and success of the Company. The selection of
Participants shall be within the sole discretion of the Committee. Grants may be
made to the same Participant on more than one occasion.
4. COMMON SHARES AVAILABLE FOR AWARDS
The aggregate number of Common Shares which may be awarded under the Plan
in each fiscal year of the Company, subject to adjustment as provided in Section
15 hereof, shall be two percent (2%) of the total outstanding Common Shares as
of the first day of such year for which the Plan is in effect; provided that
such number shall be increased in any year by the number of Common Shares
available for grant hereunder in previous years but not the subject of Awards
granted hereunder in such year; and provided further, that no more than two
hundred thousand (200,000) Common Shares shall be cumulatively available for the
grant of incentive stock options under the Plan and that no more than three
hundred thousand (300,000) Common Shares will be available for the grant of
Stock Options, Stock Appreciation Rights, and Stock Awards to any individual
Participant in any one calendar year. In addition, any Common Shares issued by
the Company through the assumption or substitution of outstanding grants from an
acquired corporation or entity shall not reduce the Common Shares available for
grants under the Plan. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
From time to time, the Board and appropriate officers of the Company shall
take whatever actions are necessary to file required documents with governmental
authorities and stock exchanges to make Common Shares available for issuance
pursuant to Awards. Any Common Shares subject to an Option which for any reason
is canceled (excluding shares subject to an Option canceled upon the exercise of
a related stock appreciation right ("SAR") to the extent shares are issued upon
exercise of such SAR) or terminated without having been exercised, or any shares
of Restricted Stock or Performance Shares which are forfeited, shall again be
available for Awards under the Plan. No fractional shares shall be issued, and
the Committee shall determine the manner in which fractional share value shall
be treated.
5. ADMINISTRATION
The Plan shall be administered by the Committee which shall have full and
exclusive power and authority to interpret the Plan, to grant waivers of Plan
restrictions and to adopt such rules, regulations and guidelines for carrying
out the Plan as it may deem necessary or proper, all of which powers shall be
executed in the best interests of the Company and in keeping with the objectives
of the Plan. In particular, the Committee shall have the authority to: (i)
select eligible Participants as recipients of Awards; (ii) determine the number
and type of Awards to be granted; (iii) determine the terms and conditions, not
inconsistent with the terms hereof, of any Award granted; (iv) adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable; (v) interpret the terms and
provisions of the Plan and any Award granted; (vi) prescribe the form of any
agreement or instrument executed in connection with any Award; and (vii)
otherwise supervise the administration of the Plan. In addition, the Board shall
have authority, without amending the Plan, to grant Awards hereunder to
Participants who are foreign nationals or employed outside the United States or
both, on terms and conditions different from those specified herein as may in
the sole judgment and discretion of the Board, be necessary or desirable to
further the purpose of the Plan. All decisions made by the Committee pursuant to
the provisions hereof shall be made in the Committee's sole discretion and shall
be final and binding on all persons.
2
6. DELEGATION OF AUTHORITY
The Committee may to the extent that any such action will not prevent the
Plan from complying with Rule 16b-3, delegate any of its authority hereunder to
such persons as it deems appropriate.
7. AWARDS
The Committee shall determine the type or types of Award(s) to be made to
each Participant and shall set forth in the related Award Agreement the terms,
conditions and limitations applicable to each Award. Awards may include but are
not limited to those listed in this Section 7. Awards may be granted singly, in
combination or in tandem or in exchange for a previously granted Award; provided
that the exercise price for stock options shall not be less than the Fair Market
Value on the date of grant of the new Award. Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under any other employee plan of the Company, including the plan of
any acquired entity.
(a) Stock Option -- A grant of a right to purchase a specified number of
Common Shares during a specified period and at a specified price not less than
the Fair Market Value on the date of grant, as determined by the Committee. A
stock option may be in the form of an incentive stock option ("ISO") which, in
addition to being subject to applicable terms, conditions and limitations
established by the Committee, complies with Section 422 of the Code which, among
other limitations, currently provides that the aggregate Fair Market Value
(determined at the time the option is granted) of Common Shares exercisable for
the first time by a Participant during any calendar year shall not exceed
$100,000 (or such other limit as may be required by the Code); that the exercise
price shall be not less than 100% of Fair Market Value on the date of the grant;
that such options shall be exercisable for a period of not more than ten years
and may be granted no later than ten years after the effective date of this
Plan.
(b) Stock Appreciation Right or SAR -- A right to receive a payment, in
cash and/or Common Shares, equal to the excess of the Fair Market Value or other
specified valuation of a specified number of Common Shares on the date the SAR
is exercised over the Fair Market Value or other specified valuation on the date
of grant of the SAR as set forth in the applicable Award Agreement, except that
where the SAR is granted in tandem with a stock option, the grant and exercise
valuations must be no less than Fair Market Value.
(c) Stock Award -- An Award made in Common Shares and other Awards that are
valued in whole or in part by reference to, or are otherwise based on, Common
Shares. All or part of any stock award may be subject to conditions established
by the Committee, and set forth in the Award Agreement.
(d) Cash Award -- An Award denominated in cash with the eventual payment
amount subject to future service and such other restrictions and conditions as
may be established by the Committee, and as set forth in the Award Agreement.
The maximum amount of any Cash Award payable to any Participant in any one
calendar year shall be two million dollars ($2,000,000).
(e)(1) With respect to grants of Awards to any Section 162(m) Employee, the
Stock Awards and Cash Awards made pursuant to paragraphs (c) and (d) shall be
based on the satisfaction of performance goals established by the Committee at
the time an Award is granted, which goals shall include one or more of the
following: sales, costs and expenses, cash flow, pre-tax income, net income,
operating profit and margin, earnings per share, retained earnings, return on
equity, return on assets, return on investment, asset turnover, liquidity,
capitalization, value created, stock price, total shareholder return, price
measures, market share, sales to targeted customers, customer satisfaction,
employee satisfaction, safety measures, quality measures, productivity, process
improvement, educational and technical skills of employees, changes in one or
more of the preceding, development of criteria for and programs related to
hiring and promotion, creation and acquisition of new business units,
development and implementation of business plans and programs relating to
product lines or business units, integration of acquired businesses, development
and implementation
3
of employee training and development programs, implementation of tax and
accounting elections, and development and implementation of communications and
investor relations programs; provided however, that all performance goals shall
be objective performance goals satisfying the requirements for
"performance-based compensation" within the meaning of Section 162(m)(4) of the
Code. Such performance goals may also be based on the attainment of levels of
performance of the Company and/or any of its affiliates under one or more of the
measures described above relative to the performance of other businesses.
(2) With respect to grants of Awards to any Participant who is not a
Section 162(m) Employee, the Awards may be based on any of the goals described
in paragraph (1) and on such other conditions as may be established by the
Committee.
8. PAYMENT OF AWARDS
Payment of Awards may be made in the form of cash, Common Shares or
combinations thereof and may include such restrictions as the Committee shall
determine, including in the case of Common Shares, restrictions on transfer and
forfeiture provisions. When transfer of shares is so restricted or subject to
forfeiture provisions, such shares are referred to as "Restricted Stock."
Further, with Committee approval, payments may be deferred, either in the form
of installments or a future lump sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards in
accordance with procedures established by the Committee to assure that such
deferrals comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for payment
after retirement. Any deferred payment, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may require the payment to
be forfeited in accordance with the provisions of Section 13 of the Plan.
Dividends or dividend equivalent rights may be extended to and made part of any
Award denominated in shares or units of shares, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payments denominated in
shares or units of shares. At the discretion of the Committee, a Participant may
be offered an election to substitute an Award for another Award or Awards of the
same or different type; provided that Awards may not be made to substitute for
previously granted stock options having higher exercise prices.
9. STOCK OPTION EXERCISE
The price at which shares may be purchased under a stock option shall be
paid in full at the time of the exercise in cash or, if permitted by the
Committee, by means of tendering Common Shares or surrendering another Award,
including Restricted Stock, valued at Fair Market Value on the date of exercise,
or by any other means which the Committee determines to be consistent with the
Plan's objectives and applicable law and regulations. The Committee shall
determine acceptable methods for tendering Common Shares or other Awards and may
impose such conditions on the use of Common Shares or other Awards to exercise a
stock option as it deems appropriate. In the event shares of Restricted Stock
are tendered as consideration for the exercise of a stock option, a number of
the shares issued upon the exercise of the stock option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be subject to
the same restrictions as the Restricted Stock so submitted plus any additional
restrictions that may be imposed by the Committee.
10. TAX WITHHOLDING
The Company shall have the authority to withhold, or to require a
Participant to remit to the Company, prior to issuance or delivery of any shares
or cash hereunder, an amount sufficient to satisfy federal, state and local tax
withholding requirements associated with any Award. In addition, the Company
may, in its sole discretion, permit a Participant to satisfy any tax withholding
requirements, in whole or in part, by (i) delivering to the Company shares of
common stock held by
4
such Participant having a Fair Market Value equal to the amount of the tax or
(ii) directing the Company to retain Common Shares otherwise issuable to the
Participant under the Plan. If Common Shares are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value when the
tax withholding is required to be made.
11. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THIS PLAN
The Board may amend, modify, suspend or terminate the Plan for the purpose
of meeting or addressing any changes in legal requirements or for any other
purpose permitted by law. Subject to changes in law or other legal requirements
which would permit otherwise, the Plan may not be amended without consent of the
holders of the majority of the Common Shares then outstanding, to (i) increase
the aggregate number of Common Shares that may be issued under the Plan (except
for adjustments pursuant to the Plan), (ii) materially modify the requirements
as to eligibility for participation in the Plan, or (iii) withdraw
administration of the Plan from the Committee.
The Board may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent and no such amendment shall have the effect,
with respect to any Section 162(m) Employee, of increasing the amount of any
Award from the amount that would otherwise be payable pursuant to the formula
and/or goals previously established for such Participant. The Board may also
make Awards hereunder in replacement of, or as alternatives to, Awards
previously granted to Participants, except for previously granted options having
higher exercise prices, but including without limitation grants or rights under
any other plan of the Company or of any acquired entity.
12. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred and unpaid Awards shall be exercisable or paid in
accordance with the applicable Award Agreement, which may provide that the
Committee may authorize, as it deems appropriate, the acceleration and/or
continuation of all or any part of Awards granted prior to such termination.
13. CANCELLATION AND RESCISSION OF AWARDS
Unless the Award Agreement specifies otherwise, the Committee may cancel
any unexpired, unpaid, or deferred Awards at any time if the Participant is not
in compliance with all other applicable provisions of the Award Agreement, the
Plan and with the following conditions:
(a) A Participant shall not render services for any organization or
engage directly or indirectly in any business which, in the judgment of the
Chief Executive Officer of the Company or other senior officer designated
by the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization
or business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For Participants whose employment has terminated,
the judgment of the Chief Executive Officer shall be based on the
Participant's position and responsibilities while employed by the Company,
the Participant's post-employment responsibilities and position with the
other organization or business, the extent of past, current and potential
competition or conflict between the Company and the other organization or
business, the effect on the Company's customers, suppliers and competitors
of the Participant's assuming the post-employment position, and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be free, however, to
purchase as an investment or otherwise, stock or other securities of such
organization or business so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does
not represent a substantial investment to the Participant or a greater than
one percent (1%) equity interest in the organization or business.
(b) A Participant shall not, without prior written authorization from
the Company, disclose to anyone outside the Company, or use in other than
the Company's business, any confidential
5
information or material relating to the business of the Company, acquired
by the Participant either during or after employment with the Company.
(c) Upon exercise, payment or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he or
she is in compliance with the terms and conditions of the Plan. Failure to
comply with the provisions of paragraph (a), (b) or (c) of this Section 13
prior to, or during the six months after, any exercise, payment or delivery
pursuant to an Award (except in the event of an intervening Change in
Control as defined below) shall cause such exercise, payment or delivery to
be rescinded. The Company shall notify the Participant in writing of any
such rescission within two years after such exercise, payment or delivery.
Within ten days after receiving such a notice from the Company, the
Participant shall pay to the Company the amount of any gain realized or
payment received as a result of the rescinded exercise, payment or delivery
pursuant to an Award. Such payment shall be made either in cash or by
returning to the Company the number of Common Shares that the Participant
received in connection with the rescinded exercise, payment or delivery.
14. NONASSIGNABILITY
Except as may be otherwise provided in the relevant Award Agreement, no
Award or any benefit under the Plan shall be assignable or transferable, or
payable to or exercisable by, anyone other than the Participant to whom it was
granted.
15. ADJUSTMENTS; WAIVER OF RESTRICTIONS
(a) In the event of any change in capitalization of the Company by reason
of a stock split, stock dividend, combination, reclassification of shares,
recapitalization, merger, consolidation, exchange of shares, spin-off, spin-out
or other distribution of assets to shareholders, or similar event, the Committee
may adjust proportionally (i) the Common Shares (1) reserved under the Plan, (2)
available for ISOs and (3) covered by outstanding Awards denominated in stock or
units of stock; (ii) the stock prices related to outstanding Awards; and (iii)
the appropriate Fair Market Value and other price determinations for such
Awards. In the event of any other change affecting the Common Shares or any
distribution (other than normal cash dividends) to holders of capital stock,
such adjustments as may be deemed equitable by the Committee, shall be made to
give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to issue or assume stock options,
whether or not in a transaction to which Section 424 of the Code applies, by
means of substitution of new options for previously issued options or an
assumption of previously issued options.
(b) The Board may, in its sole discretion, based on such factors as the
Board may deem appropriate, waive in whole or in part, any remaining
restrictions or vesting requirements in connection with any Award hereunder.
16. CHANGE IN CONTROL
(a) In the event of a Change in Control (as defined below) of the Company,
and except as the Board may expressly provide otherwise, (i) all Stock Options
or Stock Appreciation Rights then outstanding shall become fully exercisable as
of the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all Stock Awards then outstanding shall be deemed
satisfied as of the date of the Change in Control, and (iii) all Cash Awards
shall be deemed to have been fully earned as of the date of the Change in
Control.
(b) A "Change in Control" of the Company shall have occurred when any of
the following events shall occur:
(i) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and immediately after such
merger, consolidation or reorganization less
6
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;
(ii) The Company sells all or substantially all of its assets to any
other corporation or other legal person, and less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale are held in the aggregate
by the holders of Voting Stock of the Company immediately prior to such
sale;
(iii) There is a report filed or required to be filed on Schedule 13D
on Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Exchange Act, disclosing that any person (as
the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or more
of the combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors of the Company ("Voting
Stock");
(iv) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof, provided,
however, that for purposes of this clause (v), each director who is first
elected, or first nominated for election by the Company's stockholders by a
vote of at least two-thirds of the directors of the Company (or a committee
thereof) then still in office who were directors of the Company at the
beginning of any such period will be deemed to have been a director of the
Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 16(b)(iii) or (iv)
hereof, unless otherwise determined in a specific case by majority vote of the
Board, a "Change in Control" shall not be deemed to have occurred for purposes
of the Plan solely because (i) the Company, (ii) an entity in which the Company
directly or indirectly beneficially owns 50% or more of the voting securities or
interest, or (iii) any Company-sponsored employee stock ownership plan or any
other employee benefit plan of the Company, either files or becomes obligated to
file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) under the Exchange Act, disclosing beneficial ownership
by it of shares of Voting Stock, whether in excess of 20% or otherwise, or
because the Company reports that a change in control of the Company has or may
have occurred or will or may occur in the future by reason of such beneficial
ownership.
17. NOTICE
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Chief Financial Officer or to the Chief Executive
Officer of the Company, and shall become effective when it is received by the
office of the Chief Financial Officer or the Chief Executive Officer.
18. UNFUNDED PLAN
Insofar as it provides for Awards of cash and Common Shares, the Plan shall
be unfunded. Although bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Common Shares or rights thereto under the
Plan, any such accounts shall be used merely as a
7
bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Shares or rights
thereto, nor shall the Plan be construed as providing for such segregation, nor
shall the Company nor the Board nor the Committee be deemed to be a trustee of
any cash, Common Shares or rights thereto to be granted under the Plan. Any
liability of the Company to any Participant with respect to a grant of cash,
Common Shares or rights thereto under the Plan shall be based solely upon any
contractual obligations that may be created by the Plan and any Award Agreement;
no such obligation of the Company shall be deemed to be secured by any pledge or
other encumbrance on any property of the Company. Neither the Company nor the
Board nor the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.
19. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the Code or the securities laws of the
United States, shall be governed by the law of the State of Ohio and construed
accordingly.
20. RIGHTS OF EMPLOYEES
Nothing in the Plan shall interfere with or limit in any way the right of
the Company or any subsidiary to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continued employment with the
Company or any subsidiary.
21. STATUS OF AWARDS
Awards hereunder shall not be deemed compensation for purposes of computing
benefits under any retirement plan of the Company and shall not affect any
benefits under any other benefit plan now or hereafter in effect under which the
availability or amount of benefits is related to the level of compensation.
22. EFFECTIVE AND TERMINATION DATES
The Plan shall become effective on the date it is approved by the holders
of a majority of the Common Shares then outstanding. The Plan shall continue in
effect until terminated by the Board pursuant to Section 11.
-------------------------------------------------------------------------------
PROXY - APPLIED INDUSTRIAL TECHNOLOGIES, INC.
-------------------------------------------------------------------------------
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints David L. Pugh, Bill L. Purser, and John R. Whitten, and
each of them, as Proxies, with full power of substitution, to attend the Annual
Meeting of Shareholders of Applied Industrial Technologies, Inc., on October 22,
2002, and any adjournments, and to represent and vote the shares which the
undersigned is entitled to vote on the following matters as directed on the
reverse side:
(The Board of Directors recommends a vote FOR Items 1, 2, and 3)
1. Election of Directors of Class III (for a term of 3 years). The nominees are
William E. Butler, Russell R. Gifford, L. Thomas Hiltz, and David L. Pugh.
2. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the current fiscal year.
3. Approval of the 1997 Long-Term Performance Plan.
4. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2, AND 3.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE OR VOTE BY TELEPHONE OR
INTERNET PURSUANT TO THE INSTRUCTIONS BELOW.
SEE REVERSE SIDE
INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK - EASY - IMMEDIATE - AVAILABLE 24 HOURS A DAY - 7 DAYS A WEEK
We encourage you to take advantage of the new and convenient ways to vote your
shares. If voting by proxy, this year you may vote by mail, or choose one of the
two methods described below. Your telephone or Internet vote has the same effect
as if you marked, signed, and returned your proxy card. Votes by telephone or
the Internet must be received by Sunday, October 20, 2002. To vote by telephone
or the Internet, read the accompanying proxy statement and then follow these
easy steps:
--------------------------------------- -----------------------------------
TO VOTE BY PHONE TO VOTE BY INTERNET
--------------------------------------- -----------------------------------
- Call toll free 1-800-811-1549 in - Go to the following web site:
the United States or Canada any WWW.COMPUTERSHARE.COM/US/PROXY
time on a touch tone telephone.
There is NO CHARGE to you for the call. - Enter the information requested
on your computer screen,
including your HOLDER ACCOUNT
- Enter the HOLDER ACCOUNT NUMBER and NUMBER and your PROXY ACCESS
PROXY ACCESS NUMBER located below. NUMBER located below.
- Follow the simple instructions
- Follow the simple recorded instructions. on the screen.
Option 1: To vote as the Board of Directors
recommends on ALL proposals: Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on EACH proposal
separately, press 0 and follow the simple
recorded instructions.
HOLDER ACCOUNT NUMBER PROXY ACCESS NUMBER
If you vote by telephone or the Internet, DO NOT mail back this proxy card.
THANK YOU FOR VOTING!
008N3D
[LOGO] APPLIED
Industrial Technologies(R)
__________________________
Value Through Innovation
CONTROL NUMBER
+
000000 0000000000 0 0000
[BAR CODE] 000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3 C 1234567890 JNT
ADD 4
ADD 5
ADD 6 [BAR CODE]
Use a BLACK pen. Mark with Mark this box with an X if you have
an X inside the grey areas [ ] [ ] made changes to your name or
as shown in this example. address details above.
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
--------------------------------------------------------------------------------
A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET
AND TELEPHONE VOTING INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD
01 - William E. Butler / / / /
02 - Russell R. Gifford / / / /
03 - L. Thomas Hiltz / / / /
04 - David L. Pugh / / / /
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
FOR AGAINST ABSTAIN
2. Ratification of appointment of independent auditors./ / / / / /
3. Approval of 1997 Long-Term Performance Plan. / / / / / /
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Note: Please sign exactly as name appears on this card. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title.
Signature 1 - Please keep signature within the box
__________________________________________________
Signature 2 - Please keep signature within the box
__________________________________________________
Date (mm/dd/yyyy)
/ / 2 0 0 2
__________________________
1 U P X H H H P P P P 0011141 +
001CD40001 008N2C
--------------------------------------------------------------------------------
PROXY - APPLIED INDUSTRIAL TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints David L. Pugh, Bill L. Purser, and John R. Whitten, and
each of them, as Proxies, with full power of substitution, to attend the Annual
Meeting of Shareholders of Applied Industrial Technologies, Inc., on October 22,
2002, and any adjournments, and to represent and vote the shares which the
undersigned is entitled to vote on the following matters as directed on the
reverse side:
(The Board of Directors recommends a vote FOR Items 1, 2, and 3)
1. Election of Directors of Class III (for a term of 3 years). The nominees
are William E. Butler, Russell R. Gifford, L. Thomas Hiltz, and
David L. Pugh.
2. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the current fiscal year.
3. Approval of the 1997 Long-Term Performance Plan.
4. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2, AND 3.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
SEE REVERSE SIDE
008N5C
[LOGO] APPLIED
Industrial Technologies(R)
__________________________
Value Through Innovation
+
[BAR CODE] 000000 0000000000 0 0000
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY)
ADD 1
ADD 2 HOLDER ACCOUNT NUMBER
ADD 3 C 1234567890 JNT
ADD 4
ADD 5
ADD 6 [BAR CODE]
Use a BLACK pen. Mark with Mark this box with an X if you have
an X inside the grey areas [ ] [ ] made changes to your name or
as shown in this example. address details above.
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
--------------------------------------------------------------------------------
A ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD
01 - William E. Butler / / / /
02 - Russell R. Gifford / / / /
03 - L. Thomas Hiltz / / / /
04 - David L. Pugh / / / /
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
FOR AGAINST ABSTAIN
2. Ratification of appointment of independent auditors./ / / / / /
3. Approval of 1997 Long-Term Performance Plan. / / / / / /
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Note: Please sign exactly as name appears on this card. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title.
Signature 1 - Please keep signature within the box
__________________________________________________
Signature 2 - Please keep signature within the box
__________________________________________________
Date (mm/dd/yyyy)
/ / 2 0 0 2
__________________________
1 U P X H H H P P P P 0011144 +
001CD40001 008N4C
--------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS - APPLIED INDUSTRIAL TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
TO: KEY TRUST COMPANY OF OHIO, N.A., TRUSTEE (THE "TRUSTEE") FOR
APPLIED INDUSTRIAL TECHNOLOGIES, INC. RETIREMENT SAVINGS PLAN (THE "PLAN")
I, the undersigned, as a Participant in the Plan, instruct the Trustee to vote
(in person or by proxy) all shares of Common Stock of Applied Industrial
Technologies, Inc. allocated to my account and any shares not otherwise directed
under the Plan on the record date for the Annual Meeting of Shareholders to be
held on October 22, 2002.
(The Board of Directors recommends a vote FOR Items 1, 2, and 3)
1. Election of Directors of Class III (for a term of 3 years). The nominees are
William E. Butler, Russell R. Gifford, L. Thomas Hiltz, and David L. Pugh.
2. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the current fiscal year.
3. Approval of the 1997 Long-Term Performance Plan.
4. In its discretion, the Trustee is authorized to vote on such other business
as may properly come before the meeting.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2, AND 3.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS CARD PROMPTLY
USING THE ENCLOSED ENVELOPE OR VOTE BY TELEPHONE OR
INTERNET PURSUANT TO THE INSTRUCTIONS BELOW.
SEE REVERSE SIDE
INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK - EASY - IMMEDIATE - AVAILABLE 24 HOURS A DAY - 7 DAYS A WEEK
We encourage you to take advantage of the new and convenient ways to vote your
shares. If voting by proxy, this year you may vote by mail, or choose one of the
two methods described below. Your telephone or Internet vote has the same effect
as if you marked, signed, and returned your voting instructions card. Votes by
telephone or the Internet must be received by Sunday, October 20, 2002. To vote
by telephone or the Internet, read the accompanying proxy statement and then
follow these easy steps:
---------------------------------- -------------------------------------
TO VOTE BY PHONE TO VOTE BY INTERNET
---------------------------------- -------------------------------------
- Call toll free 1-800-816-8897 in - Go to the following web site:
the United States or Canada any WWW.COMPUTERSHARE.COM/US/PROXY
time on a touch tone telephone.
There is NO CHARGE to you for the call. - Enter the information requested
on your computer screen,
- Enter the HOLDER ACCOUNT NUMBER including HOLDER ACCOUNT
and PROXY ACCESS NUMBER NUMBER and your PROXY ACCESS
located below. NUMBER located below.
- Follow the simple recorded instructions. - Follow the simple instructions
on the screen.
Option 1: To vote as the Board of Directors
recommends on ALL proposals: Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on EACH proposal
separately, press 0 and follow the simple
recorded instructions.
HOLDER ACCOUNT NUMBER PROXY ACCESS NUMBER
If you vote by telephone or the Internet, DO NOT mail back this proxy card.
THANK YOU FOR VOTING!
008N9E
[LOGO] APPLIED
Industrial Technologies(R)
__________________________
Value Through Innovation
CONTROL NUMBER
+
[BAR CODE] 000000 0000000000 0 0000
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3 C 1234567890 JNT
ADD 4
ADD 5
ADD 6 [BAR CODE]
Use a BLACK pen. Mark with Mark this box with an X if you have
an X inside the grey areas [ ] [ ] made changes to your name or
as shown in this example. address details above.
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD - RETIREMENT SAVINGS PLAN
--------------------------------------------------------------------------------
A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET
AND TELEPHONE VOTING INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD
01 - William E. Butler / / / /
02 - Russell R. Gifford / / / /
03 - L. Thomas Hiltz / / / /
04 - David L. Pugh / / / /
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
FOR AGAINST ABSTAIN
2. Ratification of appointment of independent auditors./ / / / / /
3. Approval of 1997 Long-Term Performance Plan. / / / / / /
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Note: Please sign exactly as name appears on this card. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title.
Signature 1 - Please keep signature within the box
__________________________________________________
Signature 2 - Please keep signature within the box
__________________________________________________
Date (mm/dd/yyyy)
/ / 2 0 0 2
__________________________
1 U P X H H H P P P P 0011142 +
001CD40001 008N6C
-------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS - APPLIED INDUSTRIAL TECHNOLOGIES, INC.
-------------------------------------------------------------------------------
TO: KEY TRUST COMPANY OF OHIO, N.A., TRUSTEE (THE "TRUSTEE") FOR
APPLIED INDUSTRIAL TECHNOLOGIES, INC. SUPPLEMENTAL DEFINED CONTRIBUTION
PLAN (THE "PLAN")
I, the undersigned, as a Participant in the Plan, instruct the Trustee to
vote (in person or by proxy) all shares of Common Stock of Applied Industrial
Technologies, Inc. allocated to my account under the Plan on the record date for
the Annual Meeting of Shareholders to be held on October 22, 2002.
(The Board of Directors recommends a vote FOR Items 1, 2, and 3)
1. Election of Directors of Class III (for a term of 3 years). The nominees
are William E. Butler, Russell R. Gifford, L. Thomas Hiltz, and David L.
Pugh.
2. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the current fiscal year.
3. Approval of the 1997 Long-Term Performance Plan.
4. In its discretion, the Trustee is authorized to vote on such other
business as may properly come before the meeting.
WHEN PROPERLY EXECUTED, THESE INSTRUCTIONS WILL BE VOTED IN THE MANNER
DIRECTED ON THE REVERSE SIDE OF THIS CARD; IF YOU DO NOT PROVIDE DIRECTION, THIS
PROXY WILL BE VOTED FOR ITEMS 1, 2, AND 3.
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE OR VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS BELOW.
SEE REVERSE SIDE
INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
QUICK - EASY - IMMEDIATE - AVAILABLE 24 HOURS A DAY - 7 DAYS A WEEK
We encourage you to take advantage of the new and convenient ways to vote your
shares. If voting by proxy, this year you may vote by mail, or choose one of the
two methods described below. Your telephone or Internet vote has the same effect
as if you marked, signed, and returned your voting instructions card. Votes by
telephone or the Internet must be received by Sunday, October 20, 2002. To vote
by telephone or the Internet, read the accompanying proxy statement and then
follow these easy steps:
--------------------------------------- -----------------------------------
TO VOTE BY PHONE TO VOTE BY INTERNET
--------------------------------------- -----------------------------------
- Call toll free 1-800-811-1531 in - Go to the following web site:
the United States or Canada any WWW.COMPUTERSHARE.COM/US/PROXY
time on a touch tone telephone.
There is NO CHARGE to you for the call. - Enter the information requested
on your computer screen,
including your HOLDER ACCOUNT
- Enter the HOLDER ACCOUNT NUMBER and NUMBER and your PROXY ACCESS
PROXY ACCESS NUMBER located below. NUMBER located below.
- Follow the simple instructions
- Follow the simple recorded instructions. on the screen.
Option 1: To vote as the Board of Directors
recommends on ALL proposals: Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on EACH proposal
separately, press 0 and follow the simple recorded instructions.
HOLDER ACCOUNT NUMBER PROXY ACCESS NUMBER
If you vote by telephone or the Internet, DO NOT mail back this proxy card.
THANK YOU FOR VOTING!
008N8E
[LOGO] APPLIED
Industrial Technologies(R)
__________________________
Value Through Innovation
CONTROL NUMBER
+
[BAR CODE] 000000 0000000000 0 0000
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY)
ADD 1
ADD 2 HOLDER ACCOUNT NUMBER
ADD 3 C 1234567890 JNT
ADD 4
ADD 5
ADD 6 [BAR CODE]
Use a BLACK pen. Mark with Mark this box with an X if you have
an X inside the grey areas [ ] [ ] made changes to your name or
as shown in this example. address details above.
--------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD - SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
--------------------------------------------------------------------------------
A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET
AND TELEPHONE VOTING INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD
01 - William E. Butler / / / /
02 - Russell R. Gifford / / / /
03 - L. Thomas Hiltz / / / /
04 - David L. Pugh / / / /
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
FOR AGAINST ABSTAIN
2. Ratification of appointment of independent auditors./ / / / / /
3. Approval of 1997 Long-Term Performance Plan. / / / / / /
C AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Note: Please sign exactly as name appears on this card. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title.
Signature 1 - Please keep signature within the box
__________________________________________________
Signature 2 - Please keep signature within the box
__________________________________________________
Date (mm/dd/yyyy)
/ / 2 0 0 2
__________________________
1 U P X H H H P P P P 0011143 +
001CD40001 008N7C