PARKER-HANNIFIN CORPORATION
CHANGE IN CONTROL SEVERANCE PLAN
The Board of Directors of Parker-Hannifin Corporation
(the "Company") has determined that it is in the best interests of
the Company and its stockholders to secure the continued services
and dedication and objectivity of its management employees in the
event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change
in Control (as defined in Section 1(c)) of the Company, without
concern as to whether such employees might be hindered or
distracted by personal uncertainties and risks created by any such
possible Change in Control. To encourage the full attention and
dedication to the Company by such employees, the Board has
authorized the Company to adopt the Parker-Hannifin Corporation
Change in Control Severance Plan (the "Plan").
1. Definitions. As used in this Plan, the following
terms shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by a Participant
(as defined in Section 1(i)) of the duties and responsibilities of
the Participant (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and
deliberate on the Participant's part, which is committed in bad
faith or without reasonable belief that such breach is in the best
interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company
specifying such breach or (2) the commission by the Participant of
a felony involving moral turpitude. The determination of Cause
shall be made by the Board unless expressly delegated in writing by
the Board to the
Compensation Committee of the Board (the "Committee"). Cause shall not exist
unless and until the Company has delivered to the Participant a copy of a
resolution duly adopted by three-quarters (3/4) of the Board (or a majority of
the Committee) at a meeting of the Board (or the Committee) called and
held for such purpose (after reasonable notice to the Participant
and an opportunity for the Participant, together with the Participant's
counsel, to be heard before the Board or the Committee, as the case may be),
finding that in the good faith opinion of the Board (or the Committee) the
Participant was guilty of the conduct set forth in this Section 1(b) and
specifying the particulars thereof in detail. The Company must notify the
Participant that it believes "Cause" has occurred within ninety (90) days of
its knowledge of the event or condition constituting Cause. For the purposes
of clause (1) above, any act, or failure to act, by the Participant based upon
authority given pursuant to a resolution duly adopted by the Board or based
upon the advice of counsel for the Company shall be conclusively presumed to
be done, or omitted to be done, by the Participant in good faith and in the
best interests of the Company.
(c) "Change in Control" means the occurrence of one of
the following events:
(i) any "person" (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934 (the
"Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act) is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of
the Board (the "Company Voting Securities"); provided,
however,
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that the event described in this paragraph shall not be deemed
to be a Change in Control by virtue of any of the following
situations: (A) an acquisition by the Company or direct or
indirect majority-owned subsidiaries of the Company; (B) an
acquisition by any employee benefit plan sponsored or
maintained by the Company or any corporation controlled by the
Company; (C) an acquisition by any underwriter temporarily
holding securities pursuant to an offering of such securities;
(D) a Non-Control Transaction (as defined in paragraph (iii));
(E) with respect to a Participant, any acquisition by the
Participant or any group of persons including the Participant;
or (F) the acquisition of Company Voting Securities from the
Company, if a majority of the Board approves a resolution
providing expressly that the acquisition pursuant to this
clause (F) does not constitute a Change in Control under this
paragraph (i);
(ii) individuals who, at the beginning of any
period of twenty-four (24) consecutive months, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that (A) any
person becoming a director subsequent to the beginning of such
twenty-four (24) month period, whose election, or nomination
for election, by the Company's shareholders was approved by a
vote of at least two-thirds of the directors comprising the
Incumbent Board (either by a specific vote or by approval of
the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such
nomination) shall be, for purposes of this paragraph (ii),
considered as though such person were a member of the
Incumbent Board; provided, however, that no individual
initially
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elected or nominated as a director of the Company as a result
of an actual or threatened election contest with respect to
directors or any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than
the Board shall be deemed to be a member of the Incumbent
Board;
(iii) a merger or consolidation or similar form of
corporate reorganization, or sale or other disposition of all
or substantially all of the assets, of the Company (a
"Business Combination") is consummated, unless immediately
following such Business Combination: (A) more than 55% of the
total voting power of the corporation resulting from such
Business Combination (including, without limitation, for
purposes of making such 55% determination, any shares owned
through any entity which directly or indirectly has beneficial
ownership of the Company Voting Securities or all or
substantially all of the Company's assets) eligible to elect
directors of such corporation is represented by shares held by
shareholders of the Company immediately prior to such Business
Combination (either by remaining outstanding or being
converted), (B) no person (other than any holding company
resulting from such Business Combination, any employee benefit
plan sponsored or maintained by the Company (or the
corporation resulting from such Business Combination), or any
person which beneficially owned, immediately prior to such
Business Combination, directly or indirectly, 20% or more of
the Company Voting Securities) becomes the beneficial owner,
directly or indirectly, of 20% or more of the total voting
power of the outstanding voting securities eligible to elect
directors of the corporation resulting from such Business
Combination, and (C) at least a majority of the members of the
board of directors of
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the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of
the initial agreement, or action of the Board, providing for
such Business Combination (a "Non-Control Transaction"); or
(iv) the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any person acquires
beneficial ownership of more than 20% of the Company Voting
Securities as a result of the acquisition of Company Voting
Securities by the Company which, by reducing the number of Company
Voting Securities outstanding, increases the percentage of shares
beneficially owned by such person; provided, that if a Change in
Control would occur as a result of such an acquisition by the
Company (if not for the operation of this sentence), and after the
Company's acquisition such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage
of outstanding Company Voting Securities beneficially owned by such
person, then a Change in Control shall occur.
Notwithstanding anything in this Section 1(c) to the
contrary, in its sole discretion, the Board, by a resolution
approved by at least two-thirds of its members, may determine prior
to the occurrence of a Change in Control above that the event which
would otherwise constitute a Change in Control hereunder is not a
hostile change in control of the Company and therefore should not
be treated as a Change in Control for purposes of this Plan.
(d) "Company" means Parker-Hannifin Corporation, a
Delaware corporation.
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(e) "Date of Termination" means the date on which a
Participant's employment by the Company terminates.
(f) "Effective Date" means March 1, 1996.
(g) "Good Reason" means, without a Participant's express
written consent, the occurrence of any of the following events
after a Change in Control:
(h) (1) the assignment to the Participant of any duties
inconsistent in any adverse respect with the Participant's
position(s), duties, responsibilities or status with the Company
immediately prior to such Change in Control, (2) an adverse change
in the Participant's reporting responsibilities, titles or offices
with the Company as in effect immediately prior to such Change in
Control; (3) any removal or involuntary termination of the
Participant from the Company otherwise than as expressly permitted
by this Plan or any failure to re-elect the Participant to any
position with the Company held by the Participant immediately prior
to such Change in Control; (4) a reduction by the Company in the
Participant's rate of annual base salary as in effect immediately
prior to such Change in Control or as the same may be increased
from time to time thereafter; (5) any requirement of the Company
that the Participant (A) be based anywhere more than twenty-five
(25) miles from the facility where the Participant is located at
the time of the Change in Control or (B) travel on Company business
to an extent substantially more burdensome than the travel
obligations of the Participant immediately prior to such Change in
Control; (6) the failure of the Company to (A) continue in effect
any employee benefit plan or compensation plan in which the
Participant is participating immediately prior to such Change in
Control, or the taking of any action by the Company which would
adversely affect the Participant's participation in or reduce the
Participant's benefits under any such plan, (B) provide the
Participant and the Partici-
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pant's dependents with welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident insurance plans
and programs) in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in
effect for the Participant immediately prior to such Change in Control,
(C) provide fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Participant immediately
prior to such Change in Control, or (D) provide the Participant
with paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies as in effect for the Participant immediately prior to
such Change in Control, unless in the case of any violation of (A),
(B) or (C) above, the Participant is permitted to participate in
other plans, programs or arrangements which provide the Participant
(and, if applicable, the Participant's dependents) with no less
favorable benefits at no greater cost to the Participant; or (7)
the failure of the Company to obtain the assumption agreement from
any successor as contemplated in Section 8(b).
For purposes of this Plan, any good faith determination
of Good Reason made by a Participant shall be conclusive; provided,
however, that an isolated, insubstantial and inadvertent action
taken in good faith and which is remedied by the Company promptly
after receipt of notice thereof given by a Participant shall not
constitute Good Reason. The Participant must provide notice of
termination within ninety (90) days of his knowledge of an event or
condition constituting Good Reason hereunder. A transaction which
results in the Company no longer being a publicly
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traded entity shall not in and of itself be treated as Good Reason unless
and until one of the events or conditions set forth in Sections 1(g)(1)
through (7) occurs.
Notwithstanding anything in this Section 1(h) to the
contrary, during the 90-day period immediately following a Change
in Control a Participant may terminate employment for any or no
reason and such termination shall be treated as Good Reason
hereunder.
(i) "Nonqualifying Termination" means a termination of
a Participant's employment (1) by the Company for Cause, (2) by the
Participant for any reason other than a Good Reason, (3) as a
result of the Participant's death, (4) by the Company due to the
Participant's absence from his duties with the Company on a full-time
basis for at least one hundred eighty (180) consecutive days
as a result of the Participant's incapacity due to physical or
mental illness or (5) as a result of the Participant's mandatory
retirement.
(j) "Participant" means any United States employee
(including any such employee who is employed outside of the United
States on an expatriate program or is otherwise on temporary
assignment outside of the United States) of the Company or any
subsidiary of the Company which has adopted this Plan (other than
employees who have entered into Change in Control agreements with
the Company) who is employed at or above Grade 15 (or the
equivalent level), not taking into account any reduction of
employment level following a Change in Control which would
constitute Good Reason under this Plan.
(k) "Plan" means the Parker-Hannifin Corporation Change
in Control Severance Plan.
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(l) "Termination Period" with respect to a Participant
means the period of time beginning with a Change in Control and
ending on the earliest to occur of (1) the Participant's death, and
(2) two (2) years following such Change in Control.
2. Payments Upon Termination of Employment.
(a) If during the Termination Period the employment of
a Participant shall terminate, other than by reason of a
Nonqualifying Termination, then the Company shall pay to the
Participant (or the Participant's beneficiary or estate) within
thirty (30) days following the Date of Termination, as compensation
for services rendered to the Company:
(1) a lump-sum cash amount equal to the sum of (A) the
Participant's base salary from the Company and its affiliated
companies through the Date of Termination and any outstanding
earned bonus awards, (B) any compensation previously deferred by
the Participant other than pursuant to a tax-qualified plan
(together with any interest and earnings thereon), (C) any accrued
vacation pay, and (D) a pro-rata portion of the Employee's target
annual bonus for the year in which the Date of Termination occurs,
in each case to the extent not theretofore paid; plus
(2) a lump-sum cash amount equal to the product of (A)
one (1) and (B) the sum of (i) the Participant's highest annual
rate of base salary during the 12-month period immediately
preceding the Date of Termination and (ii) the highest of (x) the
Participant's average bonus earned during the 3-year period
immediately preceding the year in which the Date of Termination
occurs, (y) the Participant's target bonus for the year in which
the Change in Control occurs and (z) the Participant's target bonus
for the year in which the Date of Termination occurs; provided,
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that any amount paid pursuant to this Section 2(a)(2) shall offset
an equal amount of any severance relating to salary or bonus
continuation to be received by the Participant upon termination of
employment of the Participant under any severance plan, policy, or
arrangement or employment agreement of the Company.
(3) For a period of one (1) year commencing on the Date
of Termination, the Company shall continue to keep in full force
and effect (or otherwise provide) all policies of medical,
accident, disability and life insurance with respect to the
Participant and his dependents with the same level of coverage,
upon the same terms and otherwise to the same extent as such
policies shall have been in effect immediately prior to the Date of
Termination (or, if more favorable to the Participant, immediately
prior to the Change in Control), and the Company and the
Participant shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared
immediately prior to the Date of Termination.
(b) If during the Termination Period the employment of
a Participant shall terminate by reason of a Nonqualifying
Termination, then the Company shall pay to the Participant within
thirty (30) days following the Date of Termination, a cash amount
equal to the sum of (1) the Participant's base salary and
outstanding earned bonus awards from the Company through the Date
of Termination, and (2) any compensation previously deferred by the
Participant other than pursuant to a tax-qualified plan (together
with any interest and earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid.
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3. Excise Tax Limitation.
(a) Notwithstanding anything contained in this Plan or
any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, any Participant under
this Plan or under any other plan or agreement (the "Payments")
shall be reduced (but not below zero) to the extent necessary so
that no payment to be made, or benefit to be provided, to the
Participant or for his benefit under this Plan or any other plan or
agreement shall be subject to the imposition of excise tax under
Section 4999 of the Code (such reduced amount is hereinafter
referred to as the "Limited Payment Amount"). Unless the
Participant shall have given prior written notice specifying a
different order to the Company, the Company shall reduce or
eliminate the Payments to the Participant by first reducing or
eliminating those payments or benefits which are not payable in
cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are
to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by a Participant pursuant
to the preceding sentence shall take precedence over the provisions
of any other plan, arrangement or agreement governing the
Participant's rights and entitlement to any benefits or
compensation.
(b) All determinations required to be made under this
Section 3 shall be made by the Company's public accounting firm
(the "Accounting Firm"). The Accounting Firm shall provide its
calculations, together with detailed supporting documentation, both
to the Company and Participant within fifteen (15) days after the
receipt of notice from the Participant that there has been a
Payment (or at such earlier times as is requested by the Company)
and, with respect to the Limited Payment Amount, a
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reasonable opinion to the Participant that he is not required to report
any Excise Tax on his federal income tax return with respect to the
Limited Payment Amount (collectively, the "Determination"). In the
event that the Accounting Firm is serving as an accountant or
auditor for the individual, entity or group effecting the Change in
Control, the Participant shall appoint another nationally
recognized public accounting firm to make the determination
required hereunder (which accounting firm shall then be referred to
as the Accounting Firm hereunder). All fees, costs and expenses
(including, but not limited to, the costs of retaining experts) of
the Accounting Firm shall be borne by the Company. The
Determination by the Accounting Firm shall be binding upon the
Company and the Participant (except as provided in Subsection (c)
below).
(c) If it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS")
proceeding which has been finally and conclusively resolved, that
Payments have been made to, or provided for the benefit of, a
Participant by the Company, which are in excess of the limitations
provided in Section 3 (hereinafter referred to as an "Excess
Payment"), such Excess Payment shall be deemed for all purposes to
be a loan to the Participant made on the date the Participant
received the Excess Payment and the Participant shall repay the
Excess Payment to the Company on demand, together with interest on
the Excess Payment at the applicable federal rate (as defined in
Section 1274(d) of the Code) from the date of the Participant's
receipt of such Excess Payment until the date of such repayment.
As a result of the uncertainty in the application of Section 4999
of the Code at the time of the Determination, it is possible that
Payments which will not have been made by the Company should have
been made (an "Underpayment"), consistent with the calculations
required
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to be made under this Section 3. In the event that it is
determined (1) by the Accounting Firm, the Company (which shall
include the position taken by the Company, or together with its
consolidated group, on its federal income tax return) or the IRS or
(2) pursuant to a determination by a court, that an Underpayment
has occurred, the Company shall pay an amount equal to such
Underpayment to the Participant within ten (10) days of such
determination together with interest on such amount at the
applicable federal rate from the date such amount would have been
paid to the Participant until the date of payment.
4. Withholding Taxes. The Company may withhold from
all payments due to a Participant (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or
other law, the Company is required to withhold therefrom.
5. Reimbursement of Expenses. If any contest or
dispute shall arise under this Plan involving termination of a
Participant's employment with the Company or involving the failure
or refusal of the Company to perform fully in accordance with the
terms hereof, the Company shall reimburse the Participant, on a
current basis, for all legal fees and expenses, if any, incurred by
the Participant in connection with such contest or dispute
(regardless of the result thereof), together with interest in an
amount equal to the prime rate of Society National Bank from time
to time in effect, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from
the date the Company receives the Participant's statement for such
fees and expenses through the date of payment thereof.
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6. Termination or Amendment of Plan.
(a) This Plan shall be in effect as of the Effective
Date and shall continue until terminated by the Company as provided
in paragraph (b) of this Section 6; provided, however, that a
Participant's participation under this Plan shall terminate in any
event upon the first to occur of (1) the Participant's death and
(2) termination of the Participant's employment with the Company
prior to a Change in Control.
(b) The Company shall have the right prior to a Change
in Control, in its sole discretion, pursuant to action by the
Board, to approve the termination or amendment of this Plan;
provided, however, that no such action which would adversely affect
the rights or potential rights of Participants shall be taken by
the Board during any period of time when the Board has knowledge
that any person has taken steps reasonably calculated to effect a
Change in Control until, in the opinion of the Board, such person
has abandoned or terminated its efforts to effect a Change in
Control; and provided, further, that in no event shall this Plan be
terminated or amended within the two-year period following a Change
in Control in any manner which would adversely affect the rights or
potential rights of Participants.
7. Scope of Plan. Nothing in this Plan shall be deemed
to entitle any Participant to continued employment with the Company
or its subsidiaries, and if a Participant's employment with the
Company shall terminate prior to a Change in Control, the
Participant shall have no further rights under this Plan; provided,
however, that any termination of a Participant's employment during
the two-year period following a Change in Control shall be subject
to all of the provisions of this Plan.
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8. Successors Binding Obligation.
(a) This Plan shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the
surviving or resulting corporation or as a result of any transfer
of all or substantially all of the assets of the Company. In the
event of any such merger, consolidation or transfer of assets, the
provisions of this Plan shall be binding upon the surviving or
resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any
merger, consolidation or transfer of assets referred to in
paragraph (a) of this Section 8, it will cause any successor or
transferee unconditionally to assume all of the obligations of the
Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall constitute Good Reason
hereunder and shall entitle each Participant to compensation and
other benefits from the Company in the same amount and on the same
terms as each such Participant would be entitled hereunder if the
Participant's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For
purposes of implementing the foregoing, the date on which any such
merger, consolidation or transfer becomes effective shall be deemed
the date Good Reason occurs, and the Participant may terminate
employment for Good Reason on or following such date.
(c) This Plan shall inure to the benefit of and be
enforceable by each Participant's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If a Participant shall die
while any amounts would be payable to
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the Participant hereunder had the Participant continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Plan to such person or persons appointed in
writing by the Participant to receive such amounts or, if no person is so
appointed, to the Participant's estate.
9. Full Settlement; Resolution of Disputes. The
Company's obligation to make any payments provided for by this Plan
to a Participant and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have
against the Participant or others. In no event shall a Participant
be obligated to seek other employment or take other action by way
of mitigation of the amounts payable to the Participant under any
of the provisions of this Plan and such amounts shall not be
reduced whether or not the Participant obtains other employment.
10. Employment with Subsidiaries. Employment with the
Company for purposes of this Plan shall include employment with any
corporation or other entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined
voting power of the then outstanding securities of such corporation
or other entity entitled to vote generally in the election of
directors.
11. Governing Law; Validity. The interpretation,
construction and performance of this Plan shall be governed by and
construed and enforced in accordance with the internal laws of the
State of Ohio without regard to the
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principle of conflicts of laws. The invalidity or unenforceability of
any provision of this Plan shall not affect the validity or
enforceability of any other provision of this Plan, which other
provisions shall remain in full force and effect.
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