Exhibit (10)(p)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1998
by Parker-Hannifin Corporation
Parker-Hannifin Corporation Executive Deferral Plan,
as amended
*Numbered in accordance with Item 601 of Regulation S-K.
PARKER-HANNIFIN CORPORATION
EXECUTIVE DEFERRAL PLAN
PARKER-HANNlFlN CORPORATION
EXECUTIVE DEFERRAL PLAN
WHEREAS, the Parker-Hannifin Corporation Executive Deferral Plan (the
"Plan") was originally established as of October 1, 1994, for the purpose of
attracting high quality executives and promoting in its executives increased
efficiency and an interest in the successful operation of the Company by
offering a deferral opportunity to accumulate capital on favorable economic
terms; and
WHEREAS, pursuant to the authority granted in Article 14 of the Plan,
Parker-Hannifin Corporation (the "Company"), has the authority to amend the
Plan; and
WHEREAS, the Plan has been amended from time to time; and
WHEREAS, the Company now desires to amend the Plan in order to provide
for the automatic deferral of amounts that are not paid to certain
participants by reason of Section 162(m) of the Code;
NOW, THEREFORE, the Plan is hereby amended and restated as of January 1,
1998 to read as follows:
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT shall mean the sum of the Annual Deferral Account and all
LTI Deferral Accounts (vested and unvested).
1.2 ADMINISTRATOR shall mean the Company or, if applicable, the committee
appointed by the Board of Directors of the Company to administer the Plan
pursuant to Article 12 of the Plan.
1.3 ANNUAL DEFERRAL shall mean the amount of Compensation which the
Participant elects to defer for a Plan Year pursuant to Articles 2 and 3 of
the Plan.
1.4 ANNUAL DEFERRAL ACCOUNT shall mean the notional account established
with respect to a Participant's Annual Deferrals and Automatic Deferrals for
recordkeeping purposes pursuant to Article 4 of the Plan.
1.5 AUTOMATIC DEFERRAL shall mean any amount automatically deferred to
this Plan pursuant to Section 3.4 of this Plan.
1.6 BENEFICIARY shall mean the person or persons or entity designated as
such in accordance with Article 13 of the Plan.
2
1.7 BOARD shall mean the Board of Directors of the Company.
1.8 BONUSES shall mean amounts paid in cash to the Participant by the
Company in the form of annual and other regular periodic bonuses before
reductions for deferrals under this Plan, the Savings Plan or the Savings
Restoration Plan. "Annual and other regular periodic bonuses" shall include
amounts payable under the Company's Return on Net Assets Plan (RONA) and the
Target Incentive Program, but shall exclude any payments under any long-term
incentive program, any volume incentive or similar bonus program, and any
other extraordinary bonus or incentive program.
1.9 CHANGE IN CONTROL shall mean any of the following events have
occurred:
(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,
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 any Subsidiary; (B) an acquisition by any employee benefit
plan sponsored or maintained by the Company or any Subsidiary; (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) as pertains to a Participant, any acquisition by the
Participant or any group of persons (within the meaning of Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) including the Participant (or any entity in
which the Participant or a group of persons including the Participant,
directly or indirectly, holds a majority of the voting power of such entity's
outstanding voting interests); 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 who are then on the 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 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;
3
(iii) the consummation of a merger, consolidation, share exchange or
similar form of corporate reorganization of the Company or any Subsidiary that
requires the approval of the Company's stockholders, whether for such
transaction or the issuance of securities in connection with the transaction
or otherwise (a "Business Combination"), unless (A) immediately following such
Business Combination: (1) more than 50% of the total voting power of the
corporation resulting from such Business Combination (the "Surviving
Corporation") or, if applicable, the ultimate parent corporation which
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to e1ect directors of the Surviving Corporation (the
"Parent Corporation"), is represented by Company Voting Securities that were
outstanding immediately prior to the Business Combination (or, if applicable,
shares into which such Company Voting Securities were converted pursuant to
such Business Combination), and such voting power among the holders thereof is
in substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the Business
Combination, (2) no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation) is or
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 Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation), and (3) at least a majority of the members of the
board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation), following the Business Combination,
were members of the Incumbent Board at the time of the Board's approval of the
execution of the initial agreement providing for such Business Combination (a
"Non-Control Transaction") or (B) the Business Combination is effected by
means of the acquisition of Company Voting Securities from the Company, and a
majority of the Board approves a resolution providing expressly that such
Business Combination does not constitute a Change in Control under this
paragraph (iii); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or the sale or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries.
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, a Change in Control shall then occur.
Notwithstanding anything in this Plan to the contrary, if the
Participant's employment is terminated prior to a Change in Control, and the
Participant reasonably demonstrates that such termination was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party"), then for all
purposes of this Plan, the date immediately prior to the date of such
termination of employment shall be deemed to be the date of a Change in
Control for such Participant.
4
1.10 CODE shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.11 COMPENSATION shall mean the sum of the Participant's base salary
and anticipated Bonuses for a Plan Year before reductions for deferrals under
this Plan, the Savings Plan, the Savings Restoration Plan, or the Benefits
Plus Program.
1.12 CREDITING RATE shall mean any notional gains or losses equal to
those generated as if the Participant's Account balance had been invested in
one or more of the investment portfolios designated as available by the
Administrator, less separate account fees and less applicable administrative
charges determined annually by the Administrator.
The allocation of a Participant's Account shall be determined by the
Participant among one or more of the available portfolios. The gains or losses
shall be credited based upon the daily unit values for the portfolio(s)
selected by the Participant. The rules and procedures for allocating the
Account balance among the portfolios shall be determined by the Administrator.
Notwithstanding the method of calculating the Crediting Rate, the Company
shall be under no obligation to purchase any investments designated by the
Participant.
1.13 DISABILITY shall mean any long term disability as defined under the
Company's long term disability plan. The Administrator, in its complete and
sole discretion, shall determine a Participant's Disability. The Administrator
may require that the Participant submit to an examination on an annual basis,
at the expense of the Company, by a competent physician or medical clinic
selected by the Administrator to confirm Disability. On the basis of such
medical evidence, the determination of the Administrator as to whether or not
a condition of Disability exists or continues shall be conclusive.
1.14 EARLY RETIREMENT DATE shall mean age 55 with ten or more years of
employment with the Company; provided, however, that any Early Retirement
prior to age 60 must be with the consent of the Compensation Committee of the
Board.
1.15 ELIGIBLE EXECUTIVE shall mean a key employee of the Company or any
of its subsidiaries who: (a) is designated by the Administrator as eligible to
participate in the Plan (subject to the restriction in Sections 9.2, 10.3 and
11.2 of the Plan); and (b) qualifies as a member of the "select group of
management or highly compensated employees" under ERISA.
1.16 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.17 FINANCIAL HARDSHIP shall mean an unexpected need for cash arising
from an illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence as determined by the Administrator. Cash needs
arising from foreseeable events such as the purchase of a residence or
education expenses for children shall not, alone, be considered a Financial
Hardship.
5
1.18 FIXED CREDITING RATE shall mean an effective annual yield equal to
ninety percent (90%) of the sixty (60) month rolling average of the Ten-Year
United States Treasury Note as determined by the Administrator on September 30
of the preceding year. Notwithstanding the preceding sentence, with respect
to the first Plan Year, the Fixed Crediting Rate shall be determined as of
September 30, 1994.
1.19 IN-SERVICE DISTRIBUTION shall mean a distribution elected by the
Participant pursuant to Article 10 of the Plan.
1.20 LTI PAYMENT shall mean the amount that would otherwise be payable
to an Eligible Executive for a Plan Year under any long-term incentive program
of the Company.
1.21 LTI DEFERRAL shall mean the amount of any LTI Payment which the
Participant elects to defer with respect to a Plan Year pursuant to Articles 2
and 3 of the Plan.
1.22 LTI DEFERRAL ACCOUNT shall mean the one or more notional accounts
established with respect to a Participant's LTI Deferrals for recordkeeping
purposes pursuant to Article 4 of the Plan.
1.23 NORMAL RETIREMENT DATE shall mean the date on which a Participant
attains age 65.
1.24 PARTICIPANT shall mean an Eligible Executive who has elected to
participate and has completed a Participation Agreement pursuant to Article 2
of the Plan.
1.25 PARTICIPATION AGREEMENT shall mean the Participant's written
election to participate in the Plan.
1.26 PLAN YEAR shall mean the calendar year.
1.27 RETIREMENT shall mean a termination of employment following Normal
or Early Retirement Date.
1.28 SALARY shall mean the Participant's annual basic rate of pay from
the Company (excluding Bonuses, commissions and other non-regular forms of
compensation) before reductions for deferrals under this Plan, the Savings
Plan or the Savings Restoration Plan.
1.27 SAVINGS PLAN shall mean The Parker Retirement Savings Plan as it
currently exists and as it may subsequently be amended.
1.28 SAVINGS RESTORATION PLAN shall mean the Parker-Hannifin Corporation
Savings Restoration Plan as it currently exists and as it may subsequently be
amended.
1.29 SCHEDULED WITHDRAWAL shall mean a distribution of all or a portion
of the entire vested amount credited to the Participant's Account requested by
the Participant pursuant to the provisions of Article 10 of the Plan.
6
1.30 SUBSIDIARY shall mean 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 or interests of
such corporation or other entity.
1.31 TERMINATION OF EMPLOYMENT shall mean the Participant's employment
with the Company ceases for any reason whatsoever, whether voluntary or
involuntary, other than Retirement or death.
1.32 UNSCHEDULED WITHDRAWAL shall mean a distribution of all or a
portion of the entire amount credited to the Participant's Account requested
by the Participant pursuant to the provisions of Article 10 of the Plan.
1.33 VALUATION DATE shall mean the end of the month in which the
Retirement, Termination of Employment, or death occurs, except in the event of
an election to delay retirement benefits under Article 5, in which case the
Valuation Date shall mean the November 30 of the year preceding commencement
of benefit payments.
ARTICLE 2
PARTICIPATION
2.1 PARTICIPATION AGREEMENT/DEFERRALS.
(a) An Eligible Executive shall become a Participant in the Plan on the
first day of the Plan Year following appointment as an Eligible Executive and
submission to the Administrator of an Annual Participation Agreement. To be
effective, the Eligible Executive must submit the Annual Participation
Agreement to the Administrator during the enrollment period designated by the
Administrator. In the Annual Participation Agreement, and subject to the
restrictions in Article 3, the Eligible Executive shall designate the Annual
Deferral for the covered Plan Year.
(b) In addition, an Eligible Executive shall become a Participant
automatically as of the date Automatic Deferrals are credited to his Account
pursuant to Section 3.4.
(c) With respect to those Participants who are eligible for an LTI
Payment, the Administrator shall provide for a separate enrollment period and
separate LTI Participation Agreements each year under which the Participant
may designate any LTI Deferrals for a specified Plan Year.
2.2 CONTINUATION OF PARTICIPATION. An Eligible Executive who has become
a Participant in the Plan shall continue as a Participant in the Plan even
though such executive ceases to be an Eligible Executive. However, a
Participant shall not be eligible to elect a new Annual Deferral or LTI
Deferral unless the Participant is an Eligible Executive for the Plan Year for
which the election is made.
7
ARTICLE 3
EXECUTIVE DEFERRALS
3.1 DEFERRAL COMMITMENT.
(a) A Participant may elect in the Annual Participation Agreement to
defer an amount equal to a specified dollar amount of Salary and a specified
dollar amount or percentage of Bonuses to be earned by such Participant during
the next Plan Year.
(b) A Participant may elect in the LTI Participation Agreement to defer
an amount equal to a specified dollar amount or a percentage of LTI Payment
that may be payable to the Participant in the next Plan Year.
(c) Annual Deferrals and LTI Deferrals under this Plan shall be
irrevocable.
3.2 MINIMUM ANNUAL DEFERRAL.
(a) The Annual Deferral for a Plan Year must equal at least five
thousand dollars ($5,000), from either Salary or Bonuses or a combination of
Salary and Bonuses.
(b) The LTI Deferral for a Plan Year must equal at least five thousand
dollars ($5,000).
(c) Where a Participant elects to defer a specified percentage of
Salary, Bonuses, and/or LTI Payment, the determination of whether the Annual
Deferral or LTI Deferral is at least five thousand dollars ($5,000) shall be
made by multiplying the applicable elected percentages of Salary, Bonuses,
and/or LTI Payment to be deferred by the Participant's anticipated Salary,
Bonuses, and/or LTI Payment in the Plan Year immediately preceding the Plan
Year for which the Deferral is being made. The Administrator may, in its sole
discretion, permit Participants to elect to defer amounts in the form of a
percentage based on anticipated future Salary, Bonuses, and/or LTI Payments.
3.3 MAXIMUM DEFERRAL COMMITMENT.
(a) The Annual Deferral for any Plan Year may not exceed 20% of Salary
plus 75% of Bonuses; provided, that the Annual Deferral may not reduce the
Participant's income to an amount below the old age, survivor, and disability
insurance wage base under Social Security.
(b) The LTI Deferral for a Plan Year may be 100% of the LTI Payment.
(c) Notwithstanding the foregoing, the Administrator may reduce the
amount of an Annual Deferral and/or an LTI Deferral to the extent necessary to
insure the Participant will have sufficient earnings from the Company from
which to take any taxes required to be withheld from the Participant's
earnings under federal, state or local law.
8
3.4 AUTOMATIC DEFERRALS. An amount equal to any Compensation that is
not paid to an Eligible Executive because it cannot be deducted by the Company
by reason of Section 162(m) of the Code shall be deemed to have been deferred
under this Plan.
3.5 VESTING. Subject to Section 11.3:
(a) The Participant's right to the value of his Annual Deferral
Account, as adjusted for gains and losses, shall be 100% vested at all times.
(b) The Participant's right to the value of each LTI Deferral Account,
as adjusted for gains and losses, shall be 100% vested as of the third June 30
following the time the LTI Deferral Account is established; provided, however,
that the Participant shall be fully vested in all LTI Deferrals as of the
time: (1) he reaches age 65; (2) he retires prior to age 60 with permission of
the Compensation Committee of the Board; (3) he retires due to Disability; (4)
he dies; (5) there is a Change in Control; or (6) the Plan terminates.
ARTICLE 4
ACCOUNTS
4.1 ACCOUNTS. Solely for recordkeeping purposes, the Company shall
maintain for each Participant one Annual Deferral Account for all Annual
Deferrals and all Automatic Deferrals, and shall maintain for each Participant
a separate LTI Deferral Account with respect to each LTI Deferral made by the
Participant.
4.2 TIMING OF CREDITS--PRE-TERMINATION. Each Plan Year, the Company
shall credit to the Annual Deferral Account a Participant's Annual Deferrals
and any Automatic Deferrals as of the time the deferrals would otherwise have
been paid to the Participant but for the Annual Deferral election or the
operation of Section 162(m) of the Code, and shall credit to a separate LTI
Deferral Account a Participant's LTI Deferral as of the time the deferrals
would otherwise have been paid to the Participant but for the LTI Deferral
election. The Company shall also credit gains or losses to the Participant's
Account each calendar quarter as of the relevant Valuation Date, using the
Crediting Rate(s) in effect at such time as elected by the Participant.
4.3 MID-YEAR TERMINATIONS. If a Participant's Termination of Employment
occurs other than at the end of a Plan Year, the Company shall credit gains or
losses to the Participant's Account from the first day of such Plan Year to
the relevant Valuation Date.
4.4 STATEMENT OF ACCOUNTS. The Administrator shall provide periodically
to each Participant a statement setting forth the balance of the Annual
Deferral Account and each LTI Deferral Account maintained for such
Participant.
9
ARTICLE 5
RETIREMENT BENEFITS
5.1 AMOUNT. Upon Retirement, the Company shall pay to the Participant a
retirement benefit in the form provided in Section 5.2 of the Plan, based on
the balance of the Participant's Account as of the Valuation Date. If paid as
a lump sum, the retirement benefit shall be equal to such balance. If paid in
installments, the installments shall be paid in amounts that will annually
amortize such balance with earnings and losses credited at the Crediting Rate
over the period of time benefits are to be paid; provided, however, that in
the last year of payment, earnings and losses shall be credited at the Fixed
Crediting Rate as in effect on the Valuation Date immediately preceding the
final year of payment.
5.2 FORM OF RETIREMENT BENEFITS. The retirement benefit shall be paid
monthly over a period of one hundred eighty (180) months. Notwithstanding
anything herein to the contrary, the Participant may elect in the
Participation Agreement to have the retirement benefit paid in a lump sum or
in installments paid monthly over a period of sixty (60) or one hundred twenty
(120) months. Payment shall be made or shall begin as of the first day of the
calendar quarter next following the date sixty (60) days after the
Participant's Retirement unless the Participant elects in the Participation
Agreement for payments to begin on January l of a later year. However, in all
events payments shall commence on or before the earlier of the date the
retired Participant attains age seventy (70) or the January 1 five years after
Retirement. Except as provided under Section 9.2, Participants may elect an
alternative form of payout as available under this Section 5.2 by written
election filed with the Administrator; provided, however, that if the
Participant files the election less than thirteen (13) months prior to the
date of retirement, the Annual Deferral Account and each LTI Deferral Account
shall be reduced by ten percent (10%).
5.3 SMALL BENEFIT EXCEPTION. Notwithstanding any of the foregoing, if
the sum of all benefits payable to the Participant is less than or equal to
ten thousand dollars ($10,000), the Company may, in its sole discretion, elect
to pay such benefits in a single lump sum. Furthermore, if any installment
payments would be less than $1,000, the Company may shorten the elected
payment period in whole year increments to insure that each payment is at
least $1,000.
ARTICLE 6
TERMINATION BENEFITS
6.1 AMOUNT. As of the first day of the calendar quarter beginning at
least sixty (60) days after Termination of Employment, the Company shall pay
to the Participant a termination benefit equal to the balance as of the
Valuation Date of the Annual Deferral Account and each LTI Deferral Account in
which he is vested under Section 3.4(b).
10
6.2 FORM OF TERMINATION BENEFITS. The Company shall pay the termination
benefits in a single lump sum; provided, however, that except following a
Change in Control the Company may, in its sole discretion, elect to pay the
termination benefits over a period of three (3) years in monthly installments,
in which event the Company shall credit interest on the unpaid vested balance
of the Account after the Valuation Date at the Fixed Crediting Rate in effect
at the time of Termination of Employment.
ARTICLE 7
SURVIVOR BENEFITS
7.1 PRE-COMMENCEMENT SURVIVOR BENEFIT. If the Participant dies prior to
the time installment payments have commenced, the Company shall pay to the
Participant's Beneficiary within ninety (90) days after the Participant's
death a benefit equal to the balance of the Participant's Account as of the
Valuation Date.
7.2 POST-COMMENCEMENT SURVIVOR BENEFIT. If the Participant dies after
the time installment payments have commenced, the Company shall pay to the
Participant's Beneficiary an amount equal to the remaining benefits payable to
the Participant under the Plan over the same period such benefits would have
been paid to the Participant, in which event the Company shall credit interest
on the unpaid balance of the Account at the Fixed Crediting Rate in effect at
the date of the Participant's death.
7.3 SMALL BENEFIT PAYMENT. Notwithstanding any of the foregoing, in the
event the sum of all benefits payable to the Beneficiary is less than or equal
to ten thousand dollars ($10,000), the Company may, in its sole discretion,
elect to pay such benefits in a single lump sum.
ARTICLE 8
DISABILITY
If a Participant suffers a Disability, the Company shall pay the balance
of the Participant's Account as of the Valuation Date to the Participant in
accordance with Article 5 as if the date of the Participant's Termination of
Employment for Disability were the Participant's Normal Retirement Date.
ARTICLE 9
CHANGE IN CONTROL
9.1 ELECTION.
(a) At the time the Participant is completing his initial Participation
Agreement, the Participant may elect that, if a Change in Control occurs, the
Participant (or after the Participant's death the Participant's Beneficiary)
shall receive a lump sum payment of the balance of the
11
Account within thirty (30) days after the Change of Control. In the event such
a distribution is made, the Participant shall receive an additional adjustment
payment calculated in accordance with the formula set forth in Exhibit A
hereto. Such balance shall be determined as of the end of the month sixty (60)
days prior to the month in which the Change in Control occurs.
(b) In addition to any other amounts payable hereunder, in the event it
shall be determined that any payment, distribution or acceleration of vesting
of any benefit hereunder would be subject to the excise tax imposed by
Section 4999 of the Code, or any successor provision, or any interest or
penalties are incurred by the Participant with respect to such excise tax,
then the Participant shall be entitled to receive an additional "gross-up
payment" calculated as set forth in the change in control severance agreement
in effect between the Company and the Participant as of the date of the Change
in Control; provided, however, that if the Participant does not have a change
in control severance agreement, the payment under this Section shall be
determined in accordance with the calculation set forth in the most recent
change in control severance agreement entered into by the Company and any
executive of the Company; provided, further, that there shall be no
duplication of such additional payment under this Plan and any change in
control severance agreement.
9.2 BENEFIT REDUCTION ON WITHDRAWAL. If a Participant has not made the
election described in Section 9.1 above and, within thirty (30) days after a
Change of Control, the Participant (or Beneficiary) elects under Section 10.2
to receive a distribution of the balance of the Account, the lump sum payment
(including the additional adjustment payment) otherwise provided under Section
9.1(a) shall be reduced by an amount equal to five percent (5%) of the total
balance of the Account (instead of the ten percent (10%) reduction otherwise
provided for in Section 10.3). If a Participant e1ects such a withdrawal, any
on-going Annual Deferral shall cease, any election of an LTI Deferral that
otherwise would be effective before the first day of the Plan Year beginning
one full Plan Year after such withdrawal shall not be effective, and the
Participant may not again be designated as an Eligible Executive until one
entire Plan Year following the Plan Year in which such withdrawal was made has
elapsed.
ARTICLE 10
SCHEDULED AND UNSCHEDULED WITHDRAWALS, FINANCIAL HARDSHIP DISTRIBUTIONS
10.1 PAYMENT OF SCHEDULED WITHDRAWAL. No later than the last day of
March of the Plan Year designated in the initial Annual Participation
Agreement for a Scheduled Withdrawal (which date shall be no sooner than the
January 1 following 5 years of participation), the Company shall pay to the
Participant, in a lump sum or four approximately equal annual installments,
all or a portion of the vested balance in the Participant's Annual Deferral
and/or his LTI Deferral Account as of the December 31 preceding the time
payment is made or commences.
10.2 UNSCHEDULED WITHDRAWAL. A Participant (or Beneficiary if the
Participant is deceased) may request an Unscheduled Withdrawal of all or any
portion of the vested balance credited to the Participant's Account, which
shall be paid in a single lump sum; provided, however, (i) that the minimum
withdrawal shall be twenty-five percent (25%) of the vested Account balance,
and (ii) that an election to withdraw seventy-five percent (75%) or more of
the
12
vested Account balance shall be deemed to be an election to withdraw the
entire vested Account balance.
10.3 UNSCHEDULED WITHDRAWAL PENALTY. There shall be a penalty deducted
from the Account prior to an Unscheduled Withdrawal equal to ten percent (10%)
of the Unscheduled Withdrawal, which shall be ratably allocated among the
Participant's Annual Deferral Account and each of his vested LTI Deferral
Accounts. If a Participant elects such a withdrawal, any on-going Annual
Deferral shall cease, any election of an LTI Deferral that otherwise would be
effective before the first day of the Plan Year beginning one full Plan Year
after such withdrawal shall not be effective, and the Participant may not
again be designated as an Eligible Executive until one entire Plan Year
following the Plan Year in which such withdrawal was made has elapsed.
10.4 FINANCIAL HARDSHIP DISTRIBUTION. Upon a finding that the
Participant or the Beneficiary has suffered a Financial Hardship, the
Administrator may in its sole discretion, permit the Participant to request
distribution of a portion or all of his vested benefits under the Plan in the
amount reasonably necessary to alleviate such Financial Hardship. If a
distribution is to be made to a Participant on account of Financial Hardship,
any on-going Annual Deferrals shall cease, any election of an LTI Deferral
that otherwise would be effective before the first day of the Plan Year
beginning one full Plan Year after such withdrawal shall not be effective, and
the Participant may not again be designated as an Eligible Executive until one
entire Plan Year following the Plan Year in which such withdrawal was made has
elapsed.
10.5 SMALL BENEFIT EXCEPTION. Notwithstanding any of the foregoing, if
the sum of all vested benefits payable to the Participant or Beneficiary who
has requested any withdrawal under this Article 10 is less than or equal to
ten thousand dollars ($10,000), the Company may, in its sole discretion, elect
to pay out the entire vested Account balance (reduced, if applicable, by the
ten percent (10%) penalty) in a single lump sum.
10.6 LIMIT ON WITHDRAWALS. Notwithstanding any of the foregoing, no
Eligible Executive in a position described in Section 162(m)(3) of the Code
(or who the Company reasonably believes will be in such a position) shall be
permitted to take any distribution for the Plan in any year in which he is in
or is believed to be a position described in Section 162(m)(3) of the Code.
ARTICLE 11
CONDITIONS RELATED TO BENEFITS
11.1 NONASSIGNABILITY. The benefits provided under the Plan may not be
alienated, assigned, transferred, pledged or hypothecated by or to any person
or entity, at any time or in any manner whatsoever. These benefits shall be
exempt from the claims of creditors of any Participant or other claimants and
from all orders, decrees, levies, garnishment or executions against any
Participant to the fullest extent allowed by law.
13
11.2 NO RIGHT TO COMPANY ASSETS. The benefits paid under the Plan shall
be paid from the general funds of the Company, and the Participants and any
Beneficiaries shall be no more than unsecured general creditors of the Company
with no special or prior right to any assets of the Company for payment of any
obligations hereunder.
11.3 PROTECTIVE PROVISIONS. The Participant shall cooperate with the
Company by furnishing any and all information requested by the Administrator,
in order to facilitate the payment of benefits hereunder, taking such physical
examinations as the Administrator may deem necessary and taking such other
actions as may be requested by the Administrator. If the Participant refuses
to cooperate, the Company shall have no further obligation to the Participant
under the Plan. In the event of a Participant's suicide during the first two
(2) years of participation in the Plan, or if the Participant makes any
material misstatement of information or nondisclosure of medical history, then
no benefits shall be payable to the Participant or the Participant's
Beneficiary or estate under the Plan beyond the sum of the Participant's
Annual Deferrals and LTI Deferrals.
11.4 WITHHOLDING. The Participant or the Beneficiary shall make
appropriate arrangements with the Company for satisfaction of any federal,
state or local income tax withholding requirements and Social Security or
other employee tax requirements applicable to the payment of benefits under
the Plan. If no other arrangements are made, the Company may provide, at its
discretion, for such withholding and tax payments as may be required.
ARTICLE 12
ADMINISTRATION OF PLAN
The Company shall administer the Plan, provided, however, that the
Company may elect by action of its Board of Directors to appoint a committee
of three (3) or more individuals to administer the Plan. All references to the
Administrator herein shall refer to the Company or, if such committee has been
appointed, the committee.
The Administrator shall administer the Plan and interpret, construe and
apply its provisions in accordance with its terms. The Administrator shall
further establish, adopt or revise such rules and regulations as it may deem
necessary or advisable for the administration of the Plan. All decisions of
the Administrator shall be final and binding. The individuals serving on the
committee shall, except as prohibited by law, be indemnified and held harmless
by the Company from any and all liabilities, costs, and expenses (including
legal fees), to the extent not covered by liability insurance arising out of
any action taken by any member of the committee with respect to the Plan,
unless such liability arises from the individual's own gross negligence or
willful misconduct.
14
ARTICLE 13
BENEFICIARY DESIGNATION
The Participant shall have the right, at any time, to designate any
person or persons as Beneficiary (both primary and contingent) to whom payment
under the Plan shall be made in the event of the Participant's death. The
Beneficiary designation shall be effective when it is submitted in writing to
the Administrator during the Participant's lifetime on a form prescribed by
the Administrator.
The submission of a new Beneficiary designation shall cancel all prior
Beneficiary designations. Any finalized divorce or marriage of a Participant
subsequent to the date of a Beneficiary designation shall revoke such
designation, unless in the case of divorce the previous spouse was not
designated as Beneficiary and unless in the case of marriage the Participant's
new spouse has previously been designated as Beneficiary. The spouse of a
married Participant shall consent to any designation of a Beneficiary other
than the spouse, and the spouse's consent shall be witnessed by a notary
public.
If a Participant fails to designate a Beneficiary as provided above, or
if the Beneficiary designation is revoked by marriage, divorce, or otherwise
without execution of a new designation, or if every person designated as
Beneficiary predeceases the Participant or dies prior to complete distribution
of the Participant's benefits, then the Administrator shall direct the
distribution of such benefits to the Participant's estate.
ARTICLE 14
AMENDMENT AND TERMINATION OF PLAN
14.1 AMENDMENT OF PLAN. Except as provided in Section 14.3, the Company
may at any time amend the Plan in whole or in part, provided, however, that
such amendment: (a) shall not decrease the balance of the Participant's
Account at the time of such amendment; and (b) shall not retroactively
decrease the applicable Crediting Rate of the Plan prior to the time of such
amendment. The Company may amend the Crediting Rate or Fixed Crediting Rate of
the Plan prospectively, in which case, the Company shall notify the
Participant of such amendment in writing within thirty (30) days after such
amendment.
14.2 TERMINATION OF PLAN. Except as provided in Section 14.3, the
Company may at any time terminate the Plan. If the Company terminates the
Plan, the date of such termination shall be treated as the date of Retirement
or Termination of Employment for the purpose of calculating Plan benefits, and
the Company shall pay to the Participant the benefits the Participant is
entitled to receive under the Plan in monthly installments over a thirty-six
(36) month period. Interest at the Fixed Crediting Rate will be credited to
the Participant's Account prospectively commencing as of the date of the
Plan's termination and continuing until distribution under this Section is
completed.
15
14.3 AMENDMENT OR TERMINATION AFTER CHANGE IN CONTROL. Notwithstanding
the foregoing, the Company shall not amend or terminate the Plan without the
prior written consent of affected Participants for a period of two calendar
years following a Change in Control and shall not thereafter amend or
terminate the Plan in any manner which affects any Participant (or
Beneficiary) who commences receiving payment of benefits under the Plan prior
to the end of such two year period following a Change in Control.
14.4 COMPANY ACTION. Except as provided in Section 14.3 or 14.5, the
Company's power to amend or terminate the Plan shall be exercisable by the
Company's Board of Directors or by the committee or individual authorized by
the Company's Board of Directors to exercise such powers.
14.5 CONSTRUCTIVE RECEIPT TERMINATION. In the event the Administrator
determines that amounts deferred under the Plan have been constructively
received by Participants and must be recognized as income for federal income
tax purposes, the Plan shall terminate and distributions shall be made to
Participants in accordance with the Provisions of Section 14.2 or as may be
determined by the Administrator. The determination of the Administrator under
this Section shall be binding and conclusive.
ARTICLE 15
MISCELLANEOUS
15.1 SUCCESSORS OF THE COMPANY. The rights and obligations of the
Company under the Plan shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Company.
15.2 ERISA PLAN. The Plan is intended to be an unfunded plan maintained
primarily to provide deferred compensation benefits for "a select group of
management or highly compensated employees" within the meaning of Sections
201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of
Title I of ERISA.
15.3 TRUST. The Company shall be responsible for the payment of all
benefits under the Plan. At its discretion, the Company may establish one or
more grantor trusts for the purpose of providing for payment of benefits under
the Plan. Such trust or trusts may be irrevocable, but the assets thereof
shall be subject to the claims of the Company's creditors. Benefits paid to
the Participant from any such trust shall be considered paid by the Company
for purposes of meeting the obligations of the Company under the Plan.
15.4 EMPLOYMENT NOT GUARANTEED. Nothing contained in the Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Participant any right to continued employment with the Company.
15.5 GENDER, SINGULAR AND PLURAL. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the
identity of the person or persons
16
may require. As the context may require, the singular may be read as the
plural and the plural as the singular.
15.6 CAPTIONS. The captions of the articles and sections of the Plan
are for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
15.7 VALIDITY. If any provision of the Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provisions of the Plan.
15.8 WAIVER OF BREACH. The waiver by the Company of any breach of any
provision of the Plan by the Participant shall not operate or be construed as
a waiver of any subsequent breach by the Participant.
15.9 APPLICABLE LAW. The Plan shall be governed and construed in
accordance with the laws of Ohio except where the laws of Ohio are preempted
by ERISA.
15.10 NOTICE. Any notice or filing required or permitted to be given to
the Company under the Plan shall be sufficient if in writing and hand-
delivered, or sent by first class mail to the principal office of the Company,
directed to the attention of the Administrator. Such notice shall be deemed
given as of the date of delivery, or, if delivery is made by mail, as of the
date shown on the postmark.
ARTICLE 16
CLAIMS AND REVIEW PROCEDURES
16.1 CLAIMS PROCEDURE. The Company shall notify a Participant in
writing, within ninety (90) days after his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Plan. If the Company determines that a Participant is not eligible for
benefits or full benefits, the notice shall set forth: (a) the specific
reasons for such denial; (b) a specific reference to the provisions of the
Plan on which the denial is based; (c) a description of any additional
information or material necessary for the claimant to perfect his or her
claim, and a description of why it is needed; and (d) an explanation of the
Plan's claims review procedure and other appropriate information as to the
steps to be taken if the Participant wishes to have the claim reviewed. If
the Company determines that there are special circumstances requiring
additional time to make a decision, the Company shall notify the Participant
of the special circumstances and the date by which a decision is expected to
be made, and may extend the time for up to an additional ninety-day period.
16.2 REVIEW PROCEDURE. If a Participant is determined by the Company
not to be eligible for benefits, or if the Participant believes that he or she
is entitled to greater or different benefits, the Participant shall have the
opportunity to have such claim reviewed by the Company by filing a petition
for review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which
the Participant believes entitle him or her to benefits or to greater or
different benefits. Within sixty (60) days after receipt by the Company of the
petition, the Company shall afford the Participant (and
17
counsel, if any) an opportunity to present his or her position to the Company
orally or in writing, and the Participant (or counsel) shall have the right to
review the pertinent documents. The Company shall notify the Participant of
its decision in writing within the sixty-day period, stating specifically the
basis of its decision, written in a manner calculated to be understood by the
Participant and the specific provisions of the Plan on which the decision is
based. If, because of the need for a hearing, the sixty-day period is not
sufficient, the decision may be deferred for up to another sixty-day period at
the election of the Company, but notice of this deferral shall be given to the
Participant. In the event of the death of the Participant, the same
procedures shall apply to the Participant's beneficiaries.
PARKER-HANNIFIN CORPORATION
Dated: ____________________ By: ______________________________________
18
EXHIBIT A
The purpose of the adjustment payment to be added to the distribution made
pursuant to Section 9.1(a) (the "Make Whole Amount") is to offset the
Participant's inability to defer until retirement or later the payment of
taxes on the amounts deferred and the earnings and interest that would have
otherwise accrued between the date of the Change in Control and the date on
which the Participant elected to commence receipt of his Account (the
"Commencement Date") under the Plan.
The Make Whole Amount shall be calculated as follows:
1. The Participant's Account balance under the Plan as of the date of the
Change in Control (exclusive of Automatic Deferrals) (the "EDP Amount")
will be projected forward to the Commencement Date at an assumed tax-
deferred annual earnings rate equal to the Moody's Seasoned Baa
Corporate Bond Yield Average for the last twelve full calendar months
prior to the Change in Control (the "Moody's Rate") (such projected
amount shall be known as the "Projected Balance"). The Projected Balance
will then be converted into annual installment benefit payments based
upon the Participant's elected form of retirement payments under the
Plan, assuming continued tax-deferred earnings on the undistributed
balance at the Moody's Rate (the "Projected Annual Payouts"). The
Projected Annual Payouts will then be reduced for assumed income taxes
at the highest applicable federal, state and local marginal rates of
taxation in effect in the Participant's taxing jurisdiction(s) for the
calendar year in which the Make Whole Amount is paid (the "Tax Rate").
The after-tax Projected Annual Payouts will be known as the "After-Tax
Projected Benefits".
2. The term "Made Whole Amount", as used herein, shall mean the EDP Amount
plus the Make Whole Amount. The Make Whole Amount is the amount which,
when added to the EDP Amount, will yield After-Tax Annuity Benefits (as
hereinafter defined) equal to the After-Tax Projected Benefits, based on
the following assumptions:
a. The Made Whole Amount will be taxed at the Tax Rate upon receipt
by the Participant.
b. The after-tax Made Whole Amount will be deemed to be invested by
the Participant in a tax-deferred annuity that is structured to make payments
beginning on the Commencement Date in the same form as elected by the
Participant under the Plan (the "Annuity").
c. The Annuity will accrue interest at the Moody's Rate, less 80
basis points (i.e., 0.80%).
d. Annual Annuity payments will be taxed at the Tax Rate (after
taking into account the annuity exclusion ratio), yielding "After-Tax Annuity
Benefits".
19