Exhibit (10)(q)
Exhibit (10)(q)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 2002
by Parker-Hannifin Corporation
Parker-Hannifin Corporation 2003-04-05 Long Term Incentive Plan Description.
* Numbered in accordance with Item 601 of Regulation S-K.
PARKER-HANNIFIN CORPORATION
2003-04-05
LONG TERM INCENTIVE PLAN
The purpose of the Plan is to provide a long-term incentive portion of bonus
compensation. The Plan's focus is on return on equity. It balances a competitive
base salary pay structure, an annual cash bonus compensation based on a return
on average assets, and a stock option plan with ten-year exercise rights. The
return on equity objective is a key financial goal and comprehends return on
sales at the net income level and asset utilization.
The participants in this Plan are limited to Corporate Officers and Group
Presidents. They clearly can affect broadly the overall financial performance of
the company.
The key elements of Parker-Hannifin's Plan are as follows:
Participation
Those key executives having a critical impact on the long term performance of
the Company selected by the Chief Executive Officer and approved by the
Compensation and Management Development Committee of the Board (the
"Committee").
Performance Period
Three-year average Return on Equity with the grant to cover FY 03, 04 and 05.
Size of Awards
Commensurate with bonus compensation and stock option level of participants as
determined by the CEO with approval of the Compensation and Management
Development Committee.
Form of Awards
Awards will be expressed as a certain number of performance units calculated by
dividing the dollar equivalent of the award by the June 30, 2002 Parker stock
price.
Performance Objective
The Return on Equity objective is 15%.
Share Price Fluctuation
The value of the performance units during the Performance Period will fluctuate
with the value of Parker common shares.
Value Range
Actual value of the payments under the Plan will be within a range of 25% to
200% of target value based on performance against the objective.
Performance Range
For performance below a threshold of 9% ROE objective, no payment will be made.
For performance between 9% and 21% ROE, payments will be earned between 25% and
200% of the
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target value on a proportional basis above and below the target value. The Plan
is capped at 200%.
Payment
Payments earned under the Plan will be paid at the end of the three-year
performance period. Except as otherwise provided herein, payment will be made in
the form of a credit to the participant's account under the Corporation's
Executive Deferral Plan ("EDP"). Payment may be made in restricted stock of the
Corporation pursuant to the 1993 Stock Incentive Program at the discretion of
the Committee unless the participant has previously elected a deferral under the
EDP. In such event, the number of restricted shares issued would be equal to the
number of performance units earned in accordance with the Performance Schedule
described below and the restricted shares would be subject to a vesting schedule
and such other terms and conditions determined by the Committee at the time of
issuance. Retirees at the time of payout will receive cash. The value of any EDP
credit or cash payment will be determined based upon the value of the earned
performance units as of June 30, 2005. Any payout pursuant to this plan that
will result in the exceedance of the $1 million cap on the tax deductibility of
executive compensation will be deferred until such time in the earliest
subsequent fiscal year that such cap will not be exceeded.
Termination of Employment
If a participant dies, retires (with consent of the Compensation and Management
Development Committee if earlier than age 60) or is disabled during the
performance period, he/she will receive a pro rata portion of the award payable
upon completion of the performance period. A participant who resigns or is
otherwise terminated during the performance period forfeits the award.
Performance Schedule
The Plan performance schedule, based on the three-year simple average of annual
report return on average equity, is as follows:
Return on Equity
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<9.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0%
----- ---- ----- ----- ----- ----- ----- -----
Payout % 0 25 50 75 100 133 167 200
Change in Control
In the event of a "Change in Control" of the Corporation (as defined below), the
payout under the Plan will be accelerated to fifteen (15) days after the Change
in Control. The amount of the payout will be in cash and will be the greater of
the target award or the amount the payout would have been had ROE during the
Performance Period to the end of the fiscal quarter immediately preceding the
date of the Change in Control continued throughout the Performance Period. The
cash amount of such payout will be based upon the closing New York Stock
Exchange stock price of the Corporation's Common Shares on the first day of the
Performance Period or the date
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of the Change in Control, whichever is greater. If the Participant will reach
age 65 prior to the end of the Performance Period, the payout in the event of a
Change in Control will be reduced on a pro rata basis.
"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 Parker-Hannifin Corporation (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 of Directors of the Company (the
"Board") (the "Company's 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 corporation or 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 (a "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 Plan
participant (the "Executive"), any acquisition by the Executive or any group of
persons (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) including the Executive (or any entity in which the Executive or a group of
persons including the Executive, 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;
(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 shareholders, whether for such
transaction or the issuance of securities in connection with the transaction or
otherwise (a "Business Combination"), unless (A) immediately following
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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 elect 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 shareholders 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 Executive's
employment is terminated prior to a Change in Control, and the Executive
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 Executive.
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