Offer Letter

Severance Agreement

Amendment to Severance Agreement

Change in Control Agreement 

 

 

EX-10.1 2 d244031dex101.htm EX-10.1

EXHIBIT 10.1

October 11, 2011

 

Mr. Neil Schrimsher

  

PERSONAL AND CONFIDENTIAL

320 Highgrove Drive

  

Fayetteville, GA 30215

  

 

 

Re:

Offer of Employment: Chief Executive Officer

Dear Neil:

On behalf of the Board of Directors of Applied Industrial Technologies, Inc. (“Applied”), I am pleased to present you with these proposed terms of your employment with Applied, commencing effective October 25, 2011, or earlier per mutual agreement (the “Hire Date”):

 

 

1.

Position. The Board of Directors will elect you Chief Executive Officer at its organization meeting on October 25, following the annual meeting of shareholders. You will report directly to the Board. In addition, you will be nominated to be elected a member of the Board; however, as an inside director you would not be compensated for your Board service.

 

 

2.

Base Salary. As is the case with all Applied officers, compensation and benefits are set by the Board’s Executive Organization & Compensation Committee (the “Committee”). Under current procedures, the Committee reviews annual base salaries in August, with any adjustment retroactive to July 1. Your starting annual base salary will be $750,000, and it is anticipated your next merit review would be effective July 1, 2012.

 

 

3.

2012 Annual Incentive. At its next meeting following your hire, the Committee will designate you a participant in an annual incentive plan for the fiscal year ending June 30, 2012. The plan will provide for incentive payments based on Applied achieving certain goals, with payments, if any, distributed in August following the release of fiscal year-end audited financial results.


For fiscal 2012, your target incentive percentage is 100% of your base salary, giving you a target incentive payment, if all target goals are met, of $750,000 multiplied by a fraction, the numerator of which is equal to the number of quarters or partial quarters during fiscal 2012 that you are an Applied employee and the denominator of which is 4.

 

 

4.

Long-Term Incentive Awards. You will be eligible for awards under Applied’s Long-Term Performance Plan. Your full-year targeted long-term incentive value for the first year is $1,200,000, but, because you will commence employment in October, the 2012 value will be prorated to $900,000. At its next meeting following your hire, the Committee will award this value to you approximately one-third through each of three incentive vehicles – stock-settled SARs, restricted stock units, and performance shares. The per-share value of the awards will be based on a 90-day average stock price methodology. The programs are approved by the Committee annually, and there is no guarantee that the long-term incentive vehicles or your targeted long-term incentive value will remain unchanged.

 

 

5.

Initial Equity Awards and Cash Inducement. Due to the timing and circumstances of your hire, and as an inducement for you to join Applied, the Committee will also provide you initial equity and cash awards. At its next meeting following your hire, the Committee will award you restricted shares of Applied stock valued at $2,100,000. These shares will vest over three years, one-third on each anniversary of the award date, assuming continued employment, or earlier if your employment with Applied is terminated either by you “for good cause”, by Applied “without cause”, or due to your death or disability. You will also be awarded 60,000 stock-settled SARs at the same time as the restricted shares are awarded, with a base price as of the award date, and with vesting to occur on the third anniversary of the award, or earlier if your employment with Applied is terminated either by you “for good cause”, by Applied “without cause”, or due to your death or disability. As additional inducement and to compensate you for expenses associated with moving that are not covered with Applied’s standard relocation package, the Committee will award you a one-time cash sign-on bonus of $500,000; however, you will promptly repay this sum if your employment with Applied is terminated either by you “without cause” or by Applied “for good cause” before the first anniversary of the Hire Date.


 

6.

Severance Agreement. The Committee will provide you an executive severance agreement, effective as of the Hire Date, which will provide you a severance benefit if your employment with Applied is terminated either by you “for good cause” or by Applied “without cause” within a one year period from the Hire Date. It is currently expected that, at its expiration, the executive severance agreement will be renewed for another year. The benefit provided is an amount equal to your base salary plus target annual incentive pay for a period running from your termination date to the second anniversary of the Hire Date or renewal date of your executive severance agreement.

 

 

7.

Change in Control Agreement. You will also receive a change-in-control agreement. This agreement will provide that if, within two years following a change in control of Applied, your employment with Applied is terminated either by you “for good cause” or by Applied “without cause”, then you will receive a severance payment equal to three times your total compensation (base salary plus your targeted annual incentive pay), plus three years of continued benefits. You will not be entitled to payment under the executive severance agreement referenced in section 6, above, if you receive payment under the change in control agreement.

 

 

8.

Executive Retirement Benefits. You will be eligible to participate in a new executive retirement plan. The Committee is still finalizing the plan, but it is expected to be approved before the end of the calendar year. The plan will be a non-qualified arrangement under which Applied will contribute 10 percent of your annual pay (base salary plus annual incentive pay) to a retirement account in your name – the 10 percent figure shall be gross of company contributions (both matching and profit sharing) to the Retirement Savings Plan, as described below. The account will vest 50% after three years of service, another 25% after four years, and will become fully vested after five years of service with Applied.

 

 

9.

Other Executive Plans and Programs. As an Applied officer, you will be eligible to participate in the following executive plans and programs, during the periods such plans and programs are continued by Applied and as the same may be amended from time to time, on the same basis as other Applied officers:


 

a.

Executive life insurance program;

 

 

b.

Long-term disability program;

 

 

c.

Retiree health care program; and

 

 

d.

Deferred Compensation Plan.

Neither a company car nor an automobile allowance is provided, but Applied will reimburse you for business mileage pursuant to company policy. Country club memberships are not included.

 

 

10.

Vacation. You will be eligible for four days’ vacation for the remainder of calendar 2011, and four weeks for calendar 2012. Vacation beyond that will be granted in accordance with company policy applicable to officers (currently five weeks per calendar year).

 

 

11.

Relocation. Your new position is located in Cleveland, Ohio. It is understood that you will relocate to Cleveland immediately following your acceptance of this offer. You will receive our standard relocation package, which has been shared with you. These benefits are conditioned, however, on your agreement to reimburse Applied for all relocation-related expenses if your employment is terminated either by Applied “for good cause”, or by you “without cause”, within one year after the Hire Date.

 

 

12.

Other Associate Benefits. Among the normal benefits available to Applied employees are the following:

 

 

a.

Health Care Program. We offer health care options administered by Anthem, and dental coverage administered by CIGNA. Because you become eligible for these benefits only after a waiting period, Applied will reimburse you for interim COBRA costs.

 

 

b.

Retirement Savings Plan. Applied’s section 401(k) plan provides for compensation deferral and a company match in Applied stock with respect to the first 6% of compensation deferred. A variety of investment options are available. The company match ranges from a minimum of 25% to a maximum of 100% per quarter based on Applied achieving certain net income hurdles. Applied also makes annual profit sharing contributions depending on Applied’s profitability during the previous fiscal year. The company match and profit sharing contributions vest at the rate of 25% for each year of your employment with Applied.

 

 

c.

Supplemental Defined Contribution Plan (the “Shadow Plan”). Highly compensated associates are eligible for the Shadow Plan, a non-qualified plan maintained in conjunction with the Retirement


Savings Plan. The Shadow Plan provides you a vehicle for saving on a tax-deferred basis even if the tax laws limit the amount of contributions you can make to the Retirement Savings Plan.

 

 

13.

Other Boards. You will not be permitted to join an outside for-profit board of directors before January 2013. From and after that date, you shall discuss any potential outside board positions with Applied’s Board and obtain its approval before acceptance. Our intent is to have you focus your energies on opportunities within Applied.

 

 

14.

Your Covenants.

 

 

a.

Noncompetition Covenant. During your employment and the two-year period following the date of termination of your relationships with Applied and its affiliates as a director, officer, or employee, you covenant and agree that you will not, directly or indirectly, with or through another individual or organization,

 

 

(i)

whether as a shareholder (other than as the holder of less than 1% of the outstanding shares of a publicly held company), partner, member, director, officer, employee, agent or consultant, or in any other capacity, in competition with Applied or any of its affiliates, anywhere within the United States, Canada, Mexico, or any other nation in which Applied or its affiliates hereafter conducts business, (a) distribute products that are the same or similar to products sold, designed, or distributed by Applied or any of its affiliates during the 12-month period preceding the date of termination of your relationships with Applied and its affiliates as a director, officer, or employee, or (b) provide services that are the same or similar to services provided by Applied or any of its affiliates during the 12-month period preceding the date of termination of your relationships with Applied and its affiliates as a director, officer, or employee; or

 

 

(ii)

except with the prior written consent of Applied’s Board of Directors, which consent shall not be arbitrarily withheld, assume a position as a shareholder (other than as the holder of less than 1% of the outstanding shares of a publicly held company), partner, member, director, officer, employee, agent or consultant, or in any other capacity, with any of the following Applied product suppliers (or their affiliates): Baldor Electric, Eaton, Rexnord, SKF, and Timken.


 

b.

Nonsolicitation Covenant. During your employment and the two-year period following the date of termination of your relationships with Applied and its affiliates as a director, officer, or employee, you covenant and agree that you will not, directly or indirectly, with or through another individual or organization, induce, solicit or assist or facilitate the inducement or solicitation by any third person of any employee, officer, agent, or representative of Applied to terminate his or her relationship with Applied or in any other way interfere with Applied’s relationship with its employees, officers, agents, and representatives.

 

 

c.

Confidential Information. During your employment and the five-year period following the date of termination of your relationships with Applied and its affiliates as a director, officer or employee, you covenant and agree to keep confidential and not disclose to others information relating to Applied or any of its affiliates, or their respective businesses, including, but not limited to, information regarding (i) customers or potential customers; (ii) vendors or suppliers; (iii) pricing structure and profit margins; (iv) business plans and strategies; (v) employees and payroll policies; (vi) computer systems; (vii) facilities or properties; and (viii) other proprietary, confidential or secret information relating to Applied or any of its affiliates (“Confidential Information”). You shall use all reasonable care to protect, and prevent unauthorized disclosure of, any Confidential Information unless such information (a) is now or becomes generally known or available to the public without any violation of this agreement; or (b) is required to be disclosed by applicable law or court or governmental order.

 

 

d.

Remedies; Severability. You acknowledge that a breach of your covenants in this Section 14 would result in irreparable injury to Applied for which monetary damages alone would not be an adequate remedy. Therefore, you consent to the issuance of injunctive relief in the event of a breach of your covenants, in addition to any other remedies to which Applied may be entitled at law or in equity. In addition, if any provision of this Section 14 or the application of any provision to any person or circumstances is held invalid, unenforceable, or otherwise illegal, including without limitation, as to time, geographic area, or scope of activity, that provision shall be severable from the other provisions of this Section and the remainder of this Section and the application of that provision to any other person or circumstance shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid, and legal.


 

15.

Your Representations. You represent to Applied that (a) entering into an employment relationship with Applied will not violate any provision of or result in a breach under any agreement to which you are a party or by which you are bound; (b) you are not a party to, or bound by, any agreement, understanding, covenant, policy, other arrangement, or fiduciary obligation, that would affect or limit your ability to provide services to, or to carry out your responsibilities with Applied, including without limitation any noncompetition, nonsolicitation, employment, consulting, or other agreement; and (c) you have not retained, nor will you use in connection with your employment with Applied, any proprietary or confidential information of any previous employer or other person or entity.

 

 

16.

Other Conditions. This offer is contingent on Applied receiving (a) reports satisfactory to Applied regarding executive background and credit checks conducted on you and your submission to Applied’s standard pre-hire drug test (which we will arrange to be taken at a facility near your home), and (b) your completed officer questionnaire satisfactory to Applied.

 

 

17.

Miscellaneous. This offer letter shall be construed in accordance with the laws of the State of Ohio. Except as expressly provided herein, your employment shall be subject to all employment policies and procedures applicable to Applied associates generally. As with the other Applied officers, you will not have an employment agreement assuring continued employment. Officers serve at the will of the Board of Directors.

Neil, on behalf of Applied’s Board of Directors, we are very excited about the contribution you can make to the company over the next several years. We have exciting times ahead and a significant number of opportunities for success. In addition, I feel there are plenty of opportunities that will continue to challenge you in the years ahead. You have a great background that makes you well suited for this position at this important time in the company’s history.


Please acknowledge your acceptance of our offer and your agreement to the matters set forth in this letter by signing and returning the enclosed extra copy of this letter. If you have any questions, please call me.

 

Cordially,

/s/ Peter Wallace

Peter C. Wallace

Presiding Non-Management Director

Enclosure

I acknowledge, accept, and agree to this offer to commence employment.

 

Date: October 14, 2011

 

 

 

/s/ Neil A. Schrimsher

 

 

 

Mr. Neil Schrimsher

 

 

 

 

 

EX-10.2 3 d248810dex102.htm EX-10.2

EXHIBIT 10.2

SEVERANCE AGREEMENT

Applied Industrial Technologies, Inc.

One Applied Plaza

Cleveland, Ohio 44115

October 18, 2011

Mr. Neil A. Schrimsher

320 Highgrove Drive

Fayetteville, GA 30215

Dear Neil:

As a material inducement to you joining Applied Industrial Technologies, Inc. (the “Company”), the parties desire to set forth in this Severance Agreement (the “Agreement”) their mutual agreements concerning the terms and conditions of any severance benefits in the event your employment with the Company is terminated within a year of the date hereof (the “Term”), subject to automatic annual renewal each year unless the Company gives you written notice 30 days in advance of expiration of the Term (as the same may be renewed from time-to time) of the Company’s election not to renew, as determined in the sole discretion of the Board of Directors of the Company (the “Board”), including its duly authorized committees.

Nothing herein shall be construed to prevent either you or the Company from terminating your employment at any time, for cause or otherwise, subject only to the specific payment, if any, and other provisions hereinafter set forth in this Agreement.

1. Employment. The Company hereby agrees to employ you, and you agree to serve, as the Company’s Chief Executive Officer during the Term (as the same may be renewed), subject to the supervisory powers of the Board. In the event your employment with the Company is terminated, the parties hereby agree that (a) you shall be entitled to severance payments from the Company only to the extent specifically provided for herein and (b) the Company’s obligation to make any severance payments to you hereunder shall be conditioned upon your satisfaction of all terms and conditions relating to such payment. Notwithstanding the foregoing, if your employment with the Company is terminated for any reason, you shall be entitled to payment of all compensation and benefits earned and fully vested through your Date of Termination (as hereinafter defined) in accordance with the terms of any plan, agreement or terms and conditions relating to such compensation or benefits and that no such amount shall be deemed to be a severance payment.


2. Severance Payment Amount.

(a) If your employment with the Company is terminated within the Term (as the same may be extended by renewal), either by you for Good Reason or by the Company Without Cause, you shall be entitled to a severance payment equal to (i) your full base salary that would have been payable to you from your Date of Termination through the second anniversary of the date of this Agreement (or the latest renewal date hereof) (the “Severance Period”), at the highest rate in effect at any time on or after the date of this Agreement and (ii) 100% of your targeted annual incentive payment that would have been payable to you from your Date of Termination through the Severance Period, at the highest rate in effect at any time on or after the date of this Agreement, prorated based on the number of calendar days remaining during the Severance Period. You acknowledge that no severance payment shall be due under this Agreement to the extent you receive or are legally entitled to receive severance payments under any other agreement, plan or arrangement with the Company; provided, however, you may give notice to the Company of your election to decline severance payments hereunder in favor of severance payments under any other agreement, plan or arrangement with the Company or to accept severance payments hereunder and, thereby, decline severance payments under any other agreement, plan or arrangement with the Company.

(b) For purposes of this Agreement the term “Without Cause” shall mean termination of your employment for reasons other than your death, Retirement, Disability or Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure by you to perform substantially your duties with the Company or one of its affiliates (other than for Disability or Good Reason), after a written demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or

(ii) the willful engagement by you in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to the Company.

For purposes of this Section 2(b), no act or failure to act shall be considered “willful” unless it is done, or omitted to be done, in bad faith or without your reasonable belief that such action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given you pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company. Termination of your employment with the Company shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail;


 

(c)

For purposes of this Agreement, “Good Reason” shall mean:

(i) a material diminution in your authority, duties, or responsibilities;

(ii) a material diminution in the authority, duties, or responsibilities of the person to whom you reported immediately prior to the Effective Date;

(iii) a material diminution by the Company of your annual base salary that was provided to you by the Company immediately prior to the Effective Date; or

(iv) a material change in the geographic location where you provide service to the Company

provided that, for purposes of this Section 2(c), Good Reason shall be interpreted to comply with Treas. Reg. §1.409A-1(n)(2)(ii) and shall not have occurred unless you give the Company notice within 90 days of the initial existence of the condition claimed by you in good faith to constitute Good Reason and the Company has at least 30 days in which to remedy the condition and provided further that such separation from service occurs no later than six months after one or more of the conditions constituting “Good Reason” occurs. For purposes of this Agreement, “Good Reason” shall not exist if you have given your prior written consent to any of the events that would otherwise constitute “Good Reason”.

(d) For purposes of this Agreement, except in the case of death, your “Date of Termination”) shall be the earlier of the date specified by either you or the Company in a written notice of termination to the other party hereto or the date that you incur a Separation from Service for purposes of Section 409A of the Internal Revenue Code, as amended, and the regulations issued thereunder (“Section 409A”).

3. Form and Time of Severance Payment.

 

 

(a)

Form of Severance Payment. Any severance payment made hereunder shall be paid in cash in a lump sum payment (or payments) at the time(s) provided in Section 3(b).

 

 

(b)

Time of Payment(s).

(i) Specified Employee. In the event that on your Date of Termination you are a “specified employee” within the meaning of Section 409A (“Specified Employee”), the portion of your severance payment that does not exceed the amount specified in Treas. Reg. §1.409A-1(b)(9)(iii)(A) shall be paid within the first five business days following your Date of Termination and the remaining portion of your severance payment shall be made on the first day of the seventh calendar month following your Date of Termination. Each payment of your severance payment made hereunder shall be deemed to be a separate payment for purposes of applying the provisions of Section 409A.


(ii) Not Specified Employee. If you are not a Specified Employee on your Date of Termination, the Company will pay the amount described in Section 2(a) hereof within the first five business days following your Date of Termination.

4. No Mitigation Required. You shall not be required to mitigate the amount of any payment or benefit provided for in Section 2(a) by seeking other employment or otherwise.

5. Nonmerger of Restrictive Covenants. Regardless of whether any severance payment is payable to you pursuant to Section 2(a) of this Agreement, as a material inducement to the Company to enter into this Agreement, you specifically acknowledge that the covenants contained in Section 14 of your Offer of Employment executed as of October 14, 2011 (the “Offer of Employment”) shall survive termination of your employment and that no provision of any plan, agreement, award or other arrangement with the Company that contains covenants of a similar subject matter shall be deemed to amend, modify or terminate said covenants, except and solely to the extent specifically provided for by reference to such Section and Offer of Employment. In the event more than one plan, agreement, award or other arrangement with the Company contains covenants of a similar subject matter to those set forth in Section 14 of the Offer of Employment, the most favorable provisions to the Company of each such covenant, taken as a whole, shall govern.

6. Release of All Claims. The Company’s obligation to make any payment under Section 2(a) of this Agreement shall be conditioned upon your delivering, in a form reasonably satisfactory to the Company, a release of all claims or causes of action that may have arisen out of your employment or the termination of his employment, any transaction, or any state of facts existing on or prior to the Date of Termination, including, but not limited to, any and all claims and causes of action arising under any severance plan, policy, or practice of the Company, against the Company or any of its affiliates, subsidiaries, successors, assigns, shareholders, employees, insurers, officers, directors, or agents, be they common law or statutory, legal or equitable, in contract or tort including claims under Title VII of the Civil Rights Act of 1964, the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, the Uniformed Services Employment and Reemployment Rights Act, the Age Discrimination in Employment Act, the Fair Labor Standards, Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act of 1974, the Americans With Disabilities Act, and the fair employment practices acts and all other employment laws of the various states arising out of or relating in any way to your employment with the Company or the termination of that employment.

7. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

8. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be


performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except as otherwise provided herein, this Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof and no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to its conflict of laws provisions.

9. Validity. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

11. Jurisdiction. In the event of any dispute or controversy arising under or in connection with this Agreement, you and the Company hereby irrevocably consent to the jurisdiction of the Common Pleas Court of the State of Ohio (Cuyahoga County) or the United States District Court for the Northern District of Ohio.

12. Non-Alienation. No benefit under this Agreement shall at any time be subject in any manner to alienation or encumbrance. If you attempt to, or shall, alienate or in any way encumber your rights or benefits under the Agreement, or any part thereof, or if by reason of his bankruptcy or other event happening at any time any such benefits would otherwise be received by anyone else or would not be enjoyed by you, your interest in all such benefits shall automatically terminate and the same shall be held or applied to or for the benefit of such person, his spouse, children, or other dependents as the Company may select.

13. Taxes. The Company (or any agent of the Company) shall report all income required to be reported, and withhold from any payment under the Agreement the amount of withholding taxes due, in the opinion of the Company, in respect of such income or payment and shall take any other action as may be necessary, in the opinion of the Company, to satisfy all obligations for the reporting of such income and payment of such taxes. Except as specifically provided herein, the Company shall not be held liable for any taxes, penalties, interest, or other monetary amounts owed by a Participant or other person, including any taxes, penalties, and/or interest under Section 409A, as a result of the payment or deferral of any amounts under the Agreement. Although the Company shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest under Section 409A, tax treatment of any payment under this Agreement is not warranted or guaranteed. The obligation of the Company shall constitute the unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Company.

[The balance of this page has been left blank intentionally]


If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of the letter which will then constitute our agreement on this subject.

 

 

Very truly yours,

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC.

 

By: /s/ Fred D. Bauer, Vice President         

 

 

Date: October 25, 2011

 

ACCEPTED AND AGREED TO:

/s/ Neil A. Schrimsher        

NEIL A. SCHRIMSHER

 

 

 

 

 

EX-10.2 3 d428427dex102.htm EX-10.2

Exhibit 10.2

AMENDMENT

TO THE

SEVERANCE AGREEMENT

DATED OCTOBER 18, 2011

BETWEEN

NEIL A. SCHRIMSHER AND APPLIED INDUSTRIAL TECHNOLOGIES, INC.

Pursuant to the provisions of Section 8 of the Severance Agreement dated October 18, 2011 (the “Agreement”), between Neil A. Schrimsher (the “Executive”) and Applied Industrial Technologies, Inc. (the “Company”), Section 3(b) is hereby amended by the addition of subparagraph (iii) at the end thereof to provide as follows:

(iii) Notwithstanding the foregoing, in the event that any portion of your severance benefit is not excluded from the definition of deferred compensation under Section 409A, such portion of your severance benefit shall begin to be paid in the later of the taxable year in which it would otherwise be payable under this Agreement or the taxable year required under Internal Revenue Service Notice 2010-80 (or subsequently issued guidance) regarding operational compliance with Section 409A.

Except as set forth above, the Agreement is confirmed and ratified in all respects.

Executed this 23 day of October, 2012.

 

EXECUTIVE

 

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC.

/s/ Neil A. Schrimser

 

 

By:

 

/s/ Fred D. Bauer

Neil A. Schrimsher

 

 

Title:

 

Secretary

 

 

 

 

 

 

 

EX-10.3 4 d248810dex103.htm EX-10.3

EXHIBIT 10.3

CHANGE IN CONTROL AGREEMENT

Applied Industrial Technologies, Inc.

One Applied Plaza

Cleveland, Ohio 44115

October 25, 2011

Mr. Neil Schrimsher

320 Highgrove Drive

Fayetteville, GA 30215

Dear Neil:

Applied Industrial Technologies, Inc. (the “Company”) considers it essential to the best interest of the Company and its shareholders that the Company’s management be encouraged to remain with the Company and to continue to devote their full attention to the Company’s business. The Company recognizes that the possibility of a change in control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Company’s Board of Directors (the “Board”) has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of the Company’s management, including you, to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control of the Company.

In order to induce you to remain in the employ of the Company until the termination of your employment in conjunction with a “Change in Control” of the Company (as defined in Section 2 hereof), this letter agreement (“Agreement”) sets forth the severance benefits that the Company agrees will be provided to you in the event your employment with the Company is terminated within the two year period immediately following any change in control of the Company either by you for “Good Reason” or by the Company “Without Cause” (both as defined in Section 3 hereof). In the event that a change in control of the Company does not occur, your severance benefits, if any, shall be determined without regard to this Agreement.

Nothing herein shall be construed so as to prevent either you or the Company from terminating your employment at any time, for cause or otherwise, subject only to the specific payment and other provisions hereinafter set forth in this Agreement in the event that a Change in Control of the Company occurs prior to the date your termination becomes effective. In addition, this Agreement shall be deemed terminated, and of no further force and effect, in the event that you cease to be a Board-elected officer or an appointed officer of the Company prior to a Change in Control. You hereby specifically acknowledge that your employment by the Company is employment-at-will, subject to termination by you, or by the Company, at any time with or without cause. You also acknowledge that such employment-at-will status cannot be modified except in a specific writing that has been authorized or ratified by the Board.


1. Continued Employment. The parties agree that you have advised the Company that, in consideration of, among other things, the Company’s entering into this Agreement with you, it is your present intention to remain in the employ of the Company unless and until there occurs a Change in Control.

2. Change in Control. No benefits shall be payable hereunder unless a Change in Control occurs and your employment with the Company is terminated within two years thereafter either by you for Good Reason or by the Company Without Cause. This Agreement is not intended to apply to termination of your employment by reason of Death, Disability or Retirement (as defined in Section 3 hereof). For purposes of this Agreement, a “Change in Control” of the Company shall mean:

(a) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction;

(b) The Company sells all or substantially all of its assets to any other corporation or other legal person, and, immediately after such sale, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale;

(c) There is a report filed or required to be filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosing that any person (as the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 30% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company (“Voting Stock”);

(d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred or will occur in the future pursuant to any then-existing contract or transaction; or

(e) If during any period of two consecutive years, individuals who at the beginning of any such period are the directors of the Company cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this subparagraph (e), each director who is first elected, or first nominated for election by the Company’s shareholders, by a vote of at least two-thirds of the directors of the Company (or a committee thereof) then still in


office who were directors of the Company at the beginning of any such period will be deemed to have been a director of the Company at the beginning of such period.

Notwithstanding the events specified in subparagraphs (c) and (d) above, unless otherwise determined in a specific case by majority vote of the Board, a “Change in Control” shall not be deemed to have occurred solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities or interest, or (iii) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 30% or otherwise, or because the Company reports that a change in control of the Company has occurred or will occur in the future by reason of such beneficial ownership.

The first date upon which a Change in Control takes place shall be known as the “Effective Date.” Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and if your employment with the Company is terminated prior to the date on which the Change in Control occurs, and if it is reasonably demonstrated by you that such termination (i) was at the request of a third party who had taken steps reasonably calculated to effect a Change in Control or (ii) was by the Company and arose with or in anticipation of a Change in Control, then for all purposes of this Agreement, your employment shall be deemed to have been terminated by the Company Without Cause under Section 3(f) of this Agreement and the “Effective Date” shall mean the date immediately prior to the Date of Termination (as defined in Section 3 hereof).

3. Termination of Employment. Your employment with the Company shall or may be terminated, as the case may be, for any of the following reasons; provided that in each case such termination of employment constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations issued thereunder (“Separation from Service”):

(a) Death. Termination of your employment with the Company due to your death;

(b) Retirement. Termination of your employment with the Company at or after the attainment of age sixty-five (65);

(c) Disability. Termination of your employment with the Company either by you or the Company after you are physically or mentally incapacitated for a period of one hundred eighty (180) consecutive days such that you cannot substantially perform your duties of employment with the Company on a full-time basis;

(d) Cause. Termination of your employment with the Company at any time for Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure by you to perform substantially your duties with the Company or one of its affiliates (other than for Disability or Good


Reason), after a written demand for substantial performance is delivered to you by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that you have not substantially performed your duties, or

(ii) the willful engagement by you in illegal conduct or gross misconduct involving moral turpitude that is materially and demonstrably injurious to the Company.

For purposes of this Section 3(d), no act or failure to act shall be considered “willful” unless it is done, or omitted to be done, in bad faith or without your reasonable belief that such action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given you pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company. Termination of your employment with the Company shall not be deemed to be for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, you are guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail;

(e)(A) 409A Good Reason. You may separate from service with the Company for 409A Good Reason, provided that the notice and cure requirements set forth below are satisfied and provided further that such separation from service occurs no later than two years after one or more of the conditions constituting “409A Good Reason” occurs. For purposes of this Agreement, “409A Good Reason” shall mean:

(i) a material diminution in your authority, duties, or responsibilities;

(ii) a material diminution in the authority, duties, or responsibilities of the person to whom you reported immediately prior to the Effective Date;

(iii) a material diminution by the Company of your annual base salary that was provided to you by the Company immediately prior to the Effective Date;

(iv) a material change in the geographic location where you provide service to the Company; or

(v) any failure by the Company to comply with and satisfy Section 11 of this Agreement;

provided that, for purposes of this Section 3(e), 409A Good Reason shall not have occurred unless you give the Company notice within 90 days of the initial existence of the condition


claimed by you in good faith to constitute 409A Good Reason and the Company has at least 30 days in which to remedy the condition.

(B) Other Good Reason. You may terminate your employment with the Company for Other Good Reason. For purposes of this Agreement, “Other Good Reason” shall mean:

(i) the assignment of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by you;

(ii) any failure by the Company to continue to provide you with an annual base salary, employee benefits and an opportunity to earn incentive and bonus compensation equal or greater to that which was provided to you by the Company immediately prior to the Effective Date other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after the receipt of notice thereof given by you;

(iii) the Company’s requiring you to be based at or generally work from any location other than the location that you were based at or generally worked from prior to the Effective Date or the Company’s requiring you to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or

(iv) any failure by the Company to comply with and satisfy Section 11 of this Agreement.

For purposes of this Section 3(e)(B), your good faith determination of “Other Good Reason” shall be conclusiveYou shall specify in your notice of separation from service with the Company under Section 3(e)(A) or termination of employment under Section 3(e)(B) whether your separation or termination is for 409A Good Reason or Other Good Reason. If you fail to specify whether your notice is given pursuant to Section 3(e)(A) or Section 3(e)(B), the Company will presume that the notice is given pursuant to Section 3(e)(B). Collectively, 409A Good Reason and Other Good Reason may be collectively referred to herein as “Good Reason.” For purposes of this Agreement, “Good Reason” shall not exist if you have given your prior written consent to any of the events that would otherwise constitute “Good Reason”.

(f) Without Cause. The Company may terminate your employment with the Company Without Cause. For purposes of this Agreement the term “Without Cause” shall mean termination of your employment for reasons other than for Death, Retirement, Disability or Cause. Notwithstanding any provision herein to the contrary, if, at any time prior to a Change in Control of the Company, you receive notice from the Company that you will be terminated Without Cause and will receive severance benefits under another arrangement between you and the Company, no benefits shall be payable to you hereunder.


(g) Date of Termination. Except in the case of Death, termination of your employment shall be effective as of the earlier of the date specified by either you or the Company in a written notice of termination (“Notice of Termination”) to the other party hereto or the date that you incur a Separation from Service (hereinafter referred to as the “Date of Termination”).

4. Severance Pay.

(a) Amount of Severance Pay. If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then in addition to all other benefits which you have earned prior to such termination or to which you are otherwise entitled, the Company shall pay to you the following amounts:

(i) (A) your full base salary earned through the Date of Termination at the rate in effect ten days prior to the date Notice of Termination is given, to the extent not theretofore paid and (B) 100% of your targeted annual incentive payment for the Company’s fiscal year during which your Date of Termination occurs, prorated based on the number of calendar days elapsed in such fiscal year through the Date of Termination;

(ii) an amount equal to the product of (1) the higher of your annual base salary in effect prior to the Effective Date or your annual base salary at the highest rate in effect at any time since any Change in Control of the Company (including any annual base salary amounts deferred under any non-qualified deferred compensation program of the Company and any elective contributions of annual base salary that are made by or on behalf of you under any plan maintained by the Company that are not includible in gross income under Section 125 or 402(e) (3) of the Internal Revenue Code of 1986, as amended, but excluding moving or educational reimbursement expenses, amounts realized from the exercise of any stock options or stock appreciation rights (“SARs”), and imputed income attributable to any fringe benefit) and (2) the lesser of the number three or a fraction the numerator of which is the number of months from and including the month in which the Date of Termination occurs to and including the month in which you would attain the age sixty-five and the denominator of which is twelve;

(iii) in lieu of annual incentive compensation, commissions, and bonuses that would otherwise be payable, an amount equal to the product of (1) your target annual incentive compensation, commissions, and bonuses (excluding amounts realized from the exercise of any stock options or SARs), based on the deemed achievement of performance goals at the 100% level, for the then-current fiscal year of the Company and (2) the lesser of the number three or a fraction the numerator of which is the number of months from and including the month in which the Date of Termination occurs to and including the month in which you would attain the age sixty-five and the denominator of which is twelve; and


(iv) in lieu of either shares of Common Stock of the Company, without par value (“Company Shares”) issuable upon exercise of options (“Options”) and Company Shares issuable pursuant to any SARs, if any, granted to you under any Company stock option or equity incentive plan (which Options or SARs shall be deemed canceled upon the making of the payment herein referred to), you shall receive an amount in cash equal to the aggregate spread between the exercise prices of all such Options and the aggregate value of such SARs that are outstanding and held by you that are then fully vested or exercisable and the mean of the high and low trading prices of Company Shares on the New York Stock Exchange on the Date of Termination;

provided, however, in the event it is determined that any payment or distribution to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement or similar right (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the “Excise Tax”), then in lieu of such Payments, you shall be entitled to elect to receive the greatest amount of Payments to which you are entitled without triggering the Excise Tax and Applied will reasonably cooperate with you in designating those particular types of Payments (e.g., welfare benefits, cash compensation, or outplacement benefits) that shall be paid and those that shall be forfeited or rescinded so as to avoid triggering the Excise Tax.

(b) Form of Severance Payment. Severance amounts hereunder shall be paid in cash in a lump sum payment (or payments) at the time(s) provided in Section 4(c).

(c) Time of Payment(s).

(i) Specified Employee. If at the Date of Termination you are a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder (“Specified Employee”), no payment shall be made hereunder prior to the first day that is six months after the Date of Termination; provided that the Specified Employee six-month delay under this Section 4(c)(i) shall be effective only to the extent that payment would constitute “nonqualified deferred compensation” under Section 409A of the Internal Revenue Code, as amended, and the regulations issued thereunder (“Section 409A”). Any lump sum payment that is subject to the Specified Employee six-month delay shall be paid within the first five business days after the expiration of such six-month delay. Any amount that is not “nonqualified deferred compensation” under Section 409A shall be paid within the first five business days after the Date of Termination. Notwithstanding any other provision of this Section 4(c)(i), any payment under paragraph (iii) of Section 4(a) shall not be paid before the later of (1) the first five business days after the Date of Termination, or (2) the expiration of the Specified Employee six-month delay, if applicable.


(ii) Not Specified Employee. If you are not a Specified Employee at the Date of Termination, the Company will pay the amounts described in Section 4(a) hereof within the first five business days following the Date of Termination.

(d) No Age or Service Credit. You shall not be entitled to any additional age or service credits under any of the Company’s employee benefit or retirement plans for any period after the Date of Termination of your employment.

5. Welfare Benefit Plans.

(a) If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then, in all cases subject to Sections 5(b) and 5(c), the Company shall maintain in full force and effect, for the continued benefit of you and your dependents, medical-related employee benefit plans, programs and arrangements in which you were entitled to participate immediately prior to the Date of Termination for the lesser of (i) three years from the Date of Termination or (ii) that number of years equal to a fraction (A) the numerator of which is the number of months from and including the month in which the Date of Termination occurs to and including the month in which you would attain the age sixty-five and (B) the denominator of which is twelve; provided that your continued participation is possible under the general terms and provisions of such welfare plans, programs and arrangements. In the event that your participation in any such welfare plan, program or arrangement is barred, or any such planprogram or arrangement is discontinued or the benefits thereunder materially reduced, the Company shall arrange to provide you with benefits substantially similar to those which you were entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

(b) Notwithstanding the provisions of Section 5(a), to the extent that any welfare benefits involve reimbursements or in-kind benefits:

(i) The amount of expenses eligible for reimbursement and the provision of in-kind benefits during any calendar year shall not affect the amount of expenses eligible for reimbursement or the provision of in-kind benefits in any other calendar year;

(ii) The reimbursement of an eligible expense shall be made on or before December 31 of the calendar year following the calendar year in which the expense was incurred; and

(iii) The right to reimbursement or right to in-kind benefit shall not be subject to liquidation or exchange for another benefit.

(c) Notwithstanding the provisions of Section 5(a), if at the Date of Termination you are a Specified Employee, no benefits shall be provided hereunder prior to the first day that is six months after the Date of Termination; provided that the Specified Employee six-month delay under this Section 5(c) shall be effective only to the extent that benefits would constitute


“nonqualified deferred compensation” under Section 409A. Any benefits subject to the Specified Employee six-month delay shall commence within the first five business days after the expiration of such six-month delay. Any benefits that are not “nonqualified deferred compensation” under Section 409A or not subject to the Specified Employee six-month delay shall commence within the first business day after the Date of Termination.

6. Outplacement Services. If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then the Company shall provide you reasonable outplacement services for a period of up to one year of a nature customarily provided at your executive officer level.

7. No Mitigation Required. You shall not be required to mitigate the amount of any payment or benefit provided for in Section 4 or 5 by seeking other employment or otherwise. Notwithstanding the foregoing, benefits otherwise receivable under Section 5 of this Agreement shall be reduced to the extent that and for any period during which you receive substantially similar benefits from another employer.

8. Noncompetition, Nonsolicitation and Nondisparagement. If a Change in Control occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, and you are receiving payments from the Company pursuant to this Agreement, then for a period of three years from the Date of Termination of your employment you agree that without the written consent of the Company, you will not, either directly or indirectly, (a) engage in, make any investment in, advise, assist or render any services to any person or entity in competition with the business of the Company or its subsidiaries, (b) solicit for employment or hire any individual who was employed by the Company or its subsidiaries at any time on or after that date which is six (6) months prior to the Date of Termination of your employment, or directly or indirectly, entice, solicit or seek to induce or influence any such individual to leave his or her employment, or (c) disparage the Company or its subsidiaries, or any of their respective directors, officers or associates, either publicly or privately, or otherwise make statements that cast any of the Company or its subsidiaries, or any of their respective directors, officers or associates, in an unfavorable light. Notwithstanding the foregoing, you may own less than one percent of the combined voting power of all issued and outstanding voting securities of any publicly held corporation whose stock is traded on a major stock exchange.

9. Confidential Information. You hereby agree that you shall not at any time (whether employed by the Company or not), either directly or indirectly, disclose or make known to any person or entity any confidential information, trade secret, or proprietary information that you acquired during the course of your employment with the Company which shall not have become public knowledge (other than by your actions in violation of this Agreement). You further agree that upon the termination of your employment with the Company or at any time upon the request of the Company you shall deliver to the Company any and all literature, documents, correspondence, and other materials and records furnished to or acquired by you from the Company during the course of your employment with the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement.


10. Security. To secure payment of the benefits herein provided for, the Company agrees to maintain in the Company’s name an irrevocable escrow account in the form of an unfunded rabbi trust (the “Escrow Account”) at a national bank that is (a) a legal business entity organized and doing business under the laws of the United States or any State thereof, in good standing, having an office in the State of Ohio, that is authorized under such laws to exercise corporate trust powers and that has at the time of its appointment a combined capital and surplus of at least One Billion Dollars ($1,000,000,000) or (b) an affiliate of a national bank described in clause (a) of this sentence (the “Bank”), and to keep on deposit in the Escrow Account cash, securities or property with a fair market value, if any, as shall at all times be at least equal to the required security hereinafter provided for. The maximum amount of required security to be kept on deposit at any time shall be (A) an amount equal to three times your annualized Base Compensation (defined as your annual base salary and your target annual incentive compensation (based on achievement of performance goals at the 100% level)), with such amount to be recalculated each November to reflect changes in your annualized Base Compensation, or (B) if there has been a determination with your written consent or by a final arbitral award rendered in accordance with this Agreement that a specific lesser amount fully secures the Company’s obligations under this Agreement, or that the Company has fully performed its obligations under this Agreement, then such specific lesser amount or, in the case that the Company has fully performed its obligations under this Agreement, nothing. The full maximum amount of required security shall be kept on deposit at all times after there shall have been a Change in Control. Unless and until such a Change in Control shall have occurred, however, the Company shall only be obliged to maintain on deposit in the Escrow Account 50% of the maximum amount of required security. Amounts deposited in the Escrow Account shall be paid out by the Bank only to you, in such amounts as the Company shall certify in good faith to the Bank as amounts that the Company is in default in paying to you under this Agreement, or to the Company, to the extent that the amount on deposit exceeds the maximum amount of required security as specified by the Company in good faith to the Bank or in a final settlement or judgment relating to this Agreement.

11. Successors, Binding Agreement. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession that constitutes a Change in Control shall be a breach of this Agreement and shall entitle you to compensation from the Company, upon a termination by you for Other Good Reason in accordance with Section 3(e)(B), in the same amount and on the same terms as you would be entitled hereunder under Section 4. As used in this Agreement “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisees, legatees, or other designee or, if there be no such designee, to your estate within 90 days of your death; provided that where such 90-day period begins in one calendar year and


ends in another calendar year, your devisees, legatees, other designee, or estate shall not be entitled to designate the taxable year of payment.

12. Continued Status as Elected Officer or Appointed Officer. Notwithstanding anything to the contrary elsewhere contained in this Agreement, if you cease to be a Board-elected officer or an appointed officer of the Company prior to a Change in Control, this Agreement shall be deemed terminated and of no further force and effect.

13. Notice. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

14. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board; provided, that the Company shall have the right to terminate its obligations to you under this Agreement by written notice given to you at any time prior to a Change in Control, so long as such termination is not done in anticipation of or in connection with a Change in Control. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof and, except to the extent a specific compensation program provides for benefits upon a Change in Control relative to that program, which provisions shall remain in effect, no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. Without limiting the generality of the foregoing, this Agreement supersedes and replaces in its entirety any prior agreement relating to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to its conflict of laws provisions.

15. Validity. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

17. Jurisdiction. In the event of any dispute or controversy arising under or in connection with this Agreement, you and the Company hereby irrevocably consent to the jurisdiction of the Common


Pleas Court of the State of Ohio (Cuyahoga County) or the United States District Court for the Northern District of Ohio.

18. Legal Fees and Expenses.

(a) It is the intent of the Company that you shall not be required to incur the expenses associated with the enforcement of your rights under this Agreement by arbitration, litigation, other legal action or negotiation to resolve any disputes because the cost and expenses thereof would substantially detract from the benefits intended to be extended to you hereunder. Accordingly, if it should appear to you that the Company has failed to comply with any of its obligations under this Agreement or in the event the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any arbitration or litigation designed to deny, or to recover from, you the benefits intended to be provided to you hereunder, the Company irrevocably authorizes you from time to time to retain counsel of your choice, at the expense of the Company, to represent you in connection with the initiation or defense of any arbitration, litigation, other legal action or negotiation to resolve any disputes whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to your entering into an attorney-client relationship with such counsel, and in that connection the Company and you agree that a confidential relationship shall exist between you and such counsel. The Company shall also pay or cause to be paid and shall be solely responsible for any and all attorneys’ and related fees and expenses incurred by you as a result of the Company’s failure to perform this Agreement or any provision hereof (including this Section 18) or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision hereof.

(b) The payment or reimbursement of fees and expenses under this Section 18 shall be subject to the following conditions:

(i) You must incur any expense authorized by this Section 18 no later than three years after the Date of Termination;

(ii) The amount eligible for reimbursement and the provision of in-kind benefits during any calendar year shall not affect the amount eligible for reimbursement or the provision of in-kind benefits in any other calendar year;

(iii) The reimbursement of an eligible expense shall be made on or before December 31 of the calendar year following the calendar year in which the expense was incurred; and

(iv) The right to reimbursement or right to in-kind benefit shall not be subject to liquidation or exchange for another benefit.

(c) Notwithstanding the provisions of this Section 18, if at the Date of Termination you are a Specified Employee, no payment or reimbursement shall be provided under Section 18


prior to the first day that is six months after the Date of Termination; provided that the Specified Employee six-month delay under this Section 18 shall be effective only to the extent that payment or reimbursement would constitute “nonqualified deferred compensation” under Section 409A. Any payment or reimbursement otherwise due under this Section 18 and subject to the Specified Employee six-month delay shall commence within the first five business days after the expiration of such six-month delay. Any payment or reimbursement that is not “nonqualified deferred compensation” under Section 409A or not subject to the Specified Employee six-month delay shall be paid or reimbursed as otherwise provided herein.

19. Non-Alienation. No benefit under this Agreement shall at any time be subject in any manner to alienation or encumbrance. If you attempt to, or shall, alienate or in any way encumber your rights or benefits under the Agreement, or any part thereof, or if by reason of his bankruptcy or other event happening at any time any such benefits would otherwise be received by anyone else or would not be enjoyed by you, your interest in all such benefits shall automatically terminate and the same shall be held or applied to or for the benefit of such person, his spouse, children, or other dependents as the Company may select.

20. Taxes. The Company (or any agent of the Company) shall report all income required to be reported, and withhold from any payment under the Agreement the amount of withholding taxes due, in the opinion of the Company, in respect of such income or payment and shall take any other action as may be necessary, in the opinion of the Company, to satisfy all obligations for the reporting of such income and payment of such taxes. Except as specifically provided herein, the Company shall not be held liable for any taxes, penalties, interest, or other monetary amounts owed by a Participant or other person, including any taxes, penalties, and/or interest under Section 409A, as a result of the payment or deferral of any amounts under the Agreement. Although the Company shall use its best efforts to avoid the imposition of taxation, penalties, and/or interest under Section 409A, tax treatment of payment under this Agreement is not warranted or guaranteed.

21. This Agreement is intended to be treated as an unfunded deferred compensation arrangement under the Code. The obligation of the Company shall constitute the unsecured promise of the Company to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim upon, any property of the Company.

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If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of the letter which will then constitute our agreement on this subject.

 

 

Very truly yours,

 

APPLIED INDUSTRIAL TECHNOLOGIES, INC.

 

By: /s/ Fred D. Bauer, Vice President

 

Date: October 25, 2011

ACCEPTED AND AGREED TO:

 

/s/ Neil Schrimsher

 

NEIL SCHRIMSHER