ITEM 1. Business. Parker-Hannifin Corporation is a leading worldwide full-line manufacturer of motion control products, including fluid power systems, electromechanical controls and related components. Fluid power involves the transfer and control of power through the medium of liquid, gas or air, in both hydraulic and pneumatic applications. Fluid power systems move and position materials, control machines, vehicles and equipment and improve industrial efficiency and productivity. Components of a simple fluid power system include a pump which generates pressure, valves which control the fluid's flow, a cylinder which translates the pressure in the fluid into mechanical energy, a filter to remove contaminants and numerous hoses, couplings, fittings and seals. Electromechanical control involves the use of electronic components and systems to control motion and precisely locate or vary speed in automation applications.
The Company was incorporated in Ohio in 1938. Its principal executive offices are located at 17325 Euclid Avenue, Cleveland, Ohio 44112, telephone (216) 531-3000. As used in this Report, unless the context otherwise requires, the term "Company" or "Parker" refers to Parker-Hannifin Corporation and its subsidiaries.
The Company's manufacturing, service, distribution and administrative facilities are located in 33 states, Puerto Rico and worldwide in 30 foreign countries. Its motion control technology is used in the products of its two business Segments: Industrial and Aerospace. The products are sold as original and replacement equipment through product and distribution centers worldwide. The Company markets its products through its direct-sales employees and more than 5,000 independent distributors. Parker products are supplied to over a quarter million customer outlets in virtually every major manufacturing, transportation and processing industry. For the fiscal year ended June 30, 1994, net sales were $2,576,337,000; Industrial Segment products accounted for 79% of net sales and Aerospace Segment products for 21%.
During the fiscal year the Company made three acquisitions. In November, 1993, the Company acquired the Electro-pneumatic Division of Telemecanique in Evreux, France, a leading European manufacturer of pneumatic products. In December, 1993, the Company increased its ownership from 40% to 100% in LDI Pneutronics Corp., located in Hollis, New Hampshire, which specializes in advanced-technology pneumatic valves and components. In April, 1994, the Company purchased the assets of Finn-Filter Oy, a leading Scandinavian filter manufacturer with manufacturing locations in Urjala and Hyrynsalmi, Finland and a sales subsidiary in Sweden.
- 3 -
Markets
Motion control systems are used throughout industry in applications which require substantial amounts of energy. Such applications include moving of materials, controlling machines, vehicles and equipment and positioning materials during the manufacturing process. Motion control systems contribute to the efficient use of energy and improve industrial productivity.
The more than a quarter million customer outlets which carry the Company's parts are found throughout virtually every significant manufacturing, transportation and processing industry. No customer accounted for more than 3% of the Company's total net sales for the fiscal year.
The major markets for products of the Fluid Connector, Motion & Control, Filtration and Seal Groups of the Industrial Segment are agricultural machinery, construction equipment, food production, industrial machinery, instrumentation, lumber and paper, machine tools, marine, mining, mobile equipment, chemicals, petrochemicals, robotics, textiles, transportation and every other major production and processing industry. Products manufactured by the Industrial Segment's Automotive and Refrigeration Group are utilized principally in automotive and mobile air conditioning systems, industrial refrigeration systems and home and commercial air conditioning equipment. Sales of Industrial Segment products are made to original equipment manufacturers and their replacement markets.
Aerospace Segment sales are made primarily to the commercial, military and general aviation markets and are made to original equipment manufacturers and to end users for maintenance, repair and overhaul.
Principal Products, Methods of Distribution and Competitive Conditions
Industrial Segment. The product lines of the Company's Industrial Segment cover most of the components of motion control systems. The Motion & Control Group manufactures components and systems used to provide motion, control and conditioning through the medium of pressurized fluids and electricity. Products include hydraulic and precision metering pumps, power units, control valves, accumulators, cylinders, servo actuators, rotary actuators and motors, pneumatic control valves, pressure regulators, lubricators, hydrostatic steering components, electronic controls and systems and automation devices. The Filtration Group manufactures filters to remove contaminants from fuel, air, oil, water and other fluids in industrial, process, mobile and environmental applications. The Fluid Connectors Group manufactures connectors, including tube fittings and hose fittings, hoses and couplers which transmit and contain fluid. The Seal Group manufactures sealing devices, including o-rings and o-seals, gaskets and packings which insure leak proof connections. The Automotive and Refrigeration Group manufactures components for use in industrial and automotive air conditioning and refrigeration systems and other automotive applications, including pressure regulators, solenoid valves, expansion valves, filter-dryers, gerotors and hose assemblies.
- 4 -
Industrial Segment products include both standard items which are produced in large quantities and custom units which are engineered and produced to original equipment manufacturers' specifications for application to a particular end product. Both standard and custom products are also used in the replacement of original motion control system components. Industrial Segment products are marketed primarily through field sales employees and more than 5,000 independent distributors.
Aerospace Segment. The principal products of the Company's Aerospace Segment are hydraulic, pneumatic, and fuel systems and components which are utilized on virtually every domestic commercial, military and general aviation aircraft.
Hydraulic systems and components include precision hydraulic and electro-hydraulic servo systems used for precise control of rudders, elevators, ailerons, and other aerodynamic control surfaces of aircraft, utility hydraulic components such as reservoirs, accumulators, selector valves, nose wheel steering systems, engine controls, electromechanical actuators, and electronic controllers.
Pneumatic systems and components include bleed air control systems, pressure regulators, low pressure pneumatic controls, heat transfer systems, engine start systems, engine bleed control and anti-ice systems, and electronic control and monitoring computers.
Fuel systems and components include fuel transfer and pressurization control, in-flight refueling systems, fuel pumps, quantity gaging systems and center of gravity control, fuel injection nozzles and augmentor controls, fuel tank inerting systems, fuel tank ducting and hose assemblies, and electronic monitoring computers.
The Aerospace Segment also designs and manufactures lightweight aircraft wheels and brakes for the general aviation market and supplies to the space market propellant control systems, tankage, and environmental control components used extensively on the Space Shuttle and on unmanned satellites and launch vehicles.
The Aerospace Segment products are marketed by Parker's field sales force and are sold directly to the manufacturer and to the end user.
Competition. All aspects of the Company's business are highly competitive. No single manufacturer competes with respect to all products manufactured and sold by the Company and the degree of competition varies with different products. In the Industrial Segment, the Company competes on the basis of product quality and innovation, customer service, its manufacturing and distribution capability, and price. The Company believes that, in most of its major product markets, it is one of the principal suppliers of motion control systems and components. In the Aerospace Segment, the Company utilizes its advanced technological capability to obtain original equipment business on new aircraft programs for its fluid handling systems and components and, thereby, to obtain the follow-on repair and replacement business for these programs. The Company believes that it is one of the primary suppliers in this area.
- 5 -
Research and Product Development
The Company continually researches the feasibility of new products through its development laboratories and testing facilities in many of its worldwide manufacturing locations. Its research and product development staff includes chemists, mechanical, electronic and electrical engineers and physicists.
Research and development costs relating to the development of new products or services and the improvement of existing products or services amounted to $64,518,000 in fiscal 1994, $60,054,000 in 1993, and $50,019,000 in 1992. Customer reimbursements included in the total cost for each of the respective years were $22,640,000, $16,648,000, and $20,089,000.
Patents, Trademarks, Licenses
The Company owns a number of patents, trademarks and licenses related to its products and has exclusive and non-exclusive rights under patents owned by others. In addition, patent applications on certain products are now pending, although there can be no assurance that patents will be issued. The Company is not dependent to any material extent on any single patent or group of patents.
Backlog and Seasonal Nature of Business
The Company's backlog at June 30, 1994 was approximately $852,482,000 and at June 30, 1993 was approximately $856,517,000. Approximately 75% of the Company's backlog at June 30, 1994 is scheduled for delivery in the succeeding twelve months. The Company's business generally is not seasonal in nature.
Environmental Regulation
The Company is subject to federal, state and local laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment. Among other environmental laws, the Company is subject to the federal "Superfund" law, under which the Company has been designated as a "potentially responsible party" and may be liable for clean up costs associated with various waste sites, some of which are on the U.S. Environmental Protection Agency Superfund priority list. The Company believes that its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and the consequent financial liability to the Company. Compliance with environmental laws and regulations requires continuing management effort and expenditures by the Company. Compliance with environmental laws and regulations has not had in the past, and, the Company believes, will not have in the future, material effects on the capital expenditures, earnings, or competitive position of the Company. The information set forth in Footnote 12 to the Financial Statements contained on page 37 of the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1994 ("Annual Report") as specifically excerpted on pages 13-31 and 13-32 of Exhibit 13 hereto is incorporated herein by reference.
- 6 -
Energy Matters and Sources and Availability of Raw Materials
The Company's primary energy source for each of its business segments is electric power. While the Company cannot predict future costs of such electric power, the primary source for production of the required electric power will be coal from substantial, proven reserves. The Company is subject to governmental regulations in regard to energy supplies both in the United States and elsewhere. To date the Company has not experienced any significant disruptions of its operations due to energy curtailments.
Steel, brass, aluminum and elastomeric materials are the principal raw materials used by the Company. These materials are available from numerous sources in quantities sufficient to meet the requirements of the Company.
Employees
The Company employed approximately 26,730 persons as of June 30, 1994, of whom approximately 7,993 were employed by foreign subsidiaries.
Business Segment Information
The net sales, income from operations before corporate general and administrative expenses and identifiable assets by business segment and by geographic area for the past three fiscal years, as set forth on page 31 of the Annual Report and specifically excerpted on pages 13-16 through 13-18 of Exhibit 13 hereto is incorporated herein by reference.
Item 1A.
Item 1A. Executive Officers of the Company
The Company's Executive Officers are as follows:
Officer Name Position Since(1) Age Duane E. Collins President, Chief Executive Officer 1983 58 and Director
Dennis W. Sullivan Executive Vice President - Industrial 1978 55 and Automotive and Director
Paul L. Carson Vice President, Information 1993 58 Services
Richard F. Ferrel Vice President and President, 1993 60 Applied Technologies Operations of the Motion and Control Group
John L. Hanson Vice President - Human Resources 1981 61
Stephen L. Hayes Vice President and President, 1993 53 Aerospace
- 7 -
Michael J. Hiemstra Vice President - Finance and 1987 47 Administration and Chief Financial Officer
Lawrence J. Hopcraft Vice President and President, 1990 51 Automotive and Refrigeration
Joseph D. Whiteman Vice President, General Counsel 1977 61 and Secretary
William D. Wilkerson Vice President - Technical Director 1987 58
Lawrence M. Zeno Vice President and President, 1993 52 Motion and Control
Donald A. Zito Vice President and President, 1988 54 Fluid Connectors
Harold C. Gueritey, Jr. Controller 1980 55
Timothy K. Pistell Treasurer 1993 47
(1) Officers of Parker-Hannifin serve for a term of office from the date of election to the next organizational meeting of the Board of Directors and until their respective successors are elected, except in the case of death, resignation or removal. Messrs. Sullivan, Hanson, Hiemstra, Gueritey, Whiteman, Wilkerson and Zito have served in the executive capacities indicated above during the past five years.
Mr. Collins was elected as President and Chief Executive Officer of the Company effective July, 1993. He was elected as Vice Chairman of the Board in July, 1992 and Executive Vice President in July, 1988. He was President of the International Sector from January, 1987 until June, 1992.
Mr. Carson was elected a Vice President in October, 1993. He was Vice President of Management Information Systems from July 1, 1983 to October, 1993.
Mr. Ferrel was elected a Vice President in October, 1993. He has been President of Applied Technologies Operation since July, 1993 and was President of the Applied Technology Group from July, 1990 to June, 1993; President of the Nichols\Electromechanical Group from January, 1990 to June, 1990; and President of the Nichols Group from March, 1985 to December, 1989.
Mr. Hayes was elected as Vice President and named President of the Aerospace Group in April, 1993. He was a Group Vice President of the Aerospace Group from February, 1985 to April, 1993.
- 8 -
Mr. Hopcraft was elected a Vice President in October, 1990. He has been President of the Automotive and Refrigeration Group since 1989 and was President of the Refrigeration Group from 1980 to 1989.
Mr. Zeno was elected a Vice President in October, 1993. He has been President of the Motion and Control Group since January, 1994 and was Vice President-Operations of the Motion and Control Group (formerly the Fluidpower Group) from July, 1988 to December, 1993.
Mr. Pistell was elected as Treasurer of the Company in July, 1993. He was Director of Business Planning from January, 1993 to July, 1993; and Vice President-Finance\Controller of the International Sector from October, 1988 to December, 1992.
ITEM 2.
ITEM 2. Properties. The following table sets forth the principal plants and other materially important properties of the Company and its subsidiaries. The leased properties are indicated with an asterisk.
UNITED STATES
State City __________________ _________________
Alabama Boaz(1) Decatur(1) Huntsville(1) Jacksonville(1) Arizona Glendale(2) Tolleson(2) Tucson*(1) Arkansas Trumann(1) California City of Industry(2) Culver City*(1) Irvine(1)(2) Modesto(1) Moorpark*(2) Rohnert Park(1) Colorado Sheridan*(1) Connecticut Enfield(1) Florida Longwood(1) Miami*(1) Georgia Fulton*(1) Illinois Broadview(1) Des Plaines(1) Elgin(1) Niles*(1) Indiana Albion(1) Ashley(1) Ft. Wayne(1) Lebanon(1) Tell City(1)
- 9 -
State City __________________ _________________
Iowa Red Oak(1) Kansas Manhattan(1) Kentucky Berea(1) Lexington(1) Louisiana Harvey*(1) Maine Portland(1) Massachusetts Sharon(2) Waltham(2) Michigan Lakeview(1) Otsego(1) Oxford(1) Richland(1) Troy*(1) Minnesota Golden Valley(1) Mississippi Batesville(1) Booneville(1) Madison(1) Missouri Kennett(1) Nebraska Lincoln(1) New Hampshire Portsmouth*(1) Hollis*(1) New Jersey North Brunswick(1) New York Clyde(2) Lyons(1) Smithtown(2) North Carolina Forest City(1) Hillsborough(1) Mooresville(1) Sanford(1) Wake Forest*(1) Ohio Akron(1) Andover(2) Avon(2) Brookville(1) Cleveland(1)(2) Columbus(1) Cuyahoga Falls*(1) Eastlake(1) Eaton(1) Elyria(1)(2) Forest(2) Green Camp(1) Kent(1) Lewisburg(1) Metamora(1) Ravenna(1) St. Marys(1) Wadsworth(1) Waverly(1) Wickliffe(1) Oregon Eugene(1)
- 10 - State City __________________ _________________
Pennsylvania Canton(1) Harrison City(1) Reading(1) South Carolina Spartanburg(1) Tennessee Greenfield(1) Greenville(1) Texas Cleburne(1) Ft. Worth(1)(2) Mansfield(2) McAllen(1) Utah Ogden(2) Salt Lake City(1) Wisconsin Grantsburg(1) Mauston(1)
Territory City
Puerto Rico Ponce*(2)
FOREIGN COUNTRIES Country City __________________ _________________
Argentina Buenos Aires(1) Australia Castle Hill(1) Wodonga*(1) Austria Wiener Neustadt(1) Belgium Brussels*(1) Brazil Jacarei(1) Sao Paulo(1) Canada Burlington(1) Grimsby(1) Owen Sound(1) Czech Republic Prague*(1) Denmark Copenhagen*(1) Helsingor(1) England Barnstaple(1) Cannock(1) Derby(1) Hemel Hempstead(1) Littlehampton(1) Morley(1) Poole*(1) Rotherham(1) Watford(1) Finland Helsinki*(1) Hyrynsalmi(1) Urjala(1)
- 11 -
Country City __________________ _________________
France Annemasse(1) Contamine(1) Evreux(1) Pontarlier(1) Germany Bielefeld(1) Bietigheim-Bissingen(1) Cologne(1) Hamburg*(2) Hildburghausen(1) Hochmossingen(1) Kaarst(1) Mucke(1) Pleidelsheim(1) Quekborn(1) Velbert(1) Hong Kong Hong Kong(1) Hungary Budapest*(1) India Bombay*(1) Italy Arsago Seprio(1) Capriolo*(1) Gessate(1) Milan(1) Japan Yokohama(1) Mexico Matamoros(1) Monterrey(1) Tijuana(1) Netherlands Hoogezand(1) Naarden(1) 0ldenzaal(1) New Zealand Mt. Wellington(1) Norway Langhus(1) Peoples Republic of China Shanghai*(1) Poland Warsaw*(1) Singapore Singapore*(1)(2) South Africa Johannesburg*(1) South Korea Seoul*(1) Spain Madrid*(1) Sweden Falkoping(1) Stockholm(1) Ulricehamn(1) Taiwan Taipei*(1) Venezuela Caracas*(1) Puerto Ordaz*(1)
The Company believes that its properties have been adequately maintained, are in good condition generally and are suitable and adequate for its business as presently conducted. The extent of utilization of the Company's properties varies among its plants and from time to time. The Company's restructuring efforts over the past several years have brought capacity levels closer to present and anticipated needs. Although capacity has been reduced and production volume has increased over the last fiscal year, most of the Company's material manufacturing facilities remain capable of handling additional volume increases.
- 12 -
(1) Indicates properties occupied by the Company's industrial segment. (2) Indicates properties occupied by the Company's aerospace segment.
ITEM 3.
Item 3. Coverage Summary Description GENERAL TERMS AND CONDITIONS EXECUTIVE LIABILITY AND INDEMNIFICATION FIDUCIARY LIABILITY CRIME INSURANCE KIDNAP/RANSOM AND EXTORTION OUTSIDE DIRECTORSHIP LIABILITY
Item 4.
Item 4 of the Declarations for this coverage section and such Deductible Amount shall be borne by the Insureds uninsured and at their own risk.
If a single Loss is covered in part under Insuring Clause 1 and in part under Insuring Clause 2, the Deductible Amount applicable to the Loss shall be the Insuring Clause 2 deductible set forth in Item 4 of the Declarations for this coverage section.
Form 14-02-0943 (Ed. 1/92) Page 4 of 10
Limit of Liability, With respect to all Loss (excess of the Deductible and applicable Deductible Amount) originating Coinsurance in any one Policy Period, the Insureds shall bear (continued) uninsured and at their own risk that percent of all such Loss specified as the Coinsurance Percent in Item 3 of the Declarations for this coverage section, and the Company's liability hereunder shall apply only to the remaining percent of all such Loss.
Any Loss covered in whole or in part by this coverage section and the Employment Practices Liability coverage section of this policy (if purchased) shall be subject to the limits of liability, deductible and coinsurance percent applicable to such other coverage section; provided, however, if any limit of liability applicable to such other coverage section is exhausted with respect to such Loss, any remaining portion of such Loss otherwise covered by this coverage section shall be subject to the Limits of Liability and Coinsurance Percent applicable to this coverage section, as reduced by the amount of such Loss otherwise covered by this coverage section which is paid by the Company pursuant to such other coverage section.
For purposes of this Subsection 8 only, the Extended Reporting Period, if exercised, shall be part of and not in addition to the immediately preceding Policy Period.
Presumptive 9. If the Insured Organization: Indemnification (a) fails or refuses, other than for reason of Financial Impairment, to indemnify the Insured Person for Loss; and
(b) is permitted or required to indemnify the Insured Person for such Loss pursuant to:
(i) the by-laws or certificate of incorporation of the Insured Organization in effect at the inception of this coverage section, or
(ii) any subsequently amended or superseding by-laws or certificate of incorporation of the Insured Organization provided, however, that such amended or superseding by-laws or certificate of incorporation expand or broaden, and do not restrict or in any way limit, the Insured Organization's ability to indemnify the Insured Person;
then, notwithstanding any other conditions, provisions or terms of this coverage section to the contrary, any payment by the Company of such Loss shall be subject to (i) the Insuring Clause 2 Deductible Amount set forth in Item 4 of the Declarations for this coverage section, and (ii) all of the Exclusions set forth in Subsections 5 and 6 of this coverage section.
For purposes of this Subsection 9, the shareholder and board of director resolutions of the Insured Organization shall be deemed to provide indemnification for such Loss to the fullest extent permitted by such by-laws or certificate of incorporation.
Form 14-02-0943 (Ed. 1/92) Page 5 of 10
Reporting 10. The Insureds shall, as a condition precedent to and Notice exercising their rights under this coverage section, give to the Company written notice as soon as practicable of any Claim made against any of them for a Wrongful Act.
If during the Policy Period or Extended Reporting Period (if exercised) an Insured becomes aware of circumstances which could give rise to a Claim and gives written notice of such circumstance(s) to the Company, then any Claims subsequently arising from such circumstances shall be considered to have been made during the Policy Period or the Extended Reporting Period in which the circumstances were first reported to the Company.
The Insureds shall, as a condition precedent to exercising their rights under this coverage section, give to the Company such information and cooperation as it may reasonably require, including but not limited to a description of the Claim or circumstances, the nature of the alleged Wrongful Act, the nature of the alleged or potential damage, the names of actual or potential claimants, and the manner in which the Insured first became aware of the Claim or circumstances.
Defense and 11. Subject to this Subsection, it shall be the duty Settlement of the Insured Persons and not the duty of the Company to defend Claims made against the Insured Persons.
The Insureds agree not to settle any Claim, incur any Defense Costs or otherwise assume any contractual obligation or admit any liability with respect to any Claim without the Company's written consent, which shall not be unreasonably withheld. The Company shall not be liable for any settlement, Defense Costs, assumed obligation or admission to which it has not consented.
The Company shall have the right and shall be given the opportunity to effectively associate with the Insureds in the investigation, defense and settlement, including but not limited to the negotiation of a settlement, of any Claim that appears reasonably likely to be covered in whole or in part by this coverage section.
The Insureds agree to provide the Company with all information, assistance and cooperation which the Company reasonably requests and agree that in the event of a Claim the Insureds will do nothing that may prejudice the Company's position or its potential or actual rights of recovery.
Defense Costs are part of and not in addition to the Limits of Liability set forth in Item 2 of the Declarations for this coverage section, and the payment by the Company of Defense Costs reduces such Limits of Liability.
Allocation 12. If both Loss covered by this coverage section and loss not covered by this coverage section are incurred, either because a claim against the Insured Persons includes both covered and uncovered matters or because a Claim is made against both an Insured Person and others, including the Insured Organization, the Insureds and the Company shall use their best efforts to agree upon a fair and proper allocation of such amount between covered Loss and uncovered loss.
Form 14-02-0943 (Ed. 1/92) Page 6 of 10
Allocation If the Insureds and the Company agree on an (continued) allocation of Defense Costs, the Company shall advance on a current basis Defense Costs allocated to the covered Loss. If the Insureds and the Company cannot agree on an allocation:
(a) no presumption as to allocation shall exist in any arbitration, suit or other proceeding;
(b) the Company shall advance on a current basis Defense Costs which the Company believes to be covered under this coverage section until a different allocation is negotiated, arbitrated or judicially determined; and
(c) the Company, if requested by the Insureds, shall submit the dispute to binding arbitration. The rules of the American Arbitration Association shall apply except with respect to the selection of the arbitration panel, which shall consist of one arbitrator selected by the Insureds, one arbitrator selected by the Company, and a third independent arbitrator selected by the first two arbitrators.
Any negotiated, arbitrated or judicially determined allocation of Defense Costs on account of a Claim shall be applied retroactively to all Defense Costs on account of such Claim, notwithstanding any prior advancement to the contrary. Any allocation or advancement of Defense Costs on account of a Claim shall not apply to or create any presumption with respect to the allocation of other Loss on account of such Claim.
Other 13. If any Loss arising from any Claim made against Insurance any Insured Persons is insured under any other valid policy(ies), prior or current, then this coverage section shall cover such Loss, subject to its limitations, conditions, provisions and other terms, only to the extent that the amount of such Loss is in excess of the amount of payment from such other insurance whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the Limits of Liability provided in this coverage section.
Changes in Exposure
Acquisition or 14. If the Insured Organization (i) acquires Creation of securities or voting rights in another Another Organization organization or creates another organization, which as a result of such acquisition or creation becomes a Subsidiary, or (ii) acquires any organization by merger into or consolidation with an Insured Organization, such organization and its Insured Persons shall be Insureds under this coverage section but only with respect to Wrongful Acts committed, attempted, or allegedly committed or attempted, after such acquisition or creation unless the Company agrees, after presentation of a complete application and all appropriate information, to provide coverage by endorsement for Wrongful Acts committed, attempted, or allegedly committed or attempted, by such Insured Persons prior to such acquisition or creation.
Form 14-02-0943 (Ed. 1/92) Page 7 of 10
Changes in Exposure
Acquisition or If the fair value of all cash, securities, Creation of assumed indebtedness and other consideration paid Another Organization by the Insured Organization for any such (continued) acquisition or creation exceeds 10% of the total assets of the Parent Organization as reflected in the Parent Organization's most recent audited consolidated financial statements, the Parent Organization shall give written notice of such acquisition or creation to the Company as soon as practicable together with such information as the Company may require and shall pay any reasonable additional premium required by the Company.
Acquisition of Parent 15. If (i) the Parent Organization merges into or Organization by consolidates with another organization, or (ii) Another Organization another organization or person or group of organizations and/or persons acting in concert acquires securities or voting rights which result in ownership or voting control by the other organization(s) or person(s) of more than 50% of the outstanding securities representing the present right to vote for the election of directors of the Parent Organization, coverage under this coverage section shall continue until termination of this coverage section, but only with respect to Claims for Wrongful Acts committed, attempted, or allegedly committed or attempted, by Insured Persons prior to such merger, consolidation or acquisition. The Parent Organization shall give written notice of such merger, consolidation or acquisition to the Company as soon as practicable together with such information as the Company may require.
Cessation of 16. In the event an organization ceases to be a Subsidiaries Subsidiary before or after the Inception Date of this coverage section, coverage with respect to such Subsidiary and its Insured Persons shall continue until termination of this coverage section but only with respect to Claims for Wrongful Acts committed, attempted or allegedly committed or attempted prior to the date such organization ceased to be a Subsidiary.
Representations 17. In granting coverage to any one of the Insureds, and Severability the Company has relied upon the declarations and statements in the written application for this coverage section and upon any declarations and statements in the original written application submitted to another insurer in respect of the prior coverage incepting as of the Continuity Date set forth in Item 9 of the Declarations for this coverage section. All such declarations and statements are the basis of such coverage and shall be considered as incorporated in and constituting part of this coverage section.
Such written application(s) for coverage shall be construed as a separate application for coverage by each of the Insured Persons. With respect to the declarations and statements contained in such written application(s) for coverage, no statement in the application or knowledge possessed by any Insured Person shall be imputed to any other Insured Person for the purpose of determining if coverage is available.
Form 14-02-0943 (Ed. 1/92) Page 8 of 10
Definitions 18. When used in this coverage section:
Claim means:
(i) a written demand for monetary damages,
(ii) a civil proceeding commenced by the service of a complaint or similar pleading,
(iii) a criminal proceeding commenced by a return of an indictment, or
(iv) a formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order of similar document,
against any Insured Person for a Wrongful Act, including any appeal therefrom.
Defense Costs means that part of Loss consisting of reasonable costs, charges, fees (including but not limited to attorneys' fees and experts' fees) and expenses (other than regular or overtime wages, salaries or fees of the directors, officers or employees of the Insured Organization) incurred in defending or investigating claims and the premium for appeal, attachment or similar bonds.
Financial Impairment means the status of the Insured Organization resulting from (i) the appointment by any state or federal official, agency or court of any receiver, conservator, liquidator, trustee, rehabilitator or similar official to take control of, supervise, manage or liquidate the Insured Organization, or (ii) the Insured Organization becoming a debtor in possession.
Insured, either in the singular or plural, means the Insured Organization and any Insured Person.
Insured Capacity means the position or capacity designated in Item 6 of the Declarations for this coverage section held by any Insured Person but shall not include any position or capacity in any organization other than the Insured Organization, even if the Insured Organization directed or requested the Insured Person to serve in such other position or capacity.
Insured Organization means, collectively, those organizations designated in Item 5
Item 5. Insured Organization: PARKER HANNIFIN CORPORATION and its Subsidiaries and its Operating Groups; PARKER HANNIFIN FOUNDATION
Item 6.
Item 6. Insured Persons: With regard to a Non-Profit Outside Entity, any person who has been, now is or shall become a duly elected director, a duly elected or appointed officer, or an employee of the Insured Organization. With regard to any Scheduled Outside Entity, any individual listed on a Scheduled Outside Entity Endorsement.
Item 7.
Item 7. Extended Reporting Period:
(A) Additional Premium: 80% of the Annual Premium (B) Additional Period: One Year
Item 8.
Item 8 of the Declarations for this coverage section with respect to Outside Directorships in a Non-Profit Outside Entity;
(ii) the Pending or Prior Date set forth in the Scheduled Outside Entity Endorsement hereto with respect to Outside Directorships in a Scheduled Outside Entity,
or the same or any substantially similar fact, circumstance or situation underlying or alleged therein;
(c) brought or maintained by or on behalf of any Insured, the Outside Entity, or one or more of the Outside Entity's directors, officers, trustees, governors or equivalent executives, except:
(i) a Claim that is a derivative action brought and maintained on behalf of an Insured Organization by one or more persons who are not Insured Persons and who bring and maintain the Claim without the solicitation, assistance or participation of any Insured; or
(ii) a Claim that is a derivative action brought and maintained on behalf of the Outside Entity by one or more persons who are not directors, officers, trustees, governors or equivalent executives of the Outside Entity and who bring and maintain the Claim without the solicitation, assistance or participation of the Outside Entity or any director, officer, trustee, governor or equivalent executive thereof;
(d) for an actual or alleged violation of the responsibilities, obligations or duties imposed by the Employee Retirement Income Security Act of 1974 and amendments thereto or similar provisions of any federal, state or local statutory law or common law upon fiduciaries of any pension, profit sharing, health and welfare or other employee benefit plan or trust established or maintained for the purpose of providing benefits to employees of any Outside Entity;
(e) for bodily injury, mental or emotional distress, sickness, disease or death of any person or damage to or destruction of any tangible property including loss of use thereof;
Form 14-02-0951 (Ed. 1-92) Page 3 of 10
Exclusions
Exclusions (f) based upon, arising from, or in Applicable to consequence of (i) the actual, alleged or Insuring Clauses 1 and 2 threatened discharge, release, escape or (continued) disposal of Pollutants into or on real or personal property, water or the atmosphere; or (ii) any direction or request that the Insured or Outside Entity test for, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants, or any voluntary decision to do so; including but not limited to any Claim for financial loss to the Insured Organization, the Outside Entity, or any security holders or creditors thereof based upon, arising from, or in consequence of the matters described in (i) or (ii) of this Exclusion; or
(g) for Wrongful Acts committed, attempted or allegedly committed or attempted after the date such Insured Person ceases to serve in the Outside Directorship.
Exclusions 6. The Company shall not be liable under Insuring Applicable to Clause 1 for Loss on account of any Claim made Insuring Clause 1 Only against any Insured Person:
(a) for an accounting of profits made from the purchase or sale by such Insured Person of securities of the Insured Organization or the Outside Entity within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law or common law;
(b) based upon, arising from, or in consequence of any deliberately fraudulent act or omission or any willful violation of any stature or regulation by such Insured Person, if a judgment or other final adjudication adverse to the Insured Person establishes such a deliberately fraudulent act or omission or willful violation; or
(c) based upon, arising from, or in consequence of such Insured Person having gained in fact any personal profit, remuneration or advantage to which such Insured Person was not legally entitled.
Severability 7. With respect to the Exclusions in Subsections of Exclusions 5 and 6 of this coverage section, no fact pertaining to or knowledge possessed by any Insured Person shall be imputed to any other Insured Person to determine if coverage is available.
Limit of Liability, 8. For the purposes of this coverage section, all Deductible and Loss arising out of the same Wrongful Act and Coinsurance all Interrelated Wrongful Acts of any Insured Person shall be deemed one Loss, and such Loss shall be deemed to have originated in the earliest Policy Period in which a Claim is first made against any Insured Person alleging any such Wrongful Acts or Interrelated Wrongful Acts.
The Company's maximum liability for each Loss, whether covered under Insuring Clause 1 or Insuring Clause 2 or both, shall be the Limit of Liability for Each Loss set forth in Item 2(A) of the Declarations for this coverage section. The Company's maximum aggregate liability for all Loss on account of all Claims first made during the same Policy Period, whether covered under Insuring Clause 1 or Insuring Clause 2 or both, shall be the Limit of Liability for each Policy Period set forth in Item 2(B) of the Declarations for this coverage section.
Form 14-02-0951 (Ed. 1-92) Page 4 of 10
Limit of Liability, The Company's liability under Insuring Clause Deductible and 2 shall apply only to that part of each Loss Coinsurance which is excess of the Deductible Amount set (continued) forth in Item 4 of the Declarations for this coverage section and such Deductible Amount shall be borne by the Insureds uninsured and at their own risk.
If a single Loss is covered in part under Insuring Clause 1 and in part under Insuring Clause 2, the Deductible Amount applicable to such Loss shall be the Insuring Clause 2 deductible set forth in Item 4 of the Declarations for this coverage section.
With respect to all Loss (excess of the applicable Deductible Amount) originating in any one Policy Period, the Insureds shall bear uninsured and at their own risk that percent of all such Loss specified as the Coinsurance Percent in Item 3 of the Declarations for this coverage section and the Company's liability hereunder shall apply only to the remaining percent of all such Loss.
For purposes of this Subsection 8 only, the Extended Reporting Period, if exercised, shall be part of and not in addition to the immediately preceding Policy Period.
If the Company or any of its subsidiaries or affiliated companies makes payment under another policy or another coverage section of this policy on account of any Claim also covered under this coverage section, the Limit of Liability for this coverage section with respect to such Claim shall be reduced by the amount of such payment.
Presumptive 9. If the Insured Organization: Indemnification (a) fails or refuses, other than for reason of Financial Impairment, to indemnify the Insured Person for Loss; and
(b) is permitted or required to indemnify the Insured Person for such Loss to the fullest extent permitted or required by law,
then, notwithstanding any other conditions, provisions or terms of this coverage section to the contrary, any payment by the Company of such Loss shall be subject to (i) the Insuring Clause 2 Deductible Amount set forth in Item 4 of the Declarations for this coverage section and (ii) all of the Exclusions set forth in Subsections 5 and 6 of this coverage section.
For purposes of this Subsection 9, the shareholder and board of director resolutions of the Insured Organization shall be deemed to provide indemnification for such Loss to the fullest extent permitted or required by law.
Reporting 10. The Insureds shall, as a condition precedent and Notice to exercising their rights under this coverage section, give to the Company written notice as soon as practicable of any Claim made against any of them for a Wrongful Act.
If during the Policy Period or Extended Reporting Period (if exercised) an Insured becomes aware of circumstances which could give rise to a Claim and gives written notice of such circumstance(s) to the Company, then any Claims subsequently arising from such circumstances shall be considered to have been reported during the Policy Period or the Extended Reporting Period in which the circumstances were first reported to the Company.
Form 14-02-0951 (Ed 1-92) Page 5 of 10
Reporting The Insureds shall, as a condition precedent and Notice to exercising their rights under this coverage (continued) section, give to the Company such information and cooperation as it may reasonably require, including but not limited to a description of the Claim or circumstances, the nature of the alleged potential damage, the names of actual or potential claimants, and the manner in which the Insured first became aware of the Claims or circumstances.
Defense and 11. Subject to this Subsection, it shall be the Settlement duty of the Insured Persons and not the duty of the Company to defend Claims made against the Insured Person.
The Insureds agree not to settle any Claim, incur any Defense Costs or otherwise assume any contractual obligation or admit any liability with respect to any Claim without the Company's consent, which shall not be unreasonably withheld. The Company shall not be liable for any settlement, Defense Costs, assumed obligation or admission to which it has not consented.
The Company shall have the right and shall be given the opportunity to effectively associate with the Insureds in the investigation, defense and settlement, including but not limited to the negotiation of a settlement, of any Claim that appears reasonably likely to be covered in whole or in part by this coverage section.
The Insureds agree to provide the Company with all information, assistance and cooperation which the Company reasonably requests and agree that in the event of a Claim the Insureds will do nothing that may prejudice the Company's position or its potential or actual rights of recovery.
Defense Costs shall be part of and not in addition to the Limits of Liability set forth in Item 2 of the Declarations for this coverage section, and the payment by the Company of Defense Costs reduces such Limits of Liability.
Allocation 12. If both Loss covered by this coverage section and loss not covered by this coverage section are incurred, either because a Claim against the Insured Persons includes both covered and uncovered matters or because a claim is made against both an Insured Person and others, including the Insured Organization, and/or the Outside Entity, the Insureds and the Company shall use their best efforts to agree upon a fair and proper allocation of such amount between covered Loss and uncovered loss.
If the Insureds and the Company agree on an allocation of Defense Costs, the Company shall advance on a current basis Defense Costs allocated to covered Loss. If the Insureds and the Company cannot agree on an allocation:
(a) no presumption as to allocation shall exist in any arbitration, suit or other proceeding;
(b) the Company shall advance on a current basis Defense Costs which the Company believes to be covered under this coverage section until a different allocation is negotiated arbitrated or judicially determined; and
(c) the Company, if requested by the Insureds, shall submit the dispute to binding arbitration. The rules of the American Arbitration Association shall apply except with respect to the selection of the arbitration panel, which shall consist of one arbitrator selected by the Insureds, one arbitrator selected by the Company, and a third independent arbitrator selected by the first two arbitrators.
Form 14-02-0951 (Ed. 1-92) Page 6 of 10
Allocation Any negotiated, arbitrated or judicially (continued) determined allocation of Defense Costs on account of a Claim shall be applied retroactively to all Defense Costs on account of such Claim, notwithstanding any prior advancement to the contrary. Any allocation or advancement of Defense Costs on account of a Claim shall not apply to or create any presumption with respect to the allocation of other Loss on account of such Claim.
Other Insurance 13. If the Outside Entity maintains one or more and Indemnity insurance policies during the period a Claim otherwise covered by this coverage section is first made against an Injured Person, then with respect to such Claim this coverage section shall be specifically excess of the amount of payment from such other insurance.
If any Loss arising from any Claim made against any Insured Persons is insured under any other valid policy(ies), prior or current, or is indemnified by the Outside Entity or any other organization other than the Insured Organization, then this coverage section shall cover such Loss, subject to its limitations, conditions, provisions and other terms, only to the extent that the amount of such Loss is in excess of the amount of payment from such indemnity or other insurance whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the limits provided in this coverage section.
The Insureds agree that they will use their best efforts to promptly enforce any rights of the Insured Persons to indemnification by the Outside Entity or any other organization.
Changes in Exposure
Acquisition or 14. If the Insured Organization (i) acquires Creation of securities or voting rights in another Another Organization organization or creates another organization, which as a result of such acquisition or creation becomes a Subsidiary, or (ii) acquires any organization by merger into or consolidation with an Insured Organization, such organization and its Insured Persons shall be Insureds under this coverage section but only with respect to Wrongful Acts committed, attempted, or allegedly committed or attempted, after such acquisition or creation unless the Company agrees, after presentation of a complete application and all appropriate information, to provide coverage by endorsement for Wrongful Acts committed or attempted, or allegedly committed or attempted, by such Insured Persons prior to such acquisition or creation.
If the fair value of all cash, securities, assumed indebtedness and other consideration paid by the Insured Organization for any such acquisition or creation exceeds 10% of the total assets of the Parent Organization as reflected in the Parent Organization's most recent audited consolidated financial statements, the Parent Organization shall give written notice of such acquisition to the Company as soon as practicable together with such information as the Company may require and shall pay any reasonable additional premium required by the Company.
Form 14-02-0951 (Ed. 1-92) Page 7 of 10
Changes in Exposure (continued)
Acquisition of 15. If (i) the Parent Organization merges into or Parent Organization consolidates with another organization, or by Another (ii) another organization or person or group Organization of organizations and/or persons acting in concert acquires securities or voting rights which result in ownership or voting control by the other organization(s) or person(s) of more than 50% of the outstanding securities representing the present right to vote for election of directors of the Parent Organization, coverage under this coverage section shall continue until termination of this coverage section, but only with respect to Claims for Wrongful Act committed, attempted, or allegedly committed or attempted by Insured Persons prior to such merger, consolidation or acquisition. The Parent Organization shall give written notice of such merger, consolidation or acquisition as soon as practicable, together with such information as the Company may require.
Cessation of 16. In the event an organization ceases to be a Subsidiaries Subsidiary before or after the Inception Date of this coverage section, coverage with respect to such Subsidiary and its Insured Persons shall continue until termination of this coverage section, but only with respect to Claims for Wrongful Acts committed, attempted or allegedly committed or attempted prior to the date such organization ceased to be a Subsidiary.
Scope of 17. The coverage under this coverage section shall Coverage not be construed under any circumstance to extend to any Outside Entity or to any director, officer, trustee, governor or other executive or employee of any Outside Entity, other than the Insured Person in his Outside Directorship.
Representations 18. In granting coverage to any one of the and Severability Insureds, the Company has relied upon the declarations and statements in the written application for this coverage section and upon any declarations and statements in the original written application submitted to another insurer in respect of the prior coverage incepting as of the Continuity Date set forth in Item 9