Exhibit (10)(i)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 2001
by Parker-Hannifin Corporation

 

 

Parker-Hannifin Corporation Supplemental Executive Retirement
Benefits Program (August 15, 1996 Restatement)

 

 

*Numbered in accordance with Item 601 of Regulation S-K.

Parker-Hannifin Corporation

 

Supplemental Executive
Retirement Benefits Program

TABLE OF CONTENTS

Section
Page
                    Preamble
1
    1. Definitions
1
    2. Participation
6
2.01         Participants
6
2.02         Designation of Participants
7
2.03         Continuation of Participation
7
2.04         Effect of Voluntary Termination of Employment
7
  

3. Supplemental Retirement Benefits
7
3.01         Eligibility at or After Normal Retirement Date
7
3.02         Eligibility Prior to Normal Retirement Date
7
3.03         Amount of Normal Retirement Supplemental Benefit
7
3.04         Amount of Early Retirement Supplemental Benefit
8
3.05         Gross-Up Payment
9
   

4. Payment of Benefits
9
4.01         Commencement of Benefits
9
4.02         Payments Under Certain Situations
9
                (a)         Optional Methods of Payment
9
(b)         Payment Upon a Change in Control
9
(c)         Election to Receive a Lump Sum Payment
9
4.03         Determination of the Lump Sum Payment
10
4.04         Certain Matters Following a Lump Sum Payment
10
   

5. Death Benefits
11
5.01         Eligibility
11
5.02         Benefit Amount
11
5.03         Benefit Payments
11
   

6. Non-Competition
12
6.01         Condition of Payment
12
6.02         Competition
13
    

7. General Provisions
13
7.01         Denial of Claims
13
7.02         Claims Review Procedure
13
7.03         ERISA Plan
14
7.04         Trust
14
7.05         Rights of Participants
14

                    7.06         Administration
15
  7.07         Program Non-Contractual
15
    7.08         Non-Alienation of Retirement Rights or Benefits
15
    7.09         Payment of Benefits to Others
15
    7.10         Notices
16
    7.11         Amendment, Modification, Termination
16
    7.12         Applicable Law
16
    7.13         Gender, Singular and Plural
16
    7.14         Headings
17
 

Parker-Hannifin Corporation

Supplemental Executive
Retirement Benefits Program

        WHEREAS, by instrument effective as of January 1, 1980, a supplemental
executive retirement benefits program was established for the benefit of certain
employees of Parker-Hannifin Corporation and their beneficiaries; and

        WHEREAS, said Program was amended and restated from time to time; and

        WHEREAS, it is desired to restate the terms, provisions, and conditions
of said Program;

        NOW, THEREFORE, effective as of August 15, 1996, said Program is hereby
amended and restated in its entirety to provide as hereinafter set forth.

1. Definitions

        Except as otherwise required by the context, the terms used in this
Program shall have the meaning hereinafter set forth.

        (a)        Actuarial Equivalent or Actuarially Equivalent: An amount
that is the actuarial equivalent of a value using the actuarial assumptions
specified for such purpose under the Retirement Plan.

        (b)        Board: The Board of Directors of the Company

        (c)        Change in Control: Any one or more of the following
occurrences:

        (i) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities eligible to vote for the election
of the Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph shall not be deemed to be a Change in Control
by virtue of any of the following situations: (A) an acquisition by the Company
or any Subsidiary; (B) an acquisition by any employee benefit plan sponsored or
maintained by the Company or any Subsidiary; (C) an acquisition by any
underwriter temporarily holding securities pursuant to an offering of such
securities; (D) a Non-Control transaction (as defined in paragraph (iii)); (E)
as pertains to a Participant, any acquisition by the Participant or any group of
persons (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) including the Participant(or any entity in which the Participant or a group
of persons including the Participant, directly or indirectly, holds a majority
of the voting power of such entity's outstanding voting interests); or (F) the
acquisition of Company Voting Securities from the Company, if a majority of the
Board

approves a resolution providing expressly that the acquisition pursuant to this
clause (F) does not constitute a Change in Control under this paragraph (i);

        (ii)        individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof;
provided, that (A) any person becoming a director subsequent to the beginning of
such twenty-four (24) month period, whose election, or nomination for election,
by the Company's shareholders was approved by a vote of at least two-thirds of
the directors comprising the Incumbent Board who are then on the Board (either
by a specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this paragraph (ii), considered as though
such person were a member of the Incumbent Board; provided, however, that no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
any other actual or threatened solicitation of proxies or consents by or on
behalf of any person other than the Board shall be deemed to be a member of the
Incumbent Board;

        (iii)        the consummation of a merger, consolidation, share exchange
or similar form of corporate reorganization of the Company or any Subsidiary
that requires the approval of the Company's stockholders, whether for such
transaction or the issuance of securities in connection with the transaction or
otherwise (a "Business Combination"), unless (A) immediately following such
Business Combination: (1) more than 50% of the total voting power of the
corporation resulting from such Business Combination (the "Surviving
Corporation") or, if applicable, the ultimate parent corporation which directly
or indirectly has beneficial ownership of 100% of the voting securities eligible
to elect directors of the Surviving Corporation (the "Parent Corporation"), is
represented by Company Voting Securities that were outstanding immediately prior
to the Business Combination (or, if applicable, shares into which such Company
Voting Securities were converted pursuant to such Business Combination), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among the
holders thereof immediately prior to the Business Combination, (2) no person
(other than any employee benefit plan sponsored or maintained by the Surviving
Corporation or the Parent Corporation) is or becomes the beneficial owner,
directly or indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation),
and (3) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation), following the Business Combination, were members of the Incumbent
Board at the time of the Board's approval of the execution of the initial
agreement providing for such Business Combination (a "Non-Control Transaction")
or (B) the Business Combination is effected by means of the acquisition of
Company Voting Securities from the Company, and a majority of the Board approves
a resolution providing expressly that such Business Combination does not
constitute a Change in Control under this paragraph (iii); or

2

        (iv)       the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or the sale or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries.

        Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any person acquires beneficial ownership of more than
20% of the Company Voting Securities as a result of the acquisition of Company
Voting Securities by the Company which, by reducing the number of Company Voting
Securities outstanding, increases the percentage of shares beneficially owned by
such person; provided, that if a Change in Control would occur as a result of
such an acquisition by the Company (if not for the operation of this sentence),
and after the Company's acquisition such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control shall then occur.

        Notwithstanding anything in this Program to the contrary, if the
Participant's employment is terminated prior to a Change in Control, and the
Participant reasonably demonstrates that such termination was at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party"), then for all
purposes of this Program, the date immediately prior to the date of such
termination of employment shall be deemed to be the date of a Change in Control
for such Participant.

        (d)       Change in Control Lump Sum Payment: The lump sum payment made
upon a Change in Control as calculated under Section 4.03(a).

        (e)        Change in Control Severance Agreement: The agreement between
an Eligible Executive and the Company that provides for certain benefits if the
Eligible Executive's employment terminates following a Change in Control;
provided, that in the case of a former Participant who is receiving benefits
under the Program, Change in Control Severance Agreement shall mean the change
in control severance agreement that was in effect between the Participant and
the Company at the time of his retirement.

        (f)        Code: The Internal Revenue Code of 1986, as amended, or any
successor statute.

        (g)       Committee: The Compensation and Management Development
Committee of the Board.

        (h)       Company: Parker-Hannifin Corporation, an Ohio corporation, its
corporate successors, and the surviving corporation resulting from any merger of
Parker-Hannifin Corporation with any other corporation or corporations.

        (i)        Contingent Annuitant: The person designated by a Participant
as a contingent annuitant as provided in the Retirement Plan.

3

       (j)       Controlled Group:       The Company, its Subsidiaries or any
entity that owns, directly or indirectly, 50% or more of the total combined
voting power of the Company's then outstanding securities eligible to vote for
the election of the Board of Directors of the Company.

       (k)      Disability:       Disability that entitles a Participant to
benefits under the Company's long-term disability program.

4

       (l)       Highest Average Three-Year Compensation: One-third of the
aggregate amount of compensation paid to a Participant from the Controlled Group
during the three calendar years of the Participant's employment which were the
three highest years of annual compensation, including base salary, bonuses
payable under the Company's Return on Net Assets Plan (RONA) and Target
Incentive Program, any amounts which would otherwise be paid as compensation
during a calendar year but which are deferred by a Participant pursuant to any
qualified or nonqualified deferred compensation program sponsored by the
Controlled Group, and any amounts that would otherwise be paid as compensation
during a calendar year but which are deferred under Section 125 of the Code, but
excluding: (i) any deferred compensation received during any such year but
credited under the Program to the Participant for a prior year; (ii) any income
realized due to the exercise of stock options or stock appreciation rights;
(iii) any payments, in cash, deferred or otherwise, payable to the Participant
under the Company's Long-Term Incentive Plan, under any extraordinary bonus
arrangements, under any severance agreement (other than as may be required under
Section 4.03(a)), or as an executive perquisite; and (iv) such items as fringe
benefits includible in income as compensation for federal tax purposes, moving
and educational reimbursement expenses, overseas allowances received by the
Participant from the Controlled Group, and any other irregular payments.

       (m)     Life Expectancy: The expected remaining lifetime (to the nearest
integer) based on the Mortality Table and the age at the nearest birthday of the
Participant or Recipient at the date the Lump Sum Payment or Change in Control
Lump Sum Payment is made (unless otherwise specified herein). If a joint and
contingent survivor annuity has been elected, then Life Expectancy shall reflect
the joint Life Expectancy of the Participant or Recipient and Contingent
Annuitant.

       (n)     Lump Sum Payment: The Lump Sum Payment provided in Section 4.02
of the Program with the amount determined as set forth in Section 4.03.

       (o)     Mortality Table: Eighty percent (80%) of the 1983 Group Annuity
Mortality factor (male only).

       (p)     Normal Retirement Date: The definition set forth in the
Retirement Plan.

       (q)     Participant: An employee of the Company designated to participate
in the Program pursuant to Article 2 of the Program, while so employed;
provided, however, that any employee of the Company who, as of the date of a
Change in Control, has entered into a Change in Control Severance Agreement with
the Company shall automatically be a Participant in the Plan.

       (r)      Profit Sharing Account Balance: The definition set forth in the
Retirement Plan.

       (s)     Program: The Supplemental Executive Retirement Benefits Program
set forth herein.

5

        (t)       Recipient: A retiree, Contingent Annuitant, term certain
beneficiary, or Surviving Spouse, who is currently receiving benefits or is
entitled to receive benefits under the Program.

        (u)       Retirement Plan: The Parker-Hannifin Corporation Retirement
Plan as in effect at the time any payment becomes due under this Program.

        (v)       Service: Employment as an employee by any member of the
Controlled Group, as well as employment by a corporation, trade or business,
that is now part of the Controlled Group at a time prior to its becoming part of
the Controlled Group, but in such case only if and to the extent that the
Committee shall so direct at any time prior to retirement. For purposes of
determining a Participant's eligibility to receive a benefit hereunder, Service
shall include any additional years credited to a Participant under Section
4.03(a)(i)).

        (w)       Specified Rate: The monthly average annual yield of 30-Year
United States Treasury Bonds as published in the Federal Reserve Statistical
Release G.13 (415) "Select Interest Rates" for constant maturities and in effect
on the first day of the month prior to the month in which a payment is to be
made; provided, that for purposes of calculating a Change in Control Lump Sum
Payment, the interest rate for immediate annuities of the Pension Benefit
Guaranty Corporation (PBGC) in effect on the date of the Change in Control as
set forth in Appendix B to Part 2619 of 29 Code of Federal Regulations, or any
other successor or similar rate.

        (x)       Subsidiary: Any corporation or other entity in which the
Company has a direct or indirect ownership interest of 50% or more of the total
combined voting power of the then outstanding securities or interests of such
corporation or other entity.

        (y)       Surviving Spouse: The person who is the Participant's spouse
at the time of the Participant's death and who has been such spouse for at least
one year immediately prior to the date of the Participant's death.

2. Participation

        2.01      Participants. The Participants in the Program shall be: (i)
such officers and other key executives of the Company as shall be designated as
Participants from time to time by the Committee; and (ii) upon a Change in
Control, those individuals who have entered into a Change in Control Severance
Agreement with the Company as of the date of such Change in Control.

        2.02      Designation of Participants. An individual may be designated a
Participant by action of the Committee or in a written employment agreement
approved by the Committee. Participation of each individual designated as a
Participant shall be subject to the terms, conditions, and limitations set forth
in the Program and to such other terms, conditions and limitations as the
Committee may, in its discretion, impose upon the participation of any such
individual at the time the individual is designated a Participant in the
Program.

6

         2.03       Continuation of Participation. Subject only to the
provisions of Section 2.04 and Article 6 of the Program, an individual
designated as a Participant shall continue to be a Participant for the purpose
of eligibility to receive the supplemental retirement benefits provided by the
Program and his participation in the Program shall not be terminated; provided,
however, that a Participant who terminates employment at a time when he is not
eligible for a benefit under Article 3 shall cease to be a Participant in the
Program.

         2.04       Effect of Voluntary Termination of Employment. To be
eligible for supplemental retirement benefits under the Program a Participant
shall not voluntarily terminate employment with the Company without the consent
of the Committee for a period, not exceeding 60 calendar months, set by the
Committee at the time he is designated a Participant. If he shall so voluntarily
terminate his employment within such period, his participation in the Program
shall terminate, he shall cease to be a Participant and (subject to Section
3.02) he shall forfeit all benefits under the Program. Notwithstanding the
foregoing, for purposes of this Section 2.04, in no event shall an exercise by a
Participant of his right to terminate his employment for "Good Reason" as
defined under any Change in Control Severance Agreement between the Participant
and the Company be deemed to be a voluntary termination of employment with the
Company.

3. Supplemental Retirement Benefits

         3.01       Eligibility at or After Normal Retirement Date. Any
provision of Section 2.04 to the contrary notwithstanding, any Participant with
at least 120 calendar months of Service who terminates his employment with the
Controlled Group on or after his Normal Retirement Date shall be eligible for a
monthly supplemental retirement benefit computed as set forth in Section 3.03.

         3.02       Eligibility Prior to Normal Retirement Date. Any Participant
with at least 120 calendar months of Service: (i) who terminates his employment
with the Controlled Group with the consent of the Committee after attainment of
age 55; or (ii) who is employed at the time of a Change in Control of the
Company; or (iii) whose employment with the Controlled Group is terminated by
the Company for reasons other than for cause (as determined solely by the
Committee) after attainment of age 55 but prior to the expiration of the
requisite period of employment established by the Committee with respect to him
pursuant to Section 2.04; or (iv) who terminates his employment with the
Controlled Group due to Disability prior to his Normal Retirement Date; or
(v) who terminates his employment with the Controlled Group after attainment of
age 60 (and after completion of the requisite period of employment established
by the Committee with respect to him pursuant to Section 2.04) but prior to his
Normal Retirement Date; shall be eligible for a monthly supplemental retirement
benefit as set forth in Section 3.04.

         3.03       Amount of Normal Retirement Supplemental Benefit. The
monthly supplemental retirement benefit payable to an eligible Participant at
Normal Retirement Date shall be an amount equal to 1/12th of 55% of his Highest
Average Three-Year Compensation, reduced by all of the following that are
applicable:

7

        (a)        in the case of a Participant who does not have at least 15
years of Service at the time of his retirement, .3055 percent for each calendar
month his Service is less than 15 years;

        (b)        the monthly single life Actuarial Equivalent of any benefit
to which the Participant is entitled under the Retirement Plan, including the
single life monthly equivalent attributable to the Participant's Profit-Sharing
Account Balance, determined as if the Profit-Sharing Account Balance had
remained in the Retirement Plan until retirement, whether or not such
Profit-Sharing Account Balance has been transferred to the Savings Plan;

        (c)        the monthly single life Actuarial Equivalent of any benefit
to which the Participant is entitled under any other tax-qualified defined
benefit plan of the Company and which is attributable to contributions of the
Company, unless benefit service for employment on which such benefit is based is
credited to the Participant under the Retirement Plan;

        (d)        the monthly single life Actuarial Equivalent of any benefit
to which the Participant is entitled under any non-qualified defined benefit
program of the Company;

        (e)        50 percent of the monthly primary social security benefit to
which the Participant is entitled or would be entitled as of the earliest date
following the Participant's termination of employment for which social security
benefits would be payable (whether or not social security benefits are actually
paid to the Participant at such time), with such reduction to begin at the
earliest date after retirement for which social security benefits would be
payable to the Participant; and

        (f)        the monthly single life Actuarial Equivalent of any benefit
which the Participant is entitled to receive from any previous employer,
provided that a contract between the Participant and the Company grants the
Participant service for service with the previous employer and the contract
states the amount to be offset.

         3.04     Amount of Early Retirement Supplemental Benefit. The monthly
supplemental retirement benefit payable to a Participant who is retiring prior
to Normal Retirement Date shall be an amount equal to 1/12th of 55 percent of
the Highest Average Three-Year Compensation, reduced by all of the following
that are applicable:

        (a)        in the case of a Participant who does not have at least 15
years of Service at the time of his retirement, .3055 percent for each month
that his Service is less than 15 years;

        (b)       after applying Section 3.04(a) if applicable, .1515 percent
for each of the first 60 months by which commencement of the benefit precedes
Normal Retirement Date, and by .3030 percent for each additional month by which
commencement of the benefit precedes Normal Retirement Age; provided, however,
that if the Participant has at least 30 years of Service, and entitlement to
payment is a result of a Change in Control, the .1515 shall be reduced to
.07575, and the .3030 shall be reduced to .1515; and

8

        (c)        any amounts described in Sections 3.03(b)-(f).

         3.05      Gross-Up Payment. Anything in this Program notwithstanding,
in the event it shall be determined that any payment, distribution or
acceleration of vesting of any benefit hereunder would be subject to the excise
tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Participant with respect to such excise tax, then the
Participant shall be entitled to receive an additional payment calculated as set
forth in the Change in Control Severance Agreement with respect to such benefit
hereunder; provided, however, that there shall be no duplication of such
additional payment under this Program and the Change in Control Severance
Agreement.

4. Payment of Benefits

         4.01      Commencement of Benefits. Subject to Sections 4.02 (b) and
(c), supplemental retirement benefits shall be payable monthly to an eligible
Participant commencing with the month next following the month in which he
becomes eligible for such benefit and terminating with the month in which the
death of such Participant occurs.

         4.02      Payments Under Certain Situations.

         (a)        Optional Methods of Payment. Subject to Sections 4.02 (b)
and (c), an optional method of payment selected by the Participant for payment
of his retirement benefit under the Retirement Plan shall automatically be
applicable to the payment of the supplemental retirement benefits provided by
the Program. The benefits provided pursuant to any such optional method of
payment shall be the Actuarial Equivalent of the monthly amount of benefit to
which the Participant otherwise would be entitled under the Program.

         (b)       Payment Upon a Change in Control. Within 15 business days of
a Change in Control, in lieu of any other payments due with respect to benefits
earned under the Program to the date of the Change in Control, each Participant
and each Recipient shall receive a Change in Control Lump Sum Payment, as
calculated under Section 4.03(a).

         (c)       Election to Receive a Lump Sum Payment.  A Participant who is
eligible to receive benefits under the Program pursuant to Section 3.01 or 3.02,
or a Recipient, may file a written request with the Committee, subject to the
terms and conditions hereinafter set forth, to receive, in lieu of future
payments of any and all then unpaid accrued and vested benefits under the
Program, a Lump Sum Payment determined in accordance with Section 4.03(b). If
the request for a Lump Sum Payment is filed at least 13 months prior to the
Participant's termination of employment and is approved by the Committee, then
100% of such Lump Sum Payment shall be paid on the date on which the first
monthly benefit payment under the Program would otherwise be made. In any case
in which the request for a Lump Sum Payment is not filed at least 13 months
prior to the Participant's termination of employment or is denied by the

9

Committee, then the Participant or Recipient shall receive 90% of the Lump Sum
Payment, and the remaining 10% shall be forfeited to the Company.

         4.03      Determination of the Lump Sum Payment.

        (a)        The Change in Control Lump Sum Payment referred to in
Section 4.02(b) shall be equal to the present value of the monthly payments to
which a Participant or Recipient would be entitled under the Program based on
the following assumptions:  (i) the Participant (but not a Recipient) is treated
as having been employed, for purposes of determining age and service hereunder,
for the lesser of (A) the duration of the "Termination Period", if any, under
Participant's Change in Control Severance Agreement or (B) the period of time
remaining until Normal Retirement Date; (ii) Highest Average Three-Year
Compensation shall be the greater of (A) the amount that would be taken into
account in determining a Participant's benefit under the Program as of the date
of the Change in Control if there were no Change in Control or (B) the lump sum
severance payment under Section 2(a)(ii) of the Participant's (but not the
Recipient's) Change in Control Severance Agreement (as if he had been terminated
immediately following the Change in Control) divided by the multiple used under
such section to determine severance pay; (iii) the discount rate equals the
Specified Rate; (iv) the Participant (or, if applicable, Recipient) lives the
number of years equal to his Life Expectancy (calculated as of the date which
includes any additional Service credited hereunder); and (v) with respect to any
benefit to be deducted as an offset as described in Section 3.03(b) through (f),
the Participant terminated employment with the Company on the date of the Change
in Control and began to receive such benefits at the earliest date thereafter
permitted under the applicable plan, agreement or statute.

        (b)       The Lump Sum Payment referred to in Section 4.02(c) shall be
equal to the present value of the future monthly payments to which the
participant is entitled under the Program based on the following assumptions:
(i) the discount rate equals the Specified Rate; and (ii) the Participant lives
the number of years equal to his Life Expectancy on the later of (A) date of his
election to receive a Lump Sum Payment, or (B) the date of his termination of
employment.

         4.04     Certain Matters Following a Lump Sum Payment.

        (a)       A Participant who has received a Change in Control Lump Sum
Payment pursuant to Section 4.02(b) shall thereafter: (i) while in the employ of
the Company, continue to accrue benefits under the Program, and (ii) be eligible
for further benefits under Section 4.01 or 4.02(a), (b) or (c). The amount of
such benefit shall be determined by:

                    (i) calculating the benefit that would be payable to the
Participant if there had been no previous Change in Control Lump Sum Payment;
                          (ii) determining the present lump sum value of such
benefit, using the Specified Rate as the discount rate and assuming the
Participant lives the number of years equal to his Life Expectancy on the date
of his retirement or termination of employment;

10

        

          (iii)  determining the present lump sum value of the Change in Control
Lump Sum Payment, assuming the Change in Control Lump Sum Payment had earned
interest at the average Specified Rate in effect from the time of payment of the
Change in Control Lump Sum Payment until the date of retirement or other
termination of employment;

                 

          (iv)  reducing the amount determined in (ii) by the amount determined
in (iii); and

                 

          (v)   if applicable, converting the amount determined in (iv) to an
Actuarially Equivalent single life only form of payment.

5. Death Benefits

         5.01      Eligibility.  If a Participant dies after completing 120
calendar months of Service (without regard to the requirements of Section 2.04)
but prior to the earlier of his retirement or his Normal Retirement Date, his
Surviving Spouse (or, in the event there is no surviving spouse, or there is a
common death, his estate) shall be eligible for a benefit under this Article 5.

         5.02      Benefit Amount.

        (a)        The monthly amount of a benefit payable under this Article 5
to a deceased Participant's Surviving Spouse who has applied therefor, shall be
equal to the monthly payment the spouse would have received had the Participant
retired on the day before his death after having effectively elected to receive
payment in the form of a Joint and 75% Survivor Annuity under the Retirement
Plan, with his spouse as his Contingent Annuitant under such option; provided,
that in lieu of the offset for the Participant's primary social security benefit
under Section 3.03(e), the benefit to the Surviving Spouse shall be offset by
50% of the primary or survivor social security benefit to which the Surviving
Spouse is entitled at the earliest date as of which such payments become
payable. If the estate is the death beneficiary, the estate shall receive a lump
sum payment equal to the present value (using the Specified Rate) of the total
monthly payments that would have been paid to the Participant assuming he had
not died but rather that he: (i) retired on the day before the date of his death
(or the first day of the month following the time he would have reached age 55,
if later); (ii) elected the 10-Year Certain Annuity under the Retirement Plan;
and (iii) received 120 monthly payments.

        (b)       If the Participant dies before reaching the age that is ten
years prior to the Participant's Normal Retirement Date, then the monthly
benefit used to determine the death benefit shall be further reduced by .3030
for each month that the Participant was under such age at the time of his death.

         5.03     Benefit Payments.  Subject to Section 4.02 (b) and (c), the
benefit under this Article 5 shall be paid to the deceased Participant's
Surviving Spouse commencing with the first day of the month following the month
in which the Participant's death occurs, and shall be payable monthly thereafter
during the life of the Surviving Spouse, the last payment being for the

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month in which the death of the Surviving Spouse shall occur. If payment is made
to the estate of the Participant, payment shall be made within 30 days of the
date of the Participant's death.

6. Non-Competition

         6.01        Condition of Payment. Payment of supplemental retirement
benefits under the Program shall be subject to the condition that the
Participant or retiree-Recipient shall not have engaged in competition (as
defined in Section 6.02) with the Company at any time prior to the date of such
payment; provided, however, that this Section 6.01 shall not apply to a
Participant following his termination of employment if such termination occurs
after the date of a Change in Control that occurs at the time the Participant is
actively participating in the Program.

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         6.02      Competition. Competition for purposes of the Program shall
mean assuming an ownership position or a consulting, management, employee or
director position with a business engaged in the manufacture, processing,
purchase or distribution of products of the type manufactured, processed or
distributed by the Controlled Group; provided, however, that in no event shall
ownership of less than two percent of the outstanding capital stock entitled to
vote for the election of directors of a corporation with a class of equity
securities held of record by more than 500 persons in itself be deemed
Competition; and provided further, that all of the following shall have taken
place:

        (a)        the Secretary of the Company shall have given written notice
to the Participant or retiree-Recipient that, in the opinion of the Committee,
the Participant or retiree-Recipient is engaged in Competition within the
meaning of the foregoing provisions of this Section 6.02, specifying the
details;

        (b)        the Participant or retiree-Recipient shall have been given a
reasonable opportunity, upon receipt of such notice, to appear before and to be
heard by the Committee with respect to his views regarding the Committee's
opinion that the Participant or retiree-Recipient engaged in Competition;

        (c)        following any hearing pursuant to Section 6.02(b), the
Secretary of the Company shall have given written notice to the Participant or
retiree-Recipient that the Committee determined that the Participant or
retiree-Recipient is engaged in Competition; and

        (d)        the Participant or retiree-Recipient shall neither have
ceased to engage in such Competition within thirty days from his receipt of
notice of such determination nor diligently taken all reasonable steps to that
end during such thirty-day period and thereafter.

7. General Provisions

         7.01      Denial of Claims. Whenever the Company denies, in whole or in
part, a claim for benefits filed by any person (hereinafter referred to as the
"Claimant"), the Company shall transmit a written notice setting forth, in a
manner calculated to be understood by the Claimant, a statement of the specific
reasons for the denial of the claim, references to the specific Program
provisions on which the denial is based, a description of any additional
material or information necessary to perfect the claim and an explanation of why
such material or information is necessary, and an explanation of the claims
review procedure as set forth in Section 7.02. In addition, the written notice
shall contain the date on which the written notice was sent and a statement
advising the Claimant that, within 60 days of the date on which such notice was
received, he may obtain review of the decision of the Company.

         7.02      Claims Review Procedure. Within 60 days of the date on which
the notice of denial of claim is received by the Claimant, the Claimant, or his
authorized representative, may

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request that the claim denial be reviewed by filing with the Company a written
request therefor, which request shall contain the following information:

        (a)        The date on which the notice of denial of claim was received
by the Claimant;

        (b)        The date on which the Claimant's request was filed with the
Company; provided, however, that the date on which the Claimant's request for
review was in fact filed with the Company shall control in the event that the
date of the actual filing is later than the date stated by the Claimant pursuant
to this subsection (b);

        (c)        The specific portions of the denial of his claim which the
Claimant requests the Company to review;

        (d)        A statement by the Claimant setting forth the basis upon
which he believes the Company should reverse its previous denial of his claim
for benefits and accept his claim as made; and

        (e)        Any written material (included as exhibits) which the
Claimant desires the Company to examine in its consideration of his position as
stated pursuant to subsection (d).

Within 60 days of the date determined pursuant to Section 7.02(b), the Company
shall conduct a full and fair review of the decision denying the Claimant's
claim for benefits. Within ten days following the date of such review, the
Company will send to the Claimant its written decision setting forth, in a
manner calculated to be understood by the Claimant, a statement of the specific
reasons for its decision, including references to the specific Program provision
relied upon. If the Claimant disputes the Company's decision, such dispute shall
be resolved by arbitration in Cleveland, Ohio under the rules of the American
Arbitration Association.

         7.03      ERISA Plan. The Plan is intended to be an unfunded plan
maintained primarily to provide deferred compensation benefits for "a select
group of management or highly compensated employees" within the meaning of
Sections 201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3
and 4 of Title I of ERISA.

         7.04      Trust. The Company shall be responsible for the payment of
all benefits under the Plan. At its discretion, the Company may establish one or
more grantor trusts for the purpose of providing for payment of benefits under
the Plan. Such trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Company's creditors. Benefits paid to a
Participant from any such trust shall be considered paid by the Company for
purposes of meeting the obligations of the Company under the Plan.

         7.05      Rights of Participants. Except as expressly provided in any
grantor trust agreement established by the Company:

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        (a)        no Participant or Recipient shall have any right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations under the Program;

        (b)        nothing contained in the Program shall create or be construed
to create a trust of any kind, or a fiduciary relationship between the Company
and any Participant, Recipient or any other person;

        (c)        to the extent that any person acquires a right to receive
payments from the Company under the Program, such right shall be no greater than
the right of an unsecured general creditor of the Company; and

        (d)        all payments to be made under the Program shall be paid from
the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of
amounts payable under the Program.

         7.06      Administration. The Committee shall be responsible for the
general administration of the Program and for carrying out the provisions
thereof. Any act authorized, permitted or required to be taken by the Company
under the Program may be taken by action of the Committee. Subject to the
provisions of Section 7.01 relating to denial of claims and claims review
procedure, any action taken by the Committee which is authorized, permitted or
required under the Program shall be final and binding upon the Company, all
persons who have or who claim an interest under the Program, and all third
parties dealing with the Company.

         7.07      Program Non-Contractual. Nothing herein contained shall be
construed as a commitment or agreement on the part of any person to continue his
employment with the Company, and nothing herein contained shall be construed as
a commitment on the part of the Company to continue the employment or the rate
of compensation of any such person for any period, and all employees of the
Company shall remain subject to discharge to the same extent as if the Program
had never been put into effect.

         7.08      Non-Alienation of Retirement Rights or Benefits. No right or
benefit under the Program shall at any time be subject in any manner to
alienation or encumbrances. If any person shall attempt to, or shall, alienate
or in any way encumber his rights or benefits under the Program, 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 him, his interest in all such benefits shall automatically terminate
and the same, at the discretion of the Company, shall be held or applied to or
for the benefit of such person, his spouse, children, or other dependents as the
Company may select.

         7.09      Payment of Benefits to Others. If any person to whom a
retirement benefit is payable is unable to care for his affairs because of
illness or accident, any payment due (unless prior claim therefor shall have
been made by a duly qualified guardian or legal representative) may be paid to
the spouse, parent, brother, or sister, or any other individual deemed by the
Company to be maintaining or responsible for the maintenance of such person. The
monthly

15

payment of a retirement benefit to a person for the month in which he dies, if
not paid to such person prior to his death, shall be paid to his estate. Any
payment made in accordance with the provisions of this Section 7.09 shall be a
complete discharge of any liability of the Program with respect to the
retirement benefit so paid.

         7.10      Notices. All notices provided for by the Program shall be in
writing and shall be sufficiently given if and when mailed in the continental
United States by registered or certified mail or personally delivered to the
party entitled thereto at the address stated below or to such changed address as
the addressee may have given by a similar notice:

        To the Company:       Attention: Secretary 6035 Parkland Boulevard
Cleveland, Ohio 44124          To the Participant: address of residence

Any such notice delivered in person shall be deemed to have been received on the
date of delivery.

         7.11      Amendment, Modification, Termination. The Program may at any
time be terminated, or at any time or from time to time be amended or otherwise
modified, prospectively, by the Board of Directors of the Company; provided,
however, that no such termination, amendment or modification of the Program
shall operate to:

        (a)        reduce or terminate the benefit of a Participant
participating in the Program at the time of any such termination, amendment, or
modification;

        (b)        terminate the participation of a Participant participating in
the Program at the time of any such termination, amendment, or modification;

        (c)        increase the eligibility requirements applicable to a
Participant participating in the Program at the time of any such termination,
amendment or modification; or

        (d)        terminate the Program, or reduce or terminate any benefit, or
terminate the participation or any rights or benefits, after the occurrence of a
Change in Control, with respect to a Participant or Recipient who was a
Participant or Recipient, or became a Participant or Recipient, at the time of
the occurrence of the Change in Control.

         7.12        Applicable Law. Except to the extent preempted by ERISA,
the laws of the State of Ohio shall govern the Program and any disputes arising
thereunder.

         7.13        Gender, Singular and Plural. All pronouns and variations
thereof shall be deemed to refer to the masculine, feminine, or neuter, as the
identity of the person or persons may

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require. As the context may require, the singular may be read as the plural and
the plural as the singular.

         7.14        Headings.        All headings are for convenience only and
shall not be used in interpreting any text to which they relate.

        EXECUTED in Cleveland, Ohio as of the __ day of ____, 1996.

 

PARKER-HANNIFIN CORPORATION

By:_______________________________________

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