<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TRW
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TRW
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
Not Applicable
(2) Form, schedule or registration statement no.:
Not Applicable
(3) Filing party:
Not Applicable
(4) Date filed:
Not Applicable
<PAGE> 2
DRAFT 02/03/97A
[TRW LOGO]
NOTICE OF
1997 ANNUAL MEETING
OF SHAREHOLDERS
AND PROXY
STATEMENT
TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
<PAGE> 3
TRW INC.
================================================================================
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
================================================================================
The annual meeting of shareholders of TRW Inc. (the "Company") will be
held at the Company's principal executive offices located at 1900 Richmond Road,
Lyndhurst, Ohio, on Wednesday, April 30, 1997, at 8:30 a.m., to consider and act
upon:
(1) the election of five Directors for terms ending in the year 2000;
(2) a proposal to amend the Company's Amended Articles of
Incorporation to increase the authorized number of shares of the
Company's Common Stock;
(3) a proposal to approve the 1997 TRW Long-Term Incentive Plan;
(4) the ratification of the Directors' appointment of Ernst & Young
LLP as the Company's independent auditors for the year ending
December 31, 1997; and
(5) such other matters as properly may be brought before the meeting.
Holders of the Company's Common Stock and Serial Preference Stock II of
record at the close of business on February 14, 1997 are entitled to notice of
and to vote at the annual meeting.
Martin A. Coyle
Secretary
March __, 1997
- --------------------------------------------------------------------------------
Your vote is important. If you do not expect to attend the annual meeting of
shareholders, or if you do plan to attend but wish to vote by proxy, please
mark, date, sign and return promptly the enclosed proxy in the return envelope
provided.
- --------------------------------------------------------------------------------
<PAGE> 4
TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 30, 1997
The Directors of the Company request the accompanying proxy from
holders of the Company's Common Stock ("TRW Common") and Serial Preference Stock
II in connection with the annual meeting of shareholders of the Company to be
held at 8:30 a.m. on April 30, 1997. The distribution of proxy materials is
expected to commence on March __, 1997.
Shares represented by properly executed proxies will be voted in
accordance with the instructions marked on the proxy. It is not anticipated that
any matters, other than those set forth in the Notice of Annual Meeting of
Shareholders, will be brought before the meeting. It is intended that shares
represented by properly executed proxies, in the absence of instructions to the
contrary, will be voted for the election of the nominees named in this proxy
statement, for the amendment to the Company's Amended Articles of Incorporation
to increase the authorized number of shares of TRW Common, for the approval of
the 1997 TRW Long-Term Incentive Plan, and for the ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors.
Abstentions and broker non-votes will be counted in determining votes present at
the meeting. Consequently, an abstention or a broker non-vote has the same
effect as a vote against a proposal, as each abstention or broker non-vote would
be one less vote in favor of a proposal. The accompanying proxy also provides
that the persons authorized by the proxy may, in the absence of instructions to
the contrary, vote or act in accordance with their judgment on any other matter
presented for action at the meeting.
ELECTION OF DIRECTORS
At the annual meeting of shareholders, five Directors are to be elected
for terms ending in the year 2000. J. T. Gorman, P. S. Hellman, K. N. Horn, W.
S. Kiser and L. M. Martin, all of whom are currently serving as Directors, have
been nominated for election at this annual meeting.
As a result of action taken by the Directors pursuant to the Company's
Regulations, if any Director retires, resigns, dies or otherwise is unable to
serve, the number of Directors of the Company will be fixed at the number of
remaining Directors, provided that the number of Directors cannot be fixed at
fewer than 12. If for any reason the number of Directors to be elected at this
annual meeting should be reduced, or any nominee for election at this annual
meeting should be unable to serve, shares represented by properly executed
proxies, in the absence of instructions to the contrary, will be voted for the
election of the nominees who remain able to serve and for such other person or
persons, if any, who are nominated by the Directors. In no event, however, will
the proxies be voted for more than five nominees. The five nominees receiving
the greatest number of votes will be elected.
1
<PAGE> 5
Set forth below is certain biographical information regarding the five
nominees for election and the other continuing Directors of the Company with
unexpired terms of office.
MICHAEL H. ARMACOST, age 59, has been
President of the Brookings Institution
since October 1995. He served as a
distinguished fellow and visiting
professor at the Asia/Pacific Research
Center of Stanford University from 1993
to 1995. Mr. Armacost was U.S.
Ambassador to Japan from 1989 to 1993.
He was first elected a Director of the
Company in 1993, and his current term
expires in 1998. Mr. Armacost also is a
director of American Family Life
Assurance Company, Applied Materials,
Inc. and Cargill, Incorporated.
MARTIN FELDSTEIN, age 57, has been
Professor of Economics at Harvard
University since 1967. Dr. Feldstein
also is President and Chief Executive
Officer of the National Bureau of
Economic Research, a position he held
from 1977 to 1982 and from July 1984
until the present. He was elected a
Director of the Company in 1981,
resigned his position upon joining the
government in August 1982 and was again
elected a Director of the Company in
July 1984. His current term expires in
1999. Dr. Feldstein also is a director
of American International Group, Inc.
and J. P. Morgan & Co. Incorporated.
ROBERT M. GATES, age 53, is a
consultant, author and lecturer. From
1991 to 1993, he served as Director of
Central Intelligence for the United
States. He served as Assistant to the
President of the United States and
Deputy National Security Advisor from
1989 to 1991. He was elected a Director
of the Company in 1994, and his current
term expires in 1999. Dr. Gates also is
a director of The Charles Stark Draper
Laboratory, Inc., LucasVarity plc, and
NACCO Industries, Inc.; a trustee of
Fidelity Investments; a consultant to
Koch Industries and Placer Dome Inc.;
and a senior advisor to The Mitchell
Group.
1 JOSEPH T. GORMAN, age 59, has been
Chairman of the Board and Chief
Executive Officer of the Company since
1988. Mr. Gorman also served as
President of the Company from 1985 to
1991 and as Chief Operating Officer of
the Company from 1985 to 1988. He was
first elected a Director of the Company
in 1984, and his current term expires at
this annual meeting. Mr. Gorman also is
a director of Aluminum Company of
America and The Procter & Gamble
Company.
- ---------------
[1] Nominee for election at this annual meeting.
2
<PAGE> 6
CARL H. HAHN, age 70, served as
Chairman of the Board of Volkswagen AG
from 1981 until his retirement at the
end of 1992. He was first elected a
Director of the Company in 1993, and
his current term expires in 1998. Dr.
Hahn is a director PACCAR Inc. He also
serves as a member of the supervisory
boards of a number of major European
companies, including DAF, Thyssen AG and
Volkswagen AG.
GEORGE H. HEILMEIER, age 60, has served
as Chairman and Chief Executive Officer
of Bell Communications Research Inc.
(Bellcore) since the beginning of this
year. He served as President and Chief
Executive Officer of Bellcore from 1991
to the end of 1996. Dr. Heilmeier was
first elected a Director of the Company
in 1992, and his current term expires in
1998. Dr. Heilmeier also is a director
of Automatic Data Processing, Inc. and
Compaq Computer Corporation and a
trustee of The MITRE Corporation.
1 PETER S. HELLMAN, age 47, has been
President and Chief Operating Officer of
the Company since 1995. He was Executive
Vice President and Assistant President
of the Company from 1994 to 1995. Mr.
Hellman also served as Executive Vice
President and Chief Financial Officer of
the Company from 1991 to 1994. He was
first elected a Director of the Company
in 1995, and his current term expires at
this annual meeting. Mr. Hellman also is
a director of Arkwright Mutual Insurance
Company.
1 KAREN N. HORN, age 53, has served as
Senior Managing Director and Head of
International Private Banking of Bankers
Trust New York Corporation since 1996.
She was Chairman of Bank One, Cleveland,
N.A. from 1987 to 1996 and also served
as Chief Executive Officer of Bank One
from 1987 to 1995. Mrs. Horn was first
elected a Director of the Company in
1990, and her current term expires at
this annual meeting. She also is a
director of The British Petroleum
Company p.l.c., Eli Lilly and Company
and Rubbermaid Incorporated.
E. BRADLEY JONES, age 69, served as
Chairman and Chief Executive Officer of
Republic Steel Corporation and its
successor LTV Steel Company from 1982
until his retirement in 1984. He was
first elected a Director of the Company
in 1982, and his current term expires in
1999. Mr. Jones also is a director of
Birmingham Steel Corporation,
Cleveland-Cliffs Inc., Consolidated Rail
Corporation and RPM, Inc. and a trustee
of First Union Real Estate Equity and
Mortgage Investments and Fidelity Funds.
- ---------------
[1] Nominee for election at this annual meeting.
3
<PAGE> 7
1 WILLIAM S. KISER, age 69, has been Vice
Chairman and Chief Medical Officer of
Primary Health Systems, Inc. since 1994.
He served as medical director of
American Health Care Management, Inc.
from 1992 to 1994. Dr. Kiser was first
elected a Director of the Company in
1985, and his current term expires at
this annual meeting. He also is a
director of Positron Corporation and a
trustee and an officer of the American
Foundation of Urologic Diseases.
DAVID BAKER LEWIS, age 52, has been
Chairman of the Board of Lewis, Clay &
Munday, a Detroit law firm, since 1982.
He was first elected a Director of the
Company in 1995, and his current term
expires in 1999. Mr. Lewis also is a
director of Comerica Bank, Consolidated
Rail Corporation and LG&E Energy
Corporation.
JAMES T. LYNN, age 70, has been senior
advisor to Lazard Freres & Co. LLC,
investment bankers, since November 1992.
He served as Chairman of the Board and
Chief Executive Officer of Aetna Life
and Casualty Company from 1984 until his
retirement in 1992. He was first elected
a Director of the Company in 1993, and
his current term expires in 1999. Mr.
Lynn also is a director of Pfizer Inc.
1 LYNN M. MARTIN, age 57, has chaired
Deloitte & Touche's Council on the
Advancement of Women and has served as
an advisor to the firm since 1993. She
also has held the Davee chair at the J.
L. Kellogg Graduate School of
Management, Northwestern University,
since 1993. Ms. Martin served as U.S.
Secretary of Labor from 1991 to 1993.
She was first elected a Director of the
Company in 1995, and her current term
expires at this annual meeting. Ms.
Martin also is a director of Ameritech
Corporation, Dreyfus Funds, Harcourt
General, Inc., The Procter & Gamble
Company and Ryder System, Inc.
JOHN D. ONG, age 63, has been Chairman
of the Board of The BFGoodrich Company
since July 1979. He was also Chief
Executive Officer of BFGoodrich from
July 1979 to year-end 1996. He
was first elected a Director of the
Company in 1995, and his current term
expires in 1998. Mr. Ong also is a
director of Ameritech Corporation,
ASARCO, Inc., Cooper Industries, The
Geon Company and The Kroger Company.
- ---------------
[1] Nominee for election at this annual meeting.
4
<PAGE> 8
RICHARD W. POGUE, age 68, has served as
senior advisor to Dix & Eaton, a public
relations firm, since 1994. He was
senior partner at the law firm of Jones,
Day, Reavis & Pogue from 1993 to 1994
and managing partner of that firm from
1984 to 1992. He was first elected a
Director of the Company in 1994, and his
current term expires in 1998. Mr. Pogue
also is a director of Continental
Airlines, Inc., Derlan Industries
Limited, M. A. Hanna Company, KeyCorp,
OHM Corporation and Redland PLC.
DIRECTOR COMMITTEES AND MEETINGS
The Company has six committees of the Directors.
The Audit Committee (currently consisting of Directors Jones [Chair],
Armacost, Gates and Horn) reviews matters relating to the Company's financial
statements, its internal audit program, its system of internal accounting
controls and the services of the independent auditors. The Committee meets with
the internal auditors as well as the independent auditors, without management
present, several times a year. The Audit Committee also recommends to the
Directors the appointment of the independent auditors. This Committee met four
times during 1996.
The Compensation and Stock Option Committee (currently consisting of
Directors Kiser [Chair], Feldstein, Hahn, Horn, Lewis and Ong) determines the
compensation of the Company's executive officers, approves any compensation
arrangements with a Director who is not employed by the Company, other than for
services as a Director, and approves any compensation or benefit plans that are
not generally applicable to salaried employees and that involve executive
officers. This Committee met four times during 1996.
The Executive Committee (currently consisting of Directors Gorman
[Chair], Hellman, Jones and Kiser, with Mrs. Horn serving as an alternate
member) meets during the intervals between meetings of the Directors to consider
matters that may require action prior to the next Directors' meeting, or to
comply with or permit certification of certain recurring technical or legal
requirements. The Executive Committee has all the authority of the Directors,
other than the authority to fill vacancies among the Directors or in any
committee of the Directors. This Committee did not meet during 1996.
The Nominating Committee (currently consisting of Directors Horn
[Chair], Hahn, Heilmeier, Jones, Lynn, Martin and Pogue) recommends to the
Directors nominees for election as Directors of the Company, establishes the
criteria for selection of nominees, and evaluates all candidates. The Nominating
Committee considers all candidates submitted by interested persons, including
Directors and shareholders of the Company. The name of any recommended candidate
for Director, together with a brief biographical sketch, should be sent to the
attention of the Secretary of the Company. A document indicating the candidate's
willingness to serve, if elected, should also accompany the recommendation. This
Committee met once during 1996.
The Public Policy Committee (currently consisting of Directors
Heilmeier [Chair], Gates, Hahn, Martin and Pogue) reviews and makes
recommendations on various Company policies and programs concerning the
Company's relationships with employees, customers, shareholders, governments at
all levels, local communities and the general public. This Committee met twice
during 1996.
The Retirement Funding Committee (currently consisting of Directors
Feldstein [Chair], Armacost, Kiser, Lewis, Lynn and Ong) reviews the activities
of the Company with respect to the funding policies for, and the administration
and operation of, the Company's various funded domestic and foreign employee
benefit plans and the performance of investment managers and trustees appointed
for these plans. This Committee met once during 1996.
5
<PAGE> 9
The Directors of the Company met five times during 1996. Each incumbent
Director attended 75 percent or more of the aggregate number of meetings of
Directors and meetings of committees on which he or she served.
OWNERSHIP OF SHARES
The table below sets forth the number of the Company's outstanding
equity securities beneficially owned on March 1, 1997 and the number of option
shares exercisable within 60 days of March 1 by (i) the Directors, including the
nominees for election at the annual meeting; (ii) the Chief Executive Officer
and the other four highest-paid executive officers; and (iii) all Directors and
executive officers as a group. Except as otherwise indicated, sole voting power
and sole investment power with respect to the shares beneficially owned, as
shown in the table below, are held either by the individual alone or by the
individual and his or her spouse.
<TABLE>
<CAPTION>
Number of Shares of TRW Common
----------------------------------------------
Shares Beneficial
Beneficially Shares Not
Owned (1) Owned (2)
----------------- -----------------
<S> <C> <C>
M. H. Armacost 2,400 0
M. A. Coyle 19,305 198,378
M. Feldstein 2,854 0
R. M. Gates 1,425 0
J. T. Gorman 138,654(3) 797,223
C. H. Hahn 2,900 0
T. W. Hannemann 46,581 144,000
G. H. Heilmeier 3,507 0
P. S. Hellman 52,564 199,329
K. N. Horn 3,000 0
E. B. Jones 4,000 0
W. S. Kiser 6,500 0
H. V. Knicely 25,127 190,000
D. B. Lewis 1,500 0
J. T. Lynn 2,600 0
L. M. Martin 2,600 0
J. D. Ong 1,000 0
R. W. Pogue 6,233 0
All Directors and executive officers
as a group 444,355 2,089,823
- ----------------------
<FN>
(1) Includes shares of TRW Common held in The TRW Employee Stock Ownership and
Stock Savings Plan and other similar nonqualified plans.
(2) In accordance with the rules of the Securities and Exchange Commission,
this column sets forth the number of shares that may be acquired within 60
days of March 1, 1997, upon exercise of stock options granted by the
Company.
(3) This number does not include 2,342 shares of TRW Common, held by an
immediate family member, of which J. T. Gorman disclaims beneficial
ownership.
</TABLE>
6
<PAGE> 10
DIRECTOR COMPENSATION
General. An officer of the Company who also serves as a Director does
not receive any additional compensation for serving as a Director or as a member
or chair of a committee.
1997 Director Compensation Restructuring. Pursuant to action taken by
the Directors at their February 1997 meeting, a comprehensive restructuring of
Director compensation was approved. The restructuring is based on the premises
that (i) a significant portion of Directors' compensation should be aligned with
creating and sustaining shareholder value, (ii) Directors should hold a
significant number of shares of TRW Common, and (iii) the total compensation
plan should be structured to attract and retain a diverse and truly superior
Board of Directors.
Accordingly, the new compensation package for non-employee Directors of
the Company is comprised of the following components, to be effective July 1,
1997. All non-employee Directors of the Company will receive a retainer fee at
the rate of $70,000 a year, at least 50 percent of which must be deferred in
shares of TRW Common. Directors who serve as chairs of the Audit and
Compensation and Stock Option Committees will continue to receive an additional
annual retainer fee of $5,000. Directors who serve as chair of any other
committee will continue to receive an additional annual retainer fee of $3,000.
No meeting fees will be paid to the Directors. To ensure the design integrity of
the restructured compensation package, the Directors adopted a new deferred
compensation plan that not only mandates the deferral of at least 50 percent of
each Director's total compensation in TRW Common but also allows additional
deferrals in a choice of investment alternatives. The TRW Inc. Stock Plan for
Non-Employee Directors will be terminated, thus eliminating the annual grant of
250 shares of TRW Common (pre-split). It is anticipated that each non-employee
Director will receive annually an option to purchase 1,500 shares of TRW Common.
These options will be granted under the 1997 TRW Long-Term Incentive Plan,
assuming shareholder approval of the Plan. Finally, the pension plan for
non-employee Directors will be frozen as of June 30, 1997, and no future
benefits will accrue under the plan.
1996 Director Compensation. During 1996, all non-employee Directors
received a retainer fee at the rate of $30,000 per year. Directors who served as
chairs of the Audit and Compensation and Stock Option Committees received an
additional annual retainer fee of $5,000. Directors who served as chair of any
other committee received an additional annual retainer fee of $3,000. Directors
also received a fee of $1,050 for each meeting of the Directors and each meeting
of a committee of the Directors attended. On August 1, 1996, each non-employee
Director received, as part of his or her compensation, a grant of 250 shares of
TRW Common (pre-split), pursuant to the TRW Inc. Stock Plan for Non-Employee
Directors. Such grant was made at a per share value of $90.625 (pre-split) on
the date of grant. A deferred compensation plan permitted non-employee Directors
to defer payment of all or any part of their cash retainer and meeting fees
until the Director ceased to serve as a Director, the Director reached an age
when Social Security earnings limits no longer applied, or for a specified
period of time of at least two years. The Company maintained a pension plan for
non-employee Directors that provided an annuity equal to 100 percent of the
Director's most recent annual retainer fee plus the value of the shares
distributed to the Director as of the August 1 distribution immediately prior to
his or her termination of service as a Director.
PROPOSED AMENDMENT TO THE AMENDED ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Directors unanimously recommend that Article Fourth of the
Company's Amended Articles of Incorporation be amended to increase the
authorized number of shares of TRW Common from 250,000,000 shares to 500,000,000
shares. The Articles currently provide that the Company is authorized to issue
three classes of stock: 250,000,000 shares of Common Stock, par value $0.625 per
share, and 5,000,000 shares of Serial Preference Stock II and 99,536 shares of
Serial Preference Stock, without par value. No change will be made to the number
of authorized shares of Serial Preference Stock.
7
<PAGE> 11
The Amendment would replace Article Fourth with the following language:
"Fourth: The number of shares which the Corporation is
authorized to have outstanding is 505,099,536, which shall be
classified as follows:
99,536 shares of Serial Preference Stock without par value
(hereinafter called "Serial Preference Stock");
5,000,000 shares of Serial Preference Stock II without par
value (hereinafter called "Serial Preference Stock II"); and
500,000,000 shares of Common Stock of the par value of
$0.625 each (hereinafter called "Common Stock")."
As of [December 31, 1996], of the 250,000,000 shares of TRW Common
currently authorized, [126,483,890] shares were issued and outstanding,
[1,051,981] shares were reserved for issuance in connection with the conversion
of shares of Serial Preference Stock, and [8,178,135] shares were reserved for
issuance in connection with the Company's employee and Director stock-based
compensation plans, including the proposed 1997 TRW Long-Term Incentive Plan.
[Note: Bracketed figures will be updated through a date just prior to the
mailing of the proxy statement.]
On October 23, 1996, the Directors announced a two-for-one stock split,
effected in the form of a stock dividend. This dividend, payable to all existing
shareholders of record at the close of business on November 8, 1996, resulted in
the issuance of an additional 66,652,109 shares of TRW Common.
The Directors have determined that the number of authorized shares of
TRW Common should be increased to make additional shares available for issuance
from time to time for stock dividends or stock splits, equity financing,
acquisitions, equity compensation plans and other corporate purposes. The
Directors have no present agreement, understanding or plan to issue any of the
additional shares for which approval is sought. If the amendment is approved by
the shareholders, the Directors will have authority to issue the additional
authorized shares of TRW Common without first seeking or obtaining further
shareholder approval, except as may be required by applicable law or the rules
of any stock exchange on which the Company's shares may be listed, such as the
New York Stock Exchange.
The additional TRW Common to be authorized would have rights identical
to the current outstanding TRW Common. Approval of the amendment by the
shareholders will not have any immediate effect on the rights of existing
shareholders. To the extent that the additional authorized shares are issued in
the future, they would decrease the existing shareholders' relative percentage
equity ownership and, depending on the price at which the shares are issued,
could be dilutive to the existing shareholders. The holders of TRW Common have
no preemptive rights, which means that the shareholders do not have a prior
right to purchase any newly-issued shares of capital stock of the Company in
order to maintain their proportionate ownership interest.
Although the increase in authorized TRW Common will not have an
immediate effect on the rights of existing shareholders, under certain
circumstances, an increase in the authorized number of shares of a company's
capital stock can provide management with a means of preventing or discouraging
an unsolicited change of control of the company. Shares of authorized but
unissued capital stock could (within the limits imposed by applicable law) be
issued in one or more transactions that would make a change of control more
difficult and, therefore, less likely, as the additional shares could be used to
dilute the stock ownership or voting rights of a person seeking to obtain
control of a company. The Directors have no present intention of using the
additional shares for such purpose, and are unaware of any existing plan or
action that could result in a change of control of the Company.
8
<PAGE> 12
VOTE REQUIRED
Approval of the amendment will require the affirmative vote of the
holders of two-thirds of the voting power of the Company.
THE DIRECTORS RECOMMEND A VOTE FOR THE ADOPTION OF THIS PROPOSAL.
PROXIES SOLICITED BY THE DIRECTORS WILL BE VOTED FOR THIS PROPOSAL, UNLESS
SHAREHOLDERS SPECIFY A DIFFERENT CHOICE IN THEIR PROXIES.
APPROVAL OF THE 1997 TRW LONG-TERM INCENTIVE PLAN
INTRODUCTION
The Directors have adopted, subject to shareholder approval, the 1997
TRW Long-Term Incentive Plan (the "Plan"). In 1994, the shareholders approved
the 1994 TRW Long-Term Incentive Plan for the purpose of enhancing the
long-term profitability of the Company. The Directors believe that the 1994 TRW
Long-Term Incentive Plan has been instrumental in producing the very strong
financial performance achieved by the Company. The Company's total return to
shareholders over the past several years has outperformed the results of the
S&P 500 and those of its peer group, as reflected in the Performance Graph on
page __.
The Company expects to continue its practice of making stock awards a
significant part of the total compensation program for a broad group of
employees. As part of a comprehensive restructuring of Director compensation,
designed to ensure that at least 50 percent of total compensation is delivered
in stock, annual grants of stock options will be made to the Directors from the
Plan. In connection with this restructuring, the Directors intend to discontinue
all future contributions to the TRW Directors' Pension Plan.
The Plan will offer incentives to attract, retain and reward
individuals of the highest caliber as employees and Directors of the Company.
The Directors believe that the Plan also will focus the employees and the
Directors on the long-term goals of the Company, and further align their
interests with those of the shareholders.
A summary of the essential features of the Plan is provided below, but
is qualified by the full text of the Plan, which is included in this proxy
statement as Exhibit A.
GENERAL
Participants. All employees of the Company, or of any subsidiary or
affiliate of the Company, and all Directors of the Company, will be eligible
participants ("Participant(s)") under the Plan. The benefits that will be
received under the Plan, or that would have been received under the Plan in 1996
if the Plan had then been in effect, by the executive officers named in the
Summary Compensation Table or by all executive officers as a group are not
currently determinable; however, it is anticipated that, in 1997, each
non-employee Director of the Company will receive an option to acquire 1,500
shares under the Plan.
Share Limitations. The number of shares of TRW Common that may be
issued by the Company in payment and upon exercise of grants will not exceed
_____ [4.99% of the outstanding shares as of the record date for the annual
meeting], subject to adjustments in the event of certain changes to the
Company's capital structure. While it is expected that, when available, treasury
shares will be used, the shares delivered under the Plan may be unissued shares
or treasury shares. Shares issued pursuant to a grant that are forfeited,
surrendered, or canceled without the delivery of shares will again be available
for grant.
9
<PAGE> 13
The maximum number of shares underlying options or stock appreciation
rights that may be granted to an individual participant during any calendar year
period is 500,000, except that the balance of unused shares in any year will be
added to this limitation in subsequent years. The maximum number of shares that
may be issued upon exercise of incentive stock options is 500,000. In addition,
not more than 2,000,000 shares underlying "Other Stock-Based Grants" may be
granted to all Participants during the term of the Plan, and not more than
500,000 shares underlying "Other Stock-Based Grants" may be granted to an
individual Participant during any performance period of not more than five
years.
As of February __, 1997, an aggregate of _________ shares of TRW Common
remained available for future issuance, and _________ shares of TRW Common were
subject to outstanding and unexercised options under the Company's stock option
and long-term incentive plans, previously approved by shareholders. Options or
other issuances outstanding or available for issuance under previous plans will
not be affected by the adoption of the Plan.
The March __, 1997 closing price of a share of TRW Common on the New
York Stock Exchange consolidated tape was $____.
Administration. The Plan will be administered by a Committee of at
least three Directors (the "Committee"), appointed by the Directors from among
their members. The Committee's decisions and interpretations with respect to the
Plan shall be final and conclusive. Grants may be made under the Plan with such
terms and conditions, not inconsistent with the Plan, as may be imposed by the
Committee. The Committee has wide discretion and flexibility to administer the
Plan in the manner it determines is in the best interests of the Company. For
example: (i) grants may be made in various combinations and subject to various
conditions, restrictions and limitations; (ii) the terms and conditions of
grants need not be the same with respect to each Participant; (iii) the
Committee may provide for the effect on grants of a Participant's death,
disability, retirement or termination of employment; and (iv) the Committee may
provide for the acceleration of grants in the event of a change of control of
the Company. These examples are for illustrative purposes only and do not
purport to constitute an exclusive or comprehensive identification of the manner
in which the Committee may exercise its broad authority in administering the
Plan.
TYPES OF AWARDS
Stock Options. The Company may grant both tax-qualified incentive stock
options and nonqualified stock options under the Plan. The Plan requires that
the purchase price per share not be less than the fair market value of a share
of TRW Common on the date the option is granted. Options will be exercisable at
such time or times as determined by the Committee. Options granted as incentive
stock options must also meet requirements of the Internal Revenue Code of 1986,
as amended (the "Code").
The Committee may provide for the transfer, without payment of
consideration, of an option by an optionee to a member of the optionee's
immediate family or to a trust or partnership whose beneficiaries are members of
the optionee's immediate family. In such case, the option will be exercisable
only by such transferee.
It is anticipated that the non-employee Directors of the Company will
receive annual grants of stock options on the first business date after each
annual meeting. If the Plan is approved by shareholders, the non-employee
Directors will receive grants of options to purchase 1,500 shares.
Payment of the purchase price of the options may be made in cash,
shares or other securities or other property, or any combination thereof as
determined by the Committee. Options may provide for related stock appreciation
rights. If an option or any portion thereof is exercised, the shares issued upon
exercise will not be available for future grants.
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<PAGE> 14
Stock Appreciation Rights. Stock appreciation rights related to a stock
option (i.e., tandem stock appreciation rights) may be granted either at the
time of the option grant, or thereafter during the term of the option, at an
exercise price generally equal to the fair market value of a share of TRW Common
on the date of grant. In addition, stock appreciation rights may be granted
separate and apart from the grant of an option (i.e., freestanding stock
appreciation rights). Tandem stock appreciation rights permit a Participant,
upon exercise of such rights and surrender of the related option to the extent
of an equivalent number of shares, to receive payment equivalent to the
difference between the fair market value (on the date of exercise) of the
portion of the option so surrendered and the fair market value of such shares on
the date of grant. Freestanding stock appreciation rights entitle the
Participant, upon exercise of such rights, to receive payment equal to the
difference between the fair market value (on the date of exercise) of all or
part of a designated number of shares and the fair market value of such shares
on the date of grant. Such payment may be made in shares (valued on the basis of
the fair market value of the shares on the date of exercise of the stock
appreciation right), or in cash, or partly in cash and partly in shares, as the
Committee may determine.
Other Stock-Based Grants. Under the Plan, the Committee may also, at
its discretion, make the awards of stock valued in whole or in part by reference
to, or based upon, TRW Common, including shares valued by reference to the
performance of a subsidiary or affiliate of the Company. Other Stock-Based
Grants made to any officer of the Company will be made only to the extent that
they have performance-related criteria to payout. All other terms and conditions
of such grants will be determined by the Committee and may include the right to
receive, either currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares covered by the award.
The performance criteria will be established by the Committee not later
than 90 days after commencement of the performance period relating to a specific
award intended to comply with Section 162(m) of the Code. Performance goals may
be identical for all Participants or, at the discretion of the Committee, may be
different to reflect more appropriate pre-established measures of individual
performance. The criteria used in establishing performance goals may, at the
discretion of the Committee, include one or any combination of the following:
(i) return on equity, assets, capital or investment; (ii) pre-tax or after-tax
profit levels expressed in either absolute dollars, earnings per share, or
increases of the same; (iii) a formula based on return on assets employed less
the cost of capital multiplied by average assets employed; (iv) sales; (v) stock
price; (vi) cash flow; or (vii) similar financial measures. The performance
goals established by the Committee will include a threshold level of performance
below which no award will be payable and a maximum award opportunity for each
Participant. Attainment of the performance goals will be determined in
accordance with generally-accepted accounting principles and certified in
writing by the Committee prior to payment.
The Committee may, in its sole discretion, reduce the performance
results upon which awards are based under the Plan to offset any unintended
result arising from events not anticipated when the performance goals were
established. In addition, notwithstanding the attainment of performance goals
for the Company as a whole, awards for an individual Participant may be denied
or adjusted downward by the Committee in its sole discretion and judgment, based
on its assessment of the Participant's performance.
The Committee may make adjustments in the method of calculating
attainment of the performance goals in recognition of: (i) extraordinary or
non-recurring items; (ii) changes in the tax laws; (iii) changes in
generally-accepted accounting principles or accounting policies; (iv) charges
related to restructured or discontinued operations; (v) restatement of prior
period financial results; and (vi) any other unusual, non-recurring gain or loss
that is separately identified and quantified in the Company's financial
statements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Section 162(m) of the Code specifies that compensation paid in excess
of $1 million annually to certain executive officers is not deductible by the
Company for federal income tax purposes, unless certain exceptions apply. One
exception provides for the deductibility of performance-based
11
<PAGE> 15
compensation, which has been approved by shareholders. Shareholder approval of
the Plan will constitute the shareholder approval required for the federal
corporate tax deductibility of grants under the Plan for Section 162(m)
purposes.
Under the Code, a Participant receiving a stock option does not realize
income upon the grant of the option. However, a Participant will realize income
at the time of exercise (except for options that are incentive stock options) in
the amount of the difference between the option price and the fair market value
on the date of exercise. Under the Code, the Company is entitled to a deduction
equal to the amount of such income, at the time such income is realized by the
Participant. In the case of incentive stock options, although no income is
realized upon exercise and the Company is not entitled to a deduction, the
difference between the fair market value on the date of exercise and the
exercise price is treated by the Participant as an item of tax preference for
alternative minimum tax purposes. If the Participant does not dispose of the
shares acquired on the exercise of an incentive stock option within one year
after their receipt (and within two years after the grant of the option), gain
or loss realized on the subsequent disposition of the shares will be treated as
long-term capital gain or loss. In the event of an earlier disposition, the
Participant will realize ordinary income, and the Company will be entitled to a
deduction, equal to the amount of such income.
In the case of freestanding stock appreciation rights or tandem stock
appreciation rights, the Participant will not realize any income at the time of
grant. Upon the exercise of either a tandem stock appreciation right or a
freestanding stock appreciation right, any cash received and the fair market
value on the exercise date of any shares received will constitute ordinary
income to the Participant. The Company will be entitled to a deduction in the
amount of such income at the time of exercise.
The Participant must recognize ordinary income equal to the fair market
value of the shares received upon payout of "Other Stock-Based Grants," less any
amount paid by the Participant, at the first time the shares become transferable
or are not subject to substantial risk of forfeiture, whichever occurs earlier.
The Company will be entitled to a deduction in the same amount and at the same
time as the Participant realizes income.
Grants made under the Plan are subject to applicable tax withholding by
the Company, which may, to the extent permitted by the Committee, be satisfied
by the withholding of shares deliverable under the Plan.
AMENDMENT
The Committee may amend, suspend or terminate the Plan at any time,
except that no such action by the Committee may impair the rights of any
Participant without his or her consent, no amendment will be made without
shareholder approval, to the extent such approval is required by legal or
regulatory requirements, and no amendment will increase the maximum number of
shares that may be issued under the Plan.
VOTE REQUIRED
Approval of the Plan will require the affirmative vote of the holders
of a majority of the shares (including both TRW Common and Serial Preference
Stock II) represented and voting on this proposal at the annual meeting.
THE DIRECTORS RECOMMEND A VOTE FOR THIS PROPOSAL. PROXIES SOLICITED BY
THE DIRECTORS WILL BE VOTED FOR THIS PROPOSAL, UNLESS SHAREHOLDERS SPECIFY A
DIFFERENT CHOICE IN THEIR PROXIES.
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<PAGE> 16
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the accounting firm of
Ernst & Young LLP has been appointed by the Directors, subject to shareholder
ratification, to continue to serve as the Company's independent auditors for the
fiscal year ending December 31, 1997. Ernst & Young LLP has served as the
Company's independent auditors for more than 90 years and is considered to be
highly qualified. Representatives of Ernst & Young LLP are expected to be
present at the annual meeting with the opportunity to make a statement and to be
available to respond to questions.
THE DIRECTORS RECOMMEND A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1997.
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON THE COMPENSATION OF
THE CHIEF EXECUTIVE OFFICER AND ALL OTHER EXECUTIVE OFFICERS
The Compensation and Stock Option Committee (the "Compensation
Committee") of the Company determines the compensation of all executive officers
of the Company, including Joseph T. Gorman, Chairman of the Board and Chief
Executive Officer of the Company. Compensation decisions for all executive
officers of the Company are based on the Company's executive compensation
philosophy. This compensation philosophy has five primary principles: (i) link
executive compensation to the creation of sustainable increases in shareholders'
value; (ii) provide executive compensation rewards contingent upon
organizational performance; (iii) differentiate compensation based on individual
executive contribution; (iv) promote teamwork among executives and other Company
employees; and (v) encourage the retention of a sound management team.
To implement this philosophy, the Compensation Committee has structured
executive compensation programs with three primary components --- annual salary,
yearly performance bonus and stock-based incentive programs, which include stock
option grants and strategic incentive grants. Certain compensation plans are
structured to focus on the long-term performance of the Company even though such
long-term steps may not have near-term positive ramifications. Variable at-risk
compensation, both annual and long-term, is a significant percentage of total
executive compensation --- the higher the position of the executive, the greater
the percentage of at-risk compensation. Stock-based incentives, designed to link
shareholder and executive interests and to encourage stock ownership by
executives, form a significant component of the total executive compensation
package.
ANNUAL SALARY AND YEARLY PERFORMANCE BONUS
The Compensation Committee determines the annual salary and yearly
target performance bonus percentage of each executive officer based on the level
of duties and responsibilities of the executive officer, the executive officer's
experience and prior performance, and industry practices.
Salaries are reviewed annually by the Compensation Committee and are
increased only when warranted by the financial performance of the Company in
both absolute and relative terms, executive performance and/or competitive
practices. The yearly performance bonus is based upon the following factors, all
of which are relative to the target performance level established for the
executive officer: (i) the executive officer's performance against individual
goals; (ii) the performance of the executive officer's unit within the Company
against that unit's goals; and (iii) the performance of the Company against
Company goals. The threshold, target and maximum performance levels for each
such goal are established in the discretion of the Compensation Committee.
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<PAGE> 17
Goals vary from year to year and from unit to unit and, with regard to
executive officers, include both quantitative and qualitative factors. The
quantitative goals evaluated by the Compensation Committee in fixing the actual
1996 bonuses were based on specific profit targets, return-on-assets-employed
targets and cash flow targets, in each case applicable to the Company and,
where appropriate, the executive's unit. The qualitative goals for 1996 bonuses
were based on business infrastructure and core capabilities (which include
asset management, cost reduction, quality, continuous process improvement,
technology management and innovation, productivity, and employee satisfaction),
strategic positioning and business development, customer satisfaction, staff
functional goals, legal and ethical conduct, teamwork and collaboration, and
diversity. The relative importance of these quantitative and qualitative goals
may vary from executive officer to executive officer. At the beginning of each
year, the Compensation Committee reviews and weighs the goals of each executive
officer. However, these specific weights provide only compensation guidelines,
and the annual bonus for the executive officer is not necessarily the bonus
that would be dictated by strict adherence to the goal weighting.
STOCK-BASED INCENTIVE PROGRAMS
Stock Option Grants. In order to focus employees on the long-term
performance of the Company, the Company has long maintained stock option plans
for certain managerial and professional employees, including all executive
officers. In 1996, over 600 employees were granted stock options. The
Compensation Committee fixes the terms and the size of the grants of stock
options to all recipients, including all executive officers. Options currently
granted become exercisable at a rate of 33-1/3 percent per year for each full
year of continuous employment with the Company after the date of grant, and have
an exercise price of not less than the fair market value of TRW Common on the
date of grant.
In connection with the 1996 stock option process, the Compensation
Committee primarily determined the guidelines for the number of shares
underlying stock options granted to an executive officer based upon the total
amount of long-term compensation payable to the executive officer in relation to
market practices concerning total compensation and the mix of long-term
compensation components that the Compensation Committee believed in its
discretion were appropriate for such officer. In addition, stock option grants
were based primarily upon the Compensation Committee's evaluation of each
executive officer's anticipated contribution to the Company, the executive
officer's responsibilities, duties, performance and experience and, secondarily,
to prior grants made to such executive officer.
Strategic Incentive Grants. In April 1994, the Company made strategic
incentive grant awards ("SIGs") under the 1994 TRW Long-Term Incentive Plan to
executive officers. The SIGs consist of performance share rights pursuant to
which the grantees are entitled to receive shares of TRW Common in the event
that certain returns on assets employed are achieved for each of the four years
from 1994 through 1997. Although the SIGs extend over a four-year period, the
SIGs awarded in 1994 provide for annual payouts of a percentage of the total SIG
award based on actual performance when compared to annual
return-on-assets-employed milestone goals set for the executive officer's unit
and/or the Company as a whole. Because the SIGs require continuous and
increasingly improving financial performance in successive grant years for
annual payments in such successive grant years to be made, the Compensation
Committee believes that SIGs promote a long-term focus on the profitability of
the Company and the executive officer's unit within the Company. However, in
accordance with the regulations of the Securities and Exchange Commission, the
SIG payouts are deemed annual payments and are consequently disclosed under the
"Bonus" column of the Summary Compensation Table. The dollar amounts included in
the "Bonus" column, therefore, are comprised of the yearly performance bonus,
described above, and the SIG payouts (the stock component of which is valued
based on the fair market value of TRW Common on the date of payout).
As was the case with stock options, the Compensation Committee
primarily determined the guidelines for the SIGs awarded to each executive
officer based upon the total amount of compensation payable to the executive
officer in relation to market practices concerning total compensation and the
mix
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<PAGE> 18
of long-term compensation components that the Compensation Committee believed in
its discretion were appropriate for such executive officer. The mix of
long-term compensation components awarded to each executive officer was
determined in the discretion of the Compensation Committee without utilizing a
specific formula. Specific SIG awards were based primarily upon the
Compensation Committee's evaluation of each executive officer's anticipated
contribution to the Company, the executive officer's responsibilities, duties,
performance and experience.
Stock Ownership Guidelines. The Company has adopted stock ownership
guidelines for its senior executives to reinforce the relationship of individual
rewards to the long-term performance of the Company and to insure clear
alignment of the executives' interests with those of the shareholders. In
general, senior executives will be expected to hold a number of shares equal to
certain multiples of their annual salary, ranging from 1.5 times annual salary
to 6 times annual salary for the Chief Executive Officer. Senior executives who
are not currently holding shares at the guideline level will be expected to do
so generally within five years.
COMPENSATION SURVEY DATA
Regularly, the Compensation Committee reviews comparable company
information in order to establish the general guidelines for executive officer
compensation. Based on such information to the extent that it is available, the
Compensation Committee considers each executive officer's salary and target
performance bonus at the 60th percentile of the comparable company information
and the target long-term compensation at the 75th percentile of such comparable
company information. Once the Compensation Committee has formulated such general
compensation information, an individual executive compensation package is
tailored to each executive officer, based on his or her responsibilities,
duties, performance and experience.
Since the Company operates in two discrete industries, the comparable
company information used varies from executive to executive. The compensation of
executive officers who manage business operations is compared to compensation
information of corporations in similar industries, when it is available. The
short-term compensation of Company headquarters staff executives and the Chief
Executive Officer and the President is compared to compensation information from
a 41-company, multi-industry group, and the long-term compensation of such
executives is compared to compensation information from a 40-company,
multi-industry group. Each of these multi-industry groups is compiled by an
independent compensation consultant and is not limited to any particular
manufacturing business. Consequently, the corporations to which executive
officer compensation is compared are not necessarily the same as those in the
Peer Industry Group set forth in "Comparison of Five-Year Cumulative Total
Return of TRW Inc., S&P 500 Index and Peer Industry Group."
COMPENSATION OF JOSEPH T. GORMAN, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
Joseph T. Gorman has served as Chairman of the Board and Chief
Executive Officer ("CEO") of the Company since December 1988. During Mr.
Gorman's tenure as Chairman, sales, earnings and the price of TRW Common have
increased substantially. The Compensation Committee believes that Mr. Gorman's
strong leadership of the Company has contributed significantly to the long-term
growth in shareholder value.
As is the case with the other executive officers of the Company, the
Compensation Committee looks periodically to the comparable company information
described above to establish the general guidelines for CEO compensation. Once
the Compensation Committee has reviewed comparable company information, it
determines the CEO's salary and bonus, as well as the size of his stock option
grant and SIG award, basing its determinations on its review of the financial
performance of the Company, including profit levels, Mr. Gorman's performance as
Chairman and CEO, his importance to the Company and his implementation of the
Company's strategic goals. While the Compensation Committee reviews all these
factors, no specific weight is assigned to any particular factor (except in the
case of the yearly
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<PAGE> 19
performance bonus as described below), and Mr. Gorman's total compensation is
not established pursuant to a fixed formula. The mix of the various short-term
and long-term compensation components is determined in the discretion of the
Compensation Committee, based on competitive factors and what the Compensation
Committee determines will best align the interests of the CEO with the
shareholder. The Compensation Committee attempts to maintain a high proportion
of Mr. Gorman's compensation as being "at-risk" compensation. Currently, more
than 75 percent of Mr. Gorman's compensation at target is not firmly fixed until
after performance has been reviewed and evaluated.
In February 1996, the Compensation Committee set Mr. Gorman's salary
for 1996 at $1,080,000, a 6.5 percent increase over his 1995 salary. The salary
increase was due in part to Mr. Gorman's leadership in sustaining high levels of
performance, his role in exceeding the quantitative and qualitative goals
described above and the relationship of his salary and total compensation to
comparable companies. While the Compensation Committee reviewed all of these
factors in determining Mr. Gorman's salary, no specific weights were placed on
any of the factors, and the salary increase process was not tied to specific
performance goal attainment.
Based on competitive market information, the Compensation Committee
established Mr. Gorman's target performance bonus for 1996 at 60 percent of his
salary. In February 1997, Mr. Gorman received for 1996 a performance bonus of
$________, which is approximately ___ percent of his 1996 salary. Mr. Gorman's
1996 performance bonus was based on the same quantitative and qualitative goals
described above in "Annual Salary and Yearly Performance Bonus." In establishing
the general guidelines for the 1996 performance bonus, the Compensation
Committee weighted those goals as follows: TRW profit goals - 25 percent; TRW
return-on-assets-employed goals - 20 percent; TRW cash flow goals - 15 percent;
business infrastructure and core capabilities goals - 10 percent; strategic
positioning and business development goals - 10 percent; customer satisfaction
goals - 10 percent; and Company Staff functional goals - 5 percent. Mr. Gorman's
overall performance and his performance with regard to the above goals have been
evaluated by the Compensation Committee to be greater than target. In 1996, the
Company experienced record revenues and profits. As indicated above, the
specific quantitative and qualitative goals provided the Compensation Committee
with general guidelines for the amount of Mr. Gorman's bonus, and the final
bonus amount was adjusted by the Compensation Committee to reflect its
subjective determination of Mr. Gorman's performance as Chairman and CEO in
1996.
Mr. Gorman's stock option grant of 85,000 shares in 1996 (170,000
shares post-split) was structured as an annual grant. His 1994 SIG award is
structured as a four-year grant with target payout of 60,000 shares of TRW
Common over the four-year term. His 1996 SIG payout is tied by formula to the
return on assets employed earned by the Company in 1996.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Omnibus Budget Reconciliation Act of 1993 mandates that certain
compensation in excess of $1 million paid annually by a public company to
certain executive officers is not deductible for federal tax purposes. The
Company's policy is to utilize legally available tax deductions whenever
appropriate, and the Compensation Committee, when determining executive
compensation programs, considers all relevant factors, including the tax
deductions that may result from such compensation. At the 1994 Annual Meeting of
Shareholders, the Company, therefore, sought and obtained the shareholder
approval necessary to have stock options granted pursuant to the 1994 TRW
Long-Term Incentive Plan qualify for federal tax deductibility. The proposed
1997 TRW Long-Term Incentive Plan is designed so that awards made under the Plan
will be eligible to meet the requirements of Section 162(m). It is the
Compensation
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<PAGE> 20
Committee's intent to preserve the deductibility of compensation and benefits to
the extent reasonably practicable and to the extent consistent with its other
compensation objectives.
BY: THE TRW INC. COMPENSATION AND STOCK OPTION COMMITTEE
William S. Kiser, Chair Carl H. Hahn David Baker Lewis
Martin Feldstein Karen N. Horn John D. Ong
SUMMARY COMPENSATION INFORMATION
The following Summary Compensation Table sets forth certain
compensation information for the Chief Executive Officer and the other four
highest-paid executive officers in the fiscal years ended December 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------- -------------
OTHER SECURITIES
ANNUAL COM- UNDERLYING ALL OTHER
NAME AND PENSATION OPTIONS COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS (1) (2) (#) (3) SATION (4)
------------------ ---- ------ --------- --- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. T. Gorman, Chairman of 1996 $1,074,500 $3,902,000 $______ 170,000 $______
the Board and Chief 1995 1,007,417 3,808,400 77,099 140,000 73,930
Executive Officer 1994 932,083 3,071,050 68,335 130,000 58,590
P. S. Hellman, President 1996 545,833 2,209,875 _____ 50,000 ______
and Chief Operating 1995 495,833 2,115,950 -- 40,000 35,115
Officer 1994 429,167 1,654,438 -- 40,000 22,308
T. W. Hannemann, 1996 357,500 1,316,400 _____ 24,000 ______
Executive Vice 1995 330,000 1,242,400 -- 18,000 23,746
President and General 1994 315,000 924,223 -- 20,000 19,681
Manager, Space &
Electronics Group
M. A. Coyle, Executive 1996 345,000 1,242,500 _____ 24,000 ______
Vice President, 1995 343,750 1,215,800 -- 18,000 25,043
General Counsel and 1994 329,167 984,150 -- 20,000 20,601
Secretary
H. V. Knicely, Executive 1996 345,000 1,242,500 _____ 24,000 _____
Vice President, Human 1995 328,750 1,201,200 -- 18,000 21,217
Resources and 1994 314,167 968,850 -- 20,000 16,839
Communications
<FN>
- ----------------------
(1) The dollar amounts included in this column are comprised of the (i)
yearly performance bonus which is paid in February of the year following the
year to which it relates and (ii) payouts made pursuant to the Company's
strategic incentive grants (the "SIGs") under the 1994 TRW Long-Term
Incentive Plan. The SIGs are four-year grants, pursuant to which annual
payments are made based on continuous and increasing
return-on-assets-employed goals established at the time of grant. However, in
accordance with the regulations of the Securities and Exchange Commission,
the SIG payouts are deemed annual compensation and are consequently disclosed
under the "Bonus" column of the Summary Compensation Table.
</TABLE>
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<PAGE> 21
The amounts set forth in the "Bonus" column for 1996, 1995 and 1994 include
the following amounts attributable to the yearly performance bonus and SIG
payouts: J. T. Gorman - (1996 - $894,500 [bonus] and $3,007,500 [SIG];
1995 - $1,170,200 [bonus] and $2,638,200 [SIG]; and 1994 - $1,132,300 [bonus]
and $1,938,750 [SIG]; P. S. Hellman - (1996 - $455,500 [bonus] and
$1,754,375 [SIG]; 1995 - $577,000 [bonus] and $1,538,950 [SIG]; and 1994 -
$523,500 [bonus] and $1,130,938 [SIG]; T. W. Hannemann - (1996 - $313,900
[bonus] and $1,002,500 [SIG]; 1995 - $363,000 [bonus] and $879,400 [SIG];
and 1994 - $308,400 [bonus] and $615,823 [SIG]; M. A. Coyle - (1996 -
$240,000 [bonus] and $1,002,500 [SIG]; 1995 - $336,400 [bonus] and $879,400
[SIG]; and 1994 - $337,900 [bonus] and $646,250 [SIG]; and H. V. Knicely -
(1996 - $240,000 [bonus] and $1,002,500 [SIG]; 1995 - $321,800 [bonus] and
$879,400 [SIG]; and 1994 - $322,600 [bonus] and $646,250 [SIG]. Payments
under the SIGs are made in shares of TRW Common or, if performance exceeds
target, a combination of shares of TRW Common and cash, unless the
Compensation and Stock Option Committee determines to pay the excess over
target in shares of TRW Common. Any stock portion of a SIG payout is valued
based on the fair market value of TRW Common on the date of payment.
(2) Other Annual Compensation for 1996 includes: UPDATE FOR MR. GORMAN,
$_______ RELATING TO PERSONAL USE OF COMPANY AIRCRAFT AND $______ RELATING TO
AUTOMOBILE ALLOWANCE.
(3) The number of securities underlying options has been adjusted to reflect
the two-for-one stock split, effected in the form of a stock dividend,
declared by the Directors on October 23, 1996.
(4) Amounts disclosed in this column reflect the following Company matching
contributions on behalf of the named executives with regard to The TRW
Employee Stock Ownership and Stock Savings Plan and other nonqualified
plans: J. T. Gorman -- $67,341; P. S. Hellman -- $33,685; T. W. Hannemann --
$20,142; M. A. Coyle -- $17,550; and H. V. Knicely -- $17,550. This column
also includes the following additional imputed life insurance costs for each
of the named executives: J. T. Gorman -- $_____; P. S. Hellman -- $_____;
T. W. Hannemann -- $_____; M. A. Coyle -- $_____; and H. V. Knicely --
$_______. The Company also incurred a net excess cost of $_____ on behalf of
each named executive in connection with an executive health insurance plan.
Finally, included in this column is the premium paid by the Company on
behalf of each of the named executives with respect to split-dollar life
insurance agreements entered into in 1996 (see "Change in Control Agreements
and Other Compensatory Arrangements"). Those premiums are as follows: J. T.
Gorman -- $_______; P. S. Hellman -- $_______; T. W. Hannemann -- $_______;
M. A. Coyle -- $______; and H. V. Knicely -- $_______.
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<PAGE> 22
OPTION GRANTS IN 1996
The following sets forth information concerning the grant of stock
options to the Chief Executive Officer and the other four highest-paid executive
officers in 1996.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE GRANT DATE
NAME GRANTED (#)(1) FISCAL YR. PRICE (1) EXPIRATION DATE PRESENT VALUE (2)
---- -------------- ---------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
J. T. Gorman 170,000 9.9% $43.97 02/06/2006 $3,211,300
P. S. Hellman 50,000 2.9% $43.97 02/06/2006 944,500
T. W. Hannemann 24,000 1.4% $43.97 02/06/2006 453,360
M. A. Coyle 24,000 1.4% $43.97 02/06/2006 453,360
H. V. Knicely 24,000 1.4% $43.97 02/06/2006 453,360
<FN>
---------------------
(1) The indicated options were granted pursuant to the 1994 TRW Long-Term
Incentive Plan. The options were granted at the fair market price of TRW
Common on February 7, 1996, have 10-year terms and become exercisable in
equal annual increments over a three-year period. Vesting of the options is
accelerated by the occurrence of a change in control (see "Change in Control
Agreements and Other Compensatory Arrangements"). Vested options must be
exercised within 90 days of termination of employment to the extent that the
grantee's employment is terminated prior to age 55 (other than by death or
disability). The number of securities underlying options granted has been
doubled and the exercise price halved as a result of the two-for-one stock
split, effected in the form of a stock dividend, declared by the Directors
on October 23, 1996.
(2) The Grant Date Present Value was calculated using the Black-Scholes
valuation model, assuming a volatility rate of 20 percent, a risk-free rate
of return of 5.43 percent, a dividend yield of 2.84 percent, a projected time
of exercise of six years, and a projected risk of forfeiture of 5.4 percent.
The actual amount, if any, realized upon the exercise of stock options will
depend upon the market price of TRW Common relative to the exercise price per
share of the stock option at the time of exercise. There is no assurance that
the hypothetical grant date present values of the stock options reflected in
this table will actually be realized.
</TABLE>
STOCK OPTION EXERCISES
The following table sets forth information concerning stock option
exercises by the Chief Executive Officer and the other four highest-paid
executive officers in 1996 and the value of in-the-money options held by those
individuals on December 31, 1996. No stock appreciation rights ("SARs") have
been granted to, or are currently held by, the named executive officers. The
value of in-the-money options (i.e., options in which the fair market value of
TRW Common exceeds the exercise price of the options) is based on the difference
between the exercise price of the options and the closing price of TRW Common on
December 31, 1996, which was $49.50. The value realized on exercised options is
based on the difference between the exercise price for the options and the
closing price of TRW Common on the date of exercise.
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<PAGE> 23
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
-------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FY-END (#) IN-THE-MONEY OPTIONS
ACQUIRED ON EXERCISABLE/ AT FY-END EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ------------ -------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
J. T. Gorman 0 N/A 650,570 306,668 $15,883,316 $3,264,473
P. S. Hellman 0 N/A 155,999 90,001 3,869,950 956,450
T. W. Hannemann 10,800 $209,250 123,333 42,667 3,165,771 449,779
M. A. Coyle 18,000 280,665 177,711 42,667 4,586,981 449,779
H. V. Knicely 22,180 402,943 169,333 42,667 4,362,141 449,779
</TABLE>
PENSION PLAN INFORMATION
The Company maintains pension plans for most of its domestic employees. All
executive officers are currently covered by the Company's salaried pension
plans. The pension plans would provide the estimated retirement benefits set
forth in the table below, expressed as annual amounts payable in a single-life
annuity based upon the employee's retirement at or after age 60. Retirement
benefits are reduced after the retiree reaches age 62 to reflect certain Social
Security benefits paid by the Company on behalf of its employees. Participants
in the salaried pension plan who have satisfied the age and service requirements
may elect, as an alternative to the single-life annuity, joint and survivor,
10-year certain or lump sum forms of payment. Annual installments are available
under the nonqualified plans.
<TABLE>
<CAPTION>
ESTIMATED RETIREMENT BENEFITS
AVERAGE YEARS OF SERVICE
COMPENSATION --------------------------------------------------------------------------------------
RATE 15 20 25 30 35
---------------- --------------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
$200,000 $45,000 $ 60,000 $ 75,000 $ 90,000 $ 105,000
400,000 90,000 120,000 150,000 180,000 210,000
600,000 135,000 180,000 225,000 270,000 315,000
800,000 180,000 240,000 300,000 360,000 420,000
1,000,000 225,000 300,000 375,000 450,000 525,000
1,200,000 270,000 360,000 450,000 540,000 630,000
1,400,000 315,000 420,000 525,000 630,000 735,000
1,600,000 360,000 480,000 600,000 720,000 840,000
1,800,000 405,000 540,000 675,000 810,000 945,000
2,000,000 450,000 600,000 750,000 900,000 1,050,000
2,200,000 495,000 660,000 825,000 990,000 1,155,000
</TABLE>
Retirement benefits under the Company's salaried pension plans are
calculated using the participant's average monthly compensation during the five
consecutive years that would yield the highest such average. Compensation for
pension purposes is based on the participant's salary (the first column of the
Summary Compensation Table) and performance-related bonus (the second column of
the Summary Compensation Table less that portion of such column attributable to
payouts under strategic incentive grants) actually paid during a given year. The
years of service completed by the Chief Executive Officer and each of the other
four named executives are as follows: J. T. Gorman (age 59) -- 29 years of
20
<PAGE> 24
service; P. S. Hellman (age 47) -- 8 years of service; T. W. Hannemann (age 54)
- -- 27 years of service; M. A. Coyle (age 55) -- 24 years of service; and H. V.
Knicely (age 61) -- 18 years of service.
For years after 1988 through 1993, compensation for purposes of qualified
pension plans is limited to a maximum of $200,000 per year (increased by annual
cost-of-living adjustments). For years 1994 through 1996, compensation for the
purposes of qualified pension plans is limited to a maximum of $150,000 per
year. For 1997, the compensation limit for qualified pension plans is $160,000.)
To the extent the benefits set forth above exceed the limitations applicable to
the tax-qualified salaried pension plan by virtue of the federal tax laws,
benefits will be paid to such employees, including all executive officers,
pursuant to nonqualified, supplemental plans.
CHANGE IN CONTROL AGREEMENTS AND OTHER COMPENSATORY ARRANGEMENTS
The Company has entered into agreements with each of its current
executive officers, including each person named in the Summary Compensation
Table and certain other key employees. These agreements are designed generally
to assure continued management in the event of a change in control of the
Company and are operative only if a change in control occurs. The agreements are
intended to continue compensation and benefits comparable to those in effect
prior to any change in control.
The agreements provide that, following a change in control, the officer
will be employed by the Company for a period of three years (the "Employment
Period"). During the Employment Period, the officer will be entitled to receive
an annual base salary and to continue participation in employee benefit plans at
levels not less than those in effect prior to the change in control. The
incentive portion of the officer's compensation will equal the highest incentive
award paid to the officer for any of three calendar years preceding the change
in control. If the officer's employment were to be terminated by the Company
during the Employment Period for reasons other than disability or cause, or by
the officer for reasons relating to changed circumstances or during the 60-day
period immediately following the first anniversary of the occurrence of a change
of control, the officer would be entitled to receive a severance payment equal
to the net present value of (i) the salary and incentive pay that the officer
would have received under the agreement for the remainder of the Employment
Period or two years, whichever is longer (the "Remaining Period"), and (ii) the
employee benefits (other than employee welfare benefits and stock options and
similar compensatory benefits) that the officer would have received for the
Remaining Period, including under the Company's retirement plans, assuming
vesting. The Company would also provide the officer with health insurance and
similar welfare benefits for the Remaining Period, subject to reduction for
comparable welfare benefits received in subsequent employment. If any payments
(including payments under the agreement) to the officer were determined to be
"excess parachute payments" under the Internal Revenue Code, the officer would
be entitled to receive an additional payment (net of income taxes) to compensate
the officer for the excise tax imposed by the Internal Revenue Code on such
payments. The agreements also provide that the Company would reimburse the
officer for costs of enforcement.
For purposes of the agreements, as well as the Company's stock option
grants, a change in control is defined as a change occurring (a) by virtue of
certain mergers or consolidations or sale or transfer of assets by the Company
to another corporation or (b) by virtue of a change in the majority of the
Directors of the Company during any two-year period unless the election of each
new Director was approved by a two-thirds vote of the Directors in office at the
beginning of such period or (c) through the acquisition of shares representing
20 percent or more of the voting power of the Company or (d) through any other
change in control reported in any filing with the Securities and Exchange
Commission; provided, however, that no change in control is deemed to have
occurred by the acquisition of shares, or any report of such acquisition, by the
Company, a subsidiary of the Company or a Company-sponsored employee benefit
plan.
The Company also has entered into split-dollar life insurance
agreements with certain key executive officers, including each of the persons
named in the Summary Compensation Table. Under the
21
<PAGE> 25
split-dollar agreements, the Company owns, and pays the premiums on, the life
insurance policies and the executive has the right to designate a beneficiary to
receive a fixed portion of the policy death benefit. The balance of the death
benefit will be payable to the Company as a recovery of its investment. Upon a
change of control, ownership of the policies will transfer to an irrevocable
trust, and the Company will be required to fund the trust with sufficient assets
to pay future premiums on the policies.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF TRW INC.,
S&P 500 INDEX AND PEER INDUSTRY GROUP
The chart below compares the five-year cumulative total return on TRW
Common with that of the S&P 500 Index and a peer industry group. This graph
assumes $100 was invested on December 31, 1991 in each of TRW Common, the S&P
500 Index and a peer group index. The peer industry group is composed of an
automotive segment and a space and defense segment, reflecting the Company's two
industry segments. The automotive segment is represented by the average of two
published indices, the Dow Jones Transportation Equipment Index and the Dow
Jones Auto Parts and Equipment (excluding Tire and Rubber) Index. The space and
defense segment is represented by the Dow Jones Aerospace and Defense Index. The
two segments are weighted according to the relative annual revenues of the
Company's automotive and space and defense segments. Cumulative total return
assumes the reinvestment of dividends.
<TABLE>
<CAPTION>
TRW S & P 500 Peer Group
--- --------- ----------
<S> <C> <C> <C>
1991 $100 $100 $100
1992 $142 $108 $118
1993 $176 $118 $153
1994 $173 $120 $146
1995 $209 $165 $192
1996 $273 $203 $244
</TABLE>
GENERAL
SOLICITATION OF PROXIES
The enclosed proxy is being solicited by the Directors of the Company,
and the cost of the solicitation will be paid by the Company.
The Company has retained Georgeson & Co. of New York City to aid in the
solicitation of proxies. The anticipated cost of their services is $________
plus disbursements. Solicitations may be made by personal interview, mail,
telephone and telegram, and it is anticipated that such solicitations will
consist primarily of requests to brokerage houses, custodians, nominees and
fiduciaries to forward the soliciting material to the beneficial owners of
shares held of record by such persons. In addition, certain officers and
22
<PAGE> 26
other employees of the Company may, by telephone, telegram, letter or personal
interview, request the return of proxies.
OUTSTANDING SECURITIES
Holders of TRW Common and Serial Preference Stock II of record at the
close of business on February 14, 1997 are the only shareholders entitled to
notice of, and to vote at, the meeting. At the close of business on that date,
there were issued and outstanding ______________ shares of TRW Common, _______
shares of Serial Preference Stock II (Series 1) and _______ shares of Serial
Preference Stock II (Series 3), each of which shares entitles the holder thereof
to one vote.
To the knowledge of the Company, except as set forth below, no person
beneficially owns more than five percent of any class of the Company's voting
stock. The following table presents information as of December 31, 1996 derived
from Schedules 13G filed with the Securities and Exchange Commission by persons
beneficially owning more than five percent of TRW Common:
<TABLE>
<CAPTION>
NO. OF SHARES AND
NATURE OF BENEFICIAL PERCENT OF
Name and Address of Beneficial Owner OWNERSHIP (1) CLASS
- ------------------------------------ ------------- -----
<S> <C> <C>
The TRW Employee Stock Ownership and Stock Savings Plan 20,958,676(2) 16.6%
1900 Richmond Road
Cleveland, Ohio 44124
Putnam Investments, Inc. _________ (3) ____
One Post Office Square
Boston, Massachusetts 02109
<FN>
- ----------------------
(1) Each beneficial owner listed in the table certified in its Schedule 13G
that, to the best of its knowledge and belief, the TRW Common beneficially
owned by it was acquired in the ordinary course of business and not for the
purpose of changing or influencing control of the Company. Shares set forth
in this column are post-split shares.
(2) Bankers Trust New York Corporation ("BTCorp."), its wholly-owned subsidiary
Bankers Trust Company (the "Bank"), and its indirectly wholly-owned
subsidiary BT Variable, Inc. ("BT"), (together "Bankers Trust"), 280 Park
Avenue, New York, New York 10017, have indicated that, as of December 31,
1996, the Bank was the record owner of __________ shares of TRW Common held
by the Bank as trustee of The TRW Employee Stock Ownership and Stock
Savings Plan, as to which the Bank disclaims beneficial ownership. In
addition, Bankers Trust has reported an aggregate beneficial ownership of
_________ shares of TRW Common (BTCorp ______ shares, the Bank _________
shares and BT ______ shares). Of the total amount reported beneficially
owned by Bankers Trust, BTCorp has sole voting and dispositive power over
______ shares of TRW Common but no shared voting or shared dispositive
powers. Of the total amount reported beneficially owned by Bankers Trust,
the Bank has sole voting power over ________ shares of TRW Common, shared
voting power over _____ shares of TRW Common, sole dispositive power over
_________ shares of TRW Common and shared dispositive power over _____
shares of TRW Common. Of the total amount reported beneficially owned by
Bankers Trust, BT has shared voting power and sole dispositive power over
______ shares of TRW Common but no sole voting or shared dispositive
powers.
(3) Of the total amount reported beneficially owned by Putnam Investments,
Inc., a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. ("PI"),
Putnam Investment Management, a wholly-owned, registered investment advisor
of PI, has shared dispositive power over _________ shares of
</TABLE>
23
<PAGE> 27
TRW Common but no sole or shared voting power and no sole dispositive power
over any shares of TRW Common reported beneficially owned by PI. The Putnam
Advisory Company, Inc., another wholly-owned, registered investment advisor
of PI, has shared voting power over ______ shares of TRW Common and shared
dispositive power over ______ shares of TRW Common but no sole voting power
or sole dispositive power over any shares of TRW Common reported
beneficially owned by PI. Marsh & McLennan has no voting or dispositive
power of any kind over any of the shares of TRW Common reported
beneficially owned by PI.
VOTING
Any shareholder of the Company may exercise cumulative voting rights
for the election of Directors (i) if the shareholder notifies the President, a
Vice President or the Secretary of the Company in writing, not less than 48
hours before the time of the meeting, that cumulative voting is being requested,
and (ii) if an announcement of such request is made at the beginning of the
meeting by the Chairman or Secretary of the Company or by or on behalf of the
shareholder making the request. Cumulative voting allows each shareholder to
cumulate his or her voting power by (i) casting his or her cumulated votes for
one nominee or by (ii) distributing his or her votes (the number of shares held
multiplied by the number of Directors to be elected) among two or more nominees.
The Company does not currently anticipate that cumulative voting will be
requested at the annual meeting. Nevertheless, if cumulative voting is
requested, the persons named in the proxy will vote cumulatively the shares
represented by the proxy for such of the nominees as they may determine, unless
specifically directed otherwise by the shareholder. Of course, no votes
represented by proxy will be cumulated or cast for a nominee from whom the
shareholder executing the proxy has specifically directed that such votes be
withheld.
The Company's policy on confidential voting provides that no proxy,
ballot or voting tabulation that identifies the particular vote of a shareholder
will be disclosed to Directors or officers of the Company except (a) as
necessary to meet applicable legal requirements, (b) to permit inspectors of
election to certify the results of the vote or (c) in a contested proxy
election. The policy also provides for confidential treatment of shareholder
comments and for an independent inspector of elections to certify the vote and
confirm the integrity of the voting process.
SHAREHOLDER PROPOSALS
Shareholder proposals for consideration at the 1998 Annual Meeting of
Shareholders must be submitted in writing to the Company and should be addressed
to the attention of the Secretary of the Company at the address set forth on the
cover page of this proxy statement. The proposals must be received by the
Company on or before November __, 1997.
PROXY REVOCATION
Please mark, date, sign and return promptly the enclosed proxy whether
or not you expect to attend the meeting. A return, postage-paid envelope is
enclosed for your convenience. You may revoke your proxy by a later-dated proxy
received by the Company, by giving notice of revocation to the Company in
writing, or by attending the meeting and withdrawing the proxy. Attendance at
the meeting will not in and of itself revoke a proxy.
24
<PAGE> 28
OTHER MATTERS
The Directors do not know of any other matters that are to be presented
at the meeting. Should any other matter requiring a vote of the shareholders
properly come before the meeting, the holders of the proxies will vote your
shares with respect to such matter in accordance with their judgment.
Martin A. Coyle
Secretary
March __, 1997
25
<PAGE> 29
EXHIBIT A
1997 TRW LONG-TERM INCENTIVE PLAN
1. PURPOSE.
The purpose of the 1997 TRW Long-Term Incentive Plan is to enhance the
long-term profitability of TRW for the benefit of its shareholders by
offering incentives to attract, retain and reward individuals of the
highest caliber as employees and Directors, and to assist the Company
in meeting and exceeding its business goals.
2. DEFINITIONS.
In this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) Code. The United States Internal Revenue Code of 1986, as
amended.
(b) Committee. A Committee of at least three Directors, appointed by
the Directors from among their members, to take action under the
Plan. The Directors may appoint one or more persons as alternate
members of the Committee, who may take the place of any absent
member or members at any meeting of such Committee.
(c) Company. TRW Inc., an Ohio corporation, and its subsidiaries and
affiliated companies.
(d) Directors. The Directors of TRW Inc.
(e) Fair Market Value. The average of the high and low sales prices
of a Share on the date of exercise on the New York Stock Exchange
Composite Transactions Listing as reported in the Midwest edition
of The Wall Street Journal (or if there are no sales on such
date, then the closing sale price on such Listing on the nearest
date before the date of exercise).
(f) Grant. A grant made under the Plan by the Committee to a
Participant in the form of an Option, Stock Appreciation Right,
Other Stock-Based Grant or any combination of such Grants.
(g) ISO. An incentive stock option within the meaning of Section 422
of the Code.
(h) Non-Employee Director. A Director who is not an officer or
employee of the Company or any of its parent or subsidiary
corporations at an applicable date of Grant.
(i) Option. A Grant made by the Committee in the form of an option to
purchase Shares pursuant to Section 6.
(j) Other Stock-Based Grant. A Grant made pursuant to Section 8 that
is valued in whole or in part by reference to, or is otherwise
based on, Shares.
(k) Participant. Any employee of the Company or Non-Employee Director
of the Company to whom a Grant is made, including any former
employee or Non-Employee Director who still holds a Grant.
(l) Performance Period. The period, not to exceed five successive
years, specified by the terms of the Grant during which specified
performance criteria are to be measured.
26
<PAGE> 30
(m) Plan. The 1997 TRW Long-Term Incentive Plan.
(n) Share. A share of Common Stock of the Company, $0.625 par value,
issued and reacquired by the Company or previously authorized but
unissued.
(o) Stock Appreciation Right. A right granted by the Committee,
pursuant to Section 7, to a Participant (i) in conjunction with
all or any part or in replacement of any Option granted under the
Plan which entitles the Participant, upon exercise of such right,
to surrender such Option, or any part thereof, and to receive a
payment equal to the difference between the Fair Market Value, on
the date of such exercise, of the Shares covered by such Option,
or part thereof, and the exercise price of such Shares pursuant
to the Option (a tandem stock appreciation right) or (ii)
separate and apart from any Option, which entitles the
Participant, upon exercise of such right, to receive a payment
measured by the increase in the Fair Market Value of a number of
Shares designated by such right from the date of grant of such
right to the date on which the Participant exercises such right
(a freestanding stock appreciation right).
3. PLAN ADMINISTRATION.
The Plan shall be administered by the Committee, which shall establish
such rules and regulations or take such action as it deems necessary or
advisable for the proper administration of the Plan. The Committee's
decisions and interpretations with respect to the Plan shall be final
and conclusive. The Committee may act by resolution, through the
adoption of regulations, or in any other manner permitted by law.
4. SHARE LIMITATIONS.
The number of Shares issued or transferred by the Company in payment
and upon exercise of Grants shall not exceed ________ [4.99% of the
outstanding Shares as of the record date for the annual meeting]
Shares, subject to adjustments authorized by Section 5 of the Plan.
Shares issued pursuant to a Grant that are forfeited, surrendered,
canceled or settled without the delivery of Shares shall again be
available for grant. Notwithstanding the foregoing, the following
additional limitations shall apply, subject to the adjustments
authorized by Section 5 of the Plan:
(a) The maximum number of Shares underlying Other Stock-Based Grants
that may be issued pursuant to Section 8 of the Plan is (i)
2,000,000 to all Participants, and (ii) 500,000 to an individual
Participant over any Performance Period.
(b) The maximum number of Shares underlying Options or Stock
Appreciation Rights that may be issued pursuant to Sections 6 and
7 to an individual Participant during any calendar-year period
is 500,000; provided, however, that in any year in which less
than the maximum number of Options or Stock Appreciation Rights
is issued, the balance of unused Shares shall be added to the
limitation in subsequent years.
(c) The maximum number of Shares underlying ISO's that may be issued
pursuant to Section 6 of the Plan is 500,000.
5. ADJUSTMENTS.
The Committee may make or provide for such adjustments in the number or
kind of Shares or other securities available for or covered by Grants,
and the purchase price per Share, if any, under such Grants, as the
Committee, in its sole discretion, may determine is equitably required
as the result of (a) any change in the number or kind of outstanding
Shares or of other securities into which such Shares shall have been
changed or for which they shall have been exchanged,
27
<PAGE> 31
(b) any reorganization or change in the capital structure of
the Company, (c) any spin-off or other distribution of assets of
the Company to its shareholders, or (d) any other corporate
transaction or event having an effect similar to any of the
foregoing.
6. OPTIONS.
Options may be granted by the Committee from time to time as an ISO or
other stock option, to purchase Shares on terms and conditions
determined by the Committee, including the following:
(a) The exercise price shall be not less than the Fair Market Value
of the Shares covered by the Option on the date of Grant.
(b) Each Option may provide for related Stock Appreciation Rights.
(c) The Committee shall, in its sole discretion, determine the form
of consideration (including, without limitation, cash, Shares or
other securities or other property, or any combination thereof)
which may be accepted in payment of the purchase price of any
Option or portion thereof. The value of any Share delivered in
payment of the purchase price shall be its Fair Market Value on
the date the Option is exercised.
(d) Unless otherwise specified by the Committee to the contrary, an
Option, by its terms, shall not be transferable by a Participant
otherwise than by will or the laws of descent and distribution,
or pursuant to a qualified domestic relations order and shall be
exercisable during the Participant's lifetime only by the
Participant. The Committee may, in any manner established by the
Committee, provide for the transfer, without payment of
consideration, of an Option by a Participant to a member of the
Participant's immediate family or to a trust or partnership whose
beneficiaries are members of the Participant's immediate family.
In such case, the Option shall be exercisable only by such
transferee.
7. STOCK APPRECIATION RIGHTS.
(a) The Committee may grant to any Participant tandem stock
appreciation rights either at the time of grant of an Option or
at any time thereafter during the term of an Option, on terms and
conditions determined by the Committee.
(b) The exercise price of a Stock Appreciation Right shall not be
less than the Fair Market Value of a Share on the date the Stock
Appreciation Right is granted.
(c) The Committee may grant, from time to time to any Participant,
freestanding stock appreciation rights on terms and conditions
determined by the Committee.
(d) The payment to which the grantee of a Stock Appreciation Right is
entitled upon exercise thereof may be made in Shares valued at
the Fair Market Value on the date of exercise, or in cash or
partly in cash and partly in Shares, as the Committee may
determine.
8. OTHER STOCK-BASED GRANTS.
The Committee may grant, from time to time to any Participant, Other
Stock-Based Grants, for no cash consideration, if permitted by
applicable law, or for such other consideration as may be determined
by the Committee and specified in the Grant. Other Stock-Based Grants
to officers shall be made only to the extent that they have
performance-related criteria to payout. The Committee may specify
such criteria or periods or goals for payment to the Participant as
it shall determine, and the extent to which such criteria or periods
or goals have been met, shall be conclusively determined by the
Committee. Other Stock-Based Grants may be paid in Shares, or other
consideration related to
28
<PAGE> 32
Shares, in a single payment or in installments as specified by the
Grant and may be payable on such dates as determined by the Committee
and specified by the Grant. The terms and conditions of Other
Stock-Based Grants shall be determined by the Committee.
9. PERFORMANCE GOALS AND MEASURES.
In granting the various awards described in Section 8, the Committee
will base awards made to any officer of the Company on pre-established
performance goals and measures. The criteria used in establishing
performance goals may, at the discretion of the Committee, include one
or any combination of the following: (a) return on equity, assets,
capital or investment; (b) pre-tax or after-tax profit levels
expressed in either absolute dollars, earnings per share, or increases
of the same; (c) a formula based on return on assets employed less the
cost of capital multiplied by average assets employed; (d) sales; (e)
stock price; (f) cash flow; or (g) other financial measures.
10. AMENDMENTS TO THE PLAN.
The Committee may from time to time amend, modify, suspend or
terminate this Plan for any purpose except that (i) no such action
shall adversely affect any outstanding Grant without the Participant's
consent; (ii) no amendment shall be made without shareholder approval
to the extent such approval is necessary to comply with any federal
securities law, stock exchange, or other legal or regulatory
requirement; and (iii) no amendment shall increase the maximum number
of Shares that may be issued under the Plan.
11. WITHHOLDING TAXES.
The Company shall have the right to deduct from any cash payment made
under this Plan any federal, state or local income or other taxes
required by law to be withheld with respect to such payment. It shall
be a condition to the obligation of the Company to deliver Shares or
securities of the Company upon exercise of an Option or Stock
Appreciation Right, or upon exercise or settlement of any Other
Stock-Based Grant under this Plan, that the Participant pay to the
Company such amount as may be requested by the Company for the purpose
of satisfying any liability for such withholding taxes. Any Option,
Stock Appreciation Right, Performance Share or Other Stock-Based Grant
under the Plan may require the Participant, in accordance with any
applicable regulations of the Committee, to pay a portion or all of
the amount of such minimum required or additional permitted
withholding taxes in Shares.
12. MISCELLANEOUS.
(a) Governing Law. The Plan shall be construed and interpreted, and
the rights of the Company and all Participants shall be
determined, in accordance with the laws of the State of Ohio,
without regard to the conflict of law principles thereof.
(b) Other Compensation Plans. Nothing contained in this Plan shall
prevent the Company from adopting other or additional
compensation arrangements, subject to shareholder approval if
such approval is required.
29
<PAGE> 33
(TRW LOGO)
TRW INC. 1997 PROXY
THIS PROXY IS SOLICITED BY THE DIRECTORS OF TRW INC. FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 30, 1997.
The undersigned hereby appoints J. T. Gorman, P. S. Hellman and M. A.
Coyle, and each of them, as proxies, each with the power to appoint his
substitute, and authorizes them to vote as specified all shares that the
shareholder named on the reverse side is entitled to vote at the Annual
Meeting of Shareholders of the Company to be held at 1900 Richmond Road,
Lyndhurst, Ohio on April 30, 1997, at 8:30 a.m., including any
adjournment thereof, as fully as the undersigned could do if personally
present, and in their discretion to vote upon all other matters as
properly may be brought before such meeting.
The nominees for Director are J. T. Gorman, P. S. Hellman, K. N. Horn,
W. S. Kiser and L. M. Martin or, if any of the nominees are unavailable
for election, the remaining nominees and such other persons as are
nominated by the Directors.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IN ORDER FOR YOUR SHARES TO BE VOTED BY THE PROXIES AT THE
ANNUAL MEETING, YOUR PROXY MUST BE COMPLETED, SIGNED, DATED AND RETURNED
TO THE COMPANY BEFORE OR AT THE ANNUAL MEETING ON APRIL 30, 1997.
(Continued, and to be completed, signed and dated, on the other side)
<PAGE> 34
TRW INC. 1997 PROXY
- --------------------------------------------------------------------------------
USE AN "X" IN THE BOXES TO INDICATE YOUR VOTE. IF YOU DO NOT GIVE DIRECTIONS BY
MARKING THE BOXES, YOUR SIGNED PROXY WILL BE VOTED "FOR" THE DIRECTOR NOMINEES,
"FOR" PROPOSALS 2, 3 AND 4, AND IN THE DISCRETION OF THE NAMED PROXIES UPON ANY
OTHER MATTER THAT MAY COME BEFORE THE MEETING.
- -------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- -------------------------------
<TABLE>
<CAPTION>
FOR WITHHOLD
<S> <C> <C>
1. Election of Directors [ ] [ ]
(see other side)
Instruction: To withhold
authority to vote for any
individual nominee, print that
nominee's name on the
following line:
- -------------------------------
- -------------------------------
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendment of the / / / / / /
Company's Amended
Articles of Incorpora-
tion
3. Approval of the 1997 FOR AGAINST ABSTAIN
TRW Long-Term / / / / / /
Incentive Plan
4. Appointment of FOR AGAINST ABSTAIN
Independent Auditors / / / / / /
The proxies are authorized to vote in
their discretion upon any other matter
that may come before the meeting.
Signature(s) should agree with name(s)
shown at left. If signing for a
corporation, partnership, estate or
trust or as agent, attorney or fiduciary,
title or capacity should be stated.
If shares are held jointly, every holder
should sign.
Signature
- -------------------------------
Signature
- -------------------------------
Date
1997
- -------------------------------
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY IMMEDIATELY IN THE RETURN
ENVELOPE.
</TABLE>
<PAGE> 35
(TRW LOGO)
SOLICITATION BY THE DIRECTORS OF TRW INC.
1997 CONFIDENTIAL VOTING INSTRUCTIONS
TO: CO-TRUSTEES UNDER THE TRW EMPLOYEE STOCK OWNERSHIP
AND STOCK SAVINGS PLAN
C/O NATIONAL CITY BANK, CLEVELAND, OHIO
I hereby direct that the voting rights pertaining to shares of stock of
TRW Inc. allocated to my account under the above-named plan shall be
exercised at the Annual Meeting of Shareholders of TRW Inc. to be held
April 30, 1997, and at any adjournment of such meeting, as designated on
the other side of this card.
The nominees for Director are J. T. Gorman, P. S. Hellman, K. N. Horn,
W. S. Kiser and L. M. Martin or, if any of the nominees are unavailable
for election, the remaining nominees and such other persons as are
nominated by the Directors.
I understand that the voting rights will be exercised as directed by the
participants in the plan and that all shares for which you have not
received any instructions prior to the meeting will be voted in your
discretion.
(Continued, and to be completed, signed and dated, on the other side)
<PAGE> 36
TRW INC. 1997 VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
USE AN "X" IN THE BOXES TO INDICATE YOUR VOTE.
<TABLE>
<CAPTION>
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR WITHHOLD
<S> <C> <C>
1. Election of Directors / / / /
(see other side)
Instruction: To withhold authority to vote for any
individual nominee, print that nominee's name on the
following line:
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendment of the / / / / / /
Company's Amended
Articles of Incorpora-
tion
3. Approval of the 1997 FOR AGAINST ABSTAIN
TRW Long-Term / / / / / /
Incentive Plan
4. Appointment of FOR AGAINST ABSTAIN
Independent Auditors / / / / / /
Signature should agree with name shown at left.
Signature
- -------------------------------
Date
1997
- -------------------------------
PLEASE COMPLETE, SIGN, DATE AND RETURN THESE INSTRUCTIONS IMMEDIATELY IN THE
RETURN ENVELOPE.
</TABLE>
<PAGE> 37
(TRW LOGO)
SOLICITATION BY THE DIRECTORS OF TRW INC.
1997 CONFIDENTIAL VOTING INSTRUCTIONS
TO: THE ROYAL TRUST COMPANY
TRUSTEE UNDER THE TRW CANADA STOCK SAVINGS PLAN
I hereby direct that the voting rights pertaining to shares of stock of
TRW Inc. held by you, as Trustee, and allocated to my account under the
above-named plan shall be exercised at the Annual Meeting of
Shareholders of TRW Inc. to be held April 30, 1997, and at any
adjournment of such meeting, as designated on the other side of this
card.
The nominees for Director are J. T. Gorman, P. S. Hellman, K. N. Horn,
W. S. Kiser and L. M. Martin or, if any of the nominees are unavailable
for election, the remaining nominees and such other persons as are
nominated by the Directors.
I understand that the voting rights will be exercised as directed by the
participants in the plan and that all shares for which you have not
received any instructions prior to the meeting will be voted in your
discretion.
(Continued, and to be completed, signed and dated, on the other side)
<PAGE> 38
TRW INC. 1997 VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
USE AN "X" IN THE BOXES TO INDICATE YOUR VOTE.
<TABLE>
<CAPTION>
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR WITHHOLD
<S> <C> <C>
1. Election of Directors / / / /
(see other side)
Instruction: To withhold authority to vote for any
individual nominee, print that nominee's name on the
following line:
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendment of the / / / / / /
Company's Amended
Articles of Incorpora-
tion
3. Approval of the 1997 FOR AGAINST ABSTAIN
TRW Long-Term / / / / / /
Incentive Plan
4. Appointment of FOR AGAINST ABSTAIN
Independent Auditors / / / / / /
Signature should agree with name shown at left.
Signature
- -------------------------------
Date
1997
- -------------------------------
PLEASE COMPLETE, SIGN, DATE AND RETURN THESE INSTRUCTIONS IMMEDIATELY IN THE
RETURN ENVELOPE.
</TABLE>
<PAGE> 39
(TRW LOGO)
TRW INC. 1997 PROXY
THIS PROXY IS SOLICITED BY THE DIRECTORS OF TRW INC. FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 30, 1997.
The undersigned hereby appoints J. T. Gorman, P. S. Hellman and M. A.
Coyle, and each of them, as proxies, each with the power to appoint his
substitute, and authorizes them to vote as specified all shares that the
shareholder named on the reverse side is entitled to vote at the Annual
Meeting of Shareholders of the Company to be held at 1900 Richmond Road,
Lyndhurst, Ohio on April 30, 1997, at 8:30 a.m., including any
adjournment thereof, as fully as the undersigned could do if personally
present, and in their discretion to vote upon all other matters as
properly may be brought before such meeting.
The nominees for Director are J. T. Gorman, P. S. Hellman, K. N. Horn,
W. S. Kiser and L. M. Martin or, if any of the nominees are unavailable
for election, the remaining nominees and such other persons as are
nominated by the Directors.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IN ORDER FOR YOUR SHARES TO BE VOTED BY THE PROXIES AT THE
ANNUAL MEETING, YOUR PROXY MUST BE COMPLETED, SIGNED, DATED AND RETURNED
TO THE COMPANY BEFORE OR AT THE ANNUAL MEETING ON APRIL 30, 1997.
(Continued, and to be completed, signed and dated, on the other side)
<PAGE> 40
TRW INC. 1997 PROXY
- --------------------------------------------------------------------------------
USE AN "X" IN THE BOXES TO INDICATE YOUR VOTE. IF YOU DO NOT GIVE DIRECTIONS BY
MARKING THE BOXES, YOUR SIGNED PROXY WILL BE VOTED "FOR" THE DIRECTOR NOMINEES,
"FOR" PROPOSAL 2, 3, AND 4, AND IN THE DISCRETION OF THE NAMED PROXIES UPON
ANY OTHER MATTER THAT MAY COME BEFORE THE MEETING.
<TABLE>
<CAPTION>
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR WITHHOLD
<S> <C> <C>
1. Election of Directors / / / /
(see other side)
Instruction: To withhold authority to vote for any
individual nominee, print that nominee's name on the
following line:
- --------------------------------------------------------
- --------------------------------------------------------
- --------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendment of the / / / / / /
Company's Amended
Articles of Incorpora-
tion
3. Approval of the 1997 FOR AGAINST ABSTAIN
TRW Long-Term / / / / / /
Incentive Plan
3. Appointment of FOR AGAINST ABSTAIN
Independent Auditors / / / / / /
- --------------------------------------------------------
The proxies are authorized to vote in their discretion
upon any other matter that may come before the meeting.
Shares of Common Stock
Shares of Serial Preference
Stock II ($4.40 Series 1)
Shares of Serial Preference
Stock II ($4.50 Series 3)
Signature(s) should agree with name(s) shown at left. If
signing for a corporation, partnership, estate or trust
or as agent, attorney or fiduciary, title or capacity
should be stated. If shares are held jointly, every
holder should sign.
Signature
- -------------------------------
Signature
- -------------------------------
Date
1997
- -------------------------------
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY IMMEDIATELY IN THE RETURN
ENVELOPE.
</TABLE>
