<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
TRW INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
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 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 12, 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
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 12, 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.
<TABLE>
<S> <C>
MICHAEL H. ARMACOST, age 59, has been President of the Brookings
MICHAEL H. Institution since October 1995. He served as a distinguished
ARMACOST PHOTO 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
MARTIN FELDSTEIN Harvard University since 1967. Dr. Feldstein also is President
PHOTO 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.
ROBERT M. GATES 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
JOSEPH T. GORMAN Chief Executive Officer of the Company since 1988. Mr.
PHOTO 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.
</TABLE>
- ---------------
(1) Nominee for election at this annual meeting.
2
<PAGE> 6
<TABLE>
<S> <C>
CARL H. HAHN, age 70, served as Chairman of the Board of
CARL H. HAHN Volkswagen AG from 1981 until his retirement at the end of
PHOTO 1992. He was first elected a Director of the Company in 1993,
and his current term expires in 1998. Dr. Hahn is a director of
PACCAR Inc. and a member of the supervisory board of Perot
Systems Corporation. He also serves as a member of the
supervisory boards of a number of European companies, including
DAF Trucks N.V., Thyssen AG and Volkswagen AG.
GEORGE H. HEILMEIER, age 60, has served as Chairman and Chief
GEORGE H. Executive Officer of Bell Communications Research Inc.
HEILMEIER PHOTO (Bellcore) since the beginning of this year. He served as
President and Chief Executive Officer of Bellcore from 1991 to
year-end 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
PETER S. HELLMAN Operating Officer of the Company since 1995. He was
PHOTO 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
KAREN N. HORN Director and Head of International Private Banking of Bankers
PHOTO 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.1.c., Eli Lilly and Company and Rubbermaid Incorporated.
</TABLE>
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(1) Nominee for election at this annual meeting.
3
<PAGE> 7
<TABLE>
<S> <C>
E. BRADLEY JONES, age 69, served as Chairman and Chief Executive
E. BRADLEY JONES Officer of Republic Steel Corporation and its successor LTV
PHOTO 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
Fidelity Investments and First Union Real Estate Equity and
Mortgage Investments.
(1) WILLIAM S. KISER, age 69, has been Vice Chairman and Chief
WILLIAM S. KISER Medical Officer of Primary Health Systems, Inc. since 1994.
PHOTO 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
DAVID BAKER Lewis, Clay & Munday, a Detroit law firm, since 1982. He was
LEWIS PHOTO 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
JAMES T. LYNN & Co. LLC, investment bankers, since November 1992. He served as
PHOTO 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.
(1) LYNN M. MARTIN, age 57, has chaired Deloitte & Touche's
LYNN M. MARTIN Council on the Advancement of Women and has served as an
PHOTO 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.
</TABLE>
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(1) Nominee for election at this annual meeting.
4
<PAGE> 8
<TABLE>
<S> <C>
JOHN D. ONG, age 63, has been Chairman of the Board of The
JOHN D. ONG BFGoodrich Company since July 1979. He was also Chief Executive
PHOTO 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.
RICHARD W. POGUE, age 68, has served as senior advisor to Dix &
RICHARD W. POGUE Eaton, a public relations firm, since 1994. He was senior
PHOTO 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.
</TABLE>
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
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<PAGE> 9
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.
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 as of the close of business on February 28, 1997
and the number of option shares exercisable within 60 days of February 28 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.................................................... 33,705 172,000
M. Feldstein................................................... 2,854 0
R. M. Gates.................................................... 1,425 0
J. T. Gorman................................................... 165,000(3) 749,237
C. H. Hahn..................................................... 2,900 0
T. W. Hannemann................................................ 57,162 130,000
G. H. Heilmeier................................................ 3,507 0
P. S. Hellman.................................................. 54,098 191,332
K. N. Horn..................................................... 2,800 0
E. B. Jones.................................................... 4,000 0
W. S. Kiser.................................................... 6,000 0
H. V. Knicely.................................................. 33,456 151,200
D. B. Lewis.................................................... 1,500 0
J. T. Lynn..................................................... 2,600 0
L. M. Martin................................................... 2,300 0
J. D. Ong...................................................... 1,000 0
R. W. Pogue.................................................... 6,233 0
All Directors and executive officers as a group................ 531,872 1,954,639
</TABLE>
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(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 February 28, 1997, upon exercise of stock options granted by the Company.
(3) This number does not include 2,652 shares of TRW Common, held by an
immediate family member, of which J. T. Gorman disclaims beneficial
ownership.
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<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 base annual retainer of
$70,000, 50 percent of which will be automatically deferred in shares of TRW
Common. Directors who serve as chairs of the Audit and the Compensation and
Stock Option Committees will continue to receive an additional annual chair
retainer of $5,000. Directors who serve as chair of any other committee will
continue to receive an additional annual chair retainer of $3,000. No meeting
fees will be paid to the Directors. To ensure the design integrity of the
restructured compensation package, the Directors amended and restated the
current deferred compensation plan not only to mandate the automatic deferral of
50 percent of each Director's base annual retainer in TRW Common but also to
allow for the elective deferral of the remaining 50 percent of the base annual
retainer plus the annual chair retainer, as appropriate, in a choice of
investment alternatives. Payment of the automatic deferral portion of a
Director's retainer will not be made until the Director ceases to serve as a
Director. 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 an annual 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 that plan.
1996 Director Compensation. During 1996, all non-employee Directors
received an annual retainer of $30,000. Directors who served as chairs of the
Audit and the Compensation and Stock Option Committees received an additional
annual retainer of $5,000. Directors who served as chair of any other committee
received an additional annual retainer 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.
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<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 February 28, 1997, of the 250,000,000 shares of TRW Common currently
authorized, 133,332,013 shares were issued and outstanding, 1,031,414 shares
were reserved for issuance in connection with the conversion of shares of Serial
Preference Stock, and 16,275,590 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.
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 financings,
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 a 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.
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.
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<PAGE> 12
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 21.
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
(see "1997 Director Compensation Restructuring"), designed to ensure that 50
percent of total compensation is paid 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 6,267,350,
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.
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 the close of business on February 28, 1997, an aggregate of 57,549
shares of TRW Common remained available for future issuance, and 9,950,682
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 February 28, 1997 closing price of a share of TRW Common on the New
York Stock Exchange consolidated tape was $52.375.
9
<PAGE> 13
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 in
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 the 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.
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 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
10
<PAGE> 14
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) other 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 and
certified in writing by the Committee prior to payout.
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 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.
11
<PAGE> 15
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 (i) impair the rights of any
Participant without his or her consent; (ii) be made without shareholder
approval, to the extent such approval is required by legal or regulatory
requirements; (iii) increase the maximum number of shares that may be issued
under the Plan; or (iv) permit an Option to be granted at an exercise price less
than the Fair Market Value on the date of Grant.
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.
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 shareholder 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
12
<PAGE> 16
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.
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.
13
<PAGE> 17
Strategic Incentive Grants. In April 1994, the Company made strategic
incentive grant awards ("SIGs") to executive officers under the 1994 TRW
Long-Term Incentive Plan. 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. The SIGs require continuous and increasingly improving
financial performance in successive grant years for annual payments in such
successive grant years to be made. Accordingly, 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 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 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 are 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 used for this
compensation comparison 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."
14
<PAGE> 18
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 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
$894,500, which is approximately 45 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
15
<PAGE> 19
purposes. The Company's policy is to utilize legally available tax deductions
whenever appropriate. 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 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
<TABLE>
<S> <C> <C>
William S. Kiser, Chairman Carl H. Hahn David Baker Lewis
Martin Feldstein Karen N. Horn John D. Ong
</TABLE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------------------- SECURITIES
OTHER UNDERLYING ALL OTHER
NAME AND ANNUAL COM- OPTIONS COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS(1) PENSATION(2) (#)(3) SATION(4)
- ------------------------------ ---- ---------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
J. T. Gorman,................. 1996 $1,074,500 $3,902,000 $ 75,859 170,000 $90,607
Chairman of the Board and 1995 1,007,417 3,808,400 77,099 140,000 73,930
Chief Executive Officer 1994 932,083 3,071,050 68,335 130,000 58,590
P. S. Hellman,................ 1996 545,833 2,209,875 53,879 50,000 39,602
President and Chief 1995 495,833 2,115,950 -- 40,000 35,115
Operating Officer 1994 429,167 1,654,438 -- 40,000 22,308
T. W. Hannemann,.............. 1996 357,500 1,316,400 -- 24,000 24,576
Executive Vice President 1995 330,000 1,242,400 -- 18,000 23,746
and General Manager, 1994 315,000 924,223 -- 20,000 19,681
Space & Electronics Group
M. A. Coyle,.................. 1996 345,000 1,242,500 -- 24,000 28,364
Executive 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,................ 1996 343,750 1,242,500 -- 24,000 30,782
Executive Vice President, 1995 328,750 1,201,200 -- 18,000 21,217
Human Resources and 1994 314,167 968,850 -- 20,000 16,839
Communications
</TABLE>
- ---------------
(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
16
<PAGE> 20
compensation and are consequently disclosed under the "Bonus" column of the
Summary Compensation Table.
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: (i) for Mr. Gorman, $28,194
relating to personal use of Company aircraft and $20,299 relating to
automobile allowance; and (ii) for Mr. Hellman, $19,587 relating to personal
use of Company aircraft and $18,380 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 --
$21,615; M. A. Coyle -- $20,442; and H. V. Knicely -- $19,966. This column
also includes the following additional imputed life insurance costs for each
of the named executives: J. T. Gorman -- $13,619; P. S. Hellman -- $2,128;
T. W. Hannemann -- $-0-; M. A. Coyle -- $3,461; and H. V. Knicely -- $5,355.
The Company also incurred a net excess cost of $2,879 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 -- $6,768; P. S. Hellman -- $910; T. W. Hannemann -- $82; M. A.
Coyle -- $1,582; and H. V. Knicely -- $2,582.
17
<PAGE> 21
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
OPTIONS EMPLOYEES EXERCISE GRANT DATE
GRANTED IN FISCAL OR BASE EXPIRATION PRESENT
NAME (#)(1) YR. PRICE (1) DATE 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
</TABLE>
- ---------------
(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.
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.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
---------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
FY-END(#) OPTIONS AT FY-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) 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>
18
<PAGE> 22
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 non-qualified plans.
ESTIMATED RETIREMENT BENEFITS
<TABLE>
<CAPTION>
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
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) -- 17 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
19
<PAGE> 23
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 in 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 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 in 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.
20
<PAGE> 24
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) 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 $12,000 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 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 125,598,393 shares of TRW Common, 47,889 shares of
Serial Preference Stock II (Series 1) and 82,041 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...................................... 10,151,057(3) 8.0
One Post Office Square
Boston, Massachusetts 02109
</TABLE>
21
<PAGE> 25
- ---------------
(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 and its wholly-owned subsidiary Bankers
Trust Company (together "Bankers Trust"), 280 Park Avenue, New York, New
York 10017, serve as trustee of The TRW Employee Stock Ownership and Stock
Savings Plan. Bankers Trust is the record owner of these shares. In a
Schedule 13G filed by Bankers Trust with the Securities and Exchange
Commission on February 14, 1997, Bankers Trust disclaimed beneficial
ownership of these shares.
(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 10,014,347 shares of 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 93,720 shares of TRW Common and shared dispositive power
over 136,710 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 (i) as necessary to
meet applicable legal requirements, (ii) to permit inspectors of election to
certify the results of the vote or (iii) 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 12, 1997.
22
<PAGE> 26
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.
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 12, 1997
23
<PAGE> 27
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 performance criteria are to be
measured.
(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,
A-1
<PAGE> 28
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 6,267,350, 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, (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
A-2
<PAGE> 29
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 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 no such action shall (a) adversely affect
any outstanding Grant without the Participant's consent; (b) 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; (c) increase the maximum number of Shares that may be issued under
the Plan; or (d) permit an Option to be granted at an exercise price less than
the Fair Market Value on the date of Grant.
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
A-3
<PAGE> 30
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.
A-4
<PAGE> 31
(LOGO)
<PAGE> 32
[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> 33
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.
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR. DIRECTORS RECOMMEND A VOTE FOR.
- ---------------------------------------------- ------------------------------------------------------------
FOR WITHHOLD FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C>
1. Election of Directors [ ] [ ] 2. Amendment of the Company's [ ] [ ] [ ]
(see other side) Amended Articles of Incorpora-
tion
Instruction: To withhold authority to vote for FOR AGAINST ABSTAIN
any individual nominee, print that nominee's 3. Approval of the 1997 TRW [ ] [ ] [ ]
name on the following line: Long-Term Incentive Plan
FOR AGAINST ABSTAIN
- ------------------------------ 4. Appointment of [ ] [ ] [ ]
- ---------------------------------------------- Independent Auditors
------------------------------------------------------------
</TABLE>
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.
<PAGE> 34
[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> 35
TRW INC. 1997 VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
USE AN "X" IN THE BOXES TO INDICATE YOUR VOTE.
- -------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- -------------------------------
<TABLE>
<CAPTION>
FOR WITHHOLD
<S> <C> <C>
1. Election of Directors [ ] [ ]
(see other side)
</TABLE>
Instruction: To withhold
authority to vote for any
individual nominee, print that
nominee's name on the
following line:
===============================
Signature should agree with
name shown at left.
Signature
-------------------------------
Date
1997
PLEASE COMPLETE, SIGN, DATE AND RETURN THESE INSTRUCTIONS IMMEDIATELY IN THE
RETURN ENVELOPE.
VOTE FOR.
------------------------
<PAGE> 36
(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> 37
TRW INC. 1997 VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
USE AN "X" IN THE BOXES TO INDICATE YOUR VOTE.
- -------------------------------
DIRECTORS RECOMMEND A VOTE FOR.
- -------------------------------
<TABLE>
<CAPTION>
FOR WITHHOLD
<S> <C> <C>
1. Election of Directors [ ] [ ]
(see other side)
</TABLE>
Instruction: To withhold
authority to vote for any
individual nominee, print that
nominee's name on the
following line:
===============================
Signature should agree with
name shown at left.
Signature
-------------------------------
Date
1997
PLEASE COMPLETE, SIGN, DATE AND RETURN THESE INSTRUCTIONS IMMEDIATELY IN THE
RETURN ENVELOPE.
VOTE FOR.
------------------------
<PAGE> 38
(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> 39
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)
</TABLE>
Instruction: To withhold
authority to vote for any
individual nominee, print that
nominee's name on the
following line:
===============================
I,2
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.
VOTE FOR.
------------------------
