<PAGE> 1
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 Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
MERITOR AUTOMOTIVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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 0-12.
(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:
------------------------------------------------------------------------
<PAGE> 2
LOGO
LETTER TO
SHAREOWNERS
NOTICE OF 1998
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE> 3
LOGO
December 29, 1997
Dear Shareowner:
You are cordially invited to attend the first annual meeting of shareowners of
the Corporation.
The meeting will be held at the Corporation's World Headquarters, 2135 West
Maple Road, Troy, Michigan, on Wednesday, February 11, 1998, at 9 a.m. At the
meeting, there will be a current report on the activities of the Corporation
followed by discussion and action on the matters described in the Proxy
Statement. Shareowners will have an opportunity to comment on or to inquire
about the affairs of the Corporation that may be of interest to shareowners
generally.
If you plan to attend the meeting, please complete and return the form enclosed
with your proxy or direction card, and an admittance card will be forwarded to
you promptly.
It is sincerely hoped that as many shareowners as can conveniently attend will
do so.
Sincerely yours,
/ Larry D. Yost]
Larry D. Yost
Chairman of the Board
and Chief Executive Officer
<PAGE> 4
MERITOR AUTOMOTIVE, INC.
2135 WEST MAPLE ROAD
TROY, MICHIGAN 48084-7186
NOTICE OF 1998 ANNUAL MEETING OF SHAREOWNERS
TO THE SHAREOWNERS OF
MERITOR AUTOMOTIVE, INC.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareowners of Meritor
Automotive, Inc. (the "Corporation") will be held at the Corporation's World
Headquarters, 2135 West Maple Road, Troy, Michigan, on Wednesday, February 11,
1998, at 9 a.m. (Eastern Standard Time) for the following purposes:
(a) to elect two members of the Board of Directors of the Corporation with
terms expiring at the Annual Meeting in 2001;
(b) to consider and vote upon a proposal to approve the selection by the
Board of Directors of the firm of Deloitte & Touche LLP as auditors of
the Corporation;
(c) to consider and vote upon a proposal to approve the adoption by the
Board of Directors of the 1997 Long-Term Incentives Plan;
(d) to consider and vote upon a proposal to approve the adoption by the
Board of Directors of the Directors Stock Plan;
(e) to consider and vote upon a proposal to approve the adoption by the
Board of Directors of the Incentive Compensation Plan; and
(f) to transact such other business as may properly come before the
meeting.
Only shareowners of record at the close of business on December 15, 1997 will be
entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors.
David W. Greenfield
Secretary
December 29, 1997
NOTE: THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND PROMPT RETURN OF THE
ACCOMPANYING PROXY. A RETURN ENVELOPE IS ENCLOSED.
<PAGE> 5
PROXY STATEMENT
The 1998 Annual Meeting of Shareowners of Meritor Automotive, Inc. (the
"Corporation") will be held on February 11, 1998, for the purposes set forth in
the accompanying Notice of 1998 Annual Meeting of Shareowners. This statement
and the accompanying proxy, which are first being sent to shareowners on or
about December 29, 1997, are furnished in connection with the solicitation by
the Board of Directors of proxies to be used at such meeting and at any
adjournment thereof. If a proxy in the accompanying form is duly executed and
returned, the shares represented thereby will be voted as specified therein, and
if no specification is made, the shares will be voted in accordance with the
recommendations of the Board of Directors. The proxy may, nevertheless, be
revoked prior to its exercise by delivering written notice of revocation to the
Secretary of the Corporation, by executing a later dated proxy or by attending
the meeting and voting in person.
This is the Corporation's first solicitation of proxies for its Annual
Meeting of Shareowners since the Corporation began operations as an independent,
publicly-held company. The Corporation, which was incorporated in 1997, became a
publicly-held company through the pro rata distribution by Rockwell
International Corporation ("Rockwell") of all the outstanding shares of Common
Stock, par value $1 per share, of the Corporation ("Common Stock"), to
Rockwell's shareowners on September 30, 1997 (the "Distribution").
It is the Corporation's policy to keep confidential proxy cards, ballots
and voting tabulations that identify individual shareowners except as may be
necessary to meet any applicable legal requirements and, in the case of any
contested proxy solicitation, as may be necessary to permit proper parties to
verify the propriety of proxies presented by any person and the results of the
voting. The judges of election and any employees associated with processing
proxy cards or ballots and tabulating the vote are required to acknowledge their
responsibility to comply with this policy of confidentiality.
VOTING SECURITIES
Only shareowners of record at the close of business on December 15, 1997
are entitled to notice of, and to vote at, the meeting. On December 15, 1997,
the Corporation had outstanding 69,030,380 shares of Common Stock. Each holder
of Common Stock is entitled to one vote for each share held. On December 15,
1997, Wells Fargo Bank, N.A., Los Angeles, California, as trustee under
Rockwell's Savings Plan for its participating employees, held 13,016,841 shares
of Common Stock, representing approximately 18.86% of the total outstanding
shares of Common Stock. Shares held by the trustee of the Savings Plan of
Rockwell on account of the participants in such plan will be voted by the
trustee in accordance with written instructions from the participants, and where
no instructions are received, as the trustee deems proper.
ELECTION OF DIRECTORS
The Corporation's Restated Certificate of Incorporation provides that the
Board of Directors shall consist of three classes of directors with overlapping
three-year terms. One class of directors is to be elected each year with terms
extending to the third succeeding Annual Meeting after election. The Restated
Certificate of Incorporation provides that the Board shall maintain the three
classes so as to be as nearly equal in number as the then total number of
directors permits. The two directors in Class I will be elected at the 1998
Annual Meeting to serve for a term expiring at the Corporation's Annual Meeting
in the year 2001. The two directors in Class II and the three directors in Class
III are serving terms expiring at the Corporation's Annual Meeting of
Shareowners in 1999 and 2000, respectively.
Until September 8, 1997, the Corporation's Board of Directors consisted of
Messrs. D.R. Beall, C.H. Harff and L.D. Yost. In anticipation of the
Distribution, on September 8, 1997 the Corporation's Board of Directors was
expanded to seven members, four additional directors of the Corporation were
elected and the directors were divided into three classes, in each case, as
provided in the By-Laws of the Corporation.
1
<PAGE> 6
It is intended that proxies in the accompanying form will be voted at the
meeting, unless authority to do
so is withheld, for the election as directors of the two nominees specified in
Class I -- Nominees for Directors with Terms Expiring in 2001 below, both of
whom now serve as directors with terms extending to the 1998 Annual Meeting and
until their successors are elected and qualified. If for any reason either of
the nominees is not a candidate (which is not expected) when the election
occurs, it is expected that proxies in the accompanying form will be voted for
the election of the other nominee and may be voted for the election of a
substitute nominee or, in lieu thereof, the Board of Directors may reduce the
number of directors.
INFORMATION AS TO NOMINEES FOR
DIRECTORS AND CONTINUING DIRECTORS
There is shown below for each nominee for director and each continuing
director, as reported to the Corporation, the name, age and principal
occupation; the position, if any, with the Corporation; other directorships
held; and the committees of the Board of Directors on which the nominee or
continuing director serves.
CLASS I -- NOMINEES FOR DIRECTORS WITH TERMS EXPIRING IN 2001
LARRY D. YOST
Chairman of the Board and Chief Executive Officer
Age 59
[PHOTO]
Mr. Yost was elected to his present position in May 1997. Mr.
Yost joined Allen-Bradley Company, Inc. (automation), a
subsidiary of Rockwell, as a manager in 1971 and, after serving
in a number of increasingly responsible management positions,
served as Senior Vice President of Allen-Bradley from July 1992
until November 1994. He served as President, Heavy Vehicle
Systems of Rockwell from November 1994 until March 1997 and was
Senior Vice President and President, Automotive and Acting
President, Heavy Vehicle Systems of Rockwell from March 1997 to
September 1997. Mr. Yost is a director of Kennametal Inc. and a
trustee of Kettering University.
CHARLES H. HARFF
Retired Senior Vice President, General Counsel and Secretary, Rockwell
International Corporation, Electronic Controls and Communications
Age 68
[PHOTO]
Mr. Harff is a member of the Audit Committee and the
Compensation and Management Development Committee. He is a
consultant to Rockwell. From March 1984, when he joined
Rockwell, until November 1994, Mr. Harff served as Senior Vice
President, General Counsel and Secretary of Rockwell. From
November 1994 to February 1996, Mr. Harff served as Senior Vice
President and Special Counsel of Rockwell. He is a director of
the Fulbright Association, the Christian A. Johnson Endeavor
Foundation and several civic organizations.
2
<PAGE> 7
CLASS II -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 1999
HAROLD A. POLING
Retired Chairman of the Board and Chief Executive Officer, Ford Motor Company,
Automotive
Age 72
[PHOTO]
Mr. Poling is a member of the Board Composition Committee and
Chairman of the Compensation and Management Development
Committee. He is an investor in Metapoint Partners, an
investment partnership, and retired as Chairman of the Board and
Chief Executive Officer of Ford Motor Company in January 1994.
He joined Ford in 1951 and served in a number of senior
management positions prior to becoming President (in 1975) and
Chairman (in 1977) of Ford in Europe. Mr. Poling became
President and Chief Operating Officer of Ford in February 1985
and served as Chairman of the Board and Chief Executive Officer
from March 1990 to January 1994. He is a director of Karrington
Health, Inc., Kellogg Company, LTV Corporation and Shell Oil
Company. He is also a director, trustee or member of a number of
business, educational and civic organizations.
MARTIN D. WALKER
Retired Chairman of the Board, M.A. Hanna Company, Specialty Chemicals,
Plastics, Rubber Products
Age 65
[PHOTO]
Mr. Walker is Chairman of the Audit Committee and a member of
the Board Composition Committee. He retired as Chairman of the
Board of M.A. Hanna Company in June 1997. He joined Hanna in
1986 as Chairman of the Board and Chief Executive Officer and
served as Chief Executive Officer until December 1996. In 1972,
Mr. Walker joined Rockwell as a vice president and, after
serving in a number of increasingly responsible management
positions, served as Senior Vice President and President,
Automotive of Rockwell from 1978 until 1982, as Executive Vice
President of Rockwell from 1982 until 1986 and as a director of
Rockwell from 1979 until 1986. He is a director of Comerica,
Inc., Goodyear Tire and Rubber Co., M.A. Hanna Company, Lexmark
International Group, Reynolds & Reynolds Co., Textron Inc. and
The Timken Company. He is also a director, trustee or member of
a number of business, educational and civic organizations.
3
<PAGE> 8
CLASS III -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2000
JOSEPH B. ANDERSON, JR.
Chairman of the Board and Chief Executive Officer, Chivas Products, Ltd.,
Automotive Component Supplier
Age 54
[PHOTO]
Mr. Anderson is Chairman of the Board Composition Committee and
is a member of the Environmental and Social Responsibility
Committee. He is Chairman of the Board and Chief Executive
Officer of Chivas Products, Ltd. He has held that position since
October 1994. From December 1992 to July 1993, Mr. Anderson was
President and Chief Executive Officer of Composite Energy
Management Systems, Incorporated (automotive component
supplier). Mr. Anderson served in a variety of positions,
primarily in manufacturing, with General Motors Corporation
(automotive manufacturer) from 1979 until December 1992. He also
served as an assistant to the U.S. Secretary of Commerce from
1977 to 1979. Mr. Anderson is a director of Quaker Chemical
Corporation and a trustee of Kettering University. He is also a
director, trustee or member of a number of business, educational
and civic organizations.
DONALD R. BEALL
Chairman of the Board, Rockwell International Corporation, Electronic Controls
and Communications
Age 59
[PHOTO]
Mr. Beall is a member of the Board Composition Committee and the
Compensation and Management Development Committee. He is
Chairman of the Board of Rockwell and was Chairman and Chief
Executive Officer of Rockwell from February 1988 through
September 1997. Following Mr. Beall's retirement as Chairman of
the Board of Rockwell immediately after Rockwell's February 1998
annual meeting of shareowners, he will serve as Chairman of the
Board's executive committee. He served nine years as President
and Chief Operating Officer of Rockwell and in a number of other
increasingly responsible senior management positions at Rockwell
after joining Rockwell in 1968. He is a director of Rockwell,
Amoco Corporation, The Procter & Gamble Company and The Times
Mirror Company. He is a trustee of the California Institute of
Technology and a member of the University of
California -- Irvine Board of Overseers and the Board of
Visitors of its Graduate School of Management as well as The
Business Council, the Chief Executives' Organization and the
Council on Competitiveness. He is also a director, trustee or
member of a number of other professional and civic
organizations.
JOHN J. CREEDON
Retired President and Chief Executive Officer, Metropolitan Life Insurance
Company, Insurance
Age 73
[PHOTO]
Mr. Creedon is a member of the Audit Committee and Chairman of
the Environmental and Social Responsibility Committee. He is a
retired President and Chief Executive Officer of Metropolitan
Life Insurance Company. He joined Metropolitan Life in 1942 and
was appointed Senior Vice President and General Counsel in 1973.
He became an Executive Vice President in 1976, President and a
director in 1980, served as Chief Executive Officer from 1983
through August 1989, and then as Chairman of the Executive
Committee until April 1991. He is a director of Corporate
Partners and Union Carbide Corporation and serves as a
consultant to Rockwell pursuant to a Rockwell retirement policy
in effect prior to December 1995 for former directors. He is
also a director, trustee or member of a number of business,
educational and civic organizations.
4
<PAGE> 9
BOARD OF DIRECTORS AND COMMITTEES
The business of the Corporation is managed by or under the direction of the
Board of Directors. The Board has established four standing committees whose
principal functions are briefly described below. In the 1997 fiscal year, when
the Corporation was a wholly-owned subsidiary of Rockwell, the Board acted by
unanimous written consent and held only one meeting, which was attended by all
the directors. There were no committee meetings in the 1997 fiscal year.
The Audit Committee is composed of three non-employee directors. Among its
functions, it reviews the scope and effectiveness of audits of the Corporation
by the independent public accountants and by the Corporation's internal
auditors; selects and recommends to the Board of Directors the employment of
independent public accountants for the Corporation, subject to approval of the
shareowners; reviews the audit plans of the independent public accountants and
the Corporation's internal auditors; reviews and approves the fees charged by
the independent public accountants; reviews the Corporation's annual financial
statements before their release; reviews the adequacy of the Corporation's
system of internal controls and recommendations of the independent public
accountants with respect thereto; reviews and acts on comments and suggestions
by the independent public accountants and by the Corporation's internal auditors
with respect to their audit activities; and monitors compliance by the employees
of the Corporation with the Corporation's standards of business conduct
policies.
The principal functions of the Board Composition Committee, which is
composed of four non-employee directors, are to consider and recommend to the
Board qualified candidates for election as directors of the Corporation and
periodically to prepare and submit to the Board for adoption the Committee's
selection criteria for director nominees. The Committee also periodically
assesses the performance of the Board of Directors and reports thereon to the
Board. Shareowners wishing to recommend candidates for consideration by the
Committee can do so by writing to the Secretary of the Corporation at its World
Headquarters in Troy, Michigan, giving the candidate's name, biographical data
and qualifications. Any such recommendation should be accompanied by a written
statement from the individual of his or her consent to be named as a candidate
and, if nominated and elected, to serve as a director.
The three members of the Compensation and Management Development Committee
are non-employee directors and are ineligible to participate in any of the plans
or programs that are administered by the Committee except the Directors Stock
Plan. The principal functions of the Compensation and Management Development
Committee are to evaluate the performance of the Corporation's senior executives
and plans for management succession and development, to consider the design and
competitiveness of the Corporation's compensation plans, to review and approve
senior executive compensation and to administer the Corporation's incentive,
deferred compensation, stock option and long-term incentives plans pursuant to
the terms of the respective plans.
The Environmental and Social Responsibility Committee, which is composed of
two non-employee directors, reviews and assesses the Corporation's policies and
practices in the following areas: employee relations, with emphasis on equal
employment opportunity and advancement; the protection and enhancement of the
environment and energy resources; product integrity and safety; employee health
and safety; and community and civic relations, including programs for and
contributions to health, educational, cultural and other social institutions.
COMPENSATION OF DIRECTORS
Non-employee directors of the Corporation receive a retainer at the rate of
$35,000 per year for Board service. No additional retainer is paid for service
on committees. Pursuant to the Directors Stock Plan, each non-employee director
received a grant of 500 shares of Common Stock immediately following the
Distribution and will receive a grant of 1,000 shares of Common Stock
immediately after each Annual Meeting of Shareowners of the Corporation. In
addition, pursuant to the Directors Stock Plan, each non-employee director was
granted options to purchase, at the closing price of the Common Stock on the New
York Stock Exchange -- Composite Transactions reporting system on the date of
grant, 1,500 shares of Common Stock effective concurrently with the first grant
of options under the Corporation's 1997 Long-Term
5
<PAGE> 10
Incentives Plan on November 19, 1997 and will be granted options for 3,000
shares of Common Stock immediately after each Annual Meeting of Shareowners of
the Corporation. Each of these grants is subject to approval of the Directors
Stock Plan at the 1998 Annual Meeting (see Proposal to Approve the Directors
Stock Plan).
Under the terms of the Corporation's directors' deferred compensation plan,
a director may elect to defer all or part of the cash payment of retainer fees
until such time as shall be specified, with interest on deferred amounts
accruing quarterly at 120% of the Federal long-term rate set each month by the
Secretary of the Treasury. Each director also has the option each year to
determine whether to defer all the annual grant of shares and all or any portion
of the cash retainers by electing to receive restricted shares valued at the
closing price of the Common Stock on the New York Stock Exchange -- Composite
Transactions reporting system on the date of the annual grant and the date each
retainer payment would otherwise be made in cash.
Directors who are also employees of the Corporation or a subsidiary of the
Corporation do not receive compensation for serving as directors.
CERTAIN TRANSACTIONS AND OTHER RELATIONSHIPS
In October 1997, Chivas Products, Ltd., of which Joseph B. Anderson, Jr., a
director of the Corporation, is Chairman of the Board and Chief Executive
Officer, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in
the Eastern District of Michigan. Chivas Products expects that a plan of
reorganization will be completed in 1998.
In connection with the Distribution, Rockwell and the Corporation entered
into several agreements, including agreements relating to services to be
provided by Rockwell to the Corporation following the Distribution, the
allocation of liabilities and obligations with respect to taxes, employee
benefit plans and compensation arrangements, and other matters. At the time
these agreements were negotiated and executed, certain of the Corporation's
directors and executive officers also served as a director and executive
officers of Rockwell. The Corporation believes the terms of these agreements to
be fair.
6
<PAGE> 11
OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES
The following table shows the beneficial ownership, reported to the
Corporation as of November 30, 1997, of the Corporation's Common Stock,
including shares as to which a right to acquire ownership exists (for example,
through the exercise of stock options, conversions of securities or through
various trust arrangements) within the meaning of Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of each
director, each executive officer listed in the table on page 8 and, as a group,
of such persons and other executive officers.
BENEFICIAL OWNERSHIP AS OF NOVEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
NAME SHARES(1) PERCENT OF CLASS(2)
- ------------------------------------------------------------- --------- -------------------
<S> <C> <C>
Joseph B. Anderson, Jr. ..................................... 500 --*
Donald R. Beall.............................................. 121,294(3)(4) .18
John J. Creedon.............................................. 1,589 --*
Charles H. Harff............................................. 13,230(5) --*
Harold A. Poling............................................. 500 --*
Martin D. Walker............................................. 6,843(6) --*
Larry D. Yost................................................ 51,810(3) --*
Robert A. Calder............................................. 15,669(3)(7) --*
Thomas A. Madden............................................. 29,762(3) --*
Prakash R. Mulchandani....................................... 34,042(3) --*
Richard C. Quaid............................................. 18,213(3)(7) --*
All of the above and other executive officers as a group (17
persons)................................................... 317,252(3)(7) .46
</TABLE>
- ---------------
* Less than 0.1%
(1) Each person has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) For purposes of computing the percentage of outstanding shares beneficially
owned by each person, shares as to which such person has a right to acquire
beneficial ownership within 60 days have been included in both the number of
shares owned by that person and the number of shares outstanding, in
accordance with Rule 13d-3(d)(1) under the Exchange Act.
(3) Includes shares beneficially owned under the Rockwell Savings Plan and the
Corporation's Savings Plan. Also includes the following numbers of shares of
Common Stock which may be acquired upon exercise of options that will become
exercisable within 60 days: Mr. Yost, 13,000 shares; Mr. Calder, 11,700
shares; and Mr. Madden, 13,000 shares. Does not include the following share
equivalents held under supplemental savings plans of Rockwell on November
30, 1997: Mr. Beall, 3,592 shares; Mr. Yost, 149 shares; Mr. Calder, 170
shares; Mr. Madden, 47 shares; Mr. Mulchandani, 27 shares; and Mr. Quaid,
102 shares.
(4) Includes shares as to which beneficial ownership is disclaimed, as follows:
6,717 shares held for the benefit of family members and 3,333 shares owned
by the Beall Family Foundation, of which Mr. Beall is President and a
director.
(5) Includes 1,110 shares held by the Charles H. and Marion M. Harff Charitable
Remainder Trust, of which Mr. Harff is co-trustee.
(6) Includes 3,499 shares as to which beneficial ownership is disclaimed owned
by the Martin D. and Mary J. Walker Charitable Foundation, of which Mr.
Walker is a trustee, and 2,844 shares owned by the Martin D. Walker
Charitable Remainder Unit Trust, of which Mr. Walker is trustee.
(7) Includes shares held jointly, or in other capacities, as to which in some
cases beneficial ownership is disclaimed.
7
<PAGE> 12
EXECUTIVE COMPENSATION
The Corporation began operation independent of Rockwell on October 1, 1997,
and did not pay any compensation to its executive officers for services rendered
to the Corporation and its subsidiaries prior to that date. The information
shown below reflects the annual and long-term compensation, from all sources, of
the chief executive officer of the Corporation and the other four most highly
compensated executive officers of the Corporation at September 30, 1997 (the
"Named Executive Officers"), for services rendered in all capacities to Rockwell
and its subsidiaries for the fiscal years ended September 30, 1997 and 1996. In
many cases, the individuals listed below served Rockwell and its subsidiaries in
different capacities than those in which they serve the Corporation. The table
does not reflect the compensation to be paid to executive officers of the
Corporation in the future.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION
------------------------------------ AWARDS PAYOUTS ALL OTHER
OTHER ----------- --------- COMPENSATION(6)
ANNUAL STOCK LONG-TERM ---------------
NAME AND PRINCIPAL POSITION COMPEN- OPTIONS INCENTIVE
WITH THE CORPORATION(2) YEAR SALARY(3) BONUS SATION (SHARES)(4) PAYOUTS(5)
------------------------- ----- -------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry D. Yost.................. 1997 $290,000 $425,000 $10,364 15,000 $786,100 $16,099
Chairman of the Board 1996 250,000 200,000 6,937 15,974 405,000 14,004
and Chief Executive Officer
Robert A. Calder............... 1997 251,875 78,200 12,660 13,500 424,415 118,778(7)
Senior Vice President 1996 240,000 145,000 16,318 15,974 80,520 17,343
and President, Light Vehicle
Systems
Thomas A. Madden............... 1997 207,500 171,600 16,483 22,500 154,700 13,277
Senior Vice President 1996 173,333 110,000 11,781 -- -- 10,870
and Chief Financial Officer
Prakash R. Mulchandani......... 1997 210,000 172,500 6,322 -- 957,200 16,021
Senior Vice President and 1996 191,667 133,700 8,997 -- 80,520 12,263
President, Worldwide Truck
and Trailer Systems(8)
Richard C. Quaid............... 1997 200,000 150,300 12,271 -- 957,200 18,586
Senior Vice President and 1996 200,000 107,000 13,360 -- 80,520 13,923
President, Off-Highway and
Specialty Products
</TABLE>
- ---------------
(1) In accordance with the Instruction to Item 402(b) of Regulation S-K, the
compensation of the Named Executive Officers is not shown for fiscal 1995,
because the Corporation was not a reporting company under the Exchange Act
for that year, and such compensation information has not been provided in a
prior filing with the Securities and Exchange Commission.
(2) The table reflects the positions held with the Corporation at September 30,
1997. The Named Executive Officers served Rockwell and its subsidiaries in
the following capacities during fiscal years 1996 and 1997. The compensation
reflected in the table for fiscal 1996 and 1997 (except amounts in the Bonus
and Long-Term Incentive Payouts columns for 1997, which were paid by the
Corporation) was paid by Rockwell to the Named Executive Officers in such
capacities: Mr. Yost -- Senior Vice President and President, Automotive and
Acting President, Heavy Vehicle Systems (March 1997-September 1997), and
President, Heavy Vehicle Systems (October 1995-March 1997); Mr.
Calder -- President, Light Vehicle Systems; Mr. Madden -- Vice President and
Senior Vice President -- Finance, Automotive (March 1997-September 1997),
Vice President, Corporate Development (September 1996-March 1997), Vice
President -- Finance & Administration, Light Vehicle Systems (May
1996-September 1996), and Vice President -- Finance & Administration,
Automotive (October 1995-May 1996); Mr. Mulchandani --
President -- Worldwide Truck and Trailer Systems, Heavy Vehicle Systems
(April 1996-September 1997), and President -- North American Truck Systems,
Automotive (October 1995-April 1996); and Mr.
Quaid -- President -- Off-Highway and Specialty Products, Heavy Vehicle
Systems (April 1996-September 1997) and President -- Off-Highway Products,
Automotive (October 1995-April 1996).
8
<PAGE> 13
(3) Effective October 1, 1997, the annual salaries of the Named Executive
Officers are: Mr. Yost, $475,000; Mr. Calder, $260,000; Mr. Madden,
$260,000; Mr. Mulchandani, $231,000; and Mr. Quaid, $215,000.
(4) Stock options relate to awards of options to purchase Rockwell common stock
under Rockwell's 1988 and 1995 Long-Term Incentives Plans. Options awarded
in fiscal year 1997 were assumed by the Corporation and, after certain
adjustments to reflect the effect of the Distribution, now relate to the
Common Stock of the Corporation. See the table under Option Grants below.
Options granted prior to October 1, 1996 were not assumed by the
Corporation, and continue to relate to Rockwell common stock, but have been
adjusted to reflect the effect of the Distribution.
(5) Long-term incentive payouts for 1997 include amounts paid or to be paid to
the Named Executive Officers by the Corporation in respect of Rockwell's
1995 Long-Term Incentives Plan (a) with respect to the three-year
performance period ended September 30, 1997, and (b) upon early termination,
as of September 30, 1997, of the three-year performance period ending
September 30, 1999. Messrs. Yost, Mulchandani and Quaid received payments
with respect to both performance periods; Mr. Calder will receive payments
only with respect to early termination of the performance period ending
September 30, 1999; and Mr. Madden received payments only with respect to
the performance period ended September 30, 1997. For Messrs. Yost, Madden,
Mulchandani and Quaid, all or a portion of these payments were made in the
form of restricted shares of Common Stock issued under the Corporation's
1997 Long-Term Incentives Plan, subject to approval of that plan by
shareowners of the Corporation at the 1998 Annual Meeting. See Long-Term
Incentive Plan Awards below.
(6) This column reflects amounts contributed or accrued for fiscal years 1997
and 1996 for the Named Executive Officers under employee savings plans and
related supplemental savings plans of Rockwell and certain subsidiaries of
Rockwell.
(7) This amount includes $100,000 paid by Rockwell to Mr. Calder in
consideration of his continuing as an employee through the date of the
Distribution.
(8) Effective January 1, 1998, Mr. Mulchandani's position will be Senior Vice
President and President, Heavy Vehicle Systems.
Mr. Calder will retire from his current positions on December 31, 1997. The
Corporation has entered into an arrangement with Mr. Calder pursuant to which he
will provide consulting services to the Corporation and will receive monthly
payments of $21,667 through March 31, 2000, and will continue to be eligible for
awards for fiscal years 1998 and 1999 under the Corporation's annual Incentive
Compensation Plan. Mr. Calder is also eligible to receive certain payments from
the Corporation in respect of prior grants under Rockwell's long-term incentives
plan (see Long-Term Incentive Plan Awards below). In addition, for specified and
limited periods of time, Mr. Calder will continue to participate in various
Corporation benefit programs including savings and medical plans and will have
access to an automobile and a company-owned club membership.
9
<PAGE> 14
OPTION GRANTS
Shown below is further information on grants to certain of the Named
Executive Officers of options to purchase Rockwell common stock pursuant to
Rockwell's 1995 Long-Term Incentives Plan during the fiscal year ended September
30, 1997, which are reflected in the Summary Compensation Table above.
<TABLE>
<CAPTION>
OPTION GRANTS
----------------------------------------------------------------
PERCENTAGE OF TOTAL GRANT DATE
NUMBER OF OPTIONS GRANTED VALUE
SECURITIES TO ROCKWELL ----------
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS GRANTED IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME (SHARES)(L) 1997 (PER SHARE) DATE VALUE(2)
- --------------------------------- --------------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost.................... 15,000 .62% $61.500 12/09/06 $274,200
Robert A. Calder................. 13,500 .55% 61.500 12/09/06 246,780
Thomas A. Madden................. 15,000 .62% 61.500 12/09/06 274,200
7,500 .31% 67.875 3/15/07 164,775
</TABLE>
- ---------------
(1) The option information set forth in the table reflects the terms of the
options as granted by Rockwell. The options granted to Messrs. Yost and
Calder and options for 15,000 shares granted to Mr. Madden were granted on
December 9, 1996, and the first of three equal installments of these options
became exercisable December 9, 1997. The remaining options granted to Mr.
Madden were granted on March 15, 1997, and the first of three equal
installments of these options will become exercisable March 15, 1998. All of
these options were converted, at the time of the Distribution, into options
to purchase Common Stock, on the same terms and vesting schedule as the
Rockwell options but with adjustments to the exercise price and the number
of shares for which such options are exercisable to provide equivalent value
for each holder. After adjustment, the number of options to purchase Common
Stock and the exercise price per share for each of the above Named Executive
Officers were as follows: Mr. Yost, 39,000 shares at an exercise price of
$23.6538; Mr. Calder, 35,100 shares at an exercise price of $23.6538; and
Mr. Madden, 39,000 shares at an exercise price of $23.6538 and 19,500 shares
at an exercise price of $26.1058.
(2) These values are based on the Black-Scholes option pricing model which
produces a per option share value of $18.28 and $21.97 for the options
granted in December 1996 and March 1997, respectively, using the following
assumptions and inputs: options exercised after 7 1/2 years, weighted
five-year prior stock price volatility and dividend yield of .2477 and
2.59%, respectively, for the December 1996 grant, and .2477 and 2.45%,
respectively for the March 1997 grant; and an interest rate of 6.08% for the
December 1996 grant and 6.94% for the March 1997 grant, which were the zero
coupon 7 1/2-year Treasury bond rates at the respective dates of grant. The
Black-Scholes option pricing methodology attempts to portray the value of an
option at the date of grant. The actual value, if any, that may be realized
from these options by the officer will depend solely on the gain in stock
price over the exercise price when the options are exercised.
On November 19, 1997, options were granted under the Corporation's 1997
Long-Term Incentives Plan (subject to approval of the plan at the 1998 Annual
Meeting) to the Named Executive Officers to purchase the following numbers of
shares of Common Stock: Mr. Yost, 246,000; Mr. Madden, 93,000; Mr. Mulchandani,
63,000; and Mr. Quaid, 63,000. These option grants consisted of annual long-term
incentive grants plus one-time incentive grants incident to the Corporation's
becoming a publicly-held company. All of these options are exercisable at an
exercise price of $22.3125 per share and expire on November 19, 2007.
Options to purchase the following numbers of shares of Common Stock, at an
exercise price of $22.3125 per share, also were granted on November 19, 1997 to
the following Named Executive Officers in consideration of the early termination
of the three-year performance period ending September 30, 1999 under Rockwell's
1995 Long-Term Incentives Plan (see Long-Term Incentive Plan Awards below): Mr.
Yost, 64,000; Mr. Mulchandani, 64,000; and Mr. Quaid, 64,000. These options will
become exercisable two years after the grant date and will expire on November
19, 2007.
See Proposal to Approve the 1997 Long-Term Incentives Plan.
10
<PAGE> 15
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table shows (1) options to purchase Rockwell common stock
that were exercised by the Named Executive Officers in fiscal year 1997 and (2)
the value as of September 30, 1997 of unexercised in-the-money options to
purchase Rockwell common stock.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1997(1) SEPTEMBER 30, 1997(1)(2)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Yost........... -- -- 13,842 29,910 $ 326,907 $ 298,692
Robert A. Calder........ -- -- 42,595 28,410 1,380,577 296,536
Thomas A. Madden........ 12,400 $423,525 12,033 22,500 386,775 21,563
Prakash R. -- -- 13,202 -- 538,967 --
Mulchandani...........
Richard C. Quaid........ 4,500 170,929 4,552 -- 151,851 --
</TABLE>
- ---------------
(1) Includes options to purchase Rockwell common stock, without adjustment to
reflect the Distribution. In connection with the Distribution, Rockwell
options granted after September 30, 1996 were converted into options to
purchase Common Stock, on the same terms and vesting schedule as the
Rockwell options but with adjustments to the exercise price and the number
of shares for which such options are exercisable to provide equivalent value
for each holder (see Option Grants above). Rockwell options granted before
October 1, 1996, which remain options to purchase Rockwell common stock,
were also adjusted to provide equivalent value to optionholders after giving
effect to the Distribution.
(2) Based on the closing price of Rockwell common stock ($62.9375) in "regular
way" trading on the New York Stock Exchange-Composite Transactions reporting
system on September 30, 1997, the last trading day in that month. After
giving effect to the Distribution and the adjustments noted in footnote 1,
the value of the unexercised options would be substantially equivalent to
the value set forth in the table.
LONG-TERM INCENTIVE PLAN AWARDS
All liabilities in respect of Rockwell long-term incentive plan awards
granted to individuals who became employees of the Corporation and that were
outstanding at the time of the Distribution were assumed by the Corporation.
These outstanding long-term incentive plan awards are described in terms of
target performance payouts in cash amounts, and a payout percentage of between
0% and 300%, based on actual performance over a three-year performance cycle, as
measured by sales growth, return on sales and return on assets of the
Corporation's business, and performance of Rockwell common stock, as applied to
the target performance payout amount.
During fiscal 1997, awards (in addition to stock options included in the
Summary Compensation Table above) were granted under long-term incentive plans
of Rockwell to the Named Executive Officers with respect to the three-year
performance cycle ending September 30, 1999. The Named Executive Officers
received the following amounts with respect to the period ended September 30,
1997 of this performance cycle based on actual 1997 results, paid in cash or in
restricted shares of Common Stock that will vest upon the individual's
retirement under the Corporation's retirement plans: Mr. Yost, $288,600 (in
12,934 shares); Mr. Mulchandani, $287,600 (in cash); and Mr. Quaid, $287,600 (in
12,889 shares). These amounts are included in the Summary Compensation Table
above. In addition, in consideration of the early termination of the performance
cycle, with respect to the periods ending September 30, 1998 and 1999 of such
three-year performance cycle, options to purchase Common Stock of the
Corporation were granted in November 1997 to participants in that cycle,
including Messrs. Yost, Mulchandani and Quaid (see Option Grants above). Mr.
Calder will receive $424,415 in cash in January 1998 with respect to the
performance cycle ending September 30, 1999. This amount is included in the
Summary Compensation Table above.
Grants made in respect of the three-year performance cycle ending September
30, 1998 will continue to be outstanding, with such adjustments as are deemed
appropriate by the Compensation and Management Development Committee to reflect
the Distribution.
11
<PAGE> 16
Payments in respect of grants made for the three-year performance cycle
that ended on September 30, 1997 were made by the Corporation and are included
in the Summary Compensation Table. The Named Executive Officers earned the
following amounts, paid in cash or the noted number of restricted shares of
Common Stock that will vest upon retirement under the Corporation's retirement
plans in the case of Messrs. Yost and Mulchandani and on November 19, 2002 in
the case of Mr. Madden: Mr. Yost, $497,500 (in 22,297 shares); Mr. Madden,
$154,700 (in 6,933 shares); Mr. Mulchandani, $669,600 (in 30,010 shares); and
Mr. Quaid, $669,600 (in cash).
The number of restricted shares delivered in payment of the above awards
was based on the closing price of the Common Stock on the New York Stock
Exchange -- Composite Transactions reporting system on November 19, 1997
($22.3125). These payments in the form of restricted shares are subject to
approval of the 1997 Long-Term Incentives Plan by shareowners at the 1998 Annual
Meeting, failing which the awards will be paid in cash.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors (the "Compensation Committee"), which consists entirely of
non-employee directors (see Board of Directors and Committees above), has
furnished the following report on executive compensation:
COMPENSATION FOR FISCAL YEAR 1997 UNDER ROCKWELL PROGRAMS
The Compensation Committee was constituted in September 1997 shortly prior
to the September 30, 1997 spin-off of the Corporation from Rockwell.
Accordingly, substantially all the decisions affecting compensation for fiscal
year 1997 of the Corporation's Chief Executive Officer and its other senior
executives, as well as the various compensation plans applicable to them and
other employees of the Corporation, were under plans, arrangements and
commitments approved by Rockwell shareowners or the Compensation and Management
Development Committee of Rockwell's Board of Directors (the "Rockwell
Committee").
At its November 1997 meeting, the Compensation Committee assessed the
Corporation's performance and the performance of its chief executive and other
senior officers to determine the annual incentive compensation for fiscal year
1997 and the long-term incentive awards earned for the three fiscal years period
ended September 30, 1997.
- Annual Incentives -- At the beginning of the 1997 fiscal year the
Rockwell Committee, in conjunction with Rockwell's chief executive officer and
its president, established annual incentive criteria measured through a
performance matrix based on performance profit after taxes, sales growth and
after tax return on assets. The Compensation Committee assessed the 1997 fiscal
year performance, applied the methodology set for that year by the Rockwell
Committee and awarded the annual incentive compensation (see the column headed
"Bonus" in the Summary Compensation Table under Executive Compensation above) to
the Named Executive Officers and other key employees of the Corporation. In
addition to the financial performance criteria, individual awards were based on
levels of responsibility and an assessment of individual performance by the
Corporation's Chief Executive Officer of key employees other than himself.
The Compensation Committee was advised by Rockwell's Senior Vice President
for Human Resources that achievement of the goals set for the Corporation's 1997
fiscal year was intended to provide incentive compensation at or above 100% of
target levels established for the Named Executive Officers and other key
employees through broad industry surveys, with significant upward and downward
leverage dependent on performance. For the 1997 fiscal year, the annual
incentive compensation for the Corporation's executives averaged 203.81% (and
ranged from 62.25% to 320.76%) of target incentive compensation levels. Based on
competitive compensation data provided to the Compensation Committee, it
believes the awards for executives of the Corporation's Heavy Vehicle Systems
business are about in the median of companies with which the Corporation
competes for executive talent. Awards for executives of the Corporation's Light
Vehicle Systems unit were well below the median.
- Long-Term Incentives -- In fiscal years 1995, 1996 and 1997, the Rockwell
Committee granted key executives of the Corporation long-term incentives under
Rockwell's 1995 Long-Term Incentives Plan. These
12
<PAGE> 17
incentives were granted in the form of performance units that provided a
long-term compensation opportunity dependent on achieving certain goals over a
period of three fiscal years. The 1995 awards related to a performance period
ended September 30, 1997, with goals measured by return on assets and cumulative
profit before tax. The 1996 and 1997 awards related to performance periods
ending September 30, 1998 and 1999, respectively, with goals measured by sales
growth, return on sales and return on assets. In each case, the potential
payment was to be adjusted depending on the price increase or decrease of
Rockwell common stock over the three-year period. In accordance with Rockwell's
long-term incentives program, Mr. Yost and Mr. Calder each received one-half of
their respective long-term incentive grants for each of the foregoing three-year
periods in the form of Rockwell stock options and one-half in the form of units
granted under the performance unit plans.
At its November 1997 meeting, the Compensation Committee terminated the
performance period for the 1997 grant and awarded long-term incentives to key
executives of the Corporation, including the Named Executive Officers, with
respect to both the 1995 and 1997 grants (see the column headed "Long-Term
Compensation Payouts" in the Summary Compensation Table under Executive
Compensation above). For the 1995 grants, awards were based on the formulae in
the performance unit plan for the three fiscal years ended in 1997 and were paid
in cash or restricted shares of Common Stock. For the 1997 grants, awards were
based on the formulae in the performance unit plan for the three fiscal years
ending in 1999, measured against actual results for the fiscal 1997 portion of
the performance period and forecasts of fiscal 1998 and 1999 results for the
balance of the performance period. The 1997 portion of the award was paid in
cash or restricted shares of Common Stock; the 1998 and 1999 portions of the
award were made through stock options granted in November 1997. The Compensation
Committee also determined that the 1996 grants should continue in effect.
In furtherance of the intended alignment of the financial interests of
executives with those of the Corporation's shareowners and to enhance meeting
the Corporation's employee stock ownership guidelines, the Compensation
Committee awarded the long-term incentives earned by certain of the Named
Executive Officers in the form of restricted shares of Common Stock.
Accordingly, Messrs. Yost, Madden, Mulchandani and Quaid received 35,231, 6,933,
30,010 and 12,889 restricted shares, respectively, that will vest upon
retirement from the Corporation under the Corporation's retirement plans in the
case of Messrs. Yost, Mulchandani and Quaid, and five years from the date of
grant in the case of Mr. Madden. Grants in the form of restricted stock are
subject to approval of the 1997 Long-Term Incentives Plan by shareowners at the
1998 Annual Meeting, failing which these awards will be paid in cash.
COMPENSATION PHILOSOPHY AND OBJECTIVES FOR THE CORPORATION
Following its appointment in September 1997, the Compensation Committee
adopted compensation policies for the Corporation intended to "pay for
performance" through meeting three fundamental objectives:
- foster the creation of shareowner value through close alignment of the
financial interests of executives with those of the Corporation's
shareowners
- recognize individual and team performance through evaluation of each
executive's effectiveness in meeting strategic and operating plan goals
- create compensation systems to attract, retain and motivate the high
caliber of executives necessary for the Corporation's leadership and
growth
13
<PAGE> 18
EMPLOYEE STOCK OWNERSHIP
The Compensation Committee believes the focus on "pay for performance" can
best be achieved by aligning closely the financial interests of the
Corporation's key executives with those of the shareowners. Accordingly, it has
set the following minimum Ownership Guidelines (multiple of base salary):
<TABLE>
<CAPTION>
COMMON STOCK
MARKET VALUE
------------
<S> <C>
- Chief Executive Officer.................................. 5
- Senior Vice Presidents................................... 3
- Other Executive Officers................................. 2
- Other Vice Presidents.................................... 1.5
- Other Executives subject to the guidelines............... 1
</TABLE>
Only shares owned directly (including restricted shares) or through savings
plans of the Corporation or Rockwell, but not shares subject to unexercised
stock options, are considered for determining whether an executive meets the
Ownership Guidelines. The Ownership Guidelines provide a transition period
during which executives may achieve compliance. In general, this period ends
five years after the date the Ownership Guidelines become applicable to them.
Non-U.S. based executives in each category listed above are subject to the same
Ownership Guidelines except in the case of "Other Vice Presidents" (a multiple
of 1) and "Other Executives subject to the guidelines" (a multiple of 0.5).
COMPONENTS OF THE CORPORATION'S COMPENSATION PLANS
- Strategy -- In order to carry out the "pay for performance" philosophy
established by the Compensation Committee, base salaries are generally set
somewhat below the median of other major U.S. industrial companies, with
opportunity provided for above-median compensation through the Corporation's
annual and long-term incentive plans which depend heavily on the Corporation's
and individual performance. The Compensation Committee intends to consider the
total compensation potentially available to each of the Named Executive Officers
and the other senior executives in establishing each element of compensation.
The Compensation Committee intends to be advised periodically by
independent compensation consultants concerning the Corporation's compensation
programs in comparison to those of other companies which the consultants believe
compete with the Corporation for executive talent.
- Base Salary -- The base salaries, beginning October 1997, of the senior
executives of the Corporation, including the Named Executive Officers, were
established by the Board of Directors upon recommendations of the Chief
Executive Officer and the senior human resources executives of the Corporation
and of Rockwell. The Board of Directors was advised that the recommended base
salaries were based on data from industry, peer group and national surveys of
other major U.S. industrial companies selected by Hewitt Associates LLP, in
consultation with the senior human resources executives of the Corporation and
of Rockwell, that are believed to compete with the Corporation for executive
talent. In addition, reference data for a broader group of large industrial
companies was considered. The base salaries also reflect performance judgments
as to the past and expected future contributions of the individual senior
executives.
- Annual Incentives -- Near the beginning of each fiscal year, the
Compensation Committee and the Board of Directors intend to review with the
Chief Executive Officer the Corporate Goals and Objectives for that year,
including measurable financial return and shareowner value creation objectives
as well as long-term leadership goals that in part require more subjective
assessments. After the end of the year, performance against the Corporate Goals
and Objectives will be evaluated and the results considered by the Compensation
Committee in awarding annual incentive compensation. The Compensation Committee
intends to consult with the Chief Executive Officer as to the allocation of
individual executive awards based on levels of responsibility and the assessment
of individual performance.
- Long-Term Incentives -- The Corporation's 1997 Long-Term Incentives Plan,
upon shareowner approval at the 1998 Annual Meeting, will provide the
flexibility to grant long-term incentives in a variety of forms, including
performance units, stock options, stock appreciation rights and restricted
stock. Annually the
14
<PAGE> 19
Compensation Committee intends to evaluate the type of long-term incentives it
believes are most likely to achieve the Corporation's total compensation
objectives. The present intention of the Compensation Committee, assuming
approval of the Corporation's 1997 Long-Term Incentives Plan, is to provide
long-term incentives one-half through stock option grants and one-half through
awards under long-term performance plans.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Yost's base salary was increased, effective October 1, 1997, to
$475,000 (see Components of the Corporation's Compensation Plans -- Base Salary
above). In connection with Mr. Yost's promotion to Senior Vice President and
President, Automotive of Rockwell, his annual salary had been increased by
Rockwell to $325,000 effective March 1997, prior to which his annual salary had
been $250,000. The Compensation Committee believes his new salary is in line
with the Corporation's compensation philosophy and appropriately reflects the
increased responsibilities Mr. Yost now has as Chief Executive Officer of a
major publicly owned company.
In determining Mr. Yost's annual incentive and long-term incentive
compensation for fiscal year 1997, the Compensation Committee assessed his
individual performance and otherwise used the same criteria as for the other
four Named Executive Officers (see Compensation for Fiscal Year 1997 Under
Rockwell Programs above).
Compensation and Management
Development Committee
Harold A. Poling, Chairman
Donald R. Beall
Charles H. Harff
RETIREMENT BENEFITS
Prior to the Distribution, the Named Executive Officers participated in a
Rockwell defined benefit pension plan, and Rockwell has retained the obligations
for vested benefits earned by the Named Executive Officers prior to the
Distribution. At the time of the Distribution, the Corporation established a
defined benefit pension plan that is intended to qualify under Section 401(a) of
the Internal Revenue Code and that is substantially similar in all material
respects to Rockwell's plan. The Corporation's plan credits participants for
service earned with Rockwell, and the benefits payable under the Corporation's
plan will be equal to the difference between the total benefit earned with both
companies and the vested benefit obligations retained by Rockwell.
The following table shows the estimated aggregate annual retirement
benefits payable on a straight life annuity basis to participating employees, in
the earnings and years of service classifications indicated, under the
Corporation's and Rockwell's retirement plans which cover most officers and
other salaried employees of the Corporation on a noncontributory basis. These
benefits reflect a reduction to recognize in part the cost of Social Security
benefits related to service for the Corporation and Rockwell. The plans also
provide for the payment of benefits to an employee's surviving spouse or other
beneficiary.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE
INDICATED
---------------------------------------------------------------
AVERAGE ANNUAL EARNINGS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ----------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000........................... $ 52,007 $ 77,999 $ 82,632 $ 87,266 $ 91,900 $ 96,533
300,000........................... 78,677 117,999 125,132 132,266 139,400 146,533
400,000........................... 105,347 157,999 167,632 177,266 186,900 196,533
500,000........................... 132,017 197,999 210,132 222,266 234,400 246,533
600,000........................... 158,687 237,999 252,632 267,266 281,900 296,533
700,000........................... 185,357 277,999 295,132 312,266 329,400 346,533
800,000........................... 212,027 317,999 337,632 357,266 376,900 396,533
900,000........................... 238,697 357,999 380,132 402,266 424,400 446,533
</TABLE>
15
<PAGE> 20
Covered compensation includes salary and annual bonus. The calculation of
retirement benefits under the plan generally is based upon average earnings for
the highest five consecutive years of the ten years preceding retirement. The
credited years of service of Messrs. Yost, Calder, Madden, Mulchandani and Quaid
are 26, 12, 16, 23 and 23, respectively.
Sections 401(a)(17) and 415 of the Internal Revenue Code limit the annual
benefits that may be paid from a tax-qualified retirement plan. As permitted by
the Employee Retirement Income Security Act of 1974, the Corporation and
Rockwell have established supplemental plans that authorize the payment out of
their respective general funds of any benefits calculated under provisions of
the applicable retirement plan which may be above the limits under these
sections. Pursuant to an agreement between the Corporation and Rockwell in
connection with the Distribution, the Corporation has assumed all liabilities
under Rockwell's supplemental plans with respect to participants under
Rockwell's supplemental plans who became employees of the Corporation as of the
time of the Distribution.
PROPOSAL TO APPROVE THE SELECTION OF AUDITORS
The Board of Directors of the Corporation has selected the firm of Deloitte
& Touche LLP as the auditors of the Corporation, subject to the approval of the
shareowners. Deloitte & Touche LLP have acted as auditors for the Corporation
since its inception.
Before the Audit Committee recommended to the full Board the appointment of
Deloitte & Touche LLP, it carefully considered the qualifications of that firm,
including its performance for Rockwell in prior years and its reputation for
integrity and for competence in the fields of accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting to respond to appropriate questions and to make a statement if they
desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL, WHICH
IS PRESENTED AS ITEM (b).
PROPOSAL TO APPROVE THE 1997 LONG-TERM INCENTIVES PLAN
A proposal will be presented to the meeting to approve the Corporation's
1997 Long-Term Incentives Plan (the "1997 LTIP") which was adopted by the Board
of Directors and approved by Rockwell as the Corporation's sole shareowner prior
to the Distribution and which became effective as of September 30, 1997, subject
to approval by shareowners at the 1998 Annual Meeting. The complete text of the
1997 LTIP is set forth in Exhibit A to this Proxy Statement, and shareowners are
urged to review it together with the following information, which is qualified
in its entirety by reference to Exhibit A.
The purpose of the 1997 LTIP is to foster creation of and enhance
shareowner value by linking the compensation of officers and other key employees
to increases in the price of the Corporation's stock or by offering the
incentives of long-term monetary rewards to key employees of the Corporation or
its business units directly linked to their contribution to shareowner value,
thus providing means by which persons of outstanding abilities can be attracted,
motivated and retained. The 1997 LTIP is designed to permit the Corporation to
make different types of grants to meet competitive conditions and changing
circumstances.
The 1997 LTIP authorizes the issuance or transfer of seven million shares
of Common Stock, provided that the total number of shares as to which grants may
be made under the 1997 LTIP in any one fiscal year beginning after September 30,
1998 may not exceed 1 1/2% of the total outstanding and treasury shares of the
Corporation. The 1997 LTIP permits grants to be made from time to time as
nonqualified stock options, incentive stock options, stock appreciation rights
("SARs") and restricted shares. In addition, the 1997 LTIP authorizes
establishment of performance plans applicable to one of more business units of
the Corporation.
Effective as of the time of the Distribution, the Corporation assumed and
included as part of the 1997 LTIP certain options to purchase shares of Rockwell
common stock (the "Rockwell Options") that were granted under the Rockwell 1995
Long-Term Incentives Plan after September 30, 1996 to certain Rockwell employees
who were employees of the Corporation or one of its subsidiaries as of the time
of the Distribution. These options, as adjusted to entitle the grantee to
purchase shares of Common Stock, are subject to the terms
16
<PAGE> 21
and conditions specified at the time they were granted, with adjustments in the
exercise price and the number of shares for which the options are exercisable to
provide equivalent value for the holders. Options to purchase an aggregate of
367,640 shares of Common Stock were issued to employees of the Corporation,
including options for 132,600 shares issued to the Named Executive Officers, in
replacement of Rockwell Options held by such employees on September 30, 1997.
The 1997 LTIP is administered by the Compensation Committee, which is to
consist of two or more members of the Board of Directors who are not eligible to
participate in the 1997 LTIP. In order to meet the requirements of Section
162(m) of the Internal Revenue Code and the rules under Section 16 of the
Exchange Act, however, all grants under the 1997 LTIP are to be made by a Grant
Committee consisting of those members of the Compensation Committee who are both
"outside directors" as defined for purposes of Section 162(m) of the Internal
Revenue Code and regulations thereunder and "non-employee directors" as defined
for purposes of Section 16 of the Exchange Act. The Compensation Committee is
currently constituted entirely of members who are both "outside directors" and
"non-employee directors" and functions as the Grant Committee. In addition, the
Board of Directors has authority to perform all functions of the Compensation
Committee and the Grant Committee under the 1997 LTIP.
The persons to whom grants are made under the 1997 LTIP ("1997 LTIP
Participants") will be selected from time to time by the Grant Committee in its
sole discretion from among corporate officers and other key employees of the
Corporation and its subsidiaries and affiliates. In selecting 1997 LTIP
Participants and determining the type and amount of their grants, the Grant
Committee may consider recommendations of the Chief Executive Officer of the
Corporation and shall take into account such factors as the 1997 LTIP
Participant's level of responsibility, performance, performance potential, level
and type of compensation and potential value of grants under the 1997 LTIP.
PERFORMANCE PLANS. The 1997 LTIP authorizes the establishment by the
Compensation Committee of performance plans applicable to the Corporation or one
or more of its business units. Each such plan must include provision for
establishment of performance cycles (beginning no later than September 30, 2007)
of not less than three fiscal years and establishment of a performance measure
and performance objectives. The Compensation Committee (or with its approval,
the person or committee delegated to administer any plan except insofar as it
relates to any executive officer) determines whether conditions, including
changes in the economy, changes in law or government regulations, changes in
generally accepted accounting principles or material acquisitions or
divestitures, warrant modifications of a performance plan. The Compensation
Committee may authorize the Corporation's Chief Executive Officer to approve the
definitive terms and conditions of any performance plan, including the employees
or categories of employees eligible to participate in each performance plan, but
the Compensation Committee's authorization is required for participation by any
of the Corporation's executive officers in a performance plan. Potential awards
under performance plans are expressed as cash amounts and are paid in cash
unless the Compensation Committee decides that payment should be in shares of
Common Stock or a combination of shares of Common Stock and cash. Payment in
cash may be made in a lump sum, in installments or on a deferred basis. Payment
in Common Stock may, in the discretion of the Compensation Committee, be made in
restricted shares of Common Stock.
STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK. The 1997
LTIP authorizes grants to 1997 LTIP Participants of stock options (which may be
either incentive stock options eligible for special tax treatment or
nonqualified stock options), SARs and restricted stock.
Under the provisions of the 1997 LTIP authorizing the grant of stock
options, (a) other than with respect to options to purchase Common Stock issued
in replacement of Rockwell Options in connection with the Distribution, the
option price may not be less than the fair market value of the shares of Common
Stock at the date of grant, (b) the aggregate fair market value (determined as
of the date the option is granted) of the shares of Common Stock for which any
employee may be granted incentive stock options which are exercisable for the
first time in any calendar year may not exceed $100,000, (c) other than with
respect to options issued in replacement of Rockwell Options in connection with
the Distribution, stock options generally
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<PAGE> 22
may not be exercised prior to one year nor after ten years from the date of
grant and generally become exercisable in three approximately equal installments
on the first, second and third anniversaries of the date of grant, and (d) at
the time of exercise of a stock option the option price must be paid in full in
cash or in shares of Common Stock or in a combination of cash and shares of
Common Stock.
The 1997 LTIP permits the grant of SARs related to a stock option (a
"tandem SAR"), either at the time of the option grant or thereafter during the
term of the option, or the grant of SARs separate and apart from the grant of an
option (a "freestanding SAR"). Tandem SARs permit an optionee, upon exercise of
such rights and surrender of the related option to the extent of an equivalent
number of shares of Common Stock, to receive a payment equal to the excess of
the fair market value (on the date of exercise) of the portion of the option so
surrendered over the option exercise price of such shares of Common Stock.
Freestanding SARs entitle the grantee, upon exercise of such rights, to receive
a payment equal to the excess of the fair market value (on the date of exercise)
of all or part of a designated number of shares of Common Stock over the fair
market value of such shares of Common Stock on the date such rights were
granted. Such payment may be made in shares of Common Stock (valued on the basis
of the fair market value of the shares of Common Stock on the date of exercise
of the SARs), or in cash or partly in cash and partly in shares of Common Stock,
as the Compensation Committee may determine.
If a 1997 LTIP Participant who holds an outstanding stock option or SAR
dies, the 1997 LTIP permits the exercise thereof within three years of the date
of death (or the expiration date specified in the option if earlier) even if it
were not exercisable at such date. If a 1997 LTIP Participant holding an
outstanding grant of options or SARs retires under a retirement plan of the
Corporation at any time after a portion of the options or SARs subject to a
particular grant has become exercisable, the options or SARs subject to that
grant may be exercised from and after the date upon which they are first
exercisable under that grant for five years after the date of retirement (or the
expiration date specified in the grant if earlier), even if any of them was not
exercisable at the date of retirement. The 1997 LTIP permits the Compensation
Committee to make determinations as to exercisability upon other termination of
a 1997 LTIP Participant's employment, subject to certain limitations.
Under the 1997 LTIP, the Grant Committee may also grant shares of Common
Stock subject to specified restrictions ("restricted stock") to 1997 LTIP
Participants. Grants of restricted stock are subject to forfeiture if the
grantee does not continue as an employee of the Corporation or a subsidiary or
affiliate (i) for a period of three years or longer, as may be specified by the
Grant Committee, from the grant date, or (ii) until performance criteria
specified by the Grant Committee are met, except that in the event of a
grantee's death, or retirement under a retirement plan of the Corporation not
less than one year after the date of grant, before the end of the restricted
period, the grantee's heirs or the grantee will be entitled to the shares of
Common Stock. In the case of a grantee whose employment terminates for any other
reason before the end of the restricted period, the Compensation Committee,
taking into account the purpose of the 1997 LTIP and such other factors as in
its sole discretion it deems appropriate, may waive the forfeiture of all or a
portion of those shares of restricted stock granted. During the restricted
period, shares of restricted stock have all the attributes of outstanding shares
of Common Stock, except that such shares of Common Stock and (unless the Grant
Committee determines otherwise at the time of grant) dividends thereon are
delivered to and held by the Corporation for the grantee's account. As and to
the extent that shares of restricted stock are no longer subject to forfeiture,
such shares and any dividends related thereto withheld by the Corporation,
together with interest on any such cash dividends computed at the same rate and
in the same manner as interest credited from time to time under the
Corporation's deferred compensation plan, are delivered to the grantee.
Under the 1997 LTIP, stock options, freestanding SARs and restricted stock
may not be granted after September 30, 2007 but tandem SARs may be granted with
respect to outstanding stock options granted before that date.
On November 12, 1997, the Compensation Committee awarded options to
purchase Common Stock under the 1997 LTIP, effective November 19, 1997 (subject
to approval of that plan by shareowners at the 1998 Annual Meeting). These
options consist of: (1) annual long-term incentive grants under the 1997 LTIP
("Annual Options"); (2) one-time, non-recurring grants incident to the
Corporation's becoming a publicly-
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<PAGE> 23
held company ("Spin Options"); and (3) grants in connection with early
termination of a performance cycle established under Rockwell's 1995 Long-Term
Incentives Plan that were assumed by the Corporation ("Lost Opportunity
Options"). The following table lists the amounts of each type of option awarded
to each of the Named Executive Officers, all executive officers of the
Corporation as a group, and all other employees of the Corporation.
<TABLE>
<CAPTION>
LOST
ANNUAL SPIN OPPORTUNITY
NAME AND POSITION OPTIONS OPTIONS OPTIONS
- ------------------------------------------------------------ ------- ------- -----------
<S> <C> <C> <C>
Larry D. Yost, Chairman of the Board and Chief Executive
Officer................................................... 82,000 164,000 64,000
Robert A. Calder, Senior Vice President and President, Light
Vehicle Systems........................................... 0 0 (1)
Thomas A. Madden, Senior Vice President and Chief Financial
Officer................................................... 31,000 62,000 0
Prakash R. Mulchandani, Senior Vice President and President,
Worldwide Truck and Trailer Systems....................... 21,000 42,000 64,000
Richard C. Quaid, Senior Vice President and President,
Off-Highway and Specialty Products........................ 21,000 42,000 64,000
All Executive Officers as a Group (11 persons).............. 232,000 464,000 257,500
All Other Employees......................................... 416,600 831,200 659,000
</TABLE>
- ---------------
(1) Mr. Calder will receive a cash payment in lieu of Lost Opportunity Options.
See Executive Compensation -- Long-Term Incentive Plan Awards.
The Annual Options and Spin Options will become exercisable in three equal
annual installments beginning November 19, 1998, and will remain exercisable
until November 19, 2007. The Lost Opportunity Options will become exercisable on
November 19, 1999 and will remain exercisable until November 19, 2007. All of
these options have an exercise price of $22.3125 per share, the market price of
the Common Stock on the date of grant. The market value of the Common Stock as
of December 15, 1997, based on the closing price per share on the New York Stock
Exchange -- Composite Transactions reporting system, was $22 per share.
On November 12, 1997, the Compensation Committee also granted, effective
November 19, 1997, 85,063 restricted shares of Common Stock to certain of the
Named Executive Officers. While these grants were made from the shares reserved
for issuance under the 1997 LTIP, they were made in lieu of cash awards pursuant
to performance cycles established under Rockwell's 1995 Long-Term Incentives
Plan that were assumed by the Corporation.
Grants of these options and restricted shares to the Named Executive
Officers are included in the information under the heading Executive
Compensation -- Summary Compensation Table, -- Option Grants and -- Long-Term
Incentive Plan Awards.
TAX MATTERS. The following is a brief summary of the material Federal
income tax consequences of benefits under the 1997 LTIP under present law and
regulations:
(a) Payments under Performance Plans. Any cash and the fair market
value of any shares of Common Stock (other than restricted stock, as
described below) received as payments under performance plans established
in accordance with the 1997 LTIP will constitute ordinary income to the
employee in the year in which paid, and the Corporation will be entitled to
a deduction in the same amount.
(b) Incentive Stock Options. The grant of an incentive stock option
will not result in any immediate tax consequences to the Corporation or the
optionee. An optionee will not realize taxable income, and the Corporation
will not be entitled to any deduction, upon the timely exercise of an
incentive stock option, but the excess of the fair market value of the
shares of Common Stock acquired over the option exercise price will be
includable in the optionee's "alternative minimum taxable income" for
purposes of the alternative minimum tax. If the optionee does not dispose
of the shares of Common Stock acquired within one year after their receipt
(and within two years after the option was granted),
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<PAGE> 24
gain or loss realized on the subsequent disposition of the shares of Common
Stock will be taxable at a maximum capital gain rate of 28% if the shares
were held for up to eighteen months or at a maximum capital gain rate of
20% if the shares were held for more than eighteen months. Capital losses
of individuals are deductible only against capital gains and a limited
amount of ordinary income. In the event of an earlier disposition, the
optionee will realize ordinary income in an amount equal to the lesser of
(i) the excess of the fair market value of the shares of Common Stock on
the date of exercise over the option exercise price or (ii) if the
disposition is a taxable sale or exchange, the amount of any gain realized.
Upon such a disqualifying disposition, the Corporation will be entitled to
a deduction in the same amount and at the same time as the optionee
realizes such ordinary income.
(c) Nonqualified Stock Options. The grant of a nonqualified stock
option will not result in any immediate tax consequences to the Corporation
or the optionee. Upon the exercise of a nonqualified stock option, the
optionee will realize ordinary income, and the Corporation will be entitled
to a deduction, in an amount equal to the difference between the option
exercise price and the fair market value of the shares of Common Stock
acquired at the time of exercise.
(d) Stock Appreciation Rights. The grant of either a tandem SAR or a
freestanding SAR will not result in any immediate tax consequences to the
Corporation or the employee. Upon the exercise of either a tandem SAR or a
freestanding SAR, any cash received and the fair market value on the
exercise date of any shares of Common Stock received will constitute
ordinary income to the grantee. The Corporation will be entitled to a
deduction in the same amount and at the same time.
(e) Restricted Stock. An employee normally will not realize taxable
income in connection with an award of restricted stock, and the Corporation
will not be entitled to a deduction, until the termination of the
restrictions. Upon such termination, the employee will realize ordinary
income in an amount equal to the fair market value of the shares of Common
Stock at that time, plus the amount of the dividends and interest thereon
to which the employee then becomes entitled. However, an employee may elect
to realize taxable ordinary income in the year the restricted stock is
awarded in an amount equal to its fair market value at that time,
determined without regard to the restrictions. The Corporation will be
entitled to a deduction in the same amount and at the same time as the
employee realizes income.
OTHER. During the period that SARs are outstanding, the Corporation will
accrue as an expense the amount, if any, by which the fair market value of the
shares of Common Stock as to which SARs are expected to be exercised exceeds the
exercise price of any related option shares of Common Stock or the fair market
value on the date of grant of the designated number of shares of Common Stock
for freestanding SARs.
CHANGE OF CONTROL BENEFITS. In order to maintain the rights of 1997 LTIP
Participants in the event of a change of control of the Corporation, the 1997
LTIP provides that unless prior to the occurrence of such a change the
Corporation's Board of Directors shall have determined otherwise by vote of at
least two-thirds of its members, all performance cycles (except those under
performance plans that do not provide for a change of control contingency) not
then complete shall be deemed completed, the respective performance objectives
shall be deemed to have been attained and all potential awards granted with
respect thereto shall be deemed to have been fully earned; all outstanding stock
options and SARs shall become fully exercisable whether or not otherwise then
exercisable; and the restrictions on all shares of Common Stock granted as
restricted stock would lapse. A change of control is deemed to occur under the
same circumstances as provided in Article III, Section 13(I) of the
Corporation's By-Laws. This section of the By-Laws defines "change of control"
as a change of control of the Corporation at any time after the Distribution of
a nature that would be required to be reported in a proxy statement pursuant to
Section 14(a) of the Exchange Act or in a Form 8-K pursuant to Section 13 of the
Exchange Act (or in any similar form or schedule under either of those
provisions or any successor provision), whether or not the Corporation is then
subject to such reporting requirement; provided, however, that, under the
By-Laws a change of control will be deemed to have occurred if (i) any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing 20%
or more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board of Directors of the Corporation
20
<PAGE> 25
in office immediately prior to such person attaining such percentage interest;
(ii) the Corporation is a party to a merger, consolidation, sale of assets or
other reorganization, or a proxy contest, as a consequence of which members of
the Board of Directors of the Corporation in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
immediately thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Corporation (including for this purpose any director whose
election became effective prior to or at the time of the Distribution and any
new director whose election or nomination for election by the shareowners was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors.
AMENDMENT, SUSPENSION OR TERMINATION OF 1997 LTIP. The Compensation
Committee may at any time amend, suspend or terminate the 1997 LTIP or grants
made thereunder. In the event any change in or affecting shares of Common Stock
occurs, the Corporation's Board of Directors may make appropriate amendments to
or adjustments in the 1997 LTIP or grants made thereunder, including changes in
the number of shares of Common Stock which may be issued or transferred under
the 1997 LTIP and the number of shares of Common Stock and price per share of
Common Stock subject to outstanding options and stock appreciation rights. The
Corporation's Board of Directors and the Compensation Committee may not, however
(except in making amendments and adjustments in the event of changes in or
affecting shares of Common Stock) (i) without the consent of the person
affected, cancel or reduce any grant theretofore made other than as provided for
or contemplated in the agreement evidencing the grant or (ii) without the
approval of shareowners, change the class of persons eligible to receive
incentive stock options under the 1997 LTIP, increase the number of shares of
Common Stock that may be issued or transferred under the 1997 LTIP, reduce the
option exercise price of any stock option below the fair market value of the
shares of Common Stock covered thereby at the date of grant or decrease the
forfeiture period for any restricted stock below that permitted under the 1997
LTIP.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL, WHICH
IS PRESENTED AS ITEM (c).
PROPOSAL TO APPROVE THE DIRECTORS STOCK PLAN
A proposal will be presented to the meeting to approve the Corporation's
Directors Stock Plan (the "Directors Plan") which was adopted by the Board of
Directors and approved by Rockwell as the Corporation's sole shareowner prior to
the Distribution. The complete text of the Directors Plan is set forth in
Exhibit B to this Proxy Statement and shareowners are urged to review it
together with the following information, which is qualified in its entirety by
reference to Exhibit B.
The purpose of the Directors Plan is to link a portion of the compensation
of non-employee directors directly with the interests of the shareowners.
Participation in the Directors Plan will be limited to directors who are not
employees of the Corporation or any of its subsidiaries. There are currently six
non-employee directors.
An aggregate of 350,000 shares of Common Stock may be issued or transferred
under the Directors Plan, subject to appropriate adjustment in the event of any
change in or affecting shares of the Corporation's Common Stock, including but
not limited to stock dividends, stock splits and recapitalizations.
Subject to shareowner approval of the Directors Plan, grants of 500 shares
of Common Stock were made under that Plan to each non-employee director on
September 30, 1997. Based on the closing price of the Common Stock on the New
York Stock Exchange -- Composite Transactions reporting system (trading on a
"when-issued" basis) on that date ($23.25), the dollar value of these grants was
$11,625 for each non-employee director. In addition, grants of 1,000 shares of
Common Stock will be made to each non-employee director immediately after each
Annual Meeting of Shareowners beginning with grants immediately following the
1998 Annual Meeting (in each case, subject to approval of the Directors Plan at
the 1998 Annual Meeting). Each non-employee director elected at a meeting of the
Board of Directors will receive immediately after that meeting an award of 1,000
shares of Common Stock if elected after an annual meeting and prior to May 1;
750 shares if elected between May 1 and July 31; 500 shares if elected between
August 1 and October 31; and 250 shares if elected between November 1 and the
next annual meeting. Directors will be
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<PAGE> 26
encouraged to hold shares granted until their service on the Board of Directors
ends, and shares awarded under the Directors Plan may not in any event be sold,
transferred or otherwise disposed of for a period of six months after receipt
(except in the case of death or disability of the director).
Directors may elect to receive their annual 1,000 shares of Common Stock
and their cash retainer for board service in the form of restricted shares of
Common Stock. Restricted shares, if elected, would be held by the Corporation
until ten days after the recipient retires from the Board of Directors after
reaching age 72 and having served at least three years as a director or ceases
to be a director by reason of the antitrust laws, compliance with the
Corporation's conflict of interest policies, death, disability or other
circumstances the Board of Directors determines not to be adverse to the best
interests of the Corporation. Restricted shares would have all the attributes of
outstanding shares including the right to vote and to receive dividends thereon.
In addition, subject to shareowner approval of the Directors Plan, grants
of options to purchase 1,500 shares of Common Stock, with an exercise price of
$22.3125 per share, were made under that Plan to each non-employee director
effective concurrently with the first grant of options under the 1997 LTIP on
November 19, 1997. (The market value of the Common Stock, based on the closing
price on the New York Stock Exchange -- Composite Transactions reporting system
on December 15, 1997, was $22 per share.) In addition, grants of options to
purchase 3,000 shares of Common Stock will be made annually to each non-employee
director immediately following each Annual Meeting beginning with grants after
the 1998 Annual Meeting (in each case, subject to approval of the Directors Plan
at the 1998 Annual Meeting). In addition, each non-employee director elected at
a meeting of the Board of Directors will receive immediately after that meeting
an option to purchase 3,000 shares of Common Stock if elected after an Annual
Meeting and prior to May 1; 2,250 shares if elected between May 1 and July 31;
1,500 shares if elected between August 1 and October 31; and 750 shares if
elected between November 1 and the next Annual Meeting. The purchase price of
the shares subject to the option will be one hundred percent (100%) of the fair
market value on the date an option is granted. Upon exercise of an option, the
option price must be paid in full in cash, shares of Common Stock valued at
their fair market value on the date of exercise, or a combination of both.
Options granted under the Directors Plan may not be exercised prior to one
year nor after ten years from the date of grant and become exercisable in three
approximately equal installments on the first, second and third anniversaries of
the date of grant. If an optionee who holds an outstanding stock option dies,
the Directors Plan permits the exercise of such option within three years of the
date of death (or until the expiration date specified in the option, if
earlier), even if it were not exercisable at such date. If an optionee who holds
an outstanding stock option retires from the Board of Directors after reaching
age 72 and having served at least three years as a director, all options then
held will be exercisable even if they were not exercisable at such retirement
date, provided that such options shall expire at the earlier of five years from
the date of retirement or the expiration date specified in the options. The
Directors Plan permits the Compensation Committee to make determinations as to
exercisability upon other termination of an optionee's membership on the Board
of Directors.
The Directors Plan is administered by the Compensation Committee. The Board
of Directors may amend the Directors Plan in any respect, provided that without
shareowner approval, no amendment may be made that would materially (i) increase
the maximum number of shares of Common Stock available for delivery under the
Directors Plan (other than adjustments to reflect changes in or affecting shares
of Common Stock), (ii) increase the benefits accruing to participants under the
Directors Plan, or (iii) modify the requirements as to eligibility for
participation in the Directors Plan. The Board of Directors also has authority
to terminate the Directors Plan at any time.
In order to maintain the rights of participants in the Directors Plan in
the event of a change of control of the Corporation, the Directors Plan provides
that unless prior to the occurrence of such change the Corporation's Board of
Directors shall have determined otherwise by vote of at least two-thirds of its
members, all outstanding stock options will become fully exercisable whether or
not then exercisable and the restrictions on all restricted shares will lapse.
The Directors Plan further provides that unexpired options held by a director
who resigns or is removed as a director in connection with a change of control
of the Corporation will not become void. A change of control is deemed to occur
under the same circumstances as provided in
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<PAGE> 27
Article III, Section 13(I) of the By-Laws, as described above under Proposal to
Approve the 1997 Long-Term Incentives Plan.
The following are the material Federal income tax consequences of awards of
Common Stock under the Directors Plan under present law and regulations:
(a) Common Stock. The fair market value of shares of Common Stock
awarded to a director under the Directors Plan will constitute ordinary
income to the director recognized for Federal income tax purposes as of the
effective date of the award. The director's holding period for tax
purposes, including determining the maximum capital gain rate at which gain
or loss on the shares of Common Stock is taxable, will begin on the date
that income is recognized. The Corporation will be entitled to a deduction
equal to the income recognized by the director on the date of recognition.
(b) Restricted Stock. The value of restricted shares awarded in lieu
of stock awards under the Directors Plan or cash retainers will not be
taxable to the recipient, and the Corporation will not be entitled to its
deduction, until the restriction lapses, at which time it will be taxable
and deductible (at the value of the shares on that date). However, a
director may elect to recognize taxable ordinary income in the year
restricted stock is awarded in an amount equal to its fair market value at
that time, determined without regard to the restrictions. The Corporation
will be entitled to a deduction in the same amount at the same time as the
director recognizes income.
(c) Stock Options. The grant of a stock option under the Directors
Plan will not result in any immediate tax consequence to the Corporation or
the optionee. At the time of exercise, the optionee will recognize ordinary
income, and the Corporation will be entitled to a deduction, in an amount
equal to the difference between the option exercise price and the fair
market value of the shares acquired.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL, WHICH
IS PRESENTED AS ITEM (d).
PROPOSAL TO APPROVE THE INCENTIVE COMPENSATION PLAN
A proposal will be presented to the meeting to approve the Corporation's
Incentive Compensation Plan (the "ICP"), which was adopted by the Board of
Directors and approved by Rockwell as the Corporation's sole shareowner prior to
the Distribution. The complete text of the ICP is set forth in Exhibit C to this
Proxy Statement and shareowners are urged to review it together with the
following information, which is qualified in its entirety by reference to
Exhibit C.
The purposes of the ICP are to provide a reward and an incentive to
employees in managerial, staff or technical capacities who have contributed in
the then-current fiscal year and, in the future, are likely to contribute to the
success of the Corporation and to enhance the Corporation's ability to attract
and retain outstanding employees to serve in such capacities.
The ICP is administered by the Compensation Committee, which has sole
authority to interpret the ICP. The Compensation Committee will determine the
amounts, if any, to be awarded under the ICP for any fiscal year. The
Corporation's Chief Executive Officer will submit to the Compensation Committee,
within 35 days after the end of each fiscal year, recommendations concerning
awards for that fiscal year. In its discretion, the Compensation Committee will
annually following the close of the immediately preceding fiscal year,
determine: (i) the extent to which awards, if any, shall be made; (ii) the
employees to whom any such awards shall be made; (iii) the amount of any award;
and (iv) the form, terms and conditions of awards. Among other things, the
Committee may determine whether and to what extent awards shall be paid in
installments and in cash or in shares of Common Stock or partly in cash and
partly in shares of Common Stock. Any shares of Common Stock delivered in
payment, in whole or in part, of any award may be subject to such restrictions
as the Compensation Committee in its discretion deems appropriate.
Any person in the salaried employ of the Corporation during some part of
the fiscal year for which awards are made may be selected for an award by the
Compensation Committee. Unless also an employee of the Corporation, no member of
the Board of Directors will be eligible to participate in the ICP. The total
number of shares of Common Stock which may be awarded under the ICP shall not
exceed 300,000, subject to adjustment by the Board of Directors in the event of
any changes in or affecting the Corporation's Common Stock.
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<PAGE> 28
The Board of Directors has the power, in its discretion, to amend, suspend
or terminate the ICP at any time. It does not have the power, however, (i) to
take any such action that would adversely affect rights under an award already
made, without the consent of the person affected, or (ii) without shareowner
approval, to increase the total number of shares of Common Stock subject to the
ICP (except as otherwise provided in the ICP).
In order to maintain rights of participants in the ICP in the event of a
change of control (as defined in the By-Laws and as described under Proposal to
Approve the 1997 Long-Term Incentives Plan). of the Corporation, the ICP
provides that unless prior to the occurrence of such change the Board of
Directors shall have determined otherwise by a vote of at least two-thirds of
its members, all unpaid installments of awards theretofore made under the ICP
will become due and payable and any restrictions on any shares of Common Stock
delivered in payment, in whole or in part, of any awards theretofore made under
the ICP will lapse.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL, WHICH
IS PRESENTED AS ITEM (e).
VOTE REQUIRED
The two nominees for election as directors who receive the greatest number
of votes cast for the election of directors at the 1998 Annual Meeting by the
holders of the Corporation's Common Stock entitled to vote at the meeting, a
quorum being present, shall become directors at the conclusion of the tabulation
of votes. An affirmative vote of the holders of a majority of the voting power
of the Corporation's Common Stock present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, is necessary to approve
the actions proposed in items (b) through (e) of the accompanying Notice of 1998
Annual Meeting of Shareowners. The presence, in person or by proxy, of the
holders of at least a majority of the shares of the Corporation's Common Stock
issued and outstanding on the record date set for the meeting is necessary to
have a quorum for the Annual Meeting.
Under Delaware law and the Corporation's Restated Certificate of
Incorporation and By-Laws, the aggregate number of votes entitled to be cast by
all shareowners present in person or represented by proxy at the meeting,
whether those shareowners vote "for," "against" or abstain from voting
(including broker non-votes), will be counted for purposes of determining the
minimum number of affirmative votes required for approval of items (b) through
(e) and the total number of votes cast "for" such matters will be counted for
purposes of determining whether sufficient affirmative votes have been cast. The
shares of a shareowner who abstains from voting on a matter or whose shares are
not voted by reason of a broker non-vote on a particular matter will be counted
for purposes of determining whether a quorum is present at the meeting so long
as the shareowner is present in person or represented by proxy. An abstention
from voting or a broker non-vote on a matter by a shareowner present in person
or represented by proxy at the meeting has no effect in the election of
directors (assuming a quorum is present) and has the same legal effect as a vote
"against" any other matter even though the shareowner or interested parties
analyzing the results of the voting may interpret such a vote differently.
OTHER MATTERS
The Board of Directors does not know of any other matters which may be
presented at the meeting. In the event of a vote on any matters other than those
referred to in items (a) through (e) of the accompanying Notice of 1998 Annual
Meeting of Shareowners, it is intended that proxies in the accompanying form
will be voted thereon in accordance with the judgment of the person or persons
voting such proxies.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than ten percent
of a registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange. Officers, directors
and greater than ten percent shareowners are required by SEC regulation to
furnish the Corporation with copies of all Forms 3, 4 and 5 they file.
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Based solely on the Corporation's review of the copies of such forms it has
received, the Corporation believes that all its officers, directors and greater
than ten percent beneficial owners have filed with the SEC on a timely basis all
requisite forms with respect to transactions during fiscal 1997.
ANNUAL REPORT AND FORM 10-K
The Corporation's Annual Report to Shareowners, including financial
statements, for the fiscal year ended September 30, 1997, was previously mailed
to shareowners. If you have multiple accounts and received multiple copies of
the Corporation's Annual Report to Shareowners, and you want to receive just one
copy next year, mark the box provided on the proxy cards for all but one of your
accounts.
THE CORPORATION WILL PROVIDE TO SHAREOWNERS WITHOUT CHARGE, UPON WRITTEN
REQUEST, A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1997, AS FILED WITH THE SEC (WITHOUT EXHIBITS).
EXHIBITS TO THE FORM 10-K WILL BE FURNISHED UPON WRITTEN REQUEST AND PAYMENT OF
A FEE OF TEN CENTS PER PAGE COVERING THE CORPORATION'S COSTS. WRITTEN REQUESTS
SHOULD BE DIRECTED TO THE CORPORATION AT 2135 WEST MAPLE ROAD, TROY, MICHIGAN
48084-7186, ATTENTION: INVESTOR RELATIONS.
SHAREOWNER PROPOSALS FOR 1999 ANNUAL MEETING
Under the rules and regulations of the SEC, shareowner proposals for the
1999 Annual Meeting of Shareowners must be received on or before August 31, 1998
at the Office of the Secretary at the Corporation's World Headquarters located
at 2135 West Maple Road, Troy, Michigan 48084-7186, in order to be eligible for
inclusion in the Corporation's proxy materials. In addition, the Corporation's
By-Laws require a shareowner desiring to propose any matter for consideration at
the 1999 Annual Meeting of Shareowners to notify the Corporation's Secretary in
writing at the above address on or after November 13, 1998 and on or before
December 13, 1998.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Corporation.
In addition to the use of the mails, proxies may be solicited personally, or by
telephone, telegraph, telecopy or other means of communication by directors,
officers and employees of the Corporation without additional compensation. The
Corporation has engaged Georgeson & Company Inc. to assist in the solicitation
of proxies for a base fee of $8,000, plus expenses. The Corporation will also
reimburse brokers and other persons holding stock in their names, or in the
names of nominees, for their expenses for sending proxy materials to principals
and obtaining their proxies.
December 29, 1997
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EXHIBIT A
MERITOR AUTOMOTIVE, INC.
1997 LONG-TERM INCENTIVES PLAN
1. PURPOSE
The purpose of the 1997 Long-Term Incentives Plan is to foster creation of
and enhance Meritor Automotive, Inc. (Meritor) shareowner value by linking the
compensation of officers and other key employees of the Corporation to increases
in the price of Meritor stock or by offering the incentives of long-term
monetary rewards to key employees of Meritor or its business units directly
linked to their contribution to the creation of Meritor shareowner value, thus
providing means by which persons of outstanding abilities can be attracted,
motivated and retained.
2. DEFINITIONS
For the purpose of the Plan, the following terms shall have the meanings
set forth below:
(a) Assumed Rockwell Options. Options granted under the Rockwell Plan
on or after December 9, 1996 to persons who were Employees (as herein
defined) on the Distribution Date which (i) by action of the board of
directors of Rockwell under Section 11 of the Rockwell Plan have been
adjusted as of the Distribution Date to entitle the grantee thereof to
purchase Shares; (ii) as so adjusted, have been assigned to Meritor; and
(iii) by action of the Board of Directors have been assumed by Meritor
under Section 5 of this Plan.
(b) Board of Directors. The Board of Directors of Meritor.
(c) Committee. The Compensation and Management Development Committee
designated by the Board of Directors from among its members who are not
eligible to receive a Grant under the Plan.
(d) Corporation. Meritor and those of its subsidiary corporations or
affiliates designated by the Committee to participate in the Plan.
(e) Distribution Date. The date of the pro-rata distribution by
Rockwell to its shareowners of all the issued and outstanding stock of
Meritor.
(f) Employees. Officers and other key employees of the Corporation,
but not directors who are not also employees of the Corporation.
(g) Executive Officer. An Employee who is an executive officer of
Meritor as defined in Rule 3b-7 under the Securities Exchange Act of 1934,
as amended, or any successor provision.
(h) Fair Market Value. The closing price of Shares as reported in the
New York Stock Exchange -- Composite Transactions on the date of a
determination (or on the next preceding day Shares were traded if not
traded on the date of a determination).
(i) Grant. A grant made pursuant to the Plan by the Grant Committee
to an Employee in the form of Options, Stock Appreciation Rights or
Restricted Shares or a grant made pursuant to the Rockwell Plan of Assumed
Rockwell Options.
(j) Grant Committee. The Committee excluding those members of the
Committee who are not at the time any Grant is made both "outside
directors" as defined for purposes of Section 162(m) and the regulations
thereunder and "Non-Employee Directors" as defined in rule 16b-3(b)(3)(i)
under the Securities Exchange Act of 1934, as amended, for purposes of
Section 16 of that Act and the rules thereunder.
(k) Meritor. Meritor Automotive, Inc.
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(l) Option. An option to purchase Shares granted to an Employee by
the Grant Committee pursuant to Section 5 or 8 of the Plan or an Assumed
Rockwell Option.
(m) Participant. Any Employee to whom a Grant is made.
(n) Performance Cycle. Any period of three or more consecutive fiscal
years of Meritor established for Meritor or a designated business component
under a Performance Plan.
(o) Performance Measure. Criteria established to serve as a measure
of performance of Meritor or a designated business component during a
Performance Cycle under a Performance Plan.
(p) Performance Objectives. Levels of achievement, related to the
Performance Measure, established as goals for a Performance Cycle to be
used in determining whether and to what extent grants under a Performance
Plan shall be deemed to be earned.
(q) Performance Plan. A performance plan applicable to Meritor or one
or more business components of the Corporation authorized pursuant to
Section 4 of the Plan.
(r) Plan. This 1997 Long-Term Incentives Plan.
(s) Restricted Period. The period (i) not less than three years or
(ii) until achievement of performance goals specified at the time of Grant
by the Grant Committee with respect to a Grant of Restricted Shares during
which the Shares are subject to forfeiture if the grantee does not continue
as an Employee.
(t) Restricted Shares. Shares subject to conditions prescribed by the
Committee under Section 7 of the Plan.
(u) Rockwell. Rockwell International Corporation.
(v) Rockwell Plan. The 1995 Long-Term Incentives Plan of Rockwell
International Corporation.
(w) Section 162(m). Section 162(m) of the Internal Revenue Code, as
amended, or any successor provision.
(x) Shares. Shares of Common Stock of Meritor.
(y) Stock Appreciation Right. A right granted to an Employee by the
Grant Committee pursuant to Section 6 or 8 of the Plan (i) in conjunction
with all or any part of any Option, which entitles the Employee, upon
exercise of such right, to surrender such Option, or any part thereof, and
to receive a payment equal to the excess of the Fair Market Value, on the
date of such exercise, of the Shares covered by such Option, or part
thereof, over the purchase price of such Shares pursuant to the Option (a
Tandem Stock Appreciation Right) or (ii) separate and apart from any
Option, which entitles the Employee, 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 Employee exercises such right (a
Freestanding Stock Appreciation Right).
(z) Supplementary Stock Plan. A supplementary stock plan applicable
to Employees subject to the tax laws of one or more countries other than
the United States authorized pursuant to Section 8 of the Plan.
3. PLAN ADMINISTRATION
(a) The Grant Committee shall determine the Employees to whom Grants are
made, the number of Shares or Stock Appreciation Rights to be subject to each
Grant and the Restricted Period for any Grant of Restricted Shares.
(b) The Committee shall exercise all other responsibilities, powers and
authority relating to the administration of the Plan not reserved to the Board
of Directors.
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(c) The Board of Directors reserves the right, in its sole discretion, to
exercise or authorize another committee or person to exercise some of or all the
responsibilities, powers and authority vested in the Committee and the Grant
Committee under the Plan.
(d) In making their determinations with respect to Grants under the Plan or
grants under any Performance Plan, the Grant Committee and the Committee may
consider recommendations of the Chief Executive Officer of Meritor and shall
take into account such factors as the Employee's level of responsibility,
performance, performance potential, level and type of compensation and potential
value of Grants.
4. PERFORMANCE PLANS
(a) The Committee may authorize Performance Plans applicable to Meritor or
one or more business components of the Corporation on such terms and conditions,
not inconsistent with the Plan, and applicable to such Employees or categories
of Employees as the Committee shall determine. In connection with its
authorization of any Performance Plan, the Committee may authorize Meritor's
Chief Executive Officer to approve the definitive terms and conditions of that
Performance Plan, including but not limited to the Employees or categories of
Employees to which that Performance Plan shall apply and the committee or person
who shall be delegated authority to administer that Performance Plan, except
that authorization by the Committee shall be required for participation by any
Executive Officer in any Performance Plan. Each Performance Plan shall include
provision for: (i) establishment of Performance Cycles of not less than three
consecutive fiscal years for Meritor (if a Performance Plan applicable to it
should be authorized), and each designated business component, provided that no
Performance Cycle shall begin later than September 30, 2007 and only one
Performance Cycle for Meritor or any designated business component shall begin
with any one fiscal year; (ii) establishment of a Performance Measure and
Performance Objectives for each Performance Cycle established for Meritor and
each designated business component; and (iii) approval by the Committee of any
grants thereunder to any Executive Officer. In addition, a Performance Plan may
but need not provide for (x) grants under such Performance Plan with respect to
a Performance Cycle to be made at any time during the Performance Cycle,
provided that any grant made after the first fiscal year of the Performance
Cycle shall provide for a pro-rated award; (y) adjustment (up or down) of the
Performance Objectives or modification of the Performance Measure (or both) for
a Performance Cycle for Meritor or any designated business component if the
Committee (or with the Committee's approval, the committee or person delegated
to administer the Performance Plan except insofar as it relates to any Executive
Officer) determines that conditions, including but not limited to changes in the
economy, changes in laws or government regulations, changes in generally
accepted accounting principles, or acquisitions or dispositions determined by
the Committee to be material, so warrant; and (z) a Change-of-Control
contingency similar to Section 13(f) of the Plan.
(b) Potential awards granted to participating Employees under Performance
Plans shall be expressed as cash amounts (whether in currency or in units having
a currency equivalent) and shall be paid in accordance with determinations of
the Committee. Payments shall be in cash unless the Committee determines to make
payment to one or more named participating Employees in Shares (which may be
Restricted Shares) or a combination of cash and Shares. Any payment which is
made in cash may be made in a lump sum, in installments or on a deferred basis.
Any payment which is made in Shares shall be valued at the Fair Market Value on
the last trading day of the week preceding the day of the Committee's
determination to make payment in Shares. No award under a Performance Plan shall
bear interest except as may be determined by the Committee in respect of
payments made in installments or on a deferred basis.
(c) If and to the extent an award under a Performance Plan for any
Performance Cycle becomes payable to a participating Employee whose compensation
is subject to the limitation on deductibility under Section 162(m) for the
applicable year and the amount of that award when combined with all base,
incentive or other compensation of such Employee for the applicable year which
constitutes "applicable employee remuneration," as defined for purposes of
Section 162(m), would exceed the limitation of Section 162(m)(1), the amount
payable pursuant to the Performance Plan in excess of that limitation, whether
payable in cash, Shares or a combination of both, may in the sole discretion of
the Grant Committee be deferred until and paid on the first business day of the
calendar year following the Corporation's fiscal year in which such Employee's
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employment by the Corporation terminates. Any Shares to which a participating
Employee will become entitled in respect of a payment deferred pursuant to this
paragraph shall be held in book-entry accounts subject to the direction of
Meritor (or if Meritor elects, certificates therefor may be issued in the
Employee's name but delivered to and held by Meritor) and any dividends that may
be paid in cash or otherwise on those Shares shall be delivered to and held by
Meritor until the end of the period for which such payment is deferred unless
the Grant Committee determines at the time it determines to defer any payment
pursuant to this paragraph that the Employee shall be entitled to receive when
paid dividends on Shares the delivery of which has been so deferred. At the end
of the deferral period under this paragraph, the restrictions on the book-entry
accounts for those Shares shall be released (or any certificates issued shall be
delivered), and any dividends and any cash payment deferred pursuant to this
paragraph shall be delivered, to the Employee, together with interest on the
amount of any cash dividends and any such cash payment so delivered computed at
the same rate and in the same manner as interest credited from time to time
under Meritor's Deferred Compensation Plan.
5. OPTIONS
As of the Distribution Date, the Assumed Rockwell Options are assumed by
Meritor as Options under this Plan with the terms and conditions specified on
the respective dates of grant thereof under the Rockwell Plan as adjusted
pursuant to Section 11 of the Rockwell Plan. Thereafter, the Grant Committee may
grant from time to time to Employees, Options which may be incentive stock
options (as defined in Section 422 of the Internal Revenue Code), nonqualified
stock options, or both, to purchase Shares on terms and conditions determined by
the Grant Committee, consistent with the provisions of the Plan, including the
following:
(a) The purchase price of the Shares subject to any Option shall not
be less than the Fair Market Value on the date the Option is granted.
(b) Each Option may be exercised in whole or in part from time to time
during such period as the Option shall specify; provided, however, that if
the Grant Committee does not establish a different exercise schedule at or
before the date of grant of an Option, the Option shall become exercisable
in three approximately equal installments on each of the first, second and
third anniversaries of the date the Option is granted; and provided,
further, that no Option shall be exercisable prior to one year (except as
provided in Section 9(c) or 13(f)) nor after ten years from the date of the
grant thereof.
(c) Each Option may provide for related Stock Appreciation Rights.
(d) The aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares for which any Employee may be granted
incentive stock options which are exercisable for the first time in any
calendar year under all plans of the Corporation and any parent or
subsidiary of the Corporation shall not exceed $100,000 (or such other
amount as may be fixed as the maximum amount permitted by Section 422(d) of
the Internal Revenue Code, as amended, or any successor provision). The
Grant Committee shall grant incentive stock options only to employees of
Meritor or a corporation which is a subsidiary of Meritor within the
meaning of Section 425(f) of the Internal Revenue Code.
(e) The purchase price of the Shares with respect to which an Option
or portion thereof is exercised shall be payable in full in cash or in
Shares or in a combination of cash and Shares. 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.
6. STOCK APPRECIATION RIGHTS
(a) The Grant Committee may grant Tandem Stock Appreciation Rights to an
Employee either at the time of grant of an Option or at any time thereafter
during the term of an Option. A Tandem Stock Appreciation Right shall be
exercisable only when and to the extent that the related Option is exercisable.
(b) The Grant Committee may grant from time to time to Employees,
Freestanding Stock Appreciation Rights on terms and conditions determined by the
Grant Committee, consistent with the provisions of the Plan.
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(c) The payment to which the grantee of a Stock Appreciation Right is
entitled upon exercise thereof may be made in Shares valued at Fair Market Value
on the date of exercise, or in cash or partly in cash and partly in Shares, as
the Grant Committee may determine.
(d) Upon exercise of a Tandem Stock Appreciation Right and surrender of the
related Option or part thereof, such Option, to the extent surrendered, shall
not thereafter be exercisable, and the Shares covered by the surrendered Option
shall not again be available for Grants pursuant to the Plan, or awards under a
Performance Plan.
(e) Upon exercise of a Freestanding Stock Appreciation Right, any Shares
delivered in payment thereof shall not again be available for Grants pursuant to
the Plan, or awards under a Performance Plan.
7. RESTRICTED SHARES
The Grant Committee may grant from time to time to Employees, Restricted
Shares on terms determined by the Grant Committee, consistent with the
provisions of the Plan, including the following:
(a) The Grant Committee shall specify a Restricted Period and may
specify performance or other criteria for each Grant of Restricted Shares,
and the Restricted Shares granted shall be forfeited if the grantee does
not continue as an Employee throughout the Restricted Period, or if and to
the extent the specified performance or other criteria are not met during
the Restricted Period, except as otherwise provided in Section 9(a), 9(b)
or 13(f).
(b) Restricted Shares granted to an Employee shall have all the
attributes of outstanding Shares, except that the registered owner shall
have no right to direct the transfer thereof. Restricted Shares shall be
held in book-entry accounts subject to the direction of Meritor (or if
Meritor elects, certificates therefor may be issued in the Employee's name
but delivered to and held by Meritor), and, unless the Grant Committee
determines otherwise at time of grant, any dividends that may be paid in
cash or otherwise on Restricted Shares shall be delivered to and held by
Meritor, so long as the Restricted Shares remain subject to forfeiture. As
and to the extent that Restricted Shares are no longer subject to
forfeiture, the Employee shall have the right to direct the transfer
thereof, the restrictions on the book-entry accounts for those Restricted
Shares shall be released, and certificates that may have been issued for
those Restricted Shares and any dividends thereon held by Meritor shall be
delivered to the Employee. There shall also be paid to the Employee at such
time interest on the amount of cash dividends so delivered computed at the
same rate and in the same manner as interest credited from time to time
under Meritor's Deferred Compensation Plan.
8. SUPPLEMENTARY STOCK PLANS
(a) The Committee may authorize Supplementary Stock Plans applicable to
Employees subject to the tax laws of one or more countries other than the United
States and providing for the grant of Options, Stock Appreciation Rights,
Restricted Shares or any combination thereof to such Employees on terms and
conditions, consistent with the Plan, determined by the Committee which may
differ from the terms and conditions of Grants pursuant to Sections 5, 6 and 7
of the Plan for the purpose of complying with the conditions for qualification
of Options, Stock Appreciation Rights or Restricted Shares for favorable
treatment under foreign tax laws.
(b) Notwithstanding any other provision hereof, Options granted under any
Supplementary Stock Plan shall include provisions that conform with Sections
5(a), (b), (c) and (e) and 6(d); Restricted Shares granted under any
Supplementary Stock Plan shall include provisions that conform with Sections
7(a) and (b); and subject to Section 3(c), only the Grant Committee shall have
authority to grant Options, Stock Appreciation Rights or Restricted Shares under
any Supplementary Stock Plan.
9. EFFECT OF DEATH OR TERMINATION OF EMPLOYMENT
(a) If a participating Employee's employment by the Corporation terminates
prior to the end of a Performance Cycle under a Performance Plan or the
Restricted Period applicable to any Grant of Restricted
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Shares because of the Employee's (i) death or (ii) retirement under a retirement
plan of the Corporation not less than one year after the beginning of that
Performance Cycle or the date of that Grant, the amount of the award under the
Performance Plan or the number of Restricted Shares such Employee shall be
deemed to have earned shall be the amount or number thereof determined as though
such Employee's employment had not terminated prior to the end of the
Performance Cycle or Restricted Period.
(b) If a participating Employee's employment by the Corporation terminates
prior to the end of a Performance Cycle under a Performance Plan or the
Restricted Period applicable to any Grant of Restricted Shares, for any reason
other than (i) death or (ii) retirement under a retirement plan of the
Corporation not less than one year after the beginning of that Performance Cycle
or the date of that Grant, such Employee shall be deemed not to have earned any
award for purposes of the Performance Plan or Restricted Shares except as and to
the extent the Committee (or with the Committee's approval, the committee or
person delegated to administer a Performance Plan except insofar as it relates
to any Executive Officer), taking into account the purpose of the Plan and such
other factors as in its sole discretion it deems appropriate, may determine,
provided that the amount of the award or the number of Restricted Shares which
may be so determined by the Committee to have been earned shall not exceed the
amount or number which would have been earned had the provisions of paragraph
(a) above been applicable.
(c) If the employment by the Corporation of a Participant who (or whose
permitted transferee) holds an outstanding Grant of Options or Stock
Appreciation Rights terminates by reason of the death of the Participant, the
Options or Stock Appreciation Rights subject to that Grant and not theretofore
exercised may be exercised from and after the date of the death of the
Participant for a period of three years (or until the expiration date specified
in the Grant if earlier) even if any of them was not exercisable at the date of
death.
(d) If a Participant who (or whose permitted transferee) holds an
outstanding Grant of Options or Stock Appreciation Rights retires under a
retirement plan of the Corporation, at any time after a portion of the Options
or Stock Appreciation Rights subject to a particular Grant has become
exercisable, the Options or Stock Appreciation Rights subject to that Grant and
not theretofore exercised may be exercised from and after the date upon which
they are first exercisable under that Grant for a period of five years from the
date of retirement (or until the expiration date specified in the Grant if
earlier) even if any of them was not exercisable at the date of retirement.
(e) If the employment by the Corporation of a Participant who (or whose
permitted transferee) holds an outstanding Grant of Options or Stock
Appreciation Rights is terminated for any reason other than death or retirement
under a retirement plan of the Corporation, the Options or Stock Appreciation
Rights subject to that Grant and not theretofore exercised may be exercised only
within three months after the termination of such employment (or until the
expiration date specified in the Grant if earlier) and only to the extent the
grantee thereof (or a permitted transferee) was entitled to exercise the Options
or Stock Appreciation Rights at the time of termination of such employment,
unless and except to the extent the Committee may otherwise determine; provided,
however, that the Committee shall not in any event permit a longer period of
exercise than would have been applicable had the provisions of paragraph (d)
above been applicable.
10. SHARES AVAILABLE
(a) The total number of Shares which may be delivered in payment and upon
exercise of Grants and in payments of awards under Performance Plans shall not
exceed 7 million, as adjusted from time to time as herein provided, and the
total number of Shares as to which Grants may be made in any one fiscal year of
Meritor beginning after September 30, 1998 shall not exceed 1 1/2% of the total
number of Shares outstanding (including for this purpose Shares held in
Treasury) as of the date of determination. Shares which may be delivered in
payment or upon exercise of Grants or in payment of awards under Performance
Plans may consist in whole or in part of unissued or reacquired Shares;
provided, however, that unless otherwise determined by the Committee, Shares
which may be granted as Restricted Shares shall consist only of reacquired
Shares. Subject to Sections 6(d) and (e), if for any reason Shares as to which
an Option has been granted cease to be subject to purchase thereunder or Shares
granted as Restricted Shares are forfeited to the Corporation, then such Shares
shall again be available under the Plan.
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(b) The total number of Shares subject to Options and Stock Appreciation
Rights granted to any one Employee in any one fiscal year of Meritor under all
plans of Meritor and any parent or subsidiary of Meritor shall in no event
exceed 500,000, as adjusted from time to time as herein provided.
(c) No Option, Freestanding Stock Appreciation Right or Restricted Shares
shall be granted under the Plan or any Supplementary Stock Plan after September
30, 2007, but Options or Stock Appreciation Rights and Restricted Shares granted
theretofore may extend beyond that date, and Tandem Stock Appreciation Rights
may be granted after that date with respect to Options outstanding on that date.
11. ADJUSTMENTS
If there shall be any change in or affecting Shares on account of any
merger, consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split or combination, or other distribution to holders of Shares
(other than a cash dividend), there shall be made or taken such amendments to
the Plan and such adjustments and actions thereunder as the Board of Directors
may deem appropriate under the circumstances. Such amendments, adjustments and
actions may include, without limitation, changes in the number of Shares which
may be issued or transferred, in the aggregate or to any one Employee, pursuant
to the Plan, the number of Shares subject to outstanding Options and Stock
Appreciation Rights and the related price per share; provided, however, that no
such amendment, adjustment or action may change the limitation prescribed by
Section 10(b) to a number of Shares that is a greater proportion of the total
number of Shares outstanding and held in Treasury as of the effective date of
that amendment, adjustment or action than the proportion of the number of Shares
prescribed by Section 10(b) to the total number of Shares outstanding and held
in Treasury immediately prior thereto.
12. AMENDMENT AND TERMINATION
The Committee shall have the power in its discretion to amend, suspend or
terminate the Plan or Grants thereunder at any time except that, subject to the
provisions of Section 11, (a) without the consent of the person affected, no
such action shall cancel or reduce a Grant theretofore made other than as
provided for or contemplated in the agreement evidencing the Grant and (b)
without the approval of the shareowners of Meritor, the Committee may not (i)
change the class of persons eligible to receive incentive stock options, (ii)
increase the number of Shares provided in Section 10(a) or 10(b), (iii) reduce
the Option exercise price of any Option below the Fair Market Value on the date
such Option was granted or decrease the forfeiture period for any Grant below
that permitted under the Plan.
13. MISCELLANEOUS
(a) Except as determined by the Committee, no person shall have any claim
to receive a Grant or any payment under a Performance Plan, to receive payment
in respect of a Grant or under a Performance Plan in any form other than the
Committee shall approve or, in circumstances where Section 9 is applicable, to
be deemed to have earned any award under a Performance Plan or Restricted Shares
or to be entitled to exercise Options or Stock Appreciation Rights for any
particular period after termination of employment. There is no obligation for
uniformity of treatment of Employees under the Plan or any Performance Plan. No
Employee shall have any right as a Participant or a participant under any
Performance Plan to continue in the employ of the Corporation for any period of
time or to a continuation of any particular rate of compensation, and the
Corporation expressly reserves the right to discharge or change the assignment
of any Employee at any time.
(b) No Option, Stock Appreciation Right or right related to Restricted
Shares granted pursuant to the Plan or right to payment of an award under any
Performance Plan may be assigned, pledged or transferred except (i) by will or
by the laws of descent and distribution; or (ii) in the case of any Grant (other
than an Option granted as an incentive stock option) or any right to payment of
an award under a Performance Plan, by gift to any member of the Employee's
immediate family or to a trust for the benefit of one or more members of the
Employee's immediate family, if permitted in the applicable agreement governing
that Grant or right to payment; or (iii) as otherwise determined by the
Committee. Each Option, Stock Appreciation Right or right related to Restricted
Shares shall be exercisable, and each payment of an award under a
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Performance Plan shall be payable, during the lifetime of the Employee to whom
granted or awarded only by or to such Employee, and any payment of an award
under a Performance Plan made after the death of a participating Employee
entitled thereto shall be paid to the legal representative of the estate or to
the designated beneficiary of such Employee, unless in any such case, the Grant
or right to payment has been transferred in accordance with the provisions of
the applicable agreement governing that Grant or right to payment, to a member
of the Employee's immediate family or a trust for the benefit of one or more
members of the Employee's immediate family, in which case it shall be
exercisable or payable only by or to such transferee (or to the legal
representative of the estate or to the heirs or legatees of such transferee).
For purposes of this provision, an Employee's "immediate family" shall mean the
Employee's spouse and natural, adopted or step- children and grandchildren.
(c) No person shall have the rights or privileges of a shareowner with
respect to Shares subject to an Option or deliverable as a payment upon exercise
of a Stock Appreciation Right or under a Performance Plan until exercise of the
Option or Stock Appreciation Right or delivery as a payment under the
Performance Plan.
(d) No fractional Shares shall be issued or transferred pursuant to the
Plan. If the portion of any payment pursuant to the Plan or a Performance Plan
to be made in Shares is not equal to the value of a whole number of Shares, the
person entitled thereto shall be paid an amount equal to the Fair Market Value
as of the date of exercise of any fractional Share deliverable in respect of
exercise of a Stock Appreciation Right and the Fair Market Value as of the date
of payment of any fractional Share deliverable in respect of any payment under a
Performance Plan.
(e) The Corporation, the Board of Directors, the Committee, the Grant
Committee and the officers of Meritor shall be fully protected in relying in
good faith on the computations and reports made pursuant to or in connection
with the Plan by the independent certified public accountants who audit the
Corporation's accounts or others (who may include Employees) whose services are
used by the Board of Directors, Committee or Grant Committee in its
administration of the Plan.
(f) Notwithstanding any other provision of the Plan, if a Change of Control
(as defined in Article III, Section 13(I)(1) of Meritor's By-Laws) shall occur,
then unless prior to the occurrence thereof, the Board of Directors shall have
determined otherwise by vote of at least two-thirds of its members, (i) all
Performance Cycles (except those under Performance Plans that do not provide for
a Change-of-Control contingency) not then complete shall be deemed completed
forthwith, the Performance Objectives therefor shall be deemed to have been
attained, and each participating Employee shall be deemed to have earned the
maximum amount that could have been earned thereunder; (ii) all Options and any
Stock Appreciation Rights then outstanding pursuant to the Plan shall forthwith
become fully exercisable whether or not otherwise then exercisable; and (iii)
the restrictions on all Restricted Shares granted under the Plan shall forthwith
lapse.
(g) The Corporation shall have the right in connection with the delivery of
any Shares in payment of a Grant or a payment under a Performance Plan or upon
exercise of an Option to require as a condition of such delivery that the
recipient represent that such Shares are being acquired for investment and not
with a view to the distribution thereof.
(h) The Corporation shall have the right in connection with any payment
under a Performance Plan, exercise of any Option or Stock Appreciation Right or
termination of the Restricted Period for any Restricted Shares, to deduct from
any such payment or any other payment by the Corporation, an amount equal to any
taxes required by law to be withheld with respect thereto or to require the
Employee or other person receiving such payment, effecting such exercise or
entitled to Shares and related payments on termination of such Restricted
Period, as a condition of and prior to such payment or exercise or delivery of
Shares on such termination, to pay to the Corporation an amount sufficient to
provide for any such taxes so required to be withheld.
(i) Unless otherwise determined by the Committee or provided in an
agreement between any Employee and the Corporation, for purposes of the Plan an
Employee on authorized leave of absence will be considered as being in the
employ of the Corporation.
A-8
<PAGE> 38
(j) The Corporation shall bear all expenses and costs in connection with
the operation of the Plan, including costs related to the purchase, issue or
transfer of Shares, but excluding taxes imposed on any person receiving a
payment or delivery of Shares under the Plan or a Performance Plan.
14. INTERPRETATIONS AND DETERMINATIONS
The Committee shall have the power from time to time to interpret the Plan,
to adopt, amend and rescind rules, regulations and procedures relating to the
Plan, to make, amend and rescind determinations under the Plan and to take all
other actions that the Committee shall deem necessary or appropriate for the
implementation and administration of the Plan. All interpretations,
determinations and other actions by the Committee not revoked or modified by the
Board of Directors shall be final, conclusive and binding upon all parties.
15. EFFECTIVE DATE
Upon approval by the shareowners of Meritor, the Plan shall become
effective as of September 30, 1997.
A-9
<PAGE> 39
EXHIBIT B
DIRECTORS STOCK PLAN
OF
MERITOR AUTOMOTIVE, INC.
1. PURPOSE OF THE PLAN
The purpose of the Directors Stock Plan (the Plan) is to link the
compensation of non-employee directors of Meritor Automotive, Inc. (Meritor)
directly with the interests of the shareowners.
2. PARTICIPANTS
Participants in the Plan shall consist of directors of Meritor who are not
employees of Meritor or any of its subsidiaries (Non-Employee Director). The
term "subsidiary" as used in the Plan means a corporation more than 50% of the
voting stock of which, or an unincorporated business entity more than 50% of the
equity interest in which, shall at the time be owned directly or indirectly by
Meritor.
3. SHARES RESERVED UNDER THE PLAN
Subject to the provisions of Section 10 of the Plan, there shall be
reserved for delivery under the Plan 350,000 shares of Common Stock of Meritor
(Shares). Shares to be delivered under the Plan may be authorized and unissued
Shares, Shares held in treasury or any combination thereof.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation and Management
Development Committee of the Board of Directors of Meritor (the Committee). The
Committee shall have authority to interpret the Plan, and to prescribe, amend
and rescind rules and regulations relating to the administration of the Plan,
and all such interpretations, rules and regulations shall be conclusive and
binding on all persons.
5. EFFECTIVE DATE OF THE PLAN
The Plan shall be submitted to the shareowners of Meritor for approval at
the Annual Meeting of Shareowners to be held on February 11, 1998, or any
adjournment thereof, and, if approved by the shareowners, shall become effective
as of September 30, 1997.
6. AWARD OF SHARES
Each Non-Employee Director who is in office on the date (the Distribution
Date) of the pro-rata distribution (the Distribution) by Rockwell International
Corporation to its shareowners of all the issued and outstanding stock of
Meritor shall receive an award of 500 Shares effective immediately after the
Distribution. Thereafter, each Non-Employee Director who is elected a director
at, or who was previously elected and continues as a director after, any Annual
Meeting of Shareowners of Meritor shall receive an award of 1,000 Shares
effective immediately after that Annual Meeting. Each Non-Employee Director who
is elected a director at any meeting of the Board shall receive effective
immediately after that meeting an award of 1,000 Shares if elected after the
annual meeting and prior to May 1; an award of 750 Shares if elected between May
1 and July 31; an award of 500 Shares if elected between August 1 and October
31; and an award of 250 Shares if elected between November 1 and the next annual
meeting. A participant shall not be required to make any payment for any Shares
delivered under the Plan. Upon the delivery of Shares under the Plan, the
recipient shall have the entire beneficial ownership interest in, and all rights
and privileges of a shareowner as to those Shares, including the right to vote
the Shares and to receive dividends thereon.
Each Non-Employee Director may elect each year, not later than December 31
of the year preceding the year in which the annual award of Shares is to be
made, to receive the annual grant in the form of Shares of restricted stock
(Restricted Shares). Upon receipt of Restricted Shares, the recipient shall have
the right to
B-1
<PAGE> 40
vote the Shares and to receive dividends thereon, and the Shares shall have all
the attributes of outstanding Shares except that the registered owner shall have
no right to direct the transfer thereof. Restricted Shares shall be held in
book-entry accounts subject to the direction of Meritor (or if Meritor elects,
certificates therefor may be issued in the recipient's name but delivered to and
held by Meritor) until ten days after (i) the recipient retires from the Board
after reaching age 72 and having served at least three years as a director or
(ii) the recipient resigns from the Board or ceases to be a director by reason
of the antitrust laws, compliance with Meritor's conflict of interest policies,
death, disability or other circumstances the Board determines not to be adverse
to the best interests of Meritor, when the restrictions on such book-entry
accounts shall be released (or any certificates issued shall be delivered to the
director) and such Shares shall cease to be Restricted Shares.
7. RESTRICTION ON TRANSFER OF SHARES
No Shares received by a participant under Section 6 or 9 of the Plan may be
sold, assigned, transferred, pledged or otherwise encumbered or disposed of for
a period of six months after receipt of those Shares, except in the case of the
participant's death or disability during that six-month period.
8. STOCK OPTIONS
Each Non-Employee Director who is in office on the Distribution Date shall
be granted an option to purchase 1,500 Shares effective concurrently with the
first grant of stock options under Meritor's 1997 Long-Term Incentives Plan
after the Distribution Date. Thereafter, each Non-Employee Director who is
elected a director at, or was previously elected and continues as a director
after, any Annual Meeting of Shareowners of Meritor shall receive an option to
purchase 3,000 Shares immediately after that Annual Meeting. Each Non-Employee
Director who is elected a director at any meeting of the Board shall be granted
effective immediately after that meeting an option to purchase 3,000 Shares if
elected after the annual meeting and prior to May 1; an option to purchase 2,250
Shares if elected between May 1 and July 31; an option to purchase 1,500 Shares
if elected between August 1 and October 31; and an option to purchase 750 Shares
if elected between November 1 and the next annual meeting. The exercise price
for each option so granted shall be one-hundred percent (100%) of the closing
price (the fair market value) of the Shares on the date of grant as reported in
the New York Stock Exchange -- Composite Transactions (or on the next preceding
day Shares were traded if not traded on the date of grant).
The purchase price of the Shares with respect to which an option or portion
thereof is exercised shall be payable in full in cash, Shares valued at their
fair market value on the date of exercise, or a combination thereof. Each option
may be exercised in whole or in part at any time after it becomes exercisable;
and each option shall become exercisable in approximately three equal
installments on each of the first, second and third anniversaries of the date
the option is granted. No option shall be exercisable prior to one year nor
after ten years from the date of the grant thereof; provided, however, that if
the holder of an option dies, the option may be exercised from and after the
date of the optionee's death for a period of three years (or until the
expiration date specified in the option if earlier) even if it was not
exercisable at the date of death. Moreover, if an optionee retires after
reaching age 72 and having served at least three years as a director, all
options then held by that optionee shall be exercisable even if they were not
exercisable at the optionee's retirement date; provided, however, that each such
option shall expire at the earlier of five years from the date of the optionee's
retirement or the expiration date specified in the option.
Options granted under the Plan are not transferable other than (i) by will
or by the laws of descent and distribution; or (ii) by gift to the grantee's
spouse or natural, adopted or step-children or grandchildren (immediate family
members) or to a trust for the benefit of one or more of the grantee's immediate
family members or to a family charitable trust established by the grantee or a
member of the grantee's family. If an optionee ceases to be a director while
holding unexercised options, such options are then void, except in the case of
(i) death, (ii) disability, (iii) retirement after reaching age 72 and having
served at least three years as a director, (iv) resignation from the Board for
reasons of the antitrust laws, compliance with Meritor's conflict of interest
policies or other circumstances that the Committee may determine as serving the
best interests of
B-2
<PAGE> 41
Meritor or (v) resignation or removal from the Board in connection with a change
of control as defined in Article III, Section 13(I)(1) of Meritor's By-Laws
(Change of Control).
9. SHARES IN LIEU OF CASH COMPENSATION
Each Non-Employee Director may elect each year, not later than December 31
of the year preceding the year as to which deferral of fees is to be applicable,
to defer all or any portion of the cash retainer to be paid for board or other
service in the following calendar year through the issuance or transfer of
Restricted Shares, valued at the closing price on the New York Stock
Exchange -- Composite Transactions on the date when each payment of such
retainer amount would otherwise be made in cash. Such Restricted Shares shall be
the same as and subject to the same provisions as are applicable to the
Restricted Shares issued or delivered pursuant to Section 6 of the Plan.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
If there shall be any change in or affecting Shares on account of any
merger, consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split or combination, or other distribution to holders of Shares
(other than a cash dividend), there shall be made or taken such amendments to
the Plan and such adjustments and actions thereunder as the Board may deem
appropriate under the circumstances.
11. GOVERNMENT AND OTHER REGULATIONS
Meritor shall have the right in connection with the delivery of any Shares
under Section 6 or 9 of the Plan or upon exercise of options granted under
Section 8 of the Plan to require as a condition of such delivery that the
recipient represent that such shares are being acquired for investment and not
with a view to the distribution thereof.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Plan may be amended by the Board in any respect, provided that, without
shareowner approval, no amendment shall (i) materially increase the maximum
number of Shares available for delivery under the Plan (other than adjustments
pursuant to Section 10 hereof), (ii) materially increase the benefits accruing
to participants under the Plan, or (iii) materially modify the requirements as
to eligibility for participation in the Plan. The Plan may also be terminated at
any time by the Board.
13. MISCELLANEOUS
(a) Nothing contained in the Plan shall be deemed to confer upon any person
any right to continue as a director of or to be associated in any other way with
Meritor.
(b) Notwithstanding any other provision of the Plan, if a Change of Control
shall occur, then, unless prior to the occurrence thereof the Board of Directors
shall determine otherwise by vote of at least two-thirds of its members, (i) all
options then outstanding pursuant to the Plan shall forthwith become fully
exercisable whether or not then exercisable and (ii) the restrictions on all
Restricted Shares granted under Section 6 or 9 of the Plan shall forthwith
lapse.
(c) To the extent that Federal laws do not otherwise control, the Plan and
all determinations made and actions taken pursuant hereto shall be governed by
the law of the State of Delaware.
B-3
<PAGE> 42
EXHIBIT C
MERITOR AUTOMOTIVE, INC.
INCENTIVE COMPENSATION PLAN
1. PURPOSES
The purposes of the Incentive Compensation Plan (the "Plan") are to provide
a reward and an incentive to employees in managerial, staff or technical
capacities who have contributed in the then-current fiscal year and, in the
future, are likely to contribute to the success of the Corporation and to
enhance the Corporation's ability to attract and retain outstanding employees to
serve in such capacities.
2. DEFINITIONS
For the purpose of the Plan, the following terms shall have the meanings
shown:
(a) Board of Directors. The Board of Directors of Meritor.
(b) Committee. The Compensation and Management Development Committee,
designated by the Board of Directors, consisting of three or more members
of the Board of Directors who are not eligible to participate in the Plan.
(c) Corporation. Meritor and such of its subsidiaries and affiliates
as may be designated by the Board of Directors.
(d) Employees. Persons in the salaried employ of the Corporation
(including those on authorized leave of absence) during some part of the
fiscal year for which an award is made. Unless also an employee of the
Corporation, no member of the Board of Directors shall be eligible to
participate in the Plan.
(e) Meritor. Meritor Automotive, Inc.
(f) Stock. Common stock of Meritor.
3. AWARDS
(a) The Chief Executive Officer of Meritor shall submit to the Committee,
within 35 days after the end of each fiscal year, recommendations concerning
awards for that fiscal year.
(b) The Committee, in its discretion, shall annually following the close of
the immediately preceding fiscal year, determine (i) the extent to which awards,
if any, shall be made; (ii) the employees to whom any such awards shall be made;
(iii) the amount of any award; and (iv) the form, terms and conditions of
awards. The Committee may determine, among other things, whether and to what
extent awards shall be paid in installments and in cash or in Stock or partly in
cash and partly in Stock. Any Stock delivered in payment, in whole or in part,
of an award may, at the Committee's discretion, be subject to such restrictions
as the Committee deems appropriate.
(c) The Corporation shall promptly notify each person to whom an award has
been made and pay the award in accordance with the determinations of the
Committee.
(d) A cash award may be made with respect to an employee who has died. Any
such award shall be paid to the legal representative or representatives of the
estate of such employee.
4. AWARDS IN STOCK
(a) Meritor shall make available, as required, Stock to meet the needs of
the Plan. The total number of shares of Stock which may be awarded under the
Plan shall not exceed 300,000, except as provided in paragraph (b) below. Such
shares may consist in whole or in part of unissued or reacquired shares. Stock
subject to an award which lapses or is forfeited, for any reason, shall be
available for further awards under the Plan.
C-1
<PAGE> 43
(b) If any change shall occur in or affect Stock subject to or awarded
under the Plan on account of a merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split or combination,
or other distribution to common shareowners (other than a cash dividend), the
Board of Directors may make such adjustments in the total number of shares
subject to or awarded under the Plan as may be reasonably appropriate in the
circumstances.
5. FINALITY OF DETERMINATIONS
The Committee shall have the power to administer and interpret the Plan.
All determinations, interpretations and actions of the Committee and all actions
of the Board of Directors under or in connection with the Plan shall be final,
conclusive and binding upon all concerned.
6. AMENDMENT OF THE PLAN
The Board of Directors shall have the power, in its sole discretion, to
amend, suspend or terminate the Plan at any time, except that:
(a) No such action shall adversely affect rights under an award
already made, without the consent of the person affected; and
(b) Without approval of the shareowners of Meritor, the Board of
Directors shall not increase the total number of shares of Stock subject to
the Plan (except as provided in paragraph 4(b)).
7. MISCELLANEOUS
(a) A majority of the members of the Committee shall constitute a quorum.
The Committee may act by the vote of a majority of a quorum at a meeting, or by
a writing or writings signed by a majority of the members of the Committee.
(b) Notwithstanding any other provision of the Plan, if a Change of Control
(as defined in Article III, Section 13 (I)(1) of Meritor's By-Laws) shall occur,
then, unless prior to the occurrence thereof the Board of Directors shall
determine otherwise by vote of at least two-thirds of its members, (i) all
unpaid installments of any awards made under the Plan prior to such Change of
Control shall forthwith become due and payable and (ii) any restrictions on any
Stock delivered in payment, in whole or in part, of any awards made under the
Plan prior to such Change of Control shall forthwith lapse.
(c) The Corporation shall bear all expenses and costs in connection with
the operation of the Plan.
C-2
<PAGE> 44
V
O
T
I
N
G
D
I
R
E
C
T
I
V
E
DIRECTION CARD
MERITOR AUTOMOTIVE, INC. SAVINGS PLAN
ROCKWELL INTERNATIONAL CORPORATION SAVINGS PLANS
TO: WELLS FARGO BANK, N.A., TRUSTEE
You are hereby directed to vote shares of capital stock of Meritor
Automotive, Inc. allocated to any accounts of the undersigned under the Meritor
Automotive, Inc. Savings Plan and the various Rockwell International Corporation
Savings Plans (Rockwell International Corporation Savings Plan, Rockwell
Retirement Savings Plan for Certain Employees, Allen-Bradley Employee Savings
and Investment Plans and Reliance Electric Company Savings and Investment Plan)
on all matters that may come before the Annual Meeting of Shareowners of Meritor
Automotive, Inc. to be held at the World Headquarters of Meritor Automotive,
Inc., 2135 West Maple Road, Troy, Michigan on February 11, 1998, or any
adjournment thereof.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS JUST
SIGN AND DATE THE OTHER SIDE; NO BOXES NEED TO BE CHECKED.
-------------
SEE REVERSE
SIDE
-------------
(continued, and to be signed and dated, on the other side)
- --------------------------------------------------------------------------------
/ FOLD AND DETACH HERE /
/ FOLD AND DETACH HERE /
- --------------------------------------------------------------------------------
[MERITOR LOGO]
ADMITTANCE CARD REQUEST
IF YOU PLAN TO ATTEND the Annual Meeting of Shareowners
to be held on February 11, 1998, this form may be used
to request an admittance card. Please fill in your
name(s) and address and promptly return the form. The
envelope provided for return of your direction card may
be used for this purpose or you may tear off this
business reply card and deposit it in the U.S. mail.
Upon receipt of your request and verification of your
share ownership through the Savings Plans, an admittance
card will be sent to you.
I/WE PLAN TO ATTEND THE MEETING IN TROY, MICHIGAN.
Name(s)_________________________________________________
Please Print or Type
Street Address__________________________________________
City __________________ State _________ Zip Code________
<PAGE> 45
- ---------- Please mark your
X votes as indicated 2630
- ---------- in this example.
IN THE ABSENCE OF AN EXPRESSED DIRECTION, THE TRUSTEE WILL VOTE ON THE LISTED
PROPOSALS AND, IN ADDITION, ON OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF AS IT DEEMS PROPER.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR (a), (b), (c), (d) AND (e).
- --------------------------------------------------------------------------------
FOR WITHHOLD AUTHORITY
(a) The election of --------- ---------
two directors
--------- ---------
Nominees: L.D. Yost and C.H. Harff
For, except vote withheld from the following nominee:
- -------------------------------------------------------------
FOR AGAINST ABSTAIN
--------- --------- ---------
(b) The selection of auditors
--------- --------- ---------
--------- --------- ---------
(c) Approve the 1997 Long-Term
Incentives Plan
--------- --------- ---------
--------- --------- ---------
(d) Approve the Directors Stock Plan
--------- --------- ---------
--------- --------- ---------
(e) Approve the Incentive
Compensation Plan
--------- --------- ---------
Annual Report--Mark here to
discontinue mailing of annual ---------
report to shareowners for this
account (for multiple account ---------
holders only).
SIGNATURE(S) __________________________________________ DATE ______________ 1998
NOTE: Please sign, date, and return the direction card promptly using the
enclosed envelope. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
- --------------------------------------------------------------------------------
/ FOLD AND DETACH HERE /
- --------------------------------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 109 TROY, MI NO POSTAGE
POSTAGE WILL BE PAID BY ADDRESSEE NECESSARY
IF MAILED
IN THE
UNITED STATES
MERITOR AUTOMOTIVE INC.
2135 W. MAPLE RD.
TROY MI 48084-9716
<PAGE> 46
P
R
O
X
Y
PROXY
MERITOR AUTOMOTIVE, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Larry D. Yost, John J. Creedon and
Charles H. Harff, jointly and severally, proxies, with full power of
substitution, to vote shares of capital stock owned of record by the undersigned
and which the undersigned is entitled to vote at the Annual Meeting of
Shareowners to be held at the Corporation's World Headquarters, 2135 West Maple
Road, Troy, Michigan on February 11, 1998, or any adjournment thereof; such
proxies being directed to vote as specified or, if no specification is made, FOR
the election of two nominees proposed for election as directors with terms
expiring at the Annual Meeting in 2001 and FOR proposals (b), (c), (d) and (e),
and to vote in accordance with their discretion on such other matters as may
properly come before the meeting.
To vote in accordance with the Board of Directors' recommendations just
sign and date the other side; no boxes need to be checked.
-------------
SEE REVERSE
SIDE
-------------
(continued, and to be signed and dated, on the other side)
- --------------------------------------------------------------------------------
/ FOLD AND DETACH HERE /
/ FOLD AND DETACH HERE /
- --------------------------------------------------------------------------------
[MERITOR LOGO]
ADMITTANCE CARD REQUEST
IF YOU PLAN TO ATTEND the Annual Meeting of Shareowners
to be held on February 11, 1998, this form may be used
to request an admittance card. Please fill in your
name(s) and address and promptly return the form. The
envelope provided for return of your proxy card may be
used for this purpose or you may tear off this business
reply card and deposit it in the U.S. mail. Upon receipt
of your request and verification of your share
ownership, an admittance card will be sent to you.
I/WE PLAN TO ATTEND THE MEETING IN TROY, MICHIGAN.
Name(s)_________________________________________________
Please Print or Type
Street Address__________________________________________
City __________________ State _________ Zip Code________
<PAGE> 47
- ---------- Please mark your
X votes as indicated 2346
- ---------- in this example.
Where a vote is not specified, the proxies will vote the shares represented by
the proxy FOR the election of directors and FOR proposals (b), (c), (d) and (e)
and will vote in accordance with their discretion on such other matters as may
properly come before the meeting.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR (a), (b), (c), (d) AND (e).
- --------------------------------------------------------------------------------
FOR WITHHOLD AUTHORITY
(a) The election of --------- ---------
two directors
--------- ---------
Nominees: L.D. Yost and C.H. Harff
For, except vote withheld from the following nominee:
- -------------------------------------------------------------
FOR AGAINST ABSTAIN
--------- --------- ---------
(b) The selection of auditors
--------- --------- ---------
--------- --------- ---------
(c) Approve the 1997 Long-Term
Incentives Plan
--------- --------- ---------
--------- --------- ---------
(d) Approve the Directors Stock Plan
--------- --------- ---------
--------- --------- ---------
(e) Approve the Incentive
Compensation Plan
--------- --------- ---------
Annual Report--Mark here to
discontinue mailing of annual ---------
report to shareowners for this
account (for multiple account ---------
holders only).
SIGNATURE(S) __________________________________________ DATE ______________ 1998
NOTE: Please sign, date, and return the proxy card promptly using the enclosed
envelope. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such, and, if signing for a
corporation, please give your title. When shares are in the name of more
than one person, each should sign the proxy.
- --------------------------------------------------------------------------------
/ FOLD AND DETACH HERE /
- --------------------------------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 109 TROY, MI
POSTAGE WILL BE PAID BY ADDRESSEE NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
MERITOR AUTOMOTIVE INC.
2135 W. MAPLE RD.
TROY MI 48084-9716
