<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MERITOR AUTOMOTIVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
[MERITOR LOGO]
LETTER TO
SHAREOWNERS
NOTICE OF 1999
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE> 3
[Meritor Logo]
December 28, 1998
Dear Shareowner:
You are cordially invited to attend the 1999 annual meeting of shareowners of
the Company.
The meeting will be held at the Company's World Headquarters, 2135 West Maple
Road, Troy, Michigan, on Wednesday, February 10, 1999, at 9 a.m. At the meeting
there will be a current report on the activities of the Company 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 Company 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/direction card, or indicate your intention to attend when voting
by telephone or Internet, 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,
/s/ 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 1999 ANNUAL MEETING OF SHAREOWNERS
TO THE SHAREOWNERS OF
MERITOR AUTOMOTIVE, INC.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareowners of Meritor
Automotive, Inc. (the "Company") will be held at the Company's World
Headquarters, 2135 West Maple Road, Troy, Michigan, on Wednesday, February 10,
1999, at 9 a.m. (Eastern Standard Time) for the following purposes:
(a) to elect one member of the Board of Directors of the Company with a
term expiring at the Annual Meeting in 2002;
(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 Company; and
(c) to transact such other business as may properly come before the
meeting.
Only shareowners of record at the close of business on December 14, 1998 will be
entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors.
/s/ David W. Greenfield
David W. Greenfield
Secretary
December 28, 1998
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 1999 Annual Meeting of Shareowners of Meritor Automotive, Inc. (the
"Company") will be held on February 10, 1999, for the purposes set forth in the
accompanying Notice of 1999 Annual Meeting of Shareowners. The Board of
Directors is soliciting proxies to be used at the Annual Meeting and any
adjournment, and is furnishing this statement and the accompanying proxy in
connection with its solicitation. This statement and the proxy are first being
sent to shareowners on or about December 28, 1998.
Shareowners of record may vote by (a) executing and returning a proxy in
the accompanying form; (b) calling a toll-free telephone number; or (c) voting
via the Internet. Specific instructions for telephone and Internet voting are
included on the enclosed proxy card. If a shareowner votes by telephone or
Internet, it is not necessary to return a proxy card. If you properly give a
proxy (including a written proxy or a proxy via telephone or Internet), your
shares will be voted as you specify in the proxy. If no specification is made,
the shares will be voted in accordance with the recommendations of the Board of
Directors. You may revoke your proxy prior to its exercise by delivering written
notice of revocation to the Secretary of the Company, by giving a valid, later
dated proxy or by attending the meeting and voting in person.
The Company was incorporated in 1997 and began operations as an
independent, publicly-held company after the distribution by Rockwell
International Corporation ("Rockwell"), on September 30, 1997, of all the
outstanding shares of Common Stock, par value $1 per share, of the Company
("Common Stock"), to Rockwell's shareowners (the "Distribution"). Prior to the
Distribution, Rockwell transferred substantially all of the operations, assets
and liabilities related to its automotive businesses to the Company or its
subsidiaries.
The Company's policy is to keep confidential proxy cards, ballots and
voting tabulations that identify individual shareowners. However, exceptions to
this policy may be necessary in some instances to comply with legal requirements
and, in the case of any contested proxy solicitation, to verify the validity 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 must acknowledge their responsibility to comply with this
policy of confidentiality.
VOTING SECURITIES
Only shareowners of record at the close of business on December 14, 1998
are entitled to receive notice of, and to vote at, the meeting. On December 14,
1998, the Company had outstanding 69,076,028 shares of Common Stock. Each holder
of Common Stock is entitled to one vote for each share held.
On December 14, 1998, Wells Fargo Bank, N.A. ("Wells Fargo"), Los Angeles,
California, as trustee under the Company's Savings Plan for its participating
employees, held 477,182 shares of Common Stock, representing approximately .69%
of the total outstanding shares of Common Stock. In addition, on that date,
Wells Fargo, as trustee under Rockwell's Savings Plan for its participating
employees, held 10,270,588 shares of Common Stock, representing approximately
14.87% of the total outstanding shares of Common Stock. Shares held by the
trustee of the Savings Plans of the Company and Rockwell on account of the
participants in such plans will be voted by the trustee in accordance with
instructions from the participants (either in writing or by means of the
Company's telephone or Internet voting procedures), and where no instructions
are received, as the trustee deems proper.
On February 12, 1998, Scudder Kemper Investments, Inc., 345 Park Avenue,
New York, New York, filed a Schedule 13G with the Securities and Exchange
Commission ("SEC") reporting that it owned beneficially 6,781,624 shares of
Common Stock, which represented approximately 9.8% of the total outstanding
shares of Common Stock as of December 14, 1998. Scudder Kemper Investments
reported that it had sole voting power with respect to 1,507,079 shares, shared
voting power with respect to 4,857,997 shares, sole dispositive power with
respect to 6,781,623 shares and shared dispositive power with respect to one
share.
1
<PAGE> 6
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the Board
of Directors consists of three classes of directors with overlapping three-year
terms, and that the three classes should be as nearly equal in number as
possible. The Company's Board of Directors currently consists of seven members.
One class of directors is elected each year with terms extending to the
Annual Meeting held three years later. The three directors in Class III and the
two directors in Class I are serving terms expiring at the Company's Annual
Meeting of Shareowners in 2000 and 2001, respectively.
There are two directors in Class II whose terms expire at the 1999 Annual
Meeting. One of the Class II directors, Martin D. Walker, who recently resumed
office as Chairman of the Board and Chief Executive Officer of M.A. Hanna
Company and who serves as chairman of the Audit Committee and a member of the
Board Composition Committee, is not standing for re-election. The Board of
Directors has decreased the number of directors of the Company to six, effective
immediately prior to the Annual Meeting. The other Class II director is standing
for re-election for a term expiring at the Company's Annual Meeting in 2002.
Proxies will be voted at the meeting (unless authority to do so is
withheld) for the election as director of the nominee specified in Class
II -- Nominee for Director with a Term Expiring in 2002 below. If for any reason
the nominee is not a candidate (which is not expected) when the election occurs,
it is likely that either (a) proxies would be voted for the election of a
substitute nominee, or (b) the Board of Directors would reduce the number of
directors.
INFORMATION AS TO NOMINEE FOR
DIRECTOR AND CONTINUING DIRECTORS
The following information, as reported to the Company, is shown below for
the nominee for director and each continuing director: name, age and principal
occupation; position, if any, with the Company; other directorships held; and
the committees of the Board of Directors on which the nominee or continuing
director serves.
CLASS II -- NOMINEE FOR DIRECTOR WITH A TERM EXPIRING IN 2002
HAROLD A. POLING
Retired Chairman of the Board and Chief Executive Officer, Ford Motor Company
(Automotive)
Age 73
[PHOTO]
Mr. Poling, a director since September 1997, 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. He retired as Chairman of
the Board and Chief Executive Officer of Ford Motor Company in
January 1994, having 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.
2
<PAGE> 7
CLASS III -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2000
JOSEPH B. ANDERSON, JR.
Chairman of the Board and Chief Executive Officer, Chivas Industries LLC
(Automotive Component Supplier)
Age 55
[PHOTO]
Mr. Anderson, a director since September 1997, is Chairman of
the Board Composition Committee and a member of the
Environmental and Social Responsibility Committee. He is
Chairman of the Board and Chief Executive Officer of Chivas
Industries LLC, having held that position (including with its
predecessor, Chivas Products, Ltd.) 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 R. R. Donnelley &
Sons Co. and is 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
Retired Chairman of the Board and Chief Executive Officer, Rockwell
International Corporation
(Electronic Controls and Communications)
Age 60
[PHOTO]
Mr. Beall, a director since May 1997, is a member of the Board
Composition Committee and the Compensation and Management
Development Committee. He was Chairman of the Board of Rockwell
from February 1988 through February 1998, and Chief Executive
Officer of Rockwell from February 1988 through September 1997.
He served nine years as President and Chief Operating Officer of
Rockwell and in a number of other increasingly responsible
senior management positions after joining Rockwell in 1968. He
is a director of Rockwell and chairman of the board's executive
committee. He is also a director of Amoco Corporation, The
Procter & Gamble Company, Conexant Systems, Inc. (a new
semi-conductor spin-off from Rockwell) and The Times Mirror
Company. He is a trustee of the California Institute of
Technology and a member of the University of California Irvine
Foundation Board and numerous UCI support organizations, as well
as The Business Council, Hoover Institution, several Young
Presidents Organization alumni organizations and the Council on
Competitiveness. He is also a director, trustee or member of a
number of other professional, civic and entrepreneurial
organizations.
3
<PAGE> 8
JOHN J. CREEDON
Retired President and Chief Executive Officer, Metropolitan Life Insurance
Company (Insurance)
Age 74
[PHOTO]
Mr. Creedon, a director since September 1997, is a member of the
Audit Committee and Chairman of the Environmental and Social
Responsibility Committee. He is the 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, and
served as Chief Executive Officer from 1983 through August 1989.
He is also 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.
CLASS I -- CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2001
LARRY D. YOST
Chairman of the Board and Chief Executive Officer
Age 60
[PHOTO]
Mr. Yost has been a director since May 1997, when he was elected
to his present position. Mr. Yost joined Allen-Bradley Company,
LLC (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 69
[PHOTO]
Mr. Harff, a director since May 1997, is a member of the Audit
Committee and the Compensation and Management Development
Committee. He is a consultant to Rockwell. From June 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.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors manages or directs the management of the business of
the Company. The Board has established four standing committees whose principal
functions are briefly described below. In the 1998 fiscal year, the Board held a
total of eleven regularly scheduled and special meetings. Each director attended
at
4
<PAGE> 9
least 88% of the aggregate number of fiscal year 1998 meetings of the Board and
of the committees on which he served, except Donald R. Beall, who attended 72%
of such meetings.
The Audit Committee is currently composed of three non-employee directors,
Martin D. Walker (chairman), John J. Creedon and Charles H. Harff. Among its
functions, it reviews the scope and effectiveness of audits of the Company by
the independent public accountants and by the Company's internal auditors;
selects and recommends to the Board of Directors the employment of independent
public accountants for the Company, subject to approval of the shareowners;
reviews the audit plans of the independent public accountants and the Company's
internal auditors; reviews and approves the fees charged by the independent
public accountants; reviews the Company's annual financial statements before
their release; reviews the adequacy of the Company's systems of internal
controls and recommendations of the independent public accountants with respect
to internal controls; reviews and acts on comments and suggestions by the
independent public accountants and by the Company's internal auditors with
respect to their audit activities; and monitors compliance by the employees of
the Company with the Company's standards of business conduct policies. The Audit
Committee held four meetings in fiscal 1998.
The Board Composition Committee is currently composed of four non-employee
directors, Joseph B. Anderson, Jr. (chairman), Donald R. Beall, Harold A. Poling
and Martin D. Walker. The principal functions of the Board Composition Committee
are to consider and recommend to the Board qualified candidates for election as
directors of the Company and periodically to prepare and submit to the Board for
adoption the Committee's selection criteria for director nominees. The Committee
also periodically assesses and reports to the Board on the performance of the
Board of Directors. The Board Composition Committee held two meetings in fiscal
1998. Shareowners may recommend candidates for consideration by the Committee by
writing to the Secretary of the Company at its World Headquarters in Troy,
Michigan, giving the candidate's name, biographical data and qualifications. A
written statement from the candidate, consenting to be named as a candidate and,
if nominated and elected, to serve as a director, should accompany any such
recommendation.
The three members of the Compensation and Management Development Committee
(the "Compensation Committee"), Harold A. Poling (chairman), Donald R. Beall and
Charles H. Harff, are non-employee directors and are not eligible 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 Committee
are to evaluate the performance of the Company's senior executives and plans for
management succession and development, to consider the design and
competitiveness of the Company's compensation plans, to review and approve
senior executive compensation and to administer the Company's incentive,
deferred compensation, stock option and long-term incentives plans. The
Compensation Committee held five meetings in fiscal 1998.
The Environmental and Social Responsibility Committee, which is composed of
two non-employee directors, John J. Creedon (chairman) and Joseph B. Anderson,
Jr., reviews and assesses the Company'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. This committee held
two meetings in fiscal 1998.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company 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 receives a
grant of 1,000 shares of Common Stock immediately following each Annual Meeting
of Shareowners. In addition, pursuant to the Directors Stock Plan, each
non-employee director is 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 the grant, 3,000 shares of Common Stock
immediately after each Annual Meeting of Shareowners of the
5
<PAGE> 10
Company. The first such grants of Common Stock and options occurred on February
11, 1998, immediately after the 1998 Annual Meeting of Shareowners.
In connection with the Distribution, each non-employee director received
special one-time grants of Common Stock and options to purchase Common Stock
under the Directors Stock Plan. Each received a grant of 500 shares of Common
Stock immediately after the Distribution on September 30, 1997, and a grant of
options to purchase 1,500 shares of Common Stock on November 19, 1997.
A director may elect to defer payment of all or part of the cash retainer
fees to a later date, with interest on deferred amounts accruing quarterly at a
rate equal to 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 defer all the
annual grant of shares and all or any portion of the cash retainer by electing
to receive restricted shares that could be forfeited if certain conditions are
not satisfied. These restricted shares are 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 Company or a subsidiary of the
Company 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 Company, was 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. On March 4, 1998, the court approved a
restructuring plan, pursuant to which the assets of Chivas Products, Ltd. were
sold on March 17, 1998 to Chivas Industries LLC, a joint venture between Mr.
Anderson and Continental Plastics Co. Mr. Anderson is Chairman of the Board and
Chief Executive Officer of the joint venture.
In connection with the Distribution, Rockwell and the Company entered into
several agreements, including agreements relating to services to be provided by
Rockwell to the Company following the Distribution. Services under these
agreements were performed, and payments in excess of $60,000 were made, in
fiscal 1998. These agreements were negotiated and executed at a time when
certain of the Company's directors and executive officers also served as a
director and executive officers of Rockwell. The Company believes the terms of
these agreements to be fair.
OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES
The following table shows the beneficial ownership, reported to the Company
as of November 30, 1998, of the Company's Common Stock of (a) each director, (b)
each executive officer listed in the Summary Compensation Table under the
heading Executive Compensation below and (c) such persons and other executive
officers as a group. See Voting Securities above for information on beneficial
holders of more than 5% of the Company's Common Stock.
6
<PAGE> 11
BENEFICIAL OWNERSHIP AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
NAME SHARES(1)(2) PERCENT OF CLASS(3)
---- ------------ -------------------
<S> <C> <C>
Joseph B. Anderson, Jr. ................................... 2,000 --*
Donald R. Beall............................................ 124,520(4)(5)(6) .18%
John J. Creedon............................................ 3,089 --*
Charles H. Harff........................................... 14,730(7) --*
Harold A. Poling........................................... 2,000 --*
Martin D. Walker........................................... 8,705(6)(8) --*
Larry D. Yost.............................................. 197,243(4)(6) .29
Prakash R. Mulchandani..................................... 75,573(4)(6) .11
Thomas A. Madden........................................... 98,294(4)(6)(9) .14
Glenn J. Eggert............................................ 26,990(4) --*
Gary L. Collins............................................ 27,397(4) --*
All of the above and other executive officers as a group
(17 persons)............................................. 689,077(4)(6) .99
</TABLE>
- ---------------
* Less than 0.1%
(1) Each person has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) Includes the following numbers of shares of Common Stock which may be
acquired upon exercise of options that were exercisable or would become
exercisable within 60 days: 500 shares for each of Messrs. Anderson, Beall,
Creedon, Harff, Poling and Walker; 108,000, 21,000, 63,500, 16,200 and
16,200 shares for Messrs. Yost, Mulchandani, Madden, Eggert and Collins,
respectively; and 305,287 shares for all directors and executive officers as
a group.
(3) For purposes of computing the percentage of outstanding shares beneficially
owned by each person, the number of shares owned by that person and the
number of shares outstanding includes shares as to which such person has a
right to acquire beneficial ownership within 60 days (for example, through
the exercise of stock options, conversions of securities or through various
trust arrangements), in accordance with Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended.
(4) Includes shares beneficially owned under the Company's and Rockwell's
Savings Plans. Does not include the following share equivalents held under
supplemental savings plans of Rockwell and the Company on November 30, 1998:
3,592, 1,684, 770, 572, 148 and 230 shares for Messrs. Beall, Yost,
Mulchandani, Madden, Eggert and Collins, respectively, and 7,165 shares for
all directors and executive officers as a group.
(5) 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.
(6) Includes restricted shares of Common Stock awarded under the Directors Stock
Plan or the 1997 Long-Term Incentives Plan, as applicable. Restricted shares
are held by the Company until certain conditions are satisfied.
(7) Includes 1,110 shares held by the Charles H. and Marion M. Harff Charitable
Remainder Trust and 1,500 shares held by the Charles H. Harff Revocable
Living Trust. Mr. Harff is co-trustee of each such trust.
(8) Includes 2,999 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.
(9) Includes 2,500 shares purchased after November 30, 1998.
7
<PAGE> 12
EXECUTIVE COMPENSATION
The Company began operation independent of Rockwell on October 1, 1997. The
information shown below reflects the annual and long-term compensation, from all
sources, of the chief executive officer of the Company and the other four most
highly compensated executive officers of the Company at September 30, 1998 (the
"Named Executive Officers"), for services rendered in all capacities to the
Company and its subsidiaries for the fiscal year ended September 30, 1998, and
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 Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- -------------------------
OTHER STOCK
ANNUAL OPTION LONG-TERM
NAME AND PRINCIPAL POSITION WITH COMPEN- GRANTS INCENTIVE ALL OTHER
THE COMPANY(1) YEAR SALARY BONUS SATION (SHARES)(2) PAYMENTS(3) COMPENSATION(4)
- -------------------------------- ---- -------- -------- ------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry D. Yost................. 1998 $475,000 $400,000 $10,339 335,000 $566,400 $28,528
Chairman of the Board 1997 290,000 425,000 10,364 39,000 786,100 16,099
& Chief Executive Officer 1996 250,000 200,000 6,937 18,225 405,000 14,004
Prakash R. Mulchandani........ 1998 264,000 168,300 5,667 147,000 705,165 15,840
Senior Vice President and 1997 210,000 172,500 6,322 -- 957,200 16,021
President, Heavy 1996 191,667 133,700 8,997 -- 80,520 12,263
Vehicle Systems
Thomas A. Madden.............. 1998 260,000 153,500 18,946 103,000 92,920 15,600
Senior Vice President 1997 207,500 171,600 16,483 58,500 154,700 13,277
& Chief Financial Officer 1996 173,333 110,000 11,781 -- -- 10,870
Glenn J. Eggert............... 1998 210,000 108,900 24,471 91,900 395,064 12,600
Senior Vice President, 1997 184,165 134,000 12,112 -- 481,800 11,050
Operations 1996 185,161 78,272 5,695 -- 81,830 12,392
Gary L. Collins............... 1998 207,000 99,000 11,556 79,100 209,256 12,420
Senior Vice President, 1997 179,500 127,300 10,291 -- 264,975 11,367
Human Resources 1996 170,000 84,600 10,949 -- 37,620 10,715
</TABLE>
- ---------------
(1) The table reflects the positions held with the Company at September 30,
1998. The Named Executive Officers served the Company in the following
additional capacities during fiscal year 1998: Mr. Mulchandani -- Senior
Vice President and President, Worldwide Truck and Trailer Systems (September
1997-December 1997); and Mr. Eggert -- Senior Vice President-Operations,
Heavy Vehicle Systems (September 1997-September 1998). The Named Executive
Officers served Rockwell and its subsidiaries in the following capacities
during fiscal years 1996 and 1997: 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. 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); 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. Eggert -- Vice President-Operations, Heavy Vehicle Systems (May
1996-September 1997), and Vice President, Operations, Industrial Controls
Group, Allen-Bradley Company, LLC (subsidiary of Rockwell) (October
1995-April 1996); and Mr. Collins -- Vice President - Human Resources and
Government Relations, Automotive (October 1995-September 1997).
(2) Stock options for fiscal year 1997 and 1996 were originally granted as
options to purchase Rockwell common stock under Rockwell's 1995 Long-Term
Incentives Plan. The Company assumed the fiscal year 1997 options at the
time of the Distribution and these options, as adjusted, now relate to the
purchase of the Company's Common Stock. The fiscal year 1996 options were
not assumed by the Company, and
8
<PAGE> 13
relate to the purchase of Rockwell common stock, with the number of options
awarded and the exercise price adjusted to reflect the effect of the
Distribution.
(3) Long-term incentive payments for fiscal years 1998 and 1997 consist of cash
and the market value of Common Stock paid by the Company to the Named
Executive Officers with respect to performance plans established under
Rockwell's long-term incentives plans. See Long-Term Incentive Plan Awards
below. Long-term incentive payments for fiscal year 1996 were made by
Rockwell with respect to performance plans under its long-term incentives
plans.
(4) This column reflects amounts contributed or accrued for fiscal years 1998,
1997 and 1996 for the Named Executive Officers under employee savings plans
and related supplemental savings plans of the Company (for 1998) and of
Rockwell and certain subsidiaries (for 1997 and 1996).
OPTION GRANTS
The following table shows grants to the Named Executive Officers of options
to purchase Common Stock pursuant to the Company's 1997 Long-Term Incentives
Plan that were made during the fiscal year ended September 30, 1998. These
options are reflected in the Summary Compensation Table above.
<TABLE>
<CAPTION>
GRANT DATE
OPTION GRANTS VALUE
---------------------------------------------------------------- ----------
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES TO COMPANY EXERCISE OR
UNDERLYING EMPLOYEES BASE PRICE GRANT DATE
OPTIONS GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (SHARES) 1998 (PER SHARE) DATE VALUE(4)
---- --------------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost................... 246,000(1) 8.16% $22.3125 11/19/07 $2,051,640
64,000(2) 2.12 22.3125 11/19/07 533,760
25,000(3) 0.83 23.5000 2/10/08 214,750
Prakash R. Mulchandani.......... 63,000(1) 2.09 22.3125 11/19/07 525,420
64,000(2) 2.12 22.3125 11/19/07 533,760
20,000(3) 0.66 23.5000 2/10/08 171,800
Thomas A. Madden................ 93,000(1) 3.08 22.3125 11/19/07 775,620
10,000(3) 0.33 23.5000 2/10/08 85,900
Glenn J. Eggert................. 48,600(1) 1.61 22.3125 11/19/07 405,324
43,300(2) 1.44 22.3125 11/19/07 361,122
Gary L. Collins................. 48,600(1) 1.61 22.3125 11/19/07 405,324
24,700(2) 0.82 22.3125 11/19/07 205,998
5,800(3) 0.19 23.5000 2/10/08 49,822
</TABLE>
- ---------------
(1) Annual long-term incentive grants plus one-time incentive grants incident to
the Company's becoming a publicly-held company, granted on November 19,
1997. The first of three approximately equal installments of these options
became exercisable November 19, 1998, and the second and third installments
will become exercisable on November 19, 1999 and November 19, 2000.
(2) Granted on November 19, 1997 in consideration of the early termination of
the three-year performance period ending September 30, 1999 under Rockwell's
1995 Long-Term Incentives Plan. These options will become exercisable on
November 19, 1999.
(3) Granted on February 10, 1998, as a result of a change in the strategy for
implementing the long-term incentive component of the Company's compensation
philosophy. (See Compensation Committee Report on Executive Compensation
below.) These options will become exercisable in three approximately equal
installments on February 10, 1999, 2000 and 2001.
(4) These values are based on the Black-Scholes option pricing model which
produces a per option share value of $8.34 and $8.59 for the options granted
in November 1997 and February 1998, respectively, using the following
assumptions and inputs: options exercised after 7 1/2 years; weighted
one-year stock price volatility and dividend yield of .3094 and 1.83%,
respectively, for both the November 1997 grant and the February 1998 grant;
and an interest rate of 5.9% for the November 1997 grant and 5.5% for the
9
<PAGE> 14
February 1998 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.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table shows (1) options to purchase the Company's Common
Stock that were exercised by the Named Executive Officers in fiscal year 1998
and (2) the value as of September 30, 1998, of unexercised in-the-money options
to purchase the Company's Common Stock. This table does not include 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, 1998 SEPTEMBER 30, 1998(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Yost................. 0 $0 13,000 361,000 $0 $0
Prakash R. Mulchandani........ 0 0 0 147,000 0 0
Thomas A. Madden.............. 0 0 19,500 142,000 0 0
Glenn J. Eggert............... 0 0 0 91,900 0 0
Gary L. Collins............... 0 0 0 79,100 0 0
</TABLE>
- ---------------
(1) Based on the closing price of the Company's Common Stock ($15.0625) on the
New York Stock Exchange -- Composite Transactions reporting system on
September 30, 1998, the last trading day in that month, none of the
outstanding options to purchase the Company's Common Stock were in the
money.
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows for each Named Executive Officer information with
respect to awards during fiscal 1998 under the Company's 1997 Long-Term
Incentives Plan.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYMENT UNDER
SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER MATURATION OR ----------------------------------
NAME RIGHTS(1)(2) PAYMENT THRESHOLD TARGET(2) MAXIMUM(2)
- ---- -------------- ------------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost............. $446,333 10/1/97-9/30/00 $0 $446,333 $1,339,000
Prakash R. Mulchandani.... 171,167 10/1/97-9/30/00 0 171,167 513,500
Thomas A. Madden.......... 171,167 10/1/97-9/30/00 0 171,167 513,500
Glenn J. Eggert........... 135,250 10/1/97-9/30/00 0 135,250 405,750
Gary L. Collins........... 90,167 10/1/97-9/30/00 0 90,167 270,500
</TABLE>
- ---------------
(1) Potential awards for target performance are expressed as cash amounts.
(2) Before application of stock price change modifier.
Under performance plans established pursuant to the 1997 Long-Term
Incentives Plan, the Compensation Committee of the Board of Directors
establishes performance periods of at least three fiscal years duration and
performance objectives for those periods, and grants potential awards expressed
as cash payments to key employees of the Company and it subsidiaries.
Participants earn awards upon conclusion of the applicable performance period
(which may vary from 0% to 300% of the target award) based on actual
performance, as measured by sales growth, cash flow/return on investment and
return on sales, against target levels established by the Compensation
Committee. However, awards are subject to achieving at least minimum threshold
levels established by the Compensation Committee. The award payments are further
modified by the percentage change in the Company's Common Stock price over the
three-year period of the performance plans, which
10
<PAGE> 15
may increase or decrease the payment finally awarded. At the discretion of the
Compensation Committee, payments may be made wholly or partly by delivering
shares of the Company's Common Stock valued at the fair market value on the
payment date.
All liabilities in respect of Rockwell long-term incentives plan awards
granted to individuals who became employees of the Company and that were
outstanding at the time of the Distribution were assumed by the Company. The
Summary Compensation Table includes payments made by the Company to the Named
Executive Officers in fiscal years 1998 and 1997 in respect of grants previously
made under Rockwell's long-term incentives plan. For fiscal year 1998, these
payments related to the three-year performance period ended September 30, 1998.
For fiscal year 1997, these payments related to (a) the three-year performance
period ended September 30, 1997, and (b) early termination of the three-year
performance period ending September 30, 1999. Payments in 1998 and 1997 were
made in cash or in restricted shares of Common Stock, based on the closing price
of the Common Stock on the New York Stock Exchange -- Composite Transactions
reporting system on the payment date.
In addition, in connection with the early termination of the performance
cycle ending on September 30, 1999, certain Named Executive Officers were
granted options to purchase Common Stock. These options are included in the
tables under the headings Summary Compensation Table and Option Grants above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors, which consists entirely of non-employee directors (see Board of
Directors and Committees above), has responsibility for reviewing all aspects of
the Company's executive compensation and has furnished the following report:
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Compensation Committee has adopted compensation policies for the
Company 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 Company'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 Company's leadership and growth
EMPLOYEE STOCK OWNERSHIP
The Compensation Committee believes the focus on "pay for performance" can
best be achieved by aligning the financial interests of the Company's key
executives with those of the shareowners. Accordingly, it has set the following
minimum Ownership Guidelines (multiple of base salary) to be achieved and
maintained:
<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>
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," who are
subject to a multiple of 1, and "Other Executives subject to the guidelines,"
who are subject to a multiple of 0.5.
11
<PAGE> 16
Only shares owned directly (including restricted shares of Common Stock) or
through savings plans of the Company 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. All executives of the Company are within the five-year transition period
for satisfying the Guidelines. As of November 30, 1998, the chief executive
officer, senior vice presidents and other executive officers owned an aggregate
of 232,560 shares of the Company's Common Stock.
COMPENSATION STRATEGY
The Compensation Committee carries out its "pay for performance" philosophy
by tying each executive's total compensation to the performance of both the
Company and the individual. Base salaries are at a level that is generally set
somewhat below the median of other major U.S. automotive and truck parts
suppliers. However, executives have an opportunity to earn above-median
compensation through the Company's annual and long-term incentive plans, which
provide rewards for superior performance by the individual and the Company. The
Compensation Committee considers the total compensation potentially available to
each executive in establishing each element of compensation.
In its deliberations, the Compensation Committee reviews data from
industry, peer group and national surveys of other major U.S. industrial
companies and considers the size and performance of those companies whose data
is included in such surveys. The Compensation Committee is advised periodically
by independent compensation consultants concerning the Company's compensation
programs in comparison to those of other companies that the Compensation
Committee believes compete with the Company for executive talent. For fiscal
year 1998, the Compensation Committee reviewed data from competing companies
compiled by Hewitt Associates LLP in consultation with the senior human
resources executives of the Company and Rockwell, including 12 of the 15
companies included in the peer group index used in the shareowner return
performance graph. In addition, reference data for a broader group of comparable
industrial companies was reviewed.
The Compensation Committee also considers the tax deductibility of
executive compensation in determining the amount and form of awards. Section
162(m) of the Internal Revenue Code provides that the Company may not deduct
compensation in excess of one million dollars paid to a Named Executive Officer
in any taxable year, unless the compensation is "performance based." Awards
under the 1997 Long-Term Incentives Plan are "performance based" for purposes of
Section 162(m) and are not subject to the limit on deductibility. However, base
salaries and awards under the Incentive Compensation Plan do not qualify as
"performance based" compensation for this purpose, because the Compensation
Committee retains discretion with respect to these payments. For fiscal year
1998, no Named Executive Officer had non-performance based compensation in
excess of one million dollars.
COMPONENTS OF THE COMPANY'S COMPENSATION PLANS
The primary components of the Company's executive compensation are base
salary, annual incentives and long-term incentives. Each of these components is
discussed below.
- Base Salary -- Prior to the beginning of fiscal year 1998, the Board of
Directors established the base salaries of the senior executives of the Company,
including the Named Executive Officers, upon recommendations of the Chief
Executive Officer and the senior human resources executives of the Company and
Rockwell. The recommended base salaries were developed based on the survey data
and consultants' reports described above, on individual performance and on
judgments as to the expected future contributions of the individual senior
executives. Base salaries were also adjusted to reflect the number of years of
experience that each executive had in his or her current position. If an
executive's position and level of responsibility changed during the fiscal year,
his or her base salary was adjusted accordingly, using the same procedures.
- Annual Incentives -- Near the beginning of fiscal year 1998, the
Compensation Committee and the Board of Directors reviewed with the Chief
Executive Officer the corporate goals and objectives for that year. These goals
and objectives were focused on shareowner value creation objectives, which
included measurable
12
<PAGE> 17
financial goals for the fiscal year as well as strategic goals that require more
subjective assessments. The financial objectives for fiscal year 1998 included
sales penetration growth, increased return on sales and improvement in the ratio
of noncash working capital to sales. The Company's strategic objectives related
to building customer relationships; enhancing organizational excellence;
developing long-term leadership; improving competitive position; and exercising
social responsibility. In addition, separate goals and objectives were developed
for each of the Company's business units, tailored to its particular operations.
Although the Compensation Committee believes that all corporate goals are
important, it gave greater weight to financial and other goals related to
enhancement of shareowner value in determining the amount available for annual
incentive payments.
The Compensation Committee assessed performance for fiscal year 1998,
applied the methodology set for that year and awarded the annual incentive
compensation (see the column headed "Bonus" in the table under Executive
Compensation -- Summary Compensation Table above) to the Named Executive
Officers and other key employees of the Company. In addition to the financial
performance criteria, individual awards were based on levels of responsibility
and an assessment of individual performance by the Company's Chief Executive
Officer of key employees other than himself.
In assessing the Company's achievement of its 1998 financial objectives,
the Compensation Committee considered the effect on earnings of the September
1998 settlement of interest rate lock agreements. The settlement of these
agreements resulted in a one-time payment of $31 million (before taxes), which
would have been amortized over the life of the related debt securities had they
been issued. Because instability in the financial markets precluded the Company
from issuing the securities, the Compensation Committee determined that, for
purposes of annual incentive compensation, the effect of this earnings reduction
should be amortized over the intended terms of the debt securities (an average
of ten years).
When corporate, business unit and individual goals and objectives are
achieved, incentive compensation is intended to be awarded at or above 100% of
stated target levels. These target levels were established based on broad
industry surveys, with significant upward and downward leverage dependent on
performance. For the 1998 fiscal year, annual incentive compensation for the
Company's executives averaged slightly below the target level.
The aggregate amount of incentive compensation awards for fiscal year 1998
was less than the corresponding aggregate amount of awards for fiscal year 1997.
The 1997 awards included one-time, non-recurring incentive grants incident to
the Company's becoming a publicly-held company, which were not made with respect
to 1998.
- Long-Term Incentives -- The Company's 1997 Long-Term Incentives Plan
provides the flexibility to grant long-term incentives in a variety of forms,
including performance units, stock options, stock appreciation rights and
restricted shares of Common Stock. Annually, the Compensation Committee
evaluates the type of long-term incentives it believes are most likely to
achieve the Company's total compensation objectives. The Compensation Committee
currently provides long-term incentives to executive officers two-thirds through
stock option grants and one-third through awards under long-term performance
plans. This represents a modification of the policy reported in the proxy
statement for the 1998 annual meeting of shareowners, which provided for
one-half of incentives to be made through stock option grants and one-half
through awards under long-term performance plans. The Compensation Committee
believes this modification furthers a closer alignment of the executive
officers' interests with the interests of the Company's shareowners.
In accordance with its current practice, the Compensation Committee granted
stock options to executive officers, including the Named Executive Officers (see
the table under Executive Compensation -- Option Grants above), in fiscal year
1998. The Compensation Committee reviewed the recommended individual awards of
stock options with the Chairman of the Board and Chief Executive Officer (except
the award to the Chairman of the Board and Chief Executive Officer was
separately determined by the Compensation Committee). The Compensation Committee
also considered the relevant survey data and consultants' reports described
above, and the anticipated future contributions of the individual executive
officers.
13
<PAGE> 18
In fiscal year 1998, the Compensation Committee also established a
performance plan with a three-year performance period ending September 30, 2000,
and awarded performance units to executives. Under the performance plan,
potential compensation depends on achieving levels of sales growth, cash
flow/return on investment and return on sales, as modified by the change in the
Common Stock price during the term of the performance period.
Long-term incentive payments that were approved by the Compensation
Committee in fiscal year 1998 related to a Rockwell performance plan. In fiscal
year 1996, the Compensation and Management Development Committee of Rockwell's
Board of Directors (the "Rockwell Committee") granted key executives long-term
incentives under Rockwell's long-term incentives plan. These incentives were
granted, in part, in the form of units under a performance plan that provided a
long-term compensation opportunity dependent on achieving certain goals over a
period of three fiscal years ending September 30, 1998. These goals were
measured by sales growth, return on sales and return on assets, with the
potential payment to be adjusted depending on the price increase or decrease of
Rockwell common stock over the period. Mr. Yost received half of his long-term
incentives grant for this period in the form of performance units and half in
the form of Rockwell stock options.
The Company assumed all liabilities in respect of Rockwell long-term
incentives plan awards that were granted to individuals who became employees of
the Company and that were outstanding at the time of the Distribution, including
the performance plan units that were granted by the Rockwell Committee in 1996.
On November 11, 1998, the Compensation Committee made long-term incentive awards
to key executives of the Company, including the Named Executive Officers, with
respect to these 1996 grants (see the column headed "Long-Term Incentive
Payments" in the table under Executive Compensation -- Summary Compensation
Table above). Awards were based on the formulae in the performance plan
established by the Rockwell Committee, as adjusted to reflect the Distribution.
These awards were paid in cash or restricted shares of Common Stock.
In furtherance of the intended alignment of the financial interests of
executives with those of the Company's shareowners, the Compensation Committee
awarded all or a portion of the long-term incentives earned by the following
Named Executive Officers in the stated number of restricted shares of Common
Stock: Mr. Yost: 27,296 shares; and Mr. Mulchandani: 19,277 shares. These
restricted shares will vest upon retirement in the case of Mr. Yost and five
years after the effective date of grant in the case of Mr. Mulchandani.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Yost's base salary for fiscal year 1998 was $475,000, which the
Compensation Committee believed was in line with the Company's compensation
philosophy and appropriately reflected the increased responsibilities Mr. Yost
had as Chief Executive Officer of a major publicly owned company. Based on a
September 1998 consultants' report and survey data, the Compensation Committee
currently believes that this salary level was further below the median base
salary level for chief executive officers of companies that compete with the
Company for executive talent than would be consistent with the Company's
compensation philosophy.
In determining Mr. Yost's annual incentive compensation for fiscal year
1998, the Compensation Committee concluded that the Company had performed well
under his leadership, substantially exceeding most of its financial goals and
either meeting or making significant progress with respect to its other goals
and objectives. In recognition of strong individual and Company performance in
fiscal 1998 and Mr. Yost's continued leadership in pursuing the Company's
envisioned future, and consistent with its "pay for performance" philosophy, the
Compensation Committee awarded Mr. Yost an annual incentive award of $400,000.
The Compensation Committee granted stock options to Mr. Yost in fiscal year
1998 as long-term incentives. In determining the number of options granted, the
Compensation Committee considered advice of independent compensation consultants
and the value of long-term incentives provided by other comparable companies, as
reported in surveys. The Compensation Committee also considered Mr. Yost's total
compensa-
14
<PAGE> 19
tion, as well as his past and expected future contributions to the Company's
achievement of its long-term performance goals.
Mr. Yost was also granted performance units under the performance plan
established by the Compensation Committee in fiscal 1998 for the three-year
performance period ending September 30, 2000. See Executive
Compensation -- Long-Term Incentive Plan Awards above.
The Compensation Committee made a long-term incentive award of $566,400 to
Mr. Yost in fiscal year 1998 with respect to the performance units granted in
1996 by the Rockwell Committee (see "Long-Term Incentives" above in this
report). This award, which was paid in restricted shares of Common Stock, was
based on the same criteria applicable to other executives and the position Mr.
Yost held with Rockwell at the beginning of the performance period.
The Board in executive session (when Mr. Yost was not present), as provided
in the Company's Corporate Governance Guidelines, received and discussed the
Compensation Committee's evaluation of the Company's and Mr. Yost's performance
in the 1998 fiscal year and its proposed 1998 incentive compensation for Mr.
Yost and long-term incentives granted to him in the form of stock options and
performance units.
Compensation and Management
Development Committee
Harold A. Poling, Chairman
Donald R. Beall
Charles H. Harff
15
<PAGE> 20
SHAREOWNER RETURN PERFORMANCE PRESENTATION
The Company has operated as an independent company only since the
Distribution on September 30, 1997. Prior to that time, the automotive
businesses conducted by the Company were operated as part of Rockwell's
businesses.
Set forth below is a line graph comparing the cumulative total shareowner
return on the Company's Common Stock against the cumulative total return of the
S&P 500 and a peer group of companies for the fiscal year that commenced October
1, 1997 and ended on September 30, 1998, assuming a fixed investment of $100 at
the respective closing prices on the last day of each quarter and reinvestment
of all cash dividends.
COMPARISON OF ONE-YEAR TOTAL RETURN
MERITOR COMMON STOCK, S&P 500 INDEX(1) AND PEER GROUP INDEX(2)
[LINE GRAPH]
<TABLE>
<CAPTION>
MERITOR
AUTOMOTIVE, PEER GROUP
INC. S&P 500 INDEX INDEX
<S> <C> <C> <C>
10/1/97 100.00 100.00 100.00
12/31/97 88.61 102.87 92.83
3/31/98 112.23 117.22 108.02
6/30/98 101.81 121.09 99.24
9/30/98 64.20 109.05 76.84
</TABLE>
- ---------------
(1) Standard & Poor's 500 Market Index.
(2) The Company believes that a peer group of representative independent
automotive suppliers of comparable size and products is appropriate for
comparing shareowner return. The peer group consists of Arvin Industries,
Inc., Borg-Warner Automotive, Inc., Dana Corporation, Federal Mogul
Corporation, Lear Corporation, Standard Products Co., Superior Industries
International, Detroit Diesel Corporation, Donnelly Corp., Eaton
Corporation, Excel Industries, Inc., Johnson Controls, Inc., MascoTech,
Inc., Tower Automotive, Inc. and Cummins Engine, Inc.
<TABLE>
<S> <C>
Closing market price of Common Stock at 9/30/98............. $15.0625
Closing market price of Common Stock at 11/30/98............ $17.6875
Dividends per share of Common Stock during fiscal year ended
9/30/98................................................... $ 0.42
</TABLE>
16
<PAGE> 21
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 Company 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 Company's plan credits participants for service earned
with Rockwell, and the benefits payable under the Company'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 Company's
and Rockwell's retirement plans, which cover most officers and other salaried
employees of the Company on a noncontributory basis. These benefits reflect a
reduction to recognize in part the cost of Social Security benefits related to
service with the Company 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
- ----------------------- -------- -------- -------- -------- -------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
$ 200,000 ................ $ 51,924 $ 77,874 $ 82,485 $ 87,096 $ 91,707 $ 96,318
300,000 ................ 78,594 117,874 124,985 132,096 139,207 146,318
400,000 ................ 105,264 157,874 167,485 177,096 186,707 196,318
500,000 ................ 131,934 197,874 209,985 222,096 234,207 246,318
600,000 ................ 158,604 237,874 252,485 267,096 281,707 296,318
700,000 ................ 185,274 277,874 294,985 312,096 329,207 346,318
800,000 ................ 211,944 317,874 337,485 357,096 376,707 396,318
900,000 ................ 238,614 357,874 379,985 402,096 424,207 446,318
1,000,000 ................ 265,284 397,874 422,485 447,096 471,707 496,318
1,100,000 ................ 291,954 437,874 464,985 492,096 519,207 546,318
</TABLE>
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, Mulchandani, Madden, Eggert and
Collins are 27, 24, 17, 20 and 22, 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 Company 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 Company and Rockwell in connection with the
Distribution, the Company has assumed all liabilities under Rockwell's
supplemental plans with respect to participants under Rockwell's supplemental
plans who became employees of the Company as of the time of the Distribution.
PROPOSAL TO APPROVE THE SELECTION OF AUDITORS
The Board of Directors of the Company has selected the firm of Deloitte &
Touche LLP as the auditors of the Company, subject to the approval of the
shareowners. Deloitte & Touche LLP have acted as auditors for the Company 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 the Company and for Rockwell in prior years and
its reputation for integrity and for competence in the fields of accounting and
17
<PAGE> 22
auditing. Representatives of Deloitte & Touche LLP are expected to be present at
the 1999 Annual 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).
VOTE REQUIRED
The nominee for election as a director who receives the greatest number of
votes cast for the election of a director at the 1999 Annual Meeting by the
holders of the Company's Common Stock entitled to vote at the meeting, a quorum
being present, shall become a director at the conclusion of the tabulation of
votes. An affirmative vote of the holders of a majority of the voting power of
the Company'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 selection of auditors. The presence, in person or by proxy, of the holders
of at least a majority of the shares of the Company'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 Company'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" or "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 the selection of auditors,
and the total number of votes cast "for" such matter 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 a
director (assuming a quorum is present) and has the same legal effect as a vote
"against" approval of the selection of auditors 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) and (b) of the accompanying Notice of 1999 Annual
Meeting of Shareowners, it is intended that properly given proxies will be voted
on the additional matters 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, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the New
York Stock Exchange. Officers, directors and greater than ten percent
shareowners are required by SEC regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors and greater than
ten percent beneficial owners have filed with the SEC on a timely basis all
required forms with respect to transactions during fiscal year 1998.
ANNUAL REPORT AND FORM 10-K
The Company's Annual Report to Shareowners, including financial statements,
for the fiscal year ended September 30, 1998, was previously mailed to
shareowners. If you have multiple accounts and received multiple copies of the
Company'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, or so indicate when you grant your proxy via telephone or Internet.
18
<PAGE> 23
THE COMPANY WILL PROVIDE TO SHAREOWNERS WITHOUT CHARGE, UPON WRITTEN
REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1998, 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 COMPANY'S COSTS. WRITTEN REQUESTS SHOULD BE DIRECTED
TO THE COMPANY AT 2135 WEST MAPLE ROAD, TROY, MICHIGAN 48084-7186, ATTENTION:
INVESTOR RELATIONS.
SHAREOWNER PROPOSALS FOR 2000 ANNUAL MEETING
Under the rules and regulations of the SEC, shareowner proposals for the
2000 Annual Meeting of Shareowners must be received on or before August 30, 1999
at the Office of the Secretary at the Company's World Headquarters located at
2135 West Maple Road, Troy, Michigan 48084-7186, in order to be eligible for
inclusion in the Company's proxy materials. In addition, the Company's By-Laws
require a shareowner desiring to propose any matter for consideration at the
2000 Annual Meeting of Shareowners to notify the Company's Secretary in writing
at the above address on or after November 12, 1999 and on or before December 12,
1999.
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. 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 Company without additional compensation. The
Company does not expect to pay any compensation for the solicitation of proxies
but will reimburse brokers and other persons holding stock in their names, or in
the names of nominees, for their expenses of resending proxy materials to
principals and obtaining their proxies.
December 28, 1998
If you plan to attend the Annual Meeting of Shareowners to be held in Troy,
Michigan on February 10, 1999, please be sure to request an admittance card by:
- marking the appropriate box on the proxy card and mailing the card using
the enclosed envelope; or
- indicating your desire to attend the meeting when you grant your proxy
via the Company's telephone or Internet voting procedures; or
- writing to the Company at the following address:
Meritor Automotive, Inc.
2135 West Maple Road
Troy, Michigan 48084
Attention: Secretary
19
<PAGE> 24
MERITOR AUTOMOTIVE, INC.
PROXY CARD SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DIRECTION CARD TO WELLS FARGO BANK, N.A., TRUSTEE
P 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 of the Company owned of
R record by the undersigned and which the undersigned is entitled to vote,
at the Annual Meeting of Shareowners to be held at the Company's World
Headquarters, 2135 West Maple Road, Troy, Michigan, on February 10, 1999,
O or any adjournment thereof, as specified on the reverse side of this card,
and to vote in accordance with their discretion on such other matters as
may properly come before the meeting.
X
The undersigned also provides directions to Wells Fargo Bank, N.A.,
Trustee, to vote shares of capital stock of the Company allocated to
Y accounts of the undersigned under the Meritor Automotive, Inc. Savings
Plan and/or 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), and which are entitled to be voted, at the aforesaid Annual Meeting
or any adjournment thereof, as specified on the reverse side of this card,
and to vote in accordance with its discretion on such other matters as may
properly come before the meeting.
If no specification is made on the reverse side of this card, all
such shares owned of record by or allocated to the Plan accounts of the
undersigned will be voted FOR the election of the nominee proposed for
election as a director with a term expiring at the Annual Meeting in 2002
and FOR proposal (b).
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 *
<PAGE> 25
PLEASE MARK YOUR
X VOTES AS INDICATED
IN THE EXAMPLE.
WHERE A VOTE IS NOT SPECIFIED, THE PROXIES OR THE TRUSTEE WILL VOTE THE SHARES
FOR THE ELECTION OF A DIRECTOR AND FOR PROPOSAL (b) 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) AND (b).
- -------------------------------------------------------------------------------
(a) The election of a director
Nominee: (1) Harold A. Poling
FOR WITHHOLD AUTHORITY
--- ---
------------------------------------
(b) The selection of auditors
FOR AGAINST ABSTAIN
--- --- ---
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/direction 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/direction card.
- -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
