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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
United Parcel Service, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
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Proxy Informational Meeting
September 17, 1999
This presentation is for use on Friday, September 17, 1999.
1
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Meeting Overview
. Opening Remarks
. Anticipated Timeline
- Merger, Stock Listing, Tender, Stock Restriction Periods
. Focus on the Proxy Solicitation Process
- Solicitation materials, Objectives, Voting Procedures
- Do's and Don'ts
- Q&A
. Compensation Discussion
. Lunch
Good morning. On behalf of the entire Management Committee, welcome and thanks
for coming.
We have a full schedule today.
First, [Allen Hill] is going to explain in greater detail the anticipated
timeline and issues related to the transaction. We are going to look at not only
the phase we are going through now -- the proxy solicitation to approve our
merger -- but the key events we anticipate as we become a public company. This
will include steps leading up to the listing and trading of our stock on the New
York Stock Exchange, and also important events afterwards, such as the tender
offer open to all shareowners for new class A shares and various short-term
restrictions on the stock.
We'll be joined later in the morning by Peter Harkins, who is executive vice
president of D.F. King & Company, one of the nation's leading experts in proxy
solicitation. Peter will go into greater detail to explain the documents that
will be mailed to our shareowners, explain our objectives for the proxy
solicitation process, and give us some "Do's and Don'ts." He will also be taking
us through some typical shareowner questions.
After that, we'll review compensation issues and policies. That will conclude
the meeting, and then we'll break for an optional lunch.
2
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Why We're Here Today
. Proxy solicitation asks for a vote in three areas:
- The merger to create a new public company
- Changes to the compensation plan
- The termination of the UPS Stock Trusts
. Importance of voting--UPS Board of Directors recommends that you vote
"FOR" the proposals
. Must provide accurate and complete information
- Cannot go beyond information you will receive today
. Responsibility for ensuring that UPS people understand the implications
of UPS's public offering
The proxy solicitation materials that will be mailed to all shareowners calls
for their votes on three things: The merger, changes to the compensation plan,
and the termination of the UPS Managers Stock Trust and the UPS Employees Stock
Trust.
We must also ensure that ENTRY shareowner understands the importance of
completing the proxy and returning it as soon as possible. It is natural that
our employees will have questions about what this will mean for UPS. They will
want to know how it will affect them. This is a time for each of us to be
available and visible to communicate the meaning of these changes and to convey
the exciting implications for UPS's future.
We each carry a special responsibility to ensure that our people know what it
means to make a public offering and understand the rationale behind this
decision.
It will be important to provide accurate and complete information throughout
this process. However, after today's presentations, you'll understand you
cannot go beyond the information you are receiving today in your discussions
with UPS people. When you leave here this afternoon, you'll take copies of
today's presentations with you. We're asking that you use this presentation in
meetings with your management teams. It is essential that they understand the
process and its exciting implication for our future.
I'd now like to turn the presentation over to [Allen Hill] who will give an
overview of the anticipated timeline and issues related to the transaction.
3
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Update
. Where we are in proxy process
- SEC review of solicitation documents
- One month solicitation campaign
. Expected events over the coming months
- Listing of stock on NYSE
- Tender
- Stock restrictions
Good morning. I'm [Allen Hill].
First, I want to update you on where we are in our public offering process,
touch on the proxy solicitation process that Peter Harkins of DF King will go
into in much greater depth, and then discuss events we expect over the coming
months, including our listing on the NYSE, our planned one-time tender offer for
shareowners who may wish to sell shares, and some new requirements we will all
face as employees of a public company.
Since we announced our plans in July for a public offering, we have been working
with the Securities and Exchange Commission in a very normal process designed to
ensure that our proxy statement / prospectus materials meet all legal and
regulatory requirements. I am pleased to say that the SEC in Washington
completed its review of our proxy statement / prospectus materials ahead of our
anticipated schedule.
Now, we are ready to seek the approval of our shareowners for our plans to
become a public company. As you know, this process is called a proxy
solicitation. All shareholders will receive a ballot (in this case called a
proxy) to cast their votes. As was mentioned, it is very important that all
shareowners vote.
4
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Phase One: Proxy Solicitation, Merger
Proxy Solicitation
. Merger will establish as the parent company UPS, Inc., a legal entity with
appropriate certificate of incorporation
. Creates class A shares (for current UPS shareowners) and class B shares (for
sale to the public)
. Permits the adoption of new Incentive Compensation Plan
. Terminates UPS Managers Stock Trust and UPS Employee Stock Trust
Through the solicitation, we will be asking shareowners to vote on three things:
The merger, changes to the compensation plan, and the termination of the UPS
Managers Stock Trust and the UPS Employees Stock Trust.
Let me explain each of these separately:
The "merger" refers to a change in the UPS legal corporate structure. In our
case, by voting "FOR" the merger, shareowners will approve the establishment of
a new, parent company with a flexible certificate of incorporation. This will
happen because UPS, Inc.--which is a subsidiary that already has our needed
certificate of incorporation--will through the merger become the parent legal
entity of UPS of America, Inc. The new flexible certificate of incorporation
will become the one that governs UPS. It is this that allows us to create two
classes of common stock: class A shares will belong only to our current
shareowners, and class B shares will be for public sale.
Also through the proxy vote, shareowners will be approving a new Incentive
Compensation Plan. Mike Connell will explain more about this in a moment.
Separately, you arc being asked to terminate the UPS Managers Stock Trust and
the UPS Employees Stock Trust, which I'll discuss next.
5
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Phase One: Trust Dissolution -- Expected Benefits
Current Employee Owners
. Shares no longer subject to right of first refusal -- shares sellable on open
market (after restrictions expire)
. Shares no longer subject to recall at separation or retirement
. Eligibility in stock purchase plans unchanged -- with ability to purchase new
UPS common stock
. Ability to purchase UPS common stock on open market
Retirees
. Shares no longer subject to recall or repurchase
. Shares sellable on open market (after restrictions expire)
. Ability to purchase UPS common stock on open market
In addition to voting to approve the merger, Trust members are being asked to
vote to terminate the UPS Managers Stock Trust and the UPS Employees Stock
Trust.
As you know, these trusts place restrictions on UPS employees and retirees.
These trusts require all employees who wished to sell shares to first offer them
to UPS for repurchase. The trusts also subject retirees and other shareowners
who are no longer employees to stock recall and repurchase.
By dissolving these trusts, current employee owners will no longer need to sell
their stock back to UPS. Eligibility in stock purchase plans will remain
unchanged, with the ability to purchase new UPS common stock.
Similarly, retirees won't have their stock subject to recall. Shares will be
able to be sold (after restrictions expire) or purchased on the open market.
<PAGE>
Phase One: Comparison of Class A and Class B Common Stock
. Class A shares: 90% of shares, representing 99% of voting power, to remain
with current holders
. Class B shares: 10% of shares, representing 1% of voting power, to be
offered to the public
. Current UPS shares will automatically become class A shares
. Same economic value -- expect both class A and B shares to have the same
economic value
Class A shares, held by our current shareowners, will have 10 votes per share.
Class B shares, sold to the public, will only have one vote per share.
In this way, even after selling 10% of our common stock to the public, our
current shareowners will have 99% of the voting power.
You should also know that all current UPS shares will be automatically become
class A shares.
Both class A and class B shares will have the same economic value.
<PAGE>
Phase One: New Incentive Compensation Plans
. Purpose of Plan -- optimize our profitability and growth through annual and
long-term incentives
. Discretionary plan -- no pre-determined amount or form for incentives under
plan
. Will not be adopted unless merger and public offering occur
Shareowners will also be asked to vote on a new Incentive Compensation Plan.
Purpose of Plan is to optimize our profitability and growth through annual and
long-term incentives.
UPS managers are eligible to receive options to purchase class A common stock
and other awards.
The plan will link the interests of employees with shareowners -- which will be
important for our new position as a public company.
The plan will be open to the management of UPS and subsidiaries.
The plan is discretionary, which means that there are no pre-determined
incentive amounts or forms.
Finally, the new compensation plans will obviously not go into effect unless the
merger and our public offering occur.
8
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Phase Two: Public Offering of Class B shares
. "Roadshow" meetings -- mid to late October
. Public offering in early November with listing of class B shares on the New
York Stock Exchange
. The initial offering price of the new class B stock will be set immediately
prior to the first day of trading
. Class B shares will trade freely -- we expect both class A and B shares to
have the same economic value
We expect our public offering will occur in early November. Approximately two
weeks earlier, UPS representatives will be meeting with large institutional
investors in the U.S. and Europe who have been identified by our bankers. This
is known as a "roadshow" and its purpose is to provide information about UPS
to these important potential investors.
Our public offering will occur with the listing of our class B shares on the New
York Stock Exchange. We expect this will happen in early November. Our stock
will trade under the symbol "UPS."
As you know from reading the press, our public offering may well be one of the
largest in history, and is likely to attract a lot of media attention. For the
listing itself, there will be a number public events associated with our stock
listing. For example, on the first day of trading, UPSers will likely ring the
opening bell of the New York Stock Exchange, signaling that the market is open
for public trading.
The initial offering price of the new class B stock will be set immediately
prior to the first day of trading. Broadly speaking, our investment banker will
work with the financial underwriters to determine a reasonable offering price,
that is, the price at which our stock will open for the first trade as a public
stock.
While we expect our initial stock price will be higher than our current price,
the ultimate price of class B common stock depends on a number of factors,
including market conditions, our net income and operating performance, and our
performance relative to that of comparable companies with publicly traded stock.
Our stock price may fluctuate based on these factors.
9
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Phase Two: Stock Restrictions
. In the merger, all common stock converts automatically into UPS class A
common stock
- 1/3 into class A-1 common stock (Restrictions lifted 6 months after our
public offering)
- 1/3 into class A-2 common stock (Restrictions lifted 12 months after our
public offering)
- 1/3 into class A-3 common stock (Restrictions lifted 18 months after our
public offering)
. Shareowners can sell some of their shares in UPS planned tender offer
. Automatic conversion of class A to class B if shareowner sells to public
markets or transfers stock to anyone other than "permitted transferee"
In the merger, all common stock converts automatically into UPS class A common
stock
1/3 into class A-1 common stock
1/3 into class A-2 common stock
1/3 into class A-3 common stock
To facilitate public offering. shareowners will be restricted from selling or
transferring class A common stock for a period of time after the public
offering. The restrictions will expire after:
6 months for class A-1 common stock
12 months for class A-2 common stock
18 months for class A-3 common stock
Shareowners can sell shares in UPS planned tender offer. After the restrictions
expire, shareowners can also sell their shares in the public market. The class A
shares will automatically convert to class B shares if you sell your class A
common stock in the public markets or transfer your class A shares to anyone
other than a "permitted transferee."
"Permitted transferee" is an employee's spouse or child or a trust established
by that employee for the sole benefit of one or more of the employee's permitted
transferees.
<PAGE>
Phase Three: Cash Tender for Class A Stock
. Sometime after the public offering, UPS plans to use the proceeds from public
offering to purchase some Class A stock
. Open to all class A shareowners
- One time event with voluntary participation
. Expect long-standing tradition of having employees hold their stock
until retirement to continue
Sometime after the public offering, we plan to use the net proceeds the company
will receive from the sale of this stock to purchase some of the shares held by
current shareowners through a cash tender offer.
Participation will be voluntary and is only for class A shareowners. This will
be a one-time opportunity.
After this tender offer, we expect our long-standing tradition of having
employees hold their stock until retirement to continue.
It is important for UPS people to have a significant investment in our company
so that they will be motivated to strive for our continued success.
<PAGE>
Timeline of Major Milestones
Mid Sept -- Mid Oct Proxy Solicitation
October Shareowner Meeting and
Proxy Results
Mid/Late October Roadshows for Institutional
Investors
November Public Offering / Listing on
NYSE / Shares Begin Trading
Post Public Offering Cash Tender for Current UPS
shareowners
May 2000 - November 2000 - Stock Restriction Periods End
May 2001 (est) [6 months, 12 months, 18 months]
Let me summarize the upcoming key events.
We're now just at the beginning of the proxy solicitation period. For the next
four weeks we will be trying to get all shareholders to complete and return
their proxy cards, thus voting on our merger and incentive compensation plan and
permitting our public offering to go forward as planned.
If approved, then we will begin familiarizing important institutional investors
with UPS through roadshows that will be conducted in mid to late October.
In November, we expect our shares to begin trading on the New York Stock
Exchange.
Sometime after this public offering, we will have a one-time cash tender offer
open to all current shareowners to sell some shares.
Then, at regular six month intervals over the next 18 months, the stock
restrictions on class A shares will be lifted.
I hope this gives you a good overview of our anticipated timeline.
I'd now like to introduce Peter Harkins of D.F. King, our proxy solicitor, who
will explain in detail the documents that are being mailed to our shareholders,
explain our objectives for the proxy solicitation process, and give us some
"Do's and Don'ts." He will also be taking us through some typical shareowner
questions.
12
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Presentation by Peter Harkins
September 17, 1999
1
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What will be mailed to UPS Shareowners?
. Transmittal letter from Jim Kelly
. Notice of meeting
. Q&A's
. Proxy statement
. Proxy Card/Voting Instruction Form
. Postage-paid return envelope for use in returning a proxy card
All shareowners will receive a transmittal letter form Jim Kelly, reviewing the
subject matter of the Shareowner Meeting. This is accompanied by a required
Notice of Meeting.
For your convenience, a separate listing of the most frequently asked questions
with answers has been included.
Both are accompanied by the Proxy Statement, which describes the proposals in
detail, providing relevant information about the proposals and their potential
effects.
Jim Kelly's letter, the Notice of Meeting and the Proxy Statement are bound into
a single booklet.
The booklet is accompanied by a proxy card for registered shareowners to vote
their shares or, in the case of participants in the Qualified Stock Ownership
Plan, the Stock Trusts and the Stock Compensation Plan, a voting instruction
form to direct the trustees how to vote shares.
The Voting Instruction Form for the stock trusts includes an area on which you
can record your vote on the proposal to terminate the stock trusts. It is very
important for participants in the stock trusts to indicate their vote on the
proposal.
Finally, shareowners have been provided postage-paid return envelopes for use in
returning completed proxies and voting instruction forms to the appropriate
addresses.
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What's in the Proxy Statement?
. All the information shareowners need to know, when they need to know it
. Table of contents
. Details regarding what, why, when and how
. Question and Answer summary presentation
The Proxy Statement contains a complete description of the proposals submitted
for shareowner consideration and voting. It contains the facts required to cast
an informed vote.
It also contains a useful table of contents, which will guide you to the page
location of the information you may need.
It begins with a concise overview of what is proposed for shareowner approval
and why, as well as what we know today about when the merger and related
transactions will occur and how. This information is presented in a question and
answer format.
All shareowners should read this material thoroughly. It contains valuable
information about our company.
3
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Solicitation Objectives
. Informed voting
. High degree of participation in the vote
. "FOR" votes
First and foremost, we want our shareowners to understand what has been
proposed, why and what it means for them.
We believe that an informed voter will be a supportive voter.
We also want people to know what they need to know before voting so they feel
comfortable voting "FOR" on the proposals.
We want to achieve a high vote participation level.
Finally, we want to encourage voting "FOR."
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How to Vote
. Complete, sign, date and promptly return all proxies and, if applicable,
voting instruction forms, using the postage-paid envelopes provided
We are asking the UPS shareowners to complete, sign, date and promptly return
all proxies and, if applicable, voting instruction forms received in the mail,
using the postage-paid envelopes provided.
All proxies and, if applicable, voting instruction forms received in the mail
should be completed, signed, dated and returned promptly to ensure that all
shares owned beneficially in one or more accounts are voted at the Shareowners
Meeting.
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How to Vote (Cont'd)
. A vote "FOR" is required for adoption of all proposals
. Don't throw the proxy card away, complete it, sign it, date it, and return it
promptly
Speaker will read the slide.
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Do's and Don'ts
. DO encourage people to familiarize themselves with the content of the Proxy
Statement by reading it carefully before voting
. DO encourage people to ask questions that they may have about the proposals
after reading the Proxy Statement
. DO remind people that the Board of Directors recommends that shareowners
vote "FOR" adoption of all proposals
. DO encourage people to vote by completing, signing, dating, and returning all
proxies and, if applicable, voting instruction forms which they receive in the
mail, using the postage-paid envelopes provided
[Speaker will read the slide.]
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Do's and Don'ts (Cont'd)
. DO NOT GUESS in responding to questions that you may receive
. DO NOT make representations about the proposals and related transactions
described in the Proxy Statement that are not contained in the Proxy Statement
. DO NOT make predictions or speculate as to the potential market value of the
new UPS shares or as to the merits of an investment in the Class "B" shares
[Speaker will read the slide.]
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Do's and Don'ts (Cont'd)
. DO NOT make predictions or claims regarding the probable vote by shareowners
. DO NOT make predictions or claims regarding the likely response to the public
offering of Class B shares by New UPS
. DO NOT make predictions or claims regarding the likely employee/retiree
shareowner response to the self-tender offer to be made for Class A shares by
New UPS
[Speaker will read the slide.]
9
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Do's and Don'ts (Cont'd)
Generally speaking, if you can't find it in print in the Proxy Statement, DO NOT
say it.
[Speaker will read the slide.]
10
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Tips On Answering Questions
. Listen to the question
. If necessary or appropriate, confirm your understanding of the question by
repeating it to the questioner
. Limit your response to only the question that was asked
. Always thank people for asking you a question
[Speaker will read the slide.]
11
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Compensation Programs
If there is any conflict between the presentation material and the Plan
documents related to this material, the Plan documents will govern.
. Today I will cover several exciting changes to UPS Compensation programs
resulting from the merger and compensation plan approval
. If there is any conflict between the presentation material and the Plan
documents related to this material the Plan documents will govern
. Moving to a public stock will result in changes to the way we administer and
deliver several of our compensation programs
. Our basic philosophies on ownership and partnership continue to be critical
components of your overall compensation program at UPS
1
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Managers Incentive Plan
Current
. Dollar amount based on 15% of pre-tax income for the 12 months ending
September 30 and awarded in November.
. Number of shares awarded determined in February, based on November Board of
Directors-determined stock price
. Stock award given in UPS and OPL shares
. The Managers Incentive Plan (MIP) was established in name in 1955.
Participation was expanded to include supervisors in 1968.
. Since 1984 each incentive award has consisted of UPS and OPL shares.
. UPS has been able to take the tax deduction the year prior to the actual
distribution of the award because the stock price didn't change between late
November and early February.
2
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Managers Incentive Plan
Changes
. Distribute award in December 1999
. Determine number of shares awarded based on the IPO price - distribute
participant notifications in November
. MIP award divided by IPO price equals the number of shares granted
. In December, withhold sufficient shares at fair market value to cover the tax
. Award in UPS A-1 shares only -- no OPL shares
. Future awards will be distributed in November or December
. In 1999, there will be two MIP awards. We need to set the share price for the
award in 1999 in order to continue to take the tax deduction for MIP. More
importantly, this provides us with the opportunity for our partners to
participate in the IPO. We anticipate continuing to distribute MIP in
November or December in future years. This may have different impacts based
on individual situations such as:
- the retirement benefit calculation is based on the highest consecutive
five years out of last 10. This may be a plus for people retiring in
2000.
- participants may be taxed at a higher marginal rate as well as experience
a phase out of deductions due to higher income in 1999.
- The additional income may impact MIP participants with a Roth IRA.
. The award will be taxed to employees based on fair market value (FMV) as of
the date shares are distributed.
. MIP shares awarded are A-1 shares and will be subject to the lockup
restrictions for 180 days from the IPO date. However, these shares may be
offered for sale during the tender.
3
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1999 MIP Award for Supervisors
Illustrative Example
Assumptions:
- ------------
Monthly Salary $4,000
MIP Factor 2.0
IPO Price in November $70
Distribution Price in December $80
. Let's look at an example that will demonstrate how the 1999 MIP award will be
calculated using the assumptions given here.
4
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1999 MIP Award for Supervisor
Fix Dollar Amount of Award
Monthly Salary $4,000
Factor x 2.0
------
$8,000
Tax Withholding @ 35% $2,800
------
$5,200
Distribution Price / $ 80
------
Shares distributed 65
. This is how we've historically calculated the MIP award. The dollar amount is
fixed in November and the number of shares are determined at the time of
distribution.
. Using the assumptions you saw earlier a $4000 salary times the one unit factor
of 2 results is an award dollar amount of $8000. Taxes are withheld resulting
in a net award of $5200 which when divided by the distribution share price of
$80 results in an award of 65 shares.
. This is how the award has been calculated in the past. The major difference of
course, is that share price never fluctuated between the award calculation
date and the distribution date.
5
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MIP Award for Supervisor
Fix Shares at IPO
Monthly Salary $4,000
Factor x 2.0
------
$8,000
IPO Price $ 70
------
Award in Shares 115
Distribution Price x $80
------
$9,200
Tax withholding @ 35% * $3,280
------
Net Award $5,920
Distribution Price $ 80
------
Shares Distributed 74
Old Method 65
------
Additional Shares Received 9
* Adjusted for fractional share
. The calculation of the 1999 award will be different from historical practice.
The program is designed to enable MIP recipients to participate in the IPO by
establishing the number of shares on the date of the November notification,
which will be the same date as the IPO. At the date of distribution, a
sufficient number of shares will be withheld to cover taxes at the fair market
value. The participant will be advantaged by using this revised calculation,
assuming the stock price increases between the IPO date and the distribution
date.
. Note that in this example the value of fractional shares was added to the tax
withholding (see asterisk)
. The supervisor receives 9 additional shares using this revised method.
6
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Additional Incentive
. 2.5 percent added to MIP award on shares held as of October 31, less proceeds
of sales
. The 2.5% additional incentive will continue, and following past practice, be
granted at the Board's discretion.
. The 2.5% incentive helps maintain high levels of ownership amongst our
managers and supervisors
. This type of incentive 'is special and unique to UPS.
7
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Additional Incentive
. There will be no adjustment to the cost basis for shares sold during the
tender offer
. 2.5 percent continues to be paid on original cost basis as adjusted for
sales, certain transfers, and purchases
. Shares must be held in custodial account at First Union in order to be
considered for 2.5 percent incentive
. After the IPO, only shares purchased and held by employees and permitted
transferees will be considered for 2.5 % incentive. (Note Cost basis prior
to the IPO is "grandfathered.")
. Class "A" shares must be held in a custodial account at first Union in order
to be considered for the 2 1/2% additional incentive.
. Post-merger sales of "A" shares will impact 2.5% incentive on a go forward
basis (other than those sold during tender.)
- Purchases and sales in QSOP and IRAs will not affect 2.5% incentive.
. Additional incentive will not be impacted if employee purchases shares to
offset charitable contributions after restrictions on purchase lapse. This is
consistent with past practice.
8
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Stock Option Plan
. Vesting -- five years
. Exercise -- five years after grant
. Exercise period (April 1 through April 30)
. Options granted before the merger vest in five years and are exercised five
years after the grant date (between April 1 and April 30).
. Prior to the merger, all optionees exercised at the same price during April
due to a static stock price. (The Board set the stock price in February.)
This will no longer be the case, due to the market and a fluctuating stock
price. The exercise price will vary depending upon which day in April the
option is exercised.
9
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Stock Option Plan
I. Options previously granted
- -----------------------------
. Vesting remains at five years
. Exercise period to remain April 1 through April 30, subject to certain
restrictions
. Use share price on the day of option exercise (closing price)
. Optionee can use existing shares, held for at least six months, to exercise
all or a portion of the option
. Generally, optionees exercise between April 1 and April 30.
. There will no longer be a purchase OPL shares as a result of exercising an
option. As mentioned, earlier OPL is not a part of the N41P award.
. The exercise process is being developed with First Union. Ideally we will have
a process via telephone that will simplify the exercise.
. Individuals in the 16(b) group (Management Committee) and others with inside
information are subject to certain exercise restrictions. They will be able to
exercise beginning on the second business day in April, after the first
quarter's earnings are released to the public, until the end of the month. The
exercise period next year for insiders appears to be approximately April 19
through April 30.
10
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Stock Option Plan
II. 1999 SOP Grant
- ------------------
One-time grant to all option participants (replaces 2000 grant)
. Issue at IPO date
. Grant price is IPO price
. Vesting
- 100 percent of shares after three years
. Exercise
- Can occur anytime after vesting and up to 10 years after grant
(subject to a minimum exercise of 500 shares)
- Exercise period to meet legal requirements as to "black-out" periods for
insiders
- Target award levels remain the same
. Option shares determined by using share price growth of 11 percent
to determine share value five years after grant
. There will be a grant in 1999 issued on the IPO date with the grant price
being the IPO price. This grant replaces the 2000 grant. The 1999 Stock Option
grant will be based on salary and grade as of September 30, 1999.
. The grant will be an Incentive Stock Option (ISO) to the extent allowed by the
IRS. There are annual limits set by the IRS. Any shares in excess of the limit
will be non-qualified option shares. The advantage of ISO shares is no taxable
event at exercise and the growth between exercise and the sale of shares may
be at capital gains rates.
. Unlike prior option grants this option grant will vest at three years instead
of five years. The exercise period will extend to 10 years after the option is
granted. The option holder can exercise all or a portion of the shares between
three and 10 years after the grant date.
. 500 shares or the remainder of the award is the minimum number of shares that
can be exercised.
. There will be restrictions as to when Management Committee members and others
with insider information about business results and plans can exercise
options.
. The target award grant percentage will continue to be based on grade and
salary and the options issued will be calculated assuming 11% annual stock
accretion for the five years following the date of the grant. This is the same
methodology used for the April 1999 grant.
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<PAGE>
Stock Option Plan
III. Interim grant in April 2000
- --------------------------------
. For individuals promoted into eligible positions or to a higher target grant
position after the IPO date and before March 1, 2000
IV. To occur in 2000 and beyond
- -------------------------------
. Vesting, exercise and target award level
. Each year's award will describe the terms of the option grant
- However, no major changes anticipated
. There will be a one time interim grant for individuals promoted into eligible
positions or to a higher target grant position after the IPO date and before
March 1, 2000. If they received an option grant at the IPO date, the interim
grant size will be reduced by the value of the SOP grant in 1999.
. At this time, it is our plan to issue future grants, at the discretion of the
Board, in March or April for 2001 and beyond
. The interim and future grant awards will be determined, as has been done in
the past, using salary as of the preceding December 31 and grade as of March
1.
. The intent is to continue annual grants with 100% vesting after three years
and a 10 year option term. Each year's award will describe the terms of the
option grant.
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<PAGE>
Stock Option Plan
The chart below contrasts the treatment of the 1999 SOP option grants with UPS
options previously granted.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________
Past Grants IPO Grants Once Vested
____________________________________________________________________________________________________________
Feature ISOs NQSOs ISOs NQSOs
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Retirement Exercise within 3 Exercise at Exercise within 3 Exercise within 3
exercise months of retirement end of 5 years months of retirement years or end of option
or option coverts to or option converts to term, whichever
NQSO (exercise at NQSO (exercise occurs first
end of 5 years) within 3 years or end
of option term,
whichever occurs first)
____________________________________________________________________________________________________________
</TABLE>
. You will notice some changes on how we will handle future option grants when
it comes to different life events. This chart compares the past practice
versus how we will handle vested options in the 1999 SOP grant. Vested means
you have the right to exercise but have not done so. For example, the 1999
option will be 100% vested in the third year following the date of the grant
and has between the third and tenth year to exercise the option. With 1999
options that are vested the optionee can exercise during the time periods
outlined in this chart.
. As with any option award, if you fall to exercise within the periods described
in the award you lose the right to the option and any value it might have
provided.
. Each year's award will describe the terms of the option grant.
. There will be more information coming to option participants outlining the
changes in vesting and exercise that occur for retirement, disability, death
and terminations of employment.
13
<PAGE>
Proxy Disclosure
. Incentive Compensation Plan submitted to shareowners for approval with fall
proxy
. Includes authorization for Stock Options, Stock Appreciation Rights,
Performance Units/Cash-based Awards, Restricted Stock, and MIP
. The current proxy includes the Incentive Compensation Plan that was discussed
earlier today. This type of Plan, often referred to as an Omnibus Plan, is a
common plan design and typical market practice used by employers today.
. The plan links interests of employees with shareowners by tying compensation
to stock growth. UPS seeks to optimize our profitability and growth through
the continued usage of annual and long-term incentives.
. There are no current plans to change MIP and Stock Option programs as
previously outlined.
14
<PAGE>
Transfer Restrictions
Pre-merger
. Permitted transferees include immediate family, in-laws, grandchildren,
nieces, nephews, trusts, and charities
. UPSers can transfer to these parties right up until the time of the merger.
. Shares transferred to these parties prior to the merger will be "A" shares.
. After the merger, the permitted transferee group is more limited.
15
<PAGE>
Transfer Restrictions
Post-merger
. Permitted transferees include:
- Employees, spouses, children
- Trusts formed for the benefit of the above
- IRAs
- Banks or trust companies in connection with a pledge of
shares
- Charitable organizations
- Estates
. After the merger, the permitted transferees are the only parties who can
receive and hold "A" shares. Transfers to other parties will convert to "B"
shares.
. Active employees may transfer "A" shares to permitted transferees after the
merger and the permitted transferee will hold "A" shares. The same rules apply
to other "A" shareowners (retirees and certificate holders) during the 540 day
period immediately following the merger, after which, all such transfers would
become "B" shares.
. All transfers of "A" shares, other than to permitted transferees, are
prohibited until the lapse of the lock-up restrictions. Transfers of "A"
shares to permitted transferees will carry over their applicable restrictions
(Al, A2,and A3).
. Hypothecated shares can be sold to UPS during lockup period in event of
employee default.
16
<PAGE>
Employee Purchase Programs
. Currently suspended
. We intend to reinstate
. Employee stock purchases were suspended on July 21,1999, as were payroll
deductions for stock and participant purchases of UPS shares in the QSOP &
IRAs.
. It is UPS's desire to begin the stock purchase programs as soon as possible.
This includes employee 401(k)/QSOP and IRA purchases. We need to work through
the systems issues, which are complicated by resource requirements associated
with Y2K.
17
<PAGE>
Charitable Giving
. Employees can donate shares in 1999 and receive a deduction in 1999
. More communication to come
18
<PAGE>
Tender Offer
. Tender offer must be made to all shareowners and cannot be limited to the
family member "group head"
. All shareowners have the opportunity to participate in the tender offer
. It is required by securities law that the tender offer be given to all
shareowners.
. The group head cannot designate which shares in the "family group" are
tendered. All shareowners have the opportunity to participate in the tender
offer.
19
<PAGE>
Qualified Stock Ownership Plan
. Continue match in stock -- "A" shares -- through fourth quarter 1999
. Participants may purchase "B" shares in the Savings Plan through the self-
managed account
. Continue suspension of purchase of "A" shares in QSOP until restrictions
begin to lapse (six months) or employee purchase program begins
. The 3% match for the 3rd and 4th quarters of 1999 will be made in UPS stock.
It is our intention to continue the match in shares as long as shares are
available. If shares are not available the match will be in cash.
20
<PAGE>
International Purchase of Shares
. Being reviewed
- Stock Compensation Programs
- Ability to purchase
. We are currently evaluating the possible impacts on the international purchase
of shares.
21
<PAGE>
Questions and Answers
. I am sure you are as excited about these changes in your compensation program
as I am. In addition to being the recipient of these improvements, you also
have the responsibility to inform and educate our people on this important
information.
. Let's take any questions you may have on what we just covered.
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