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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
Aeroquip-Vickers, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
/Aeroquip-Vickers Logo/
______________________
1998 Notice of Annual Meeting
and Proxy Statement
______________________
Notice of Annual Meeting of Shareholders
to be held on April 16, 1998
AEROQUIP-VICKERS, INC.
3000 Strayer
P.O. Box 50
Maumee, Ohio 43537-0050
To the Shareholders of Aeroquip-Vickers, Inc.:
The annual meeting of the shareholders of Aeroquip-Vickers, Inc.("Aeroquip-
Vickers") will be held at Aeroquip-Vickers' World Headquarters, 3000 Strayer,
Maumee, Ohio, on Thursday, April 16, 1998, at 8:00 a.m. local time, for the
following purposes:
1. To elect directors;
2. To approve the Aeroquip-Vickers, Inc. 1998 Stock Incentive Plan;
3. To approve the Aeroquip-Vickers, Inc. Non-Employee Directors'
Stock Award Plan;
4. To ratify the employment of Ernst & Young LLP as Aeroquip-Vickers'
independent auditors for 1998; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
All shareholders are cordially invited to attend the meeting. Whether or not
you expect to attend, please execute and return the enclosed proxy promptly.
If you are present at the meeting, you may revoke your proxy and vote your
shares in person if you wish.
By Order of the Board of Directors,
/S/ JAMES M. OATHOUT
James M. Oathout
Secretary
March 10, 1998
<PAGE>
___________________
PROXY STATEMENT
AEROQUIP-VICKERS, INC.
3000 Strayer
P.O. Box 50
Maumee, Ohio 43537-0050
Proxy Statement
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Aeroquip-Vickers, Inc. ("Aeroquip-Vickers") of proxies
to be voted at the annual meeting of shareholders on April 16, 1998. This
Proxy Statement and the accompanying proxy card are first being mailed to
shareholders on or about March 10, 1998.
Outstanding Voting Securities
Aeroquip-Vickers had 28,138,613 $5 Par Value Common Shares (the "Common
Shares") outstanding as of February 17, 1998. Shareholders of record as of
the close of business on that date will be entitled to vote at the meeting,
with each Common Share entitled to one vote.
Proxy Solicitation
Aeroquip-Vickers will pay all costs of distribution and solicitation of
proxies. D. F. King & Co., Inc., 77 Water Street, New York, New York 10005,
will assist Aeroquip-Vickers in soliciting proxies from banks, brokers and
nominees that are record holders for shares beneficially owned by others, and
from certain individual shareholders. Solicitation will be by mail, telephone
and other means. D. F. King & Co., Inc. will be paid a fee estimated at
$9,500. Aeroquip-Vickers will also pay the direct expenses of solicitation,
including the expenses of banks, brokers and nominees for forwarding proxy
material to beneficial owners.
Voting by Proxy Holders
Since many of Aeroquip-Vickers' shareholders are unable to attend
shareholders' meetings, the Board of Directors solicits proxies to give each
shareholder an opportunity to vote on all matters scheduled to come before the
meeting and which are set forth in this Proxy Statement. Shareholders are
urged to read carefully the material in this Proxy Statement; specify their
choice on each proposal by marking the appropriate box on the enclosed proxy
card; and sign, date and return the card in the enclosed postage-paid
envelope. If a shareholder does not specify a choice and the card is properly
executed and returned, the shares will be voted by the Proxy Committee as
recommended by Aeroquip-Vickers. Members of the Proxy Committee are Messrs.
Darryl F. Allen, Purdy Crawford and William R. Timken, Jr. of the Board of
Directors.
Shareholders of record at the close of business on February 17, 1998, are
entitled to submit proxies concerning the proposals described below. Each
share is entitled to one vote. Under Item 1 (election of directors), only
persons nominated as candidates shall be eligible for election as directors,
and, if a quorum is present, the candidates receiving the greatest number of
votes shall be elected. Approval of Item 2 (1998 Stock Incentive Plan), Item 3
(Non-Employee Directors' Stock Award Plan) and Item 4 (independent auditors)
requires the affirmative vote of a majority of the shares of Aeroquip-Vickers
which are represented in person or by proxy at the annual meeting.
At the annual meeting, the results of shareholder voting will be tabulated by
the inspector(s) of elections appointed for the annual meeting. Under Ohio
law and Aeroquip-Vickers' Articles of Incorporation and Code of Regulations,
properly executed proxies that are marked "abstain" or are held in "street
name" by brokers and are not voted on one or more particular items (if
otherwise voted on at least one item) will be counted for purposes of
<PAGE>
determining whether a quorum has been achieved at the annual meeting. Votes
withheld in respect of Item 1 will not be counted in determining the election
of directors. Abstentions and broker non-votes in respect of Item 2, Item 3
and Item 4 will have the same effect as votes against such Items.
The Board knows of no business to come before the meeting other than that set
forth herein. If other business should come before the meeting, the holders
of proxies will vote thereon at their discretion. Without affecting any vote
previously taken, a shareholder may revoke a proxy by giving notice to the
Secretary of Aeroquip-Vickers in writing prior to the annual meeting or at the
meeting itself.
Cumulative Voting
Each Common Share is entitled to one vote on each matter brought before the
meeting. Under Ohio law, shareholders have cumulative voting rights in the
election of directors, provided not less than 48 hours notice in writing is
given by any shareholder to the Secretary of Aeroquip-Vickers that he or she
desires that voting at such election be cumulative, and an announcement of the
giving of such notice is made upon the convening of the meeting. When
cumulative voting applies, each share has a number of votes equal to the
number of directors to be elected, and a shareholder may give all of his or
her votes to one nominee or divide his or her votes among as many nominees as
he or she sees fit. Unless contrary instructions are received on proxies
given to Aeroquip-Vickers, in the event that cumulative voting applies, all
votes represented by such proxies will be divided evenly among the candidates
nominated by the Board of Directors, except that if voting in such manner
would not be effective to elect all such nominees, such votes will be
cumulated in the discretion of Aeroquip-Vickers so as to maximize the number
of such nominees elected.
Shareholder Proposals for Presentation at Next Annual Meeting
Shareholder proposals intended to be presented at the 1999 annual meeting must
be received by the Secretary of Aeroquip-Vickers no later than November 9,
1998.
____________________
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors recommends the election of the nominees set forth below
to the Board of Directors, to hold office until the next annual meeting and
until their successors are elected and shall qualify. All nominees, with the
exception of Mr. Colbert, are current Board members whose terms expire at the
annual meeting of shareholders on April 16, 1998. On January 22, 1998, the
Nominating Committee of the Board recommended that Virgis W. Colbert be
included as a nominee for election to the Board at the 1998 annual meeting of
shareholders. The Board concurred with the recommendation of the Nominating
Committee, and information concerning Mr. Colbert is set forth below. As a
result of Mr. Colbert's nomination, the Board has, by resolution, fixed the
number of directors at eight.
/Photograph - See Appendix C/ Darryl F. Allen (54). An Aeroquip-Vickers
director since 1984, Mr. Allen has been Aeroquip-Vickers' Chairman of the
Board since 1991 and Aeroquip-Vickers' President and Chief Executive Officer
since 1986. He is a director of Cincinnati Milacron Inc. and Fifth Third
Bancorp.
/Photograph - See Appendix C/ Virgis W. Colbert (58). Mr. Colbert is
Executive Vice President of the Miller Brewing Company and has held his
current position since July 1997. From 1995 to 1997, Mr. Colbert was Senior
Vice President - World Wide Operations for Miller Brewing Company. From 1993
to 1995, Mr. Colbert was Senior Vice President - Plant Operations for Miller
Brewing Company. He is also a member of the Board of Directors of Miller
Brewing Company, a wholly-owned subsidiary of Philip Morris Companies Inc.
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<PAGE>
/Photograph - See Appendix C/ Purdy Crawford (66). An Aeroquip-Vickers
director since 1990, Mr. Crawford is Chairman and a director of Imasco Limited
(a major Canadian consumer products and services corporation with operations
in Canada and the United States) and Chairman and a director of CT Financial
Services Inc. and Canada Trustco Mortgage Company (98% owned by Imasco). From
1986 until May 1995, Mr. Crawford was the Chief Executive Officer of Imasco.
He is also a director of Avenor Inc.; Camco, Inc.; Canadian National Railway
Company; Inco Limited; Maple Leaf Foods Inc.; Nova Scotia Power; Petro-Canada;
and Woolworth Corporation.
/Photograph - See Appendix C/ Joseph C. Farrell (62). An Aeroquip-Vickers
director since 1994, Mr. Farrell is the recently retired Chairman and Chief
Executive Officer of The Pittston Company (coal and minerals, security,
transportation, air freight services and home security services). Mr. Farrell
was Chairman, President and Chief Operating Officer of The Pittston Company
from 1991 to 1997. He is also a director of Universal Corp.
/Photograph - See Appendix C/ David R. Goode (57). An Aeroquip-Vickers
director since 1993, Mr. Goode is Chairman of the Board, President and Chief
Executive Officer of Norfolk Southern Corporation (transportation holding
company). Mr. Goode has been in his current position with Norfolk Southern
Corporation since 1992. He is a director of Caterpillar Inc., Georgia-Pacific
Corporation and Texas Instruments Incorporated.
/Photograph - See Appendix C/ Paul A. Ormond (48). An Aeroquip-Vickers
director since 1992, Mr. Ormond is Chairman of the Board, President and Chief
Executive Officer of Health Care and Retirement Corporation (long-term care,
skilled nursing and rehabilitative services). He has been in his current
position with Health Care and Retirement Corporation since 1991. He is a
director of National City Bank, a wholly-owned subsidiary of National City
Corp.
/Photograph - See Appendix C/ John P. Reilly (54). An Aeroquip-Vickers
director since 1991, Mr. Reilly has been a Partner of Reilly, Erwin & Company
L.L.C. since September 1997. Reilly, Erwin & Company L.L.C. works in
partnership with Bessemer Holdings, L.P. to make acquisitions and equity
investments. Mr. Reilly held an advisory position with Tomkins PLC (a U.K.
based multi-industry company) from April 1997 to September 1997. He was
President and Chief Executive Officer of Stant Corporation from January 1997
to April 1997. Mr. Reilly was Chairman of the Board, President and Chief
Executive Officer of Figgie International Inc. from May 1995 to January 1997,
was President & Chief Executive Officer of Figgie International Inc. from
February 1995 to May 1995, and was Chief Executive Officer of Figgie
International Inc. from January 1995 to February 1995. Mr. Reilly was
President and Chief Operating Officer of Brunswick Corporation from 1993 to
1994, and was President and Chief Executive Officer of the Tenneco Automotive
Division of Tenneco Inc. from 1987 to 1993. He is a non-employee Chairman of
the Board of Figgie International Inc.
/Photograph - See Appendix C/ William R. Timken, Jr. (59). An Aeroquip-
Vickers director since 1973, Mr. Timken is Chairman, President and Chief
Executive Officer of The Timken Company (tapered roller bearings and quality
alloy steel). He was Chairman of the Board of The Timken Company from 1975 to
November 1997. He is a director of Diebold Incorporated.
_______________________________
BOARD AND COMMITTEE MATTERS
The Board of Directors held five regular meetings and one special meeting in
1997. During his term on the Board, each incumbent director attended at least
75% of the total number of meetings held by the Board of Directors and each
committee of which he was a member.
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<PAGE>
The Board has three standing committees:
(1) The Audit Committee recommends the selection of the independent auditors;
reviews the scope of the independent auditors' examination and non-audit
services; reviews Aeroquip-Vickers' accounting, financial and internal
audit practices and reports; monitors the compliance of Aeroquip-Vickers
and its subsidiaries with Aeroquip-Vickers' ethics policy and applicable
laws and regulations; and reviews the pension and profit-sharing plans
and related investment activity of Aeroquip-Vickers and its subsidiaries.
Members of the Committee are Messrs. Reilly (Chairman), Farrell and
Ormond. The Committee held three meetings in 1997.
(2) The Organization and Compensation Committee makes recommendations to the
Board with respect to organization structure, management succession and
management salaries. If the 1998 Stock Incentive Plan is approved by the
shareholders, the Organization and Compensation Committee will approve
awards under that plan. This Committee also approves awards under the
1994 Stock Incentive Plan and oversees the administration of
Aeroquip-Vickers' other incentive plans and its employee benefit, pension
and profit-sharing plans. Members of the Committee are Messrs. Crawford
(Chairman), Goode, Ormond and Timken. The Committee held three meetings
in 1997.
(3) The Nominating Committee recommends a slate of directors for election at
the annual meeting of shareholders. It will consider director-nominees
recommended by shareholders in written communications to the Secretary of
Aeroquip-Vickers or the Chairman of the Committee. Nominations for
election at Aeroquip-Vickers' 1999 annual meeting of shareholders must be
received by the Secretary of Aeroquip-Vickers no later than November 9,
1998. The Committee also recommends nominees to fill such vacancies as
may occur on the Board from time to time between annual meetings. The
Committee also establishes and monitors directors' compensation. Members
of the Committee are Messrs. Ormond (Chairman), Allen, Crawford and
Timken. The Committee held two meetings in 1997.
_______________________________
COMPENSATION OF DIRECTORS
During 1997, each director who was not an employee of the Company was paid an
annual retainer of $20,000 ($22,000 for committee chairmen), plus a $1,000 fee
for each Board or committee meeting attended.
As the result of a review undertaken during 1997 by an independent consulting
firm of the total compensation package for non-employee directors, the
following changes were made in the way in which non-employee directors are
compensated for their service. Effective January 1, 1998, the annual retainer
paid to non-employee directors became $25,000 ($27,500 for committee
chairmen). In addition, the Aeroquip-Vickers, Inc. Directors' Retirement Plan
will be amended effective as of January 1, 1998, to freeze the accounts of the
current directors and to exclude participation in that plan by any director
elected to the Board on or after January 1, 1998. The Board of Directors has
approved the Aeroquip-Vickers, Inc. Non-Employee Directors' Stock Award Plan
(the "New Directors' Plan"), subject to shareholder approval. Finally, if the
New Directors' Plan is approved by the shareholders, the 1989 Non-Employee
Directors' Equity Plan will be amended and no directors elected on or after
April 16, 1998, will be eligible to participate in that plan. Each of these
changes is described in more detail below.
Under the Aeroquip-Vickers, Inc. Directors' Retirement Plan, any former member
of the Board who was not an officer of Aeroquip-Vickers and who retired from
the Board, or who with the concurrence of the Board resigned for health or
other reasons beyond his control, was entitled to receive a monthly retirement
payment in an amount equal to one-twelfth of the annual retainer then in
effect payable to the director by Aeroquip-Vickers for his services as a
member of the Board (including the committee chairman's fee for a director who
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<PAGE>
at any time served as a committee chairman, but excluding any meeting fees and
any fees solely attributable to professional or other consulting services
furnished to Aeroquip-Vickers independently of his service as a director).
Under the plan such monthly retirement payment commenced, unless deferred,
with the month following the director's retirement from the Board and
continued through the month in which death occurred; however, under the plan
the aggregate number of such payments could not exceed the lesser of 120 or
the number of months such director served as a non-officer director of
Aeroquip-Vickers.
The amendment to the Directors' Retirement Plan provides for the establishment
of a deferred common stock account for each non-employee director, with the
initial number of units credited to the account determined by dividing the
present value lump-sum dollar amount of the director's accrued benefit at
December 31, 1997, by $50.2969 (the average closing end-of-month price of the
Company's common stock for September through December 1997). Each director's
account will be credited with dividend equivalents converted into additional
units of Common Stock as dividends on the Common Shares are paid. Upon
retirement or at age 70, each non-employee director will receive, as a
distribution, a number of Common Shares equal to the number of stock units
held in his account.
The New Directors' Plan has been approved by the Board of Directors, subject
to shareholder approval. Under this Plan, each non-employee director will
receive upon election or re-election to the Board at each annual meeting of
the Company both a stock option grant and an award of deferred Common Shares.
Assuming approval of the New Directors' Plan (which is described in detail
starting on page 12) by shareholders, the awards made for 1998 for each non-
employee director will consist of 200 deferred Common Shares and options to
purchase 1,200 Common Shares. See Item 3 - Approval of the Aeroquip-Vickers,
Inc. Non-Employee Directors' Stock Award Plan on page 12.
Under the Aeroquip-Vickers, Inc. Plan for Optional Deferment of Directors'
Fees, a director may defer his or her annual retainer fees until his or her
directorship ceases, at which time the deferred amounts will be paid in cash
in a lump sum or installments commencing on a date designated by the director.
Prior to amendment of the Aeroquip-Vickers, Inc. Directors' Retirement Plan, a
director could likewise defer payment of monthly retirement payments under the
Aeroquip-Vickers, Inc. Directors' Retirement Plan until a date designated by
the director. A director may elect to have all, or a specified percentage, of
his or her deferred fees credited to a recordkeeping account either in dollar
amounts or in units equal in value to one Common Share of Aeroquip-Vickers.
Each recordkeeping account to which fees have been credited in dollar amounts
will be credited with accrued interest at a rate equal to two percentage
points in excess of the Moody's Corporate Bond Yield Average. Each
recordkeeping account to which fees have been credited in units will be
credited with additional units equal in value to the amount of cash dividends
paid on Common Shares of Aeroquip-Vickers. Upon the death of a director prior
to distribution of the entire balance of his or her account, such balance
shall be paid as soon as is administratively feasible in a lump sum to the
beneficiary or beneficiaries designated by the director, or, in the absence of
such designation, to the estate of the director.
Under the Aeroquip-Vickers, Inc. 1989 Non-Employee Directors' Equity Plan,
non-employee directors were entitled to receive awards consisting of such
number of Common Shares of Aeroquip-Vickers as have an aggregate fair market
value on the date of the grant of $25,000 rounded upward to the nearest 10
shares. Non-employee directors who were directors on the effective date of
the plan (April 20, 1989) received an award on that date, and each person who
thereafter became a non-employee director was entitled to receive an award on
the date of his initial election. Each non-employee director was entitled to
receive a second, final award on the date of his re-election which most nearly
coincided with the fifth anniversary of his initial award. All Common Shares
granted pursuant to the awards are subject to forfeiture for a five-year
period. If the New Directors' Plan is approved by the shareholders, the
Aeroquip-Vickers, Inc. 1989 Non-Employee Directors' Equity Plan will be
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<PAGE>
amended to limit participation to individuals who were elected to the Board
prior to April 16, 1998. Only one director, Joseph Farrell, has not received
his second award under the plan and will be eligible for his final award if he
is re-elected to the Aeroquip-Vickers' Board of Directors at the 1999 annual
meeting of shareholders. As indicated above, under the terms of the plan, no
awards will be granted on or after April 20, 1999.
The Aeroquip-Vickers, Inc. Directors' Charitable Award Program was established
to recognize the interest of Aeroquip-Vickers and its directors in supporting
worthy educational institutions and other charitable organizations and to
provide an additional method of funding for the Aeroquip-Vickers Foundation.
The Program is also intended to assist Aeroquip-Vickers in attracting and
retaining directors of outstanding experience and ability. All directors,
including Darryl F. Allen, currently participate in the Program. The Program
is administered by the Organization and Compensation Committee of the Board of
Directors. Each director may recommend up to nine charitable organizations
that qualify under section 501(c)(3) of the Internal Revenue Code. The
recommendation of a director who dies or becomes disabled while serving on the
Board or after completing five years of Board service will be considered by
the Committee after the director's death. If the recommendation is approved,
Aeroquip-Vickers will donate an aggregate of $900,000 in nine equal
installments to the designated charity or charities. Aeroquip-Vickers will
also donate $100,000 to the Aeroquip-Vickers Foundation after the director's
death. Aeroquip-Vickers purchased life insurance policies on the lives of its
current directors to fund the Program, and the Program provides for
establishment of a fully funded trust upon a change in control. The Program
also permits self-funding. Aeroquip-Vickers believes that the after-tax cost
of the Program over its life will be relatively small compared to the benefits
it provides. Directors derive no personal financial or tax benefit from the
Program because all insurance proceeds and tax deductions accrue solely to
Aeroquip-Vickers.
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<PAGE>
_________________________
SECURITY OWNERSHIP
Information with respect to security ownership by beneficial owners of more
than 5% of any class of Aeroquip-Vickers' voting securities as of the most
recent practicable date is set forth below. This information is based upon
reports filed by certain beneficial owners with the Securities and Exchange
Commission pursuant to Sections 13(d) or 13(g) of the Securities Exchange Act
of 1934.
Title Name & Address Amount & Nature
of of Beneficial of Beneficial Percent of
Class Owner Ownership Class (1)
Common FMR Corp. 1,566,049 (2) 5.56%
82 Devonshire Street
Boston, MA 02109-3614
Common Morgan Stanley, Dean Witter, 4,439,768 (3) 15.77%
Discover & Co.
and its subsidiaries
1585 Broadway
New York, NY 10036
______________________________________________________________________________
(1) The percentages are based on the number of outstanding Common Shares of
Aeroquip-Vickers as of February 17, 1998.
(2) FMR Corp. has sole voting power for 20,116 shares, shared voting power
for 0 shares, sole dispositive power for 1,566,049 shares and shared
dispositive power for 0 shares.
(3) Morgan Stanley, Dean Witter, Discover & Co. and its subsidiaries have
sole voting power for 0 shares, shared voting power for 3,836,086 shares,
sole dispositive power for 0 shares and shared dispositive power for
4,439,768 shares.
The following table sets forth, as of February 17, 1998, information known to
Aeroquip-Vickers concerning the beneficial ownership of Aeroquip-Vickers'
securities by each of its present directors individually, each of the named
executive officers individually, and all present directors and executive
officers as a group. The totals for each person and for the group include
shares held personally; shares held by immediate family members sharing the
same household; shares held as of December 31, 1997, under Aeroquip-Vickers'
dividend reinvestment plan and savings and profit-sharing plan; and shares
that may be acquired within 60 days following February 17, 1998, through the
exercise of stock options.
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<PAGE>
<TABLE>
<CAPTION>
Title
of Name of Amount & Nature of Percent
Class Beneficial Owner Beneficial Ownership(1)(3) of Class(2)
<S> <C> <C> <C>
Common Directors (excluding
Shares Darryl F. Allen):
Purdy Crawford 4,837
Joseph C. Farrell 710
David R. Goode 1,490
Paul A. Ormond 1,610
John P. Reilly 2,870
William R. Timken, Jr. 3,600
Named Executive Officers:
Darryl F. Allen(1,3) 224,109
William R. Ammann (3) 79,678
James E. Kline 12,732
Howard M. Selland (3) 49,932
John H. Weber (3) 37,072
All Directors and Executive
Officers as a Group
(15 persons) 502,541 1.77%(4)
<FN>
(1) Each director and named executive officer has sole voting and
dispositive power with respect to all Common Shares indicated
except that (i) 5,727 Common Shares listed for Darryl F. Allen are
held by Mr. Allen's wife, and (ii) 450 Common Shares listed for
Darryl F. Allen are held by one of Mr. Allen's children who is
sharing his home; Mr. Allen has disclaimed beneficial ownership of
said Common Shares.
(2) Each director and named executive officer owns less than 1% of the
outstanding Common Shares of Aeroquip-Vickers as of February 17,
1998.
(3) A portion of the total for the named executive officers and the
group includes Common Shares which could be acquired within 60 days
following February 17, 1998, through the exercise of stock options:
146,667 Common Shares for Darryl F. Allen; 55,667 Common Shares for
William R. Ammann; 26,667 Common Shares for Howard M. Selland;
27,001 Common Shares for John H. Weber; and 307,336 Common Shares
for all executive officers included in the group of directors and
executive officers.
(4) For the purpose of computing the percent of class, the Common
Shares for which all directors and executive officers as a group
may acquire beneficial ownership within 60 days following February
17, 1998, through the exercise of stock options are deemed to be
outstanding.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the annual compensation, the long-term
compensation and all other compensation of the named executive officers
for each of the last three completed fiscal years.
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<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
______________________________________________________________________________________________________________________
| | | | Long-Term Compensation | |
| | | Annual Compensation | Awards(2) |Payouts(3)| |
| | | Other | | | |
| | | Annual | Restricted | | All Other |
| | | Compen- | Stock | LTIP | Compensa- |
| Name and | | Salary Bonus(1) sation | Awards Options | Payouts | tion(4) |
| Principal Position | Year | ($) ($) ($) | ($) (#) | ($) | ($) |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| | | | | | |
| Darryl F. Allen | 1997 | $ 660,000 $ 773,900 N/A | N/A 50,000 | $283,000 | $208,612 |
| Chairman of the | 1996 | 635,000 450,700 N/A | N/A 50,000 | 581,700 | 206,834 |
| Board, President | 1995 | 599,108 620,800 N/A | N/A 50,000 | 407,900 | 200,775 |
| and Chief Executive | | | | | |
| Officer of | | | | | |
| Aeroquip-Vickers | | | | | |
| | | | | | |
| | | | | | |
| Howard M. Selland | 1997 | $ 423,077 $ 441,400 N/A | N/A 20,000 | $131,400 | $121,171 |
| Executive Vice | 1996 | 405,000 180,300 N/A | N/A 20,000 | 269,100 | 84,157 |
| President of | 1995 | 382,304 144,700 N/A | N/A 20,000 | 187,900 | 81,933 |
| Aeroquip-Vickers and | | | | | |
| President of | | | | | |
| Aeroquip Corporation | | | | | |
| | | | | | |
| | | | | | |
| John H. Weber | 1997 | $ 337,861 $ 334,900 N/A | N/A 20,000 | $102,000 | $ 92,817 |
| Executive Vice | 1996 | 274,338 216,800 N/A | N/A 34,000 | 169,900 | 111,422 |
| President of | 1995 | 218,038 376,200 N/A | N/A 9,000 | 71,200 | 75,503 |
| Aeroquip-Vickers and | | | | | |
| President of Vickers,| | | | | |
| Incorporated | | | | | |
| | | | | | |
| | | | | | |
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________________
| | | | Long-Term Compensation | |
| | | Annual Compensation | Awards(2) |Payouts(3)| |
| | | Other | | | |
| | | Annual | Restricted | | All Other |
| | | Compen- | Stock | LTIP | Compensa- |
| Name and | | Salary Bonus(1) sation | Awards Options | Payouts | tion(4) |
| Principal Position | Year | ($) ($) ($) | ($) (#) | ($) | ($) |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| | | | | | |
| William R. Ammann | 1997 | $ 306,224 $ 265,700 N/A | N/A 11,000 | $ 84,900 | $ 84,582 |
| Vice President - | 1996 | 296,740 155,100 N/A | N/A 11,000 | 173,400 | 85,081 |
| Administration | 1995 | 276,346 230,000 N/A | N/A 11,000 | 120,600 | 78,968 |
| and Treasurer | | | | | |
| of Aeroquip-Vickers | | | | | |
| | | | | | |
| | | | | | |
| James E. Kline | 1997 | $ 286,282 $ 265,700 N/A | N/A 11,000 | $ 84,900 | $ 80,772 |
| Vice President | 1996 | 271,747 155,100 N/A | N/A 11,000 | 173,400 | 82,327 |
| and General Counsel | 1995 | 254,431 238,500 N/A | N/A 11,000 | 120,600 | 75,037 |
| of Aeroquip-Vickers | | | | | |
| | | | | | |
<FN>
(1) The payouts shown in this column were made pursuant to the Annual
Executive Incentive Plan.
(2) The awards shown in this column were made pursuant to the Aeroquip-
Vickers, Inc. 1994 Stock Incentive Plan. Although the Aeroquip-Vickers, Inc.
1994 Stock Incentive Plan permits grants of stock appreciation rights, no
stock appreciation rights were outstanding as of December 31, 1997.
(3) The amounts shown in this column reflect the amount of cash and the
value of Common Shares paid out under the Mid-Term Incentive Plan for the
Plan periods 1995-1997, 1994-1996 and 1993-1995, respectively.
(4) The amounts shown in this column consist of annual Company contributions
(including the Company match and the Company profit-sharing allocation) under
Aeroquip-Vickers' savings and profit-sharing plan and under the applicable
portion of the Aeroquip-Vickers, Inc. Supplemental Benefit Plan.
(See the table at the right.)
</FN>
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________________
Savings and Profit-Sharing Plan Supplemental Benefit Plan Total
Match Profit-Sharing Match Profit-Sharing
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
1997
Allen $4,800 $15,700 $28,521 $159,591 $208,612
Selland 4,800 15,700 13,301 87,370 121,171
Weber 4,800 15,700 11,840 60,477 92,817
Ammann 4,800 15,700 9,040 55,042 84,582
Kline 4,800 15,700 8,441 51,831 80,772
1996
Allen $4,500 $16,000 $33,174 $153,160 $206,834
Selland 4,500 16,000 11,991 51,665 84,157
Weber 4,500 16,000 15,016 75,906 111,422
Ammann 4,500 16,000 11,302 53,279 85,081
Kline 4,500 16,000 10,807 51,020 82,327
1995
Allen $4,500 $16,260 $29,223 $150,792 $200,775
Selland 4,500 13,090 14,752 49,591 81,933
Weber 4,500 16,260 6,959 47,784 75,503
Ammann 4,500 16,260 9,166 49,042 78,968
Kline 4,500 16,260 8,522 45,755 75,037
______________________________________________________________________________________________________________________
</TABLE>
-11-
<PAGE>
The following table contains information concerning grants of stock options
made during the last completed fiscal year to each of the named executive
officers of Aeroquip-Vickers:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
_________________________________________________________________________________________________________
| Individual Grants | Grant Date Value |
| | % of | |
| |Number of Total | |
| |Securities Options | |
| |Underlying Granted to | |
| | Options Employees Exercise | Grant Date |
| |Granted(1) in Fiscal Price(1) Expiration | Present Value (2) |
| Name | (#) Year ($/Sh) Date | ($) |
<S> <C> <C> <C> <C> <C>
| | | |
| Darryl F. Allen | 50,000 14.5% $42.125 5/21/07 | $671,500 |
| | | |
| Howard M. Selland | 20,000 5.8% 42.125 5/21/07 | $268,600 |
| | | |
| John H. Weber | 20,000 5.8% 42.125 5/21/07 | $268,600 |
| | | |
| William R. Ammann | 11,000 3.2% 42.125 5/21/07 | $147,730 |
| | | |
| James E. Kline | 11,000 _3.2% 42.125 5/21/07 | $147,730 |
<FN>
(1) Options were granted on May 22, 1997, under the Aeroquip-Vickers, Inc.
1994 Stock Incentive Plan. The options become exercisable as follows:
one-third become exercisable on May 22, 1998, one-third become exercisable
on May 22, 1999, and one-third become exercisable on May 22, 2000. The
exercise price of $42.125 was the closing price of Aeroquip-Vickers Common
Shares on the New York Stock Exchange - Composite Transactions list on the
grant date of May 22, 1997.
(2) Valuation is based on the Black-Scholes option pricing model using the
following assumptions: risk-free interest rate of 5.80%, expected annual
dividend yield of 1.90%, expected volatility of .323 and expected five-year
time to exercise. Aeroquip-Vickers does not advocate or necessarily agree
that the Black-Scholes model can properly determine the value of an option.
The actual value, if any, a named executive officer may realize will depend
on the excess of the stock price over the exercise price on the date the
option is exercised so that there is no assurance the value realized by the
named executive officer will be at or near the value estimated by the Black-
Scholes model.
</FN>
</TABLE>
-12-
<PAGE>
The following table contains information concerning exercise of stock options
during the last completed fiscal year by each of the named executive officers
of Aeroquip-Vickers, and the fiscal year-end value of unexercised options held
by such executive officers:
<TABLE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<CAPTION>
______________________________________________________________________________________________________________________
| | | | | |
| | | | Number of | Value of Unexercised |
| | | | Unexercised Options at | In-the-Money Options at |
| | | | Fiscal Year-End | Fiscal Year-End |
| | Shares Acquired | | (#) | ($) |
| | on Exercise | Value Realized | | |
| Name | (#) | ($) |Exercisable Unexercisable(2)|Exercisable Unexercisable|
<S> <C> <C> <C> <C> <C> <C>
| | | | | |
| | | | | |
| Darryl F. Allen | 140,000 | $2,812,250 | 146,667 83,333 | $2,412,505 $865,620 |
| | | | | |
| | | | | |
| Howard M. Selland | 55,000 | 948,438 | 26,667 33,333 | 410,005 346,245 |
| | | | | |
| | | | | |
| John H. Weber | 8,333 | 223,166 | 27,001 42,666 | 423,583 574,820 |
| | | | | |
| | | | | |
| William R. Ammann | 27,500 | 448,813 | 55,667 18,333 | 1,031,443 190,433 |
| | | | | |
| | | | | |
| James E. Kline | 25,667 | 263,703 | 0 18,333 | 0 190,433 |
| | | | | |
<FN>
(1) The options shown in this table were granted under the Aeroquip-Vickers,
Inc. 1987 Stock Option Plan and the Aeroquip-Vickers, Inc. 1994 Stock
Incentive Plan.
(2) The options become exercisable as follows: One-third of the grant amount
becomes exercisable on the first anniversary of the grant date, one-third of
the grant becomes exercisable on the second anniversary of the grant date,
and the remaining one-third becomes exercisable on the third anniversary of
the grant date.
</FN>
</TABLE>
-13-
<PAGE>
Aeroquip-Vickers Stock Performance Graph
The following graph compares the yearly cumulative total shareholder return on
Aeroquip-Vickers Common Shares with the cumulative total return of the
Standard & Poor's 500 Stock Index, and the cumulative total return of the
Standard & Poor's Manufacturing (Diversified) Index, assuming reinvestment of
dividends, during the period from December 31, 1992 to December 31, 1997:
Comparison of Five-Year Cumulative Total Return
among Aeroquip-Vickers, Inc., S&P 500 Index and
S&P Manufacturing (Diversified) Index(1)
S&P Manufacturing
Measurement Period Aeroquip-Vickers, (Diversified)
(Fiscal Year End) Inc. S&P 500 Index Index(2)_ _
Measurement Pt-12/31/92 $100 $100 $100
FYE 12/31/93 $150 $110 $121
FYE 12/31/94 $143 $112 $126
FYE 12/31/95 $143 $153 $177
FYE 12/31/96 $186 $189 $244
FYE 12/31/97 $244 $242 $261
________________
(1) This graph assumes a $100 investment in each of Aeroquip-Vickers, Inc.
Common Shares, the S&P 500 Index and the S&P Manufacturing (Diversified)
Index.
(2) The S&P Manufacturing (Diversified) Index includes the following
companies: Aeroquip-Vickers, Inc.; AlliedSignal Inc.; Corning Inc.; Crane Co.;
Eaton Corporation; Illinois Tool Works Inc.; Johnson Controls, Inc.; Minnesota
Mining & Mfg. Co.; National Service Inds. Inc.; Tenneco Inc.; Textron Inc.;
Thermo Electron Corp.; Tyco International Inc.; and United Technologies Corp.
-14-
<PAGE>
Board Compensation Committee
Report on Executive Compensation
Executive compensation is administered by the Organization and Compensation
Committee (the "Committee"), a committee of the Board of Directors. Committee
members are neither employees nor former employees of Aeroquip-Vickers. The
Committee makes recommendations to the full Board with respect to the
responsibilities and salaries of executive management. It also approves
awards under the Company's 1994 Stock Incentive Plan and oversees the
administration of other incentive plans and the employee benefit pension and
profit-sharing plans. The Committee strives to balance short- and long-term
objectives in establishing performance criteria, evaluating performance and
determining actual awards.
Compensation Philosophy
The Aeroquip-Vickers mission is to create economic value for its shareholders
through superior growth and profitability. The executive compensation program
supports this mission by linking compensation to business performance and
profitability.
The Committee believes that enhancement of shareholder value is reinforced by
a compensation program which 1) attracts and retains highly qualified
individuals, 2) includes major components which are linked to creating value
for the shareholder, and 3) rewards superior results. This linkage is
achieved through the design of incentive plans which focus on the return on
net assets (RONA), operating income growth (OIG), return on shareholders'
equity (ROE), total shareholder return (TSR) and the attainment of performance
goals by individual executives.
The executive compensation program is based upon a pay-for-performance
philosophy. As an executive's level of responsibility increases, a greater
portion of his or her total compensation opportunity is contingent on
improving Aeroquip-Vickers' performance and a lesser portion is base salary.
For the five executive officers named in the Summary Compensation Table, more
than half of their total compensation opportunity is contingent on the
Company's financial results and growth in the market value of the Company's
common stock.
In 1995, an independent, global consulting firm reviewed the competitiveness
and appropriateness of Aeroquip-Vickers' executive compensation programs. It
compared compensation for Aeroquip-Vickers executives in relation to broad
industrial competitive practice and against the proxy data reported by a group
of 17 peer companies with comparable sales volume and market diversity, which
included a majority of the 14 companies in the S&P Manufacturing (Diversified)
Index presented in the performance graph. The other companies included had
sales volumes more comparable to Aeroquip-Vickers. The review helped the
Committee assure that the design of its executive compensation programs is
consistent with its compensation philosophy. While the consultant found the
overall executive compensation to be within competitive standards, certain
changes were made to selected incentive plan elements to assure their
continued linkage to the compensation philosophy and to remain competitive
with the market.
Base Salaries
The Board of Directors, acting on the recommendation of the Organization and
Compensation Committee, approves base salaries of executive management.
Executive salaries are competitive with median salaries paid by comparable
industrial companies. The amount of the individual base salary increases
varies, reflecting the Board's judgment of the leadership and performance of
each individual, business results and progress toward achieving strategic
objectives.
-15-
<PAGE>
Annual Executive Incentive Plan
The Annual Executive Incentive Plan is based on meeting pre-approved RONA and
OIG goals for Aeroquip-Vickers' executives (including the five executive
officers named in the Summary Compensation Table) to reinforce Aeroquip-
Vickers' emphasis on business growth. At the start of each year, annual RONA
and OIG threshold, target and maximum goals are set at levels which, if
achieved, will result in total cash compensation to the executives that is
consistent with Aeroquip-Vickers' performance-based compensation philosophy,
as described earlier.
In 1997, target RONA and OIG performance levels for Aeroquip Corporation,
Vickers, Incorporated and, on a consolidated basis, Aeroquip-Vickers, Inc.
were met or exceeded, reflecting substantially higher operating income. The
awards to the named executive officers shown in the Summary Compensation Table
were approved by the Committee.
The Mid-Term Incentive Plan
The purpose of the Mid-Term Incentive Plan is to focus Aeroquip-Vickers'
executive management team on increasing the value of shareholders'
investments.
The Mid-Term Incentive Plan is formula-driven, with threshold, target and
maximum goals established at the start of a three-year plan period. The plan,
whose three-year earn-out cycle ended in 1997, required the three-year average
RONA and the December 31, 1997, Total Shareholder Return percentile ranking to
meet pre-established threshold levels before any award was made. Performance
during the 1995-1997 plan period merited a payout above the target performance
level for the RONA portion and slightly below the target for the TSR component
of the award.
As a result of continued efforts to strengthen senior executives' long-term
goals and align them with those of shareholders (see "Stock Options" below),
the Mid-Term Incentive Plan is being discontinued.
Stock Options
The Committee believes that stock options are a cornerstone of a compensation
program designed to enhance shareholder value. The 1994 Stock Incentive Plan
and the proposed 1998 Stock Incentive Plan are designed to align the
executive's financial interests with those of the shareholders by encouraging
key executives to acquire and hold a growing ownership stake in Aeroquip-
Vickers. Share ownership guidelines have been established whereby executives
are expected to accumulate and own a specified number of shares over time.
Annually, executives report their ownership stake to the Chief Executive
Officer.
In 1997, the Committee granted non-qualified, 10-year term stock options to
executive officers and selected key executives. Stock options were awarded at
fair market value on the date of grant so that future value arises only when
the Aeroquip-Vickers stock price increases above the exercise price. The
Committee does not permit repricing of options which may fall below the
initial exercise price. In selecting recipients and in determining the type,
size and terms of the grant, the Committee considered the potential and
performance of the recipients, grants made in prior years and options which
remain outstanding.
Compensation of the Chief Executive Officer
The potential value of Mr. Allen's total compensation package has been
structured to reward performance by placing a high degree of compensation at
risk. The CEO's base salary was increased in 1997 based on Aeroquip-Vickers'
continuing improvement in net income.
-16-
<PAGE>
Mr. Allen earned $773,900 under the 1997 Annual Executive Incentive Plan based
on corporate achievement relative to the performance goals which were approved
by the Committee at the start of the year. The award represented continued
improved earnings and RONA and OIG performance. Under the 1995-1997 Mid-Term
Incentive Plan, Mr. Allen earned an award of 3,528 shares of Aeroquip-Vickers
common stock and $113,215 reflecting achievement of Aeroquip-Vickers' RONA
goals and improvement in TSR ranking during the three-year plan period.
In keeping with the Committee's desire to strengthen the portion of total
compensation contingent upon the performance of Aeroquip-Vickers' common
stock, Mr. Allen was awarded 50,000 non-qualified stock options at $42.125 per
share, which was the New York Stock Exchange closing price of Aeroquip-Vickers
common shares on the date of the award. In making its award, which was the
same as in prior years, the Committee took into consideration Mr. Allen's
current stock holdings and previous stock option awards, as well as the number
of his unexercised options.
Compliance with Federal Tax Legislation
Federal tax legislation enacted in 1993, generally, would preclude Aeroquip-
Vickers and other public companies from taking a tax deduction for
compensation over $1 million which is not performance-based and is paid, or
otherwise taxable, to persons named in the Summary Compensation Table and
employed by Aeroquip-Vickers at the end of the applicable tax year. The 1994
Stock Incentive Plan and the proposed 1998 Stock Incentive Plan contain
provisions designed to permit certain awards to qualify as performance-based
compensation and so to exempt such awards from the deduction limitation.
Mr. Allen deferred part of his 1997 compensation in order to ensure the
deductibility of compensation paid to him by Aeroquip-Vickers. The Committee
intends to continue to monitor the executive compensation program with respect
to the present federal tax law.
This report is submitted by the Organization and Compensation Committee of
Aeroquip-Vickers' Board of Directors:
Purdy Crawford, Chairman
David R. Goode
Paul A. Ormond
William R. Timken, Jr.
Retirement Plans
The TRINOVA Corporation Restated Salaried Retirement Plan for Corporate
Employees was terminated on July 1, 1997. The plan's formula provided an
annual pension benefit in the form of a life annuity to an employee or his or
her surviving spouse calculated by multiplying the number of years of credited
service in the plan by an amount equal to 1% of compensation up to covered
compensation for Social Security purposes plus 1.5% of compensation in excess
of that amount. The compensation covered by this plan consisted of salary and
bonus. Estimated accrued annual retirement benefits at normal retirement age
payable under the terms of this plan to Messrs. Allen, Ammann and Selland, who
have vested benefits based upon 15.67, 23.75 and 15.67 years of service,
respectively, and the applicable portion of the Aeroquip-Vickers, Inc.
Supplemental Benefit Plan are $145,362, $119,737 and $66,206, respectively.
Change in Control Agreements
Aeroquip-Vickers has entered into agreements with Messrs. Allen, Ammann,
Kline, Selland, Weber and each of its other executive officers. These
agreements are designed primarily to aid in ensuring continued management in
the event of an actual or threatened change in control of Aeroquip-Vickers (as
-17-
<PAGE>
defined in the agreements). The agreements provide that in the event an
executive officer is terminated by Aeroquip-Vickers other than upon his death,
disability or for cause (as defined in the agreements) within four years after
a change in control, he would be entitled to: (i) a lump sum payment equal to
two years' (or, if less, the period until age 65) salary and incentive
compensation under the Annual Executive Incentive Compensation Plan (based
upon an average of his highest compensation in two of the previous five
years); (ii) a contribution by Aeroquip-Vickers to the executive's retirement
savings plan account in an amount equal to 9% of his average compensation (as
determined in clause (i) above); and (iii) continued participation in Aeroquip-
Vickers' welfare-benefit plans for two years (or, if earlier, age 65). The
officer would also be entitled to receive the payments and benefits described
above if he resigned within a period between six months and two years
following a change in control for reasons set forth in the agreements relating
to changed circumstances.
________________________
ITEM 2. APPROVAL OF THE AEROQUIP-VICKERS, INC.
1998 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors of the Company (the "Board") adopted the Aeroquip-
Vickers, Inc. 1998 Stock Incentive Plan (the "1998 Plan") on January 22, 1998,
subject to approval by the shareholders at the annual meeting to be held on
April 16, 1998. If the requisite approval is not obtained, no awards will be
made under the 1998 Plan.
The purpose of the 1998 Plan is to promote the long-term success of the
Company and increase shareholder value by providing officers and other
salaried employees of the Company and its subsidiaries with incentive awards
that reward performance and continued service with the Company. By
encouraging such employees through stock-based awards or award payments to
become owners of Common Shares, it is intended that participants in the 1998
Plan will view the Company from an ownership perspective. Additionally, the
Company believes the 1998 Plan will assist in attracting and retaining persons
of the highest caliber.
The 1998 Plan is intended to serve the same purpose as the Company's 1994
Stock Incentive Plan (the "1994 Plan") under which only 58,133 Common Shares
remain available for grant.
SUMMARY OF THE 1998 PLAN.
The 1998 Plan authorizes the granting of options to purchase Common Shares
("Option Rights"), stock appreciation rights ("Appreciation Rights"),
performance awards ("Performance Awards") and awards of restricted stock
("Restricted Stock Awards"). The terms applicable to these various types of
awards, including those terms that may be established by the Organization and
Compensation Committee (the "Committee") of the Board when making or
administering particular awards, are set forth in detail in the 1998 Plan.
The following general description of certain features of the 1998 Plan is
qualified in its entirety by reference to the text of the 1998 Plan, which is
attached as Appendix A.
Shares Available under the 1998 Plan. Subject to adjustment as provided in
the 1998 Plan, the number of Common Shares that may be issued or transferred
under the 1998 Plan shall not in the aggregate exceed 1,700,000 shares, plus
the number of Common Shares that remain available for grants under the 1994
Plan as of the date the 1998 Plan is approved by the shareholders of the
Company. Common Shares subject to an award under the 1998 Plan or the 1994
Plan that expire or otherwise terminate or are cancelled without exercise or
-18-
<PAGE>
vesting, as the case may be, will thereafter be available for the grant of new
awards. If any Option Right granted under the 1998 Plan or the 1994 Plan is
exercised by tendering Common Shares (either actually or by attestation) to
the Company as full or partial payment of such exercise, only the number of
shares exercised net of the Common Shares tendered will be deemed issued for
purposes of determining the number of Common Shares remaining reserved for
issuance under the 1998 Plan. The aggregate number of Common Shares that may
be covered by Option Rights and Appreciation Rights granted to any single
individual under the 1998 Plan may not exceed 1,000,000 over any successive
five-year calendar period. The aggregate number of shares that may be issued
upon the exercise of incentive stock options intended to comply with Section
422 of the Internal Revenue Code (the "Code") will be 1,700,000. The
aggregate number of shares that may be issued in settlement of awards granted
as Performance Awards or Restricted Stock is 100,000. The 100,000 share limit
does not apply to Common Shares received as the form of payment for other
compensation plans or arrangements of the Company, including those of any
entity acquired by the Company.
In instances where an Appreciation Right or other award is settled in cash,
the Common Shares covered by such settlements will not be deemed issued or
transferred and shall remain available for issuance under the 1998 Plan.
Likewise, the payment of cash dividends and dividend equivalents in
conjunction with outstanding awards will not be counted against the Common
Shares available for issuance. Common Shares delivered under the 1998 Plan
may be shares of original issuance, treasury shares or a combination thereof.
No fractional shares may be issued or transferred under the 1998 Plan. Cash
may be paid in lieu of any fractional shares in settlement of awards under the
1998 Plan.
Administration. The 1998 Plan will be administered by the Committee. The
Committee will have full authority to interpret the 1998 Plan and to adopt
such rules, regulations and guidelines for carrying out the 1998 Plan as it
may deem necessary or proper. This authority includes, but is not limited to,
selecting award recipients; establishing all award terms, conditions and
restrictions; and determining the number of Common Shares covered by each
award. The Committee will also prescribe the forms of the instruments
evidencing any awards granted and will make all determinations necessary or
desirable for the administration of the 1998 Plan. The Committee may provide
for the acceleration of vesting of any award in the event of a change in
control of the Company or any other similar transaction or event.
The Committee may make grants to participants under any or a combination of
all of the various categories of awards that are authorized under the 1998
Plan and may provide for special terms for awards to participants who either
are foreign nationals or are employed by the Company or any of its
subsidiaries outside of the United States of America, as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax
policy or custom.
Eligibility. Any salaried employee of the Company may be selected by the
Committee to receive benefits under the 1998 Plan. For this purpose, the
Company includes any entity that is directly or indirectly controlled by the
Company or in which the Company has a significant equity interest, as
determined by the Committee. Approximately 5,200 officers and other salaried
employees of the Company and its subsidiaries would be eligible to be
considered for participation in the 1998 Plan.
Option Rights. The Committee may grant Option Rights that entitle the
optionee to purchase Common Shares at a price equal to or greater than fair
market value on the date of grant except that, if Option Rights are granted
retroactively in tandem with or as a substitute for Appreciation Rights, the
exercise price may be no lower than the fair market value of a Common Share on
the date the Appreciation Rights were granted. This exception makes it
-19-
<PAGE>
possible for the Committee, with the consent of a holder of Appreciation
Rights awarded under the 1998 Plan, to replace them with Option Rights having
an equivalent value. The fair market value, as defined in the 1998 Plan, of
one Common Share was $58.00 on February 17, 1998, which was the closing price
of the Common Shares on the New York Stock Exchange on the last trading day
preceding that date.
The option price is payable in cash or by such other method as may be
permitted by the Committee, including, but not limited to, (i) tendering
(either actually or constructively by attestation) Common Shares; (ii)
surrendering an award valued at fair market value on the date of surrender; or
(iii) any combination of the foregoing. Any grant may provide for deferred
payment of the option price from the proceeds of sale through a third party of
some or all of the Common Shares to which the exercise relates. The Committee
has the authority to specify at the time Option Rights are granted that Common
Shares will not be accepted in payment of the option price until they have
been owned by the optionee for a specified period; however, the 1998 Plan does
not require any such holding period and would permit immediate sequential
exchanges of Common Shares at the time of exercise of Option Rights.
Option Rights granted under the 1998 Plan may be Option Rights that are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code or Option Rights that are not intended to so qualify. At or
after the date of grant of any non-qualified Option Rights, the Committee may
provide for the payment of dividends or dividend equivalents to the optionee.
Such dividends or dividend equivalents may be paid currently or may be
credited to a participant's account. Any crediting of dividends or dividend
equivalents may be subject to such restrictions and conditions as the
Committee may establish, including reinvestment in additional Common Shares or
share equivalents which are also subject to award contingencies.
Option Rights may be granted with a maximum 10-year period of duration. Any
grant may specify a period of continuous employment with the Company or any
subsidiary that is necessary before the Option Rights will become exercisable.
Subject to the maximum limitation on grants to any individual mentioned above,
successive grants may be made to the same optionee regardless of whether
Option Rights previously granted to the optionee remain unexercised.
Appreciation Rights. An Appreciation Right represents a right to receive a
payment, in cash or Common Shares, equal to the excess of the fair market
value of a specified number of Common Shares on the date the Appreciation
Right is exercised over the fair market value on the date the Appreciation
Right was granted. However, if an Appreciation Right is granted retroactively
in tandem with or as a substitution for an Option Right, the designated fair
market value in the applicable award agreement may be no lower than the fair
market value of a Common Share on the date such Option Right was granted.
Appreciation Rights granted under the 1998 Plan may either be freestanding
Appreciation Rights or may be granted in tandem with Option Rights. As in the
case of Option Rights, the Committee may provide with respect to any grant of
Appreciation Rights for the payment of dividends or dividend equivalents in
cash or Common Shares.
Performance Awards. A Performance Award is a right to receive a future
payment contingent on both continuous service with the Company and the
achievement of pre-established goals. The performance criteria to be used for
performance goals for such awards shall be limited to one or more of the
following: revenues, earnings per share, stock price, total shareholder
return, economic value added, cash flow, operating income, return on assets,
return on equity, return on invested capital, and other operating profit
criteria including EBIT and EBITDA. Performance criteria may be measured
solely on a corporate, subsidiary or business unit basis, or a combination
thereof. Performance criteria may reflect absolute entity performance or a
relative comparison of entity performance to the performance of a peer group
of entities or other external measures of selected performance criteria. A
performance period will cover a minimum period of four fiscal quarters and a
maximum of 40 fiscal quarters. A Performance Award may be denominated in
Common Shares or in cash or share units. No single individual may receive a
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payment of more than $2,000,000 for any single performance period. For
performance awards denominated in Common Shares or Common Share units, the
maximum individual payment amount is $2,000,000, as determined using the fair
market value as of the date the award is granted. Subject to such maximum
amount, the amounts that may be earned by a participant receiving a
Performance Award may vary in accordance with the level of achievement of the
applicable performance goal(s). Performance periods may overlap one another,
and a participant may simultaneously hold awards covering overlapping periods
with different performance goals for different performance measures. As
determined by the Committee, performance awards may be settled in cash, Common
Shares or a combination of both.
Restricted Stock Awards. A Restricted Stock Award is a grant of Common Shares
or share units representing Common Shares that is subject to such conditions
and restrictions as the Committee determines. Such awards will be subject to
a full or partial vesting schedule of three or more years and will be
forfeitable in full or part over such periods.
Dividends and Dividend Equivalents. The Committee may provide that any awards
earn dividends or dividend equivalents payable in cash or Common Shares.
Settlements and Deferrals. Payment of awards under the 1998 Plan may be in
the form of cash, Common Shares, other awards or combinations thereof, as the
Committee may determine, and any such payment may be subject to such terms,
conditions and restrictions as the Committee may impose. The Committee also
may require or permit participants to elect to defer the issuance of Common
Shares or the settlement of awards in cash under such rules and procedures as
it may establish under the 1998 Plan. The Committee also may provide that
deferred settlements include the payment or crediting of interest on the
deferral amounts, or the payment or crediting of dividend equivalents where
the deferral amounts are denominated in Common Shares. Subject to the limits
on Common Shares available under the 1998 Plan as described above, the
Committee may, in addition to granting the awards described above, use
remaining available Common Shares as the form of payment for other
compensation plans or arrangements of the Company, including those of any
entity acquired by the Company.
Transferability. Except as the Committee may otherwise provide, awards
granted under the 1998 Plan may not be transferred or assigned other than by
will or the laws of descent and distribution and, if permitted by the
Committee, (i) by gift or other transfer to either any one or more members of
the optionee's immediate family or a trust, family partnership or similar
entity established solely for the benefit of one or more members of the
optionee's immediate family, or (ii) pursuant to a qualified domestic
relations order, provided, however, that any award so transferred will
continue to be subject to all the terms and conditions contained in the
instrument evidencing such award.
Adjustments. The Board is required under the 1998 Plan to make or provide for
such adjustments in the price and the number and kind of Common Shares covered
by outstanding awards or available for awards pursuant to the 1998 Plan as the
Board in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of
participants that would otherwise result from (i) any stock dividend, stock
split, combination of shares, issuance of rights or warrants to purchase
stock, recapitalization or other change in the capital structure of the
Company; (ii) any merger, consolidation, spin-off, split-off, spin-out, split-
up, reorganization, or partial or complete liquidation; or (iii) any other
corporate transaction or event having an effect similar to any of the
foregoing. Likewise, upon the occurrence of any such transaction or event,
the Board, in its discretion, may provide in substitution for the surrender of
or adjustment to any outstanding award under the 1998 Plan, such alternative
consideration as the Board, in good faith, may determine to be equitable in
such circumstances. Further, in the event of a spin-off, extraordinary
dividend or other distribution to shareholders, or similar transaction, the
Board may also make such adjustments in outstanding awards as it deems
appropriate.
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If another corporation is merged into the Company or the Company otherwise
acquires another corporation, the Board may elect to assume under the 1998
Plan any or all outstanding stock options or other plans adopted by it prior
to such acquisition. Such assumptions will be on such terms and conditions as
the Board may determine are required and appropriate to preserve the benefits
in such assumed awards. Unless otherwise determined by the Board, such awards
will not be taken into account for purposes of the limitations described above
that are contained in the 1998 Plan.
Amendments and Termination. The Committee may at any time amend or terminate
the 1998 Plan, provided that approval by the shareholders of the Company shall
be required for any amendment which would, in the absence of such shareholder
approval, (i) increase the maximum number of shares subject to the plan, (ii)
increase any limitations on award sizes, or (iii) permit outstanding Option
Rights and Appreciation Rights to be repriced (or cancelled and replaced) such
that the purchase price of such options or appreciation rights (or the
replacement grants) is less than the original price. The 1998 Plan shall
remain effective until terminated by the Board.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the 1998 Plan based on federal
income tax laws in effect on January 1, 1998. This summary is not intended to
be exhaustive and does not describe state or local tax consequences.
Tax Consequences to Participants
Non-qualified Option Rights. In general: (i) no income will be recognized by
an optionee at the time a non-qualified Option Right is granted; (ii) at the
time of exercise of a non-qualified Option Right, ordinary income will be
recognized by the optionee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares if
they are non-restricted on the date of exercise; and (iii) at the time of sale
of shares acquired pursuant to the exercise of a non-qualified Option Right,
any appreciation (or depreciation) in the value of the shares after the date
of exercise will be treated as a capital gain (or loss).
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If Common
Shares are issued to an optionee pursuant to the exercise of an incentive
stock option and no disqualifying disposition of the shares is made by the
optionee within two years after the date of grant or within one year after the
transfer of the shares to the optionee, then, upon the sale of the shares, any
amount realized in excess of the option price will be taxed to the optionee as
a capital gain and any loss sustained will be a capital loss.
If Common Shares acquired upon the exercise of an incentive stock option are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of
disposition in an amount equal to any excess of the fair market value of the
shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares in the sale or exchange) over the option price paid
for the shares. Any further gain (or loss) realized by the optionee generally
will be taxed as capital gain (or loss).
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right. When the Appreciation
Right is exercised, the participant normally will be required to include as
taxable ordinary income in the year of exercise an amount equal to the amount
of any cash, and the fair market value of any non-restricted shares of Common
Shares, received pursuant to the exercise.
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Performance Awards. No income generally will be recognized upon the grant of
Performance Awards. Upon payment in respect of the earn-out of Performance
Awards, the recipient generally will be required to include as taxable
ordinary income in the year of receipt an amount equal to the amount of cash
received and the fair market value of any non-restricted Common Shares
received.
Restricted Stock Awards. A recipient of a Restricted Stock Award generally
will be subject to tax at ordinary income rates on the fair market value of
the Common Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a risk of forfeiture or restrictions on
transfer for purposes of Section 83 of the Code. However, a recipient who so
elects under Section 83(b) of the Code within 30 days of the date of transfer
of the shares will have taxable ordinary income on the date of transfer of the
shares equal to the excess of the fair market value of the shares (determined
without regard to the risk of forfeiture or restrictions on transfer) over any
purchase price paid for the shares. If a Section 83(b) election has not been
made, any dividends received with respect to shares that are subject at that
time to a risk of forfeiture or restrictions on transfer generally will be
treated as compensation that is taxable as ordinary income to the recipient.
Tax Consequences to the Company or Subsidiary
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or the subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not an
"excess parachute payment" within the meaning of Section 280G of the Code, and
is not disallowed by the $1 million limitation on certain executive
compensation.
RECOMMENDATION
The Board of Directors believes that the approval of the 1998 Plan is in the
best interest of the Company and the shareholders because the 1998 Plan will
enable the Company to provide compensation equity incentives to officers and
other salaried employees to enhance the profitability of the Company and
increase shareholder value.
The Board of Directors recommends a vote FOR approval of the Aeroquip-Vickers,
Inc. 1998 Stock Incentive Plan.
________________________
ITEM 3. APPROVAL OF THE AEROQUIP-VICKERS, INC.
NON-EMPLOYEE DIRECTORS' STOCK AWARD PLAN
GENERAL
The Board of Directors of the Company (the "Board") adopted the Aeroquip-
Vickers, Inc. Non-Employee Directors' Stock Award Plan (the "New Directors'
Plan"), subject to approval by shareholders at the annual meeting to be held
on April 16, 1998. If the requisite approval is not obtained, no awards will
be made under the New Directors' Plan. The Board of Directors has amended the
1989 Non-Employee Directors' Equity Plan to limit participation in that plan
to individuals who were non-employee directors prior to April 16, 1998,
subject to approval of the New Directors' Plan by shareholders at this annual
meeting to be held on April 16, 1998. See "Compensation of Directors."
The purpose of the New Directors' Plan is to enhance the Company's ability to
attract and retain talented individuals to serve as members of the Board. It
is also intended to further promote the interests of the Company and its
shareholders by encouraging increased ownership in the Common Shares by non-
employee Directors through the periodic issuance of stock options and deferred
stock awards.
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SUMMARY OF THE NEW DIRECTORS' PLAN
The New Directors' Plan authorizes the granting of options to purchase Common
Shares ("Stock Options") and of awards of deferred Common Shares ("Stock
Awards"). The terms applicable to the Stock Options and Stock Awards are set
forth in the New Directors' Plan. The following general description of
certain features of the New Directors' Plan is qualified in its entirety by
reference to the text of the New Directors' Plan which is attached as
Appendix B.
Shares Available Under the New Directors' Plan. Subject to adjustment as
provided for in the New Directors' Plan, 100,000 Common Shares are reserved
for issuance under the New Directors' Plan. Such shares may be authorized and
unissued Common Shares or treasury shares. No fractional shares will be
issued or transferred under the New Directors' Plan. Cash will be paid in
lieu of any fractional share in settlement of Stock Options or Stock Awards.
Common Shares subject to a Stock Option or Stock Award that expire or
otherwise terminate without exercise or vesting, respectively, will be
available for issuance under the New Directors' Plan. If any Stock Option is
exercisable by tendering Common Shares (either actually or by attestation) to
the Company as full or partial payment of such exercise, only the number of
Common Shares exercised net of the Common Shares tendered will be deemed to be
issued for purposes of determining the number of Common Shares remaining for
issuance under the New Directors' Plan.
Administration. The New Directors' Plan will be administered by the Board.
The Board has full authority to interpret the New Directors' Plan and to adopt
such procedures, regulations and rules consistent with the intent of the New
Directors' Plan as the Board deems appropriate. This authority includes, but
is not limited to, providing for the accelerated exercisability and vesting of
any outstanding Stock Options and Stock Awards in the event of a change in
control of the Company or a similar transaction or event.
Eligibility. Any person who serves as a non-employee member of the Board
while the New Directors' Plan is in effect is eligible to participate in the
plan ("Eligible Director").
Stock Options. Beginning with the annual meeting of shareholders in 1998, an
Eligible Director will receive a Stock Option for 1,200 Common Shares upon
election or re-election to the Board at an annual meeting of shareholders.
Any Eligible Director who is appointed to the Board after an annual meeting of
shareholders will receive, as of the date of the appointment, a Stock Option
for the number of Common Shares equal to the sum of 1,200 times the number of
full calendar months until the next annual meeting plus one, divided by 12
(rounded up to the next full share).
Each Stock Option will have an original term of 10 years and will become
exercisable in one-third incremental installments on each of the first three
anniversaries of the date of grant. If an optionee terminates his or her
service from the Board by resignation or by failure to run for re-election at
the optionee's request, all of his or her non-vested Stock Options will be
cancelled, unless the Board determines otherwise. All vested Stock Options
will remain outstanding until the earlier of one year following such
termination or the remainder of the applicable Stock Option's original term.
If an optionee dies holding outstanding Stock Options, then the term of such
Stock Option will be two years following the date of the optionee's death,
such that if the optionee dies in the final year of the original term of the
Stock Option, such Stock Option will remain exercisable for two years from the
date of death. All non-vested Stock Options held by a deceased optionee will
become fully vested at the time of death. If an optionee terminates Board
service other than by resignation, failure to run for re-election at the
optionee's request or the optionee's death, each Stock Option held by such
optionee will remain outstanding until the earlier of five years following
termination of Board service or the remainder of an applicable Stock Option's
original term.
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The option price is payable (1) in cash, (2) by tendering (either actually or
by attestation) Common Shares of like value, (3) by authorizing a third party
to sell Common Shares (or a sufficient portion) acquired upon exercise of a
Stock Option and to remit to the Company such amount from the sale proceeds to
pay for the Common Shares acquired by exercise or (4) by any other means as
the Board may permit.
Stock Options will not be transferred or assigned other than by (1) will or
the laws of descent and distribution, or (2) by gift or other transfer to
either any one or more members of the optionee's immediate family, a trust,
family partnership or similar entity established solely for the benefit of one
or more members of the optionee's immediate family. However, any Stock Option
so transferred will continue to be subject to all the terms and conditions
contained in the instrument evidencing such Stock Option.
Stock Awards. Beginning with the 1998 annual meeting of shareholders, an
Eligible Director will receive Stock Awards for 200 Common Shares upon
election or re-election at an annual meeting of shareholders. Any Eligible
Director who is appointed to the Board after an annual meeting of shareholders
will receive a Stock Award for the number of Common Shares equal to the sum of
200 times the number of full calendar months until the next annual meeting
plus one, divided by 12 (rounded up to the next full share).
Each Stock Award will vest and become payable on the first anniversary of the
date of grant. During such one-year vesting period, each Stock Award will be
credited with dividend equivalents when dividends are paid on Common Shares.
Such dividend equivalents will be converted into an additional number of
Common Shares covered by such Stock Award. The Board may permit the payment
of Stock Awards to be deferred at the election of the recipient under such
terms and conditions as the Board may determine. Payment of vested Stock
Awards will be in Common Shares, except that cash will be paid in settlement
of any fractional share resulting from dividend equivalents or adjustments as
provided in the New Directors' Plan.
In the event a Stock Award recipient terminates Board Service either by (1)
reason of resignation, or (2) in the case of a Stock Award granted subsequent
to an annual meeting of shareholders, failure to run for re-election at the
recipient's request, outstanding, non-vested Stock Awards held by such
recipient will be forfeited and cancelled. In the event of termination of
Board Service for any other reason, outstanding Stock Awards held by the
terminating recipient shall vest. Non-vested Stock Awards may not be
transferred or assigned other than by will or the laws of descent and
distribution.
Amendment and Termination. The Committee may at any time amend or terminate
the New Directors' Plan. However, approval of shareholders is required for
any amendment which would either (1) increase the maximum number of Common
Shares available under the New Directors' Plan, or (2) permit outstanding
Stock Options to be repriced (or cancelled and replaced) such that the
purchase price of such Stock Options (or their replacements) is less than the
original purchase price.
Adjustments. The Board is required to make or provide for such adjustments
(1) in the number and kind of shares covered by outstanding Stock Options or
Stock Awards and available future awards, and (2) in the exercise price of
outstanding Stock Options as the Board, in its sole discretion, exercised in
good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Eligible Directors that would otherwise result
from (a) any stock dividend, stock split, combination of shares, issuance of
rights or warrants to purchase stock, recapitalization or other change in the
capital structure of the Company, (b) any merger, consolidation, spin-off,
split-off, spin-out, split-up, reorganization or partial or complete
liquidation, or (c) any other corporate transaction or event having an effect
similar to the foregoing. Likewise, upon the occurrence of any such
transaction or event, the Board, in its discretion, may provide in
substitution for the surrender or adjustment to any outstanding Stock Options
or Stock Awards such alternative consideration as the Board, in good faith,
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may determine to be equitable in such circumstance. Further, in the event of
a spin-off, extraordinary dividend or other distribution to shareholders, or
similar transaction, the Board may also make such adjustments in outstanding
awards as it deems appropriate.
NEW PLAN BENEFITS TABLE
Subject to approval of the New Directors' Plan by the shareholders at the 1998
meeting, seven eligible directors will be, upon election or re-election to the
Board at the 1998 annual meeting, entitled to each receive Stock Options to
purchase 1,200 Common Shares and Stock Awards for 200 Common Shares pursuant
to the New Directors' Plan. The table below reflects these awards:
New Plan Benefits Table
Stock Stock
Options Awards
Dollar
Name and Position Shares Value (1) Shares
Darryl F. Allen 0 $0 0
Chairman of the Board, President
and Chief Executive Officer
Howard M. Selland 0 $0 0
Executive Vice President of the
Company and President of
Aeroquip Corporation
John H. Weber 0 $0 0
Executive Vice President of the
Company and President of
Vickers, Incorporated
William R. Ammann 0 $0 0
Vice President - Administration
and Treasurer of the Company
James E. Kline 0 $0 0
Vice President and General Counsel
of the Company
Executive Group 0 $0 0
Non-Executive Director Group (2) 8,400 $81,200 1,400
Non-Executive Officer Employee Group 0 $0 0
__________________
(1) The dollar value shown is based on the closing price of the Common Shares
on February 13, 1998, which was $58.00.
(2) The non-employee directors are: Purdy Crawford, Joseph Farrell, David
Goode, Paul Ormond, John Reilly and William Timken. Mr. Colbert is a 1998
nominee for election to the Board and, if elected, will be eligible to receive
stock options and stock awards under the New Directors' Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the New Directors' Plan based on
federal income tax laws in effect on January 1, 1998. The summary is not
intended to be exhaustive and does not discuss state or local tax
consequences.
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Tax Consequences to Eligible Directors
Stock Options. The Stock Options granted under the New Directors' Plan will
be non-qualified stock options. In general, (i) no income will be recognized
by an Eligible Director at the time a Stock Option is granted; (ii) at
exercise, ordinary income will be recognized by the Eligible Director in an
amount equal to the difference between the option price paid for the shares
and the fair market value of the shares, if unrestricted, on the date of
exercise; and (iii) at sale, appreciation (or depreciation) after the date of
exercise will be treated as a capital gain or loss.
Stock Awards. No income generally will be recognized upon the grant of a
Stock Award. The recipient of a Stock Award grant generally will be subject
to tax at ordinary income rates on the fair market value of unrestricted
shares on the date that such shares are transferred to the Eligible Director
under the grant, and the capital gains/loss holding period for such shares
will also commence on such date.
Tax Consequences to the Company
To the extent that an Eligible Director recognizes ordinary income in the
circumstances described above, the Company will be entitled to a corresponding
deduction provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code.
RECOMMENDATION
The Board believes that the approval of the New Directors' Plan is in the best
interest of the Company and the shareholders because the New Directors' Plan
will enable the Company to provide compensation equity incentives to non-
employee directors to enhance profitability of the Company and increase
shareholder value.
The Board of Directors recommends a vote FOR approval of the Aeroquip-Vickers,
Inc. Non-Employee Directors' Stock Award Plan.
________________________
ITEM 4. APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has employed the firm of Ernst & Young LLP, as the
independent auditors for Aeroquip-Vickers for the year 1998, and recommends
ratification of this action at the annual meeting of shareholders. If the
employment of Ernst & Young LLP is not ratified, the Board will consider the
appointment of other auditors.
Ernst & Young LLP acted as independent auditors for Aeroquip-Vickers for 1997.
Representatives of Ernst & Young LLP will be present at the meeting to make a
statement if they desire to do so and to respond to appropriate questions.
The Board of Directors recommends that shareholders vote for the proposal
ratifying the employment of Ernst & Young LLP as Aeroquip-Vickers' independent
auditors for 1998.
By Order of the Board of Directors,
/S/ JAMES M. OATHOUT
James M. Oathout
Secretary
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APPENDIX A
AEROQUIP-VICKERS, INC.
1998 STOCK INCENTIVE PLAN
_______________________________________________________________________
1. Purpose. The purpose of the Aeroquip-Vickers, Inc. 1998 Stock
Incentive Plan (the "Plan") is to promote the long-term success of Aeroquip-
Vickers, Inc. (the "Company") and increase shareholder value by providing
officers and other salaried employees of the Company and its subsidiaries with
incentive awards that reward performance and continued service with the
Company. By encouraging such employees through stock-based awards or award
payments to become owners of the Common Shares, $5.00 par value, of the
Company ("Common Shares"), it is intended that Plan participants will view the
Company from an ownership perspective. Additionally, the Company believes the
Plan will assist in attracting and retaining persons of the highest caliber.
2. Effective Date. The Plan shall become effective upon approval by the
shareholders of the Company and shall remain effective until termination by
the Company's Board of Directors (the "Board").
3. Administration of the Plan. The Plan shall be administered by a
committee appointed by the Board (the "Committee"); provided, however, that
from time to time the Board may assume, at its sole discretion, administration
of the Plan. The Committee shall have full authority to interpret the Plan
and to adopt such rules, regulations and guidelines for carrying out the Plan
as it may deem necessary or proper. This authority shall include, but is not
limited to, selecting award recipients; establishing all award terms,
conditions and restrictions; and determining the number of Common Shares
covered by each award. The Committee shall also prescribe the forms of the
instruments evidencing any awards granted and make all determinations
necessary or desirable for the administration of the Plan. The Committee may
provide for the acceleration of vesting of any award in the event of a change
in control of the Company or other similar transaction or event.
4. Eligibility. Any salaried employee of the Company may be eligible to
receive one or more awards under the Plan. "Employee" shall also include any
former salaried employee of the Company eligible to receive an assumed or
replacement award or award settlement as contemplated in Sections 7 and 9 of
the Plan, and "the Company" includes any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as may be determined by the Committee.
5. Common Shares Available for Awards. The aggregate number of Common
Shares that may be issued or transferred under this Plan shall be one million
seven hundred thousand (1,700,000) shares plus the aggregate number of shares
remaining available for grants under the Company's 1994 Stock Incentive Plan
(the "1994 Plan") as of the date this Plan is approved by the shareholders of
the Company. Common Shares subject to an award under the Plan or the 1994
Plan that expire or otherwise terminate or are canceled without exercise or
vesting, as the case may be, shall thereafter be available for the grant of
new awards. If any stock option granted under the Plan or the 1994 Plan is
exercised by tendering Common Shares (either actually or by attestation) to
the Company as full or partial payment of such exercise, only the number of
shares exercised net of the Common Shares tendered shall be deemed issued for
purposes of determining the number of Common Shares remaining reserved for
issuance under the Plan. The aggregate number of Common Shares that may be
covered by stock options and SARs granted to any single individual under the
Plan shall not exceed one million (1,000,000) over any successive five-year
calendar period. The aggregate number of shares that may be issued upon the
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exercise of incentive stock options intended to comply with Section 422 of the
Internal Revenue Code (the "Code") shall be one million seven hundred thousand
(1,700,000). The aggregate number of shares that may be issued in settlement
of awards granted under Sections 7(c) and 7(d) shall be 100,000. Further, in
instances where an SAR or other award is settled in cash, including the use of
Common Shares to settle tax withholding obligations, the Common Shares covered
by such settlement shall not be deemed issued or transferred and shall remain
available for issuance under the Plan. Likewise, the payment of cash
dividends and dividend equivalents paid in cash in conjunction with
outstanding awards shall not be counted against the Common Shares available
for issuance.
Each of the limitations stated above on the aggregate number of Common Shares
that may be issued under the Plan is subject to adjustment as provided for in
Section 12.
Any Common Shares delivered under the Plan may consist of authorized and
unissued shares or treasury shares, and no fractional shares shall be issued
or transferred under the Plan. Cash may be paid in lieu of any fractional
shares in settlement of awards under the Plan.
6. Fair Market Value. "Fair Market Value" for all purposes under the Plan
shall mean the closing price of a Common Share as reported under "NYSE
Composite Transactions" in The Wall Street Journal, or similar readily
available public source, as of the day preceding the day on which the award is
granted (or other Plan transaction occurs), or in the case of a stock option
granted retroactively in tandem with or in replacement of SARs, the Fair
Market Value specified for such previously granted SARs. If no sales of
shares were made on such date, the closing price of a share as reported for
the most recent preceding day on which sales of Common Shares were made shall
be used.
7. Awards. The Committee shall determine the type or types of award(s) to
be made to each participant. Awards may be granted singly, in combination or
in tandem. Subject to Section 15, awards also may be made in combination or
in tandem with, in replacement of, as alternatives to, or grants or rights
awarded under any other employee or compensation plan of the Company,
including the 1994 Plan or the plan of any acquired entity. The types of
awards that may be granted under the Plan are:
(a) Stock Options -- A grant of a right to purchase a
specified number of Common Shares during a specified period not
to exceed 10 years, as determined by the Committee. The
purchase price per Common Share for each stock option shall be
not less than 100% of Fair Market Value on the date of grant,
except that, if a stock option is granted retroactively in
tandem with or as a substitution for a SAR, the exercise price
may be no lower than the Fair Market Value of a Common Share on
the date the SAR was granted. A stock option may be in the form
of an incentive stock option which, in addition to being subject
to applicable terms, conditions and limitations established by
the Committee, complies with Section 422 of the Code. The price
at which Common Shares may be purchased under a stock option
shall be paid in cash or by such other method as may be
permitted by the Committee, including, but not limited to, (i)
tendering (either actually or constructively by attestation)
Common Shares; (ii) surrendering an award valued at Fair Market
Value on the date of surrender; or (iii) any combination of the
foregoing. Any option may provide for deferred payment of the
option price from the proceeds of sale through a third party of
some or all of the Common Shares to which the option relates.
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(b) SARs -- A right to receive a payment, in cash and/or
Common Shares, equal to the excess of the Fair Market Value of a
specified number of Common Shares on the date the SAR is
exercised over the Fair Market Value on the date the SAR was
granted as set forth in the applicable award agreement, except
that, if a SAR is granted retroactively in tandem with or as a
substitution for a stock option, the designated Fair Market
Value in the applicable award agreement may be no lower than the
Fair Market Value of a Common Share on the date such stock
option was granted.
(c) Performance Awards -- A right to receive a future payment
contingent on both continuous service with the Company and the
achievement of pre-established goals. The performance criteria
to be used for performance goals for such awards shall be
limited to one or more of the following: revenues, earnings per
share, stock price, total shareholder return, economic value
added, cash flow, operating income, return on assets, return on
equity, return on invested capital, return on revenues, and
other operating profit criteria including EBIT and EBITDA.
Performance criteria may be measured solely on a corporate,
subsidiary or business unit basis, or a combination thereof.
Further, performance criteria may reflect absolute entity
performance or a relative comparison of entity performance to
the performance of a peer group of entities or other external
measures of the selected performance criteria. A performance
period will cover a minimum period of four (4) fiscal quarters
and a maximum of forty (40) fiscal quarters. A performance
award may be made in Common Shares or denominated in cash or
share units representing Common Shares. No individual may
receive a payment of more than $2,000,000 for any single
performance period for a performance award which has been
denominated in a cash amount or amounts. For performance awards
denominated in Common Shares or in share units representing
Common Shares, the maximum individual payment amount shall be
$2,000,000 as determined using the Fair Market Value as of the
date the award is granted. Subject to such maximum amounts, the
amounts that may be earned by a participant receiving a
performance award may vary in accordance with the level of
achievement of the applicable performance goals. Performance
periods may overlap one another, and a participant may
simultaneously hold awards covering overlapping periods with
different performance goals for different performance measures.
As determined by the Committee, performance awards may be
settled in cash, Common Shares or a combination of both.
(d) Restricted Stock Awards -- A grant of Common Shares or
share units representing Common Shares that is subject to such
conditions and restrictions as the Committee shall determine.
Such awards shall be subject to a full or partial vesting
schedule of three or more years and shall be forfeitable in full
or part over such period.
8. Dividends and Dividend Equivalents. The Committee may provide that any
awards may earn dividends or dividend equivalents. Such dividends or dividend
equivalents may be paid currently or may be credited to a participant's
account. Any crediting of dividends or dividend equivalents may be subject to
such restrictions and conditions as the Committee may establish, including,
but not limited to, reinvestment in additional Common Shares or share
equivalents which are also subject to award contingencies.
9. Settlements and Deferrals. Payment of awards may be in the form of
cash, Common Shares, other awards or combinations thereof, as the Committee
may determine, and any such payment may be subject to such terms, conditions
and restrictions as the Committee may impose. The Committee also may require
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or permit participants to elect to defer the issuance of Common Shares or the
settlement of awards in cash under such rules and procedures as it may
establish under the Plan. The Committee also may provide that deferred
settlements include the payment or crediting of interest on the deferral
amounts, or the payment or crediting of dividend equivalents where the
deferral amounts are denominated in Common Shares. Subject to the aggregate
limitation on the number of Common Shares that may be issued under the Plan as
set forth in Section 5, the Committee may, in addition to granting awards
under Section 7, use available Common Shares as the form of payment for other
compensation plans or arrangements of the Company, including those of any
entity acquired by the Company.
10. Non-transferability. Awards granted under the Plan shall not be
transferable or assignable other than by will or the laws of descent and
distribution and, if permitted by the Committee, (i) by gift or other transfer
to either any one or more members of the optionee's Immediate Family or a
trust, family partnership or similar entity established solely for the benefit
of one or more members of the optionee's Immediate Family; and (ii) pursuant
to a qualified domestic relations order, provided, however, that any award so
transferred shall continue to be subject to all the terms and conditions
contained in the instrument evidencing such award. For purposes of this
Section 10, "Immediate Family" has the meaning ascribed thereto in Rule 16a-
1(c) under the Securities Exchange Act of 1934, as amended, and the rule and
regulations thereunder (or any successor rule to the same effect) as in effect
from time to time.
11. No Rights to Employment. Neither the Plan nor any award granted under
it shall alter the terms of employment for any participant or the right of the
Company to terminate the employment of any participant.
12. Adjustments. The Board shall make or provide for such adjustments in
the price and in the number and kind of shares covered by outstanding awards
or available for awards in the aggregate or that may be granted to any single
individual pursuant to Sections 5 and 7 as the Board in its sole discretion,
exercised in good faith, may determine is equitably required to prevent
dilution or enlargement of the rights of participants that would otherwise
result from (a) any stock dividend, stock split, combination of shares,
issuance of rights or warrants to purchase stock, recapitalization or other
change in the capital structure of the Company; (b) any merger, consolidation,
spin-off, split-off, spin-out, split-up, reorganization, or partial or
complete liquidation; or (c) any other corporate transaction or event having
an effect similar to any of the foregoing. Likewise, in the occurrence of any
such transaction or event, the Board, in its discretion, may provide in
substitution for the surrender of or adjustment to any outstanding Stock
Options or Stock Awards such alternative consideration as it, in good faith,
may determine to be equitable in such circumstance.
Further, in the event of a spin-off, extraordinary dividend or other
distribution to shareholders, or similar transaction, the Board may also make
such adjustments in outstanding awards as it deems appropriate.
If another corporation is merged into the Company or the Company otherwise
acquires another corporation, the Board may elect to assume under this Plan
any or all outstanding stock options or other awards granted by such
corporation under any stock option or other plan adopted by it prior to such
acquisition. Such assumptions shall be on such terms and conditions as the
Board may determine are required and appropriate to preserve the benefits
existing or inherent in such assumed awards. Unless otherwise determined by
the Board, such awards shall not be taken into account for purposes of the
limitations contained in Section 5.
13. Tax Withholding. The Company shall have the power and the right to
deduct or withhold or require participants to remit to it amounts sufficient
to satisfy federal, state and local taxes required by law to be withheld with
respect to any award, exercise, payment or other settlement made under or as a
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result of the Plan. The Committee, in its sole discretion, shall promulgate
rules governing methods by which such requirements are to be satisfied,
including settling such obligation by the non-issuance, non-transfer or non-
delivery of Common Shares that are part of the award that gives rise to the
withholding requirement.
14. Foreign Participation. The Committee may provide for such special
terms for awards to participants who are foreign nationals, or who are
employed outside of the United States of America, as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax
policy or custom. Moreover, the Committee may approve such supplements to, or
amendments, restatements or alternative versions of, this Plan as it may
consider necessary or appropriate for such purposes without thereby affecting
the terms of this Plan as in effect for any other purpose; and the Secretary
or any Assistant Secretary of the Company is authorized to certify the
approval of any such supplements, amendments, restatements or alternative
versions as though they were approved by the shareholders of the Company;
provided, however, that no such supplements, amendments, restatements or
alternative versions shall increase the limitations contained in Sections 5
and 7.
15. Amendment and Termination of the Plan. The Committee may at any time
amend or terminate the Plan, provided that approval by the shareholders of the
Company shall be required for any amendment which would, except as provided in
Section 12, (i) increase the maximum number of Common Shares available for
awards under the Plan, (ii) increase any limitations on award sizes contained
in Sections 5 and 7, or (iii) permit outstanding stock options and SARs to be
repriced (or canceled and replaced) such that the purchase price of such stock
options or SARs (or of their replacement grants) is less than the original
price.
16. Other Company Benefit and Compensation Programs. Unless otherwise
specifically determined by the Committee, settlements of awards received by
participants under the Plan shall not be deemed a part of a participant's
regular, recurring compensation for purposes of calculating payments or
benefits from any Company benefit plan, severance program or severance pay law
of any country. Further, the Company may adopt other compensation programs,
plans or arrangements as it deems appropriate or necessary.
17. Unfunded Plan. Unless otherwise determined by the Board, the Plan
shall be unfunded and shall not create (or be construed to create) a trust or
a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any participant or other person. To the
extent any person holds any rights by virtue of an award granted under the
Plan, such rights (unless otherwise determined by the Board) shall be no
greater than the rights of an unsecured general creditor of the Company.
18. Governing Law. The validity, construction and effect of the Plan and
any instruments issued under it shall be determined in accordance with the
laws of the state of Ohio without reference to principles of conflict of laws.
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APPENDIX B
Aeroquip-Vickers, Inc.
Non-Employee Directors' Stock Award Plan
______________________________________________________________________________
1. Purpose. The Aeroquip-Vickers, Inc. Non-Employee Directors' Stock Award
Plan is intended to enhance the Company's ability to attract and retain
talented individuals to serve as members of the Board and to further
promote the interests of the Company and its shareholders by encouraging
increased ownership of Common Shares by non-employee members of the
Board through the periodic issuance of stock options and shares of
restricted stock.
2. Definitions. As used in the Plan, the following terms have the
respective meanings:
(a) "Board" means the Company's Board of Directors.
(b) "Common Shares" means the Company's $5.00 par value Common Shares.
(c) "Company" means Aeroquip-Vickers, Inc., a corporation organized
under the laws of the State of Ohio (or any successor
corporation).
(d) "Eligible Director" means any person who serves as a non-employee
member of the Board while the Plan is in effect.
(e) "Immediate Family" has the meaning ascribed thereto in Rule
16a-1(c) under the Securities Exchange Act of 1934, as amended,
and the rule and regulations thereunder (or any successor rule to
the same effect) as in effect from time to time.
(f) "Plan" means the Aeroquip-Vickers, Inc. Non-Employee Directors'
Stock Award Plan.
(g) "Stock Award" means a grant of Common Shares made to each Eligible
Director pursuant to Section 7.
(h) "Stock Option" means a stock option granted to each Eligible
Director pursuant to Section 6. Each Stock Option shall have an
exercise price per share equal to the closing price of a share of
Common Share on the day prior to the grant date as reported under
"NYSE-Composite Transactions" as printed in The Wall Street
Journal or any similar readily available public source. If no
sales of Common Shares occurred on such date, the closing price
per share as reported for the next preceding day on which sales of
Common Shares occurred shall be used.
3. Plan Administration. The Plan shall be administered by the Board.
Subject to Section 8, the Board has the full authority to interpret the
Plan and to adopt such procedures, regulations and rules consistent with
the Plan's intent as it may deem appropriate. This authority includes,
but is not limited to, providing for the accelerated exercisability and
vesting of any outstanding Stock Options and Stock Awards in the event
of a change-in-control of the Company or a similar transaction or event.
4. Effective Date. Subject to the approval by the shareholders of the
Company, the Plan shall be effective as of the date of the annual
meeting of shareholders held in 1998.
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5. Common Stock Available for Issuance. Subject to the provisions of
Section 8, 100,000 shares of Common Stock shall be reserved for issuance
under the Plan. Such shares may consist of authorized and unissued
shares or treasury shares, and no fractional shares shall be issued or
transferred under the Plan. Cash shall be paid in lieu of any
fractional shares in settlement of Stock Options or Stock Awards.
Common Shares subject to a Stock Option or Stock Award that expire or
otherwise terminate without exercise or vesting, respectively, shall
remain available for issuance under the Plan. If any Stock Option is
exercised by tendering Common Shares (either actually or by attestation)
to the Company as full or partial payment of such exercise, only the
number of Common Shares exercised net of the Common Shares tendered
shall be deemed issued for purposes of determining the number of Common
Shares remaining reserved for issuance under the Plan.
6. Granting of Stock Options.
a) Upon election or re-election to the Board at each annual meeting of
shareholders, each Eligible Director will receive a Stock Option
covering 1,200 Common Shares. Any Eligible Director appointed to the
Board subsequently to an annual meeting of shareholders shall receive a
Stock Option, as of the date of such appointment, covering the number of
Common Shares (rounded up to the next full share) resulting from the
following formula:
Number of full calendar months until
1,200 x the next annual meeting plus one
12
b) Subject to Section 6(d), each Stock Option shall have an original
term of 10 years and shall become exercisable in one-third incremental
installments on each of the first three grant anniversaries.
c) In the event an optionee terminates Board service either by reason
of resignation or, at the optionee's request, failure to run for re-
election, all non-vested Stock Options held by such persons shall be
canceled, unless the Board determines otherwise. All vested options
held by such optionee shall remain outstanding until the earlier of one
year following such termination or the remainder of the applicable Stock
Option's original term.
d) In the event an optionee terminates Board service for any reason
other than those specified in Section 6 (c) and (e), each Stock Option
held by such person shall remain outstanding until the earlier of five
years following termination of Board service or the remainder of an
applicable Stock Option's original term.
e) If an optionee shall die holding outstanding Stock Options, the term
of such options shall be two years following the optionee's death, such
that if the optionee's death occurs in the final year of its original
term, such option shall remain exercisable for two full years following
the optionee's death. All non-vested Stock Options held by the deceased
optionee shall become fully vested at the time of death.
f) The price at which Common Shares may be purchased under the exercise
of a Stock Option shall be paid:
(i) in cash by tendering (either actually or constructively by
attestation) Common Shares of like value;
(ii) by authorizing a third party (approved by the Board) to sell
Common Shares (or a sufficient portion) acquired upon exercise of
a Stock Option and to remit to the Company such amount from the
sale proceeds to pay for the Common Shares being acquired by such
exercise; or
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(iii) by such other means as the Board may permit.
g) Stock Options shall not be transferable or assignable other than by
(i) will or the laws of descent and distribution, or (ii) by gift or
other transfer to either any one or more members of the optionee's
Immediate Family or a trust, family partnership or similar entity
established solely for the benefit of one or more members of the
optionee's Immediate Family; or pursuant to a qualified domestic
relations order, provided, however, that any Stock Option so transferred
shall continue to be subject to all the terms and conditions contained
in the instrument evidencing such Stock Option.
7. Granting of Stock Awards
a) Upon the election or re-election to the Board at each annual meeting
of shareholders, each Eligible Director will receive a Stock Award
covering 200 Common Shares. An Eligible Director appointed to the Board
subsequent to an annual meeting of shareholders shall receive a Stock
Award, as of the date of such appointment, covering the number of Common
Shares (rounded up to the next full share) resulting from the following
formula
Number of full calendar months until
200 x the next annual meeting plus one
12
b) Each Stock Award shall vest and become payable on the first
anniversary following grant. During this one-year vesting period, each
Stock Award shall be credited with dividend equivalents when dividends
are paid on Common Shares, and such dividend equivalents will be
converted into an additional number of Common Shares covered by such
Stock Award. The Board may permit the payment of Stock Awards to be
deferred at the election of a recipient under such terms and conditions
as it may from time to time determine. Payments shall be in the form of
Common Shares, except that cash will be paid in settlement of any
fractional share resulting from dividend equivalent credits or a
transaction contemplated under Section 8.
c) In the event an Award recipient terminates Board service either by
(i) reason of resignation, or, (ii) in the case of a Stock Award granted
subsequent to an annual meeting of shareholders, failure to run for re-
election at the recipient's request, outstanding, non-vested Stock
Awards held by such recipient shall be forfeited and canceled. In the
event of termination of Board service for any other reason, outstanding
Stock Awards held by the terminating recipient shall vest.
d) A non-vested Stock Award may not be transferable or assignable other
than by will or the laws of descent and distribution.
8. Share Adjustments. The Board shall make or provide for such adjustments
(i) in the number and kind of shares covered by outstanding Stock
Options and Stock Awards and available future awards, and (ii) in the
exercise price of outstanding Stock Options as the Board in its sole
discretion, exercised in good faith, may determine is equitably required
to prevent dilution or enlargement of the rights of Eligible Directors
that would otherwise result from: (a) any stock dividend, stock split,
combination of shares, issuance of rights or warrants to purchase stock,
recapitalization or other change in the capital structure of the
Company; (b) any merger, consolidation, spin-off, split-off, spin-out,
split-up, reorganization, or partial or complete liquidation; or (c) any
other corporate transaction or event having an effect similar to any of
the foregoing. Likewise, in the occurrence of any such transaction or
event, the Board, in its discretion, may provide in substitution for the
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surrender of or adjustment to any outstanding Stock Options or Stock
Awards such alternative consideration as it, in good faith, may
determine to be equitable in such circumstance.
Further, in the event of a spin-off, extraordinary dividend or other
distribution to shareholders, or similar transaction, the Board may also
make such adjustments in outstanding Stock Options and Stock Awards as
it deems appropriate.
9. Amendment and Termination of the Plan. The Committee may at any time
amend or terminate the Plan, provided however, that approval by the
shareholders of the Company shall be required for any amendment which
would either: (i) increase the maximum number of Common Shares available
under the Plan, or (ii) permit outstanding Stock Options to be repriced
(or canceled and replaced) such that the purchase price of such Stock
Options (or of their replacement grants) is less than the original
purchase price.
10. Unfunded Plan. Unless otherwise determined by the Board, the Plan shall
be unfunded and shall not create (or be construed to create) a trust or
a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any participant or other person.
To the extent any person holds any rights by virtue of an award granted
under the Plan, such rights (unless otherwise determined by the Board)
shall be no greater than the rights of an unsecured general creditor of
the Company.
11. Governing Law. The validity, construction and effect of the Plan and
instruments issued under it shall be determined in accordance with the
laws of the State of Ohio, without reference to principles of conflict
of laws.
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APPENDIX C
GRAPHIC AND IMAGE MATERIAL
The paper copy of this Proxy Statement includes portrait photographs of each
director. The photographs appear on page 2 of the paper copy and are
referenced on pages 2-4 of the electronic copy.
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APPENDIX B
P Aeroquip-Vickers, Inc.
Proxy for 1998 Annual Meeting of Shareholders
R This Proxy is Solicited on Behalf of the Board of Directors
O
X The undersigned hereby appoints Darryl F. Allen, Purdy Crawford and
William R. Timken, Jr., jointly and severally, proxies, with full power
Y of substitution, to vote as specified on the reverse side all shares of
Aeroquip-Vickers, Inc. which the undersigned is entitled to vote at the
annual meeting of shareholders on April 16, 1998, or any adjournment
thereof.
You are encouraged to specify your choices by marking the appropriate boxes,
on the reverse side, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. However, your
shares cannot be voted unless you sign and return this card.
____________________
See Reverse Side
____________________
<PAGE>
<TABLE>
Reverse Side as Follows:
_____ Please mark your
X vote as in this
_____ example.
<CAPTION>
This proxy will be voted FOR each nominee for director for whom authority to vote is not withheld and FOR Items 2, 3 and 4
if no vote is specified.
_ The Board of Directors recommends a vote "FOR" all nominees and Items 2, 3 and 4 _
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of Directors NOMINEES: FOR AGAINST ABSTAIN
4. Ratification of _____ _____ _____
FOR WITHHELD Darryl F. Allen Ernst & Young LLP
"FOR" all _____ _____ Virgis W. Colbert as independent _____ _____ _____
Purdy Crawford auditors for 1998
nominees _____ _____ Joseph C. Farrell
(except as David R. Goode
marked to the Paul A. Ormond The proxies are
contrary below) John P. Reilly authorized to vote in
William R. Timken, Jr. their discretion upon
such other business
To withhold authority to vote for any as may properly come
individual nominee, write his name on before the meeting
the space provided below:
_____________________________________
<C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN Note: Please sign exactly as name appears to the left.
2. Approval of the _____ _____ _____ Joint owners should each sign. When signing as
Aeroquip-Vickers, Inc. attorney, executor, administrator, trustee or
1998 Stock Incentive _____ _____ _____ guardian, please also give your full title. If a
Plan corporation, please sign in full corporate name by
an authorized officer. If a partnership, please
3. Approval of the _____ _____ _____ sign in full partnership name by an authorized
Aeroquip-Vickers, Inc. person.
Non-Employee Directors' _____ _____ _____
Stock Award Plan
_________________________________________________
_________________________________________________
SIGNATURE(S) DATE
</TABLE>
