NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
---------------
ANNUAL MEETING
OF
SHAREHOLDERS
April 22, 1998
--------------
AMP
AMP Incorporated
Harrisburg, Pennsylvania
AMP Incorporated
Harrisburg, PA 17105-3608
AMP
Executive Offices
March 16, 1998
Dear Shareholder:
You are invited to attend the AMP Incorporated 1998 Annual Meeting of
Shareholders. The Annual Meeting will be held at the AMP Incorporated Global
Executive Leadership Center, 411 South 40th Street, Harrisburg, Pennsylvania, on
Wednesday, April 22, 1998, at 10:30 a.m., local time.
If you plan to attend the Annual Meeting and your shares are registered in
your own name, please mark the appropriate box on the right-hand side of the
enclosed proxy so that an admission card may be sent to you in advance. Only
shareholders bearing an admission card will be permitted admittance to the
Annual Meeting, and the number of admission cards issued will be limited to the
seating capacity of the Global Executive Leadership Center. If your shares are
NOT registered in your own name and you wish to both vote your shares by proxy
and attend the Annual Meeting, do not mark the box on the right-hand side of the
enclosed proxy. Instead, you should complete, sign and return the proxy card and
advise the shareholder of record (e.g., your bank or broker) that you wish to
attend the Annual Meeting and the shareholder of record will issue to you a
verification of ownership (a "legal proxy")for presentation at the Annual
Meeting as your admission card.
It is important that your shares be represented at the Annual Meeting. In
addition to the election of directors and other matters that may properly be
brought before the Annual Meeting, the shareholders will be asked to vote on the
1998 Employee Stock Purchase Plan. Please carefully read the descriptions
included in the Proxy Statement before completing, signing and returning the
accompanying proxy in the postage paid envelope provided for that purpose.
Regardless of whether you plan to attend in person, I urge you to complete, sign
and return the proxy as soon as possible to ensure that your shares will be
voted at the Annual Meeting. If you attend the Annual Meeting you may vote in
person if you wish even though you previously returned your proxy card.
Thank you for your prompt attention to these important matters.
Very truly yours,
/s/ J. E. Marley
JAMES E. MARLEY
Chairman
AMP Incorporated
P.O. Box 3608
Harrisburg, Pennsylvania 17105-3608
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 22, 1998
To the Shareholders of
AMP Incorporated:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of AMP
Incorporated will be held at the AMP Incorporated Global Executive Leadership
Center, 411 South 40th Street, Harrisburg, Pennsylvania, on Wednesday, April 22,
1998, at 10:30 a.m., local time, for the purpose of considering and acting upon
the following:
1. The election of a Board of Directors, eleven in number, to serve until the
next Annual Meeting of Shareholders and until their respective successors
are elected and qualified.
2. A proposal to approve the AMP Incorporated 1998 Employee Stock Purchase
Plan.
3. Such other matters that may properly come before the meeting and any
adjournments thereof.
The Board of Directors has fixed the close of business on March 3, 1998 as
the record date for the determination of shareholders entitled to notice of and
to vote at said meeting and any adjournments thereof.
By order of the Board of Directors
/s/ D. F. Henschel
David F. Henschel,
Corporate Secretary
Dated: March 16, 1998.
AMP INCORPORATED
PROXY STATEMENT
----------------
VOTING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of AMP Incorporated (the "Corporation"). Such
proxies will be voted at the Annual Meeting of Shareholders of the Corporation
to be held on Wednesday, April 22, 1998, and any adjournments or postponements
thereof, at the time and place and for the purposes set forth in the
accompanying Notice of Meeting dated March 16, 1998. The address of the
Corporation's principal executive offices is P.O. Box 3608, Harrisburg,
Pennsylvania 17105-3608. The approximate date on which this Proxy Statement and
the enclosed form of proxy are first sent or given to shareholders is March 16,
1998. Shareholders of record at the close of business on March 3, 1998 are
entitled to notice of and to vote at said meeting and any adjournments or
postponements thereof, each share being entitled to one vote. On March 3, 1998
the Corporation had 219,559,875 outstanding shares of Common Stock, no par value
(excluding shares held in the treasury of the Corporation, all of which are
issued but not outstanding and are not entitled to vote), which constitutes the
only class of voting securities of the Corporation. A majority of the shares
entitled to vote and either present in person or represented by proxy will
constitute a quorum for the transaction of business at the Annual Meeting.
Under Pennsylvania law and the Corporation's Articles of Incorporation and
Bylaws, each nominee for election as a director shall be elected if he or she
receives the affirmative vote of a majority of the votes cast by shareholders
entitled to vote and either present in person or represented by proxy at the
Annual Meeting. Votes may be cast in favor of or withheld from the nominees.
Shareholders are not entitled to cumulative voting in the election of directors.
With respect to the proposal to approve the AMP Incorporated 1998 Employee Stock
Purchase Plan, it will be authorized by the shareholders if the proposal
receives the affirmative vote "for" the proposal by a majority of the votes cast
by shareholders entitled to vote and either present in person or represented by
proxy at the Annual Meeting. Abstentions and broker non-votes (i.e., the
inability of a broker or other nominee holding shares for a beneficial owner to
vote on behalf of such beneficial owner on a particular non-routine matter
because such broker or nominee is not permitted, without receiving instructions
from the beneficial owner, to vote such owner's shares on that matter,
notwithstanding that the broker or nominee has discretionary authority on
another routine, non-controversial matter and has voted on such matter on behalf
of the beneficial owner) will be counted in determining whether a quorum has
been reached but will be excluded entirely from the vote and will not affect the
vote.
Any proxy given pursuant to this solicitation may be revoked in writing by
the person giving it at any time before it is exercised. Under the laws of the
Commonwealth of Pennsylvania, attendance at the Annual Meeting by a shareholder
who has given a proxy does not have the effect of revoking the proxy unless the
shareholder files at any time prior to the voting of the proxy a written notice
of revocation with the Corporate Secretary at the Corporation's principal
executive offices set forth above or at the Annual Meeting, including but not
limited to the timely filing of a duly executed proxy bearing a later date or
the voting of the shares subject to this proxy by written ballot cast at the
Annual Meeting. All shares represented by valid proxies received by the Board of
Directors pursuant to this solicitation in time to be voted and not revoked will
be voted. If the proxy indicates a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the direction made in the
proxy. Except as set forth above with respect to brokers, if no direction is
made, the shares will be voted as to each proposal in accordance with the
recommendations of your Board of Directors. The proxy of a shareholder who is a
participant in the Corporation's Dividend Reinvestment Plan will also serve as
an instruction to the agent of that plan to vote the shares held for the account
of the participant in the same way as the shares represented by such proxy are
voted. If a shareholder's proxy is not received, the shares held for his or her
account in the Dividend Reinvestment Plan will not be voted.
1
If a shareholder is a participant in the Corporation's Employee Savings and
Thrift Plan, with a portion of his or her plan account invested in the plan's
AMP Stock Fund on March 3, 1998, the Proxy card received by the shareholder will
cover his or her pro-rata portion of the AMP Stock Fund's shares. The Proxy card
must be returned or the shares will be voted by the plan's Trustee in its sole
and absolute discretion. If a shareholder is a participant in the MERIT Plan of
Benefits of the M/A-COM division of the Corporation, with a portion of his or
her plan account invested in the plan's fund containing AMP Common Stock on
March 3, 1998, the Proxy card received by the shareholder will cover his or her
pro-rata portion of the AMP Stock Fund's shares. The Proxy card must be returned
or the shares will be voted by the plan's Trustee in the proportion established
by the directions received by the Trustee from all other participants in this
plan.
ITEM 1:
ELECTION OF DIRECTORS
A Board of Directors, eleven in number, is to be elected at the meeting to
serve until the next Annual Meeting of Shareholders and until their respective
successors are elected and qualified. Unless otherwise instructed by the
shareholder, it is the intention of the persons named in the proxy ("Proxy
Committee") to vote such proxy for the election of the persons named in the
following list, each of whom is now a member of the Board of Directors. Mr.
Dexter F. Baker, a director since 1990, for personal reasons has declined to
stand for election as a director. Accordingly, Mr. Baker's position as a member
of the Board of Directors will expire as of April 22, 1998.
The following information is supplied as to each person nominated for
election as a director.
<TABLE>
<CAPTION>
Nominee, Age and
Year First Principal Occupation and
Elected Director Business Experience
- ---------------- ------------------------
<S> <C>
[portrait President of Harbor Point Associates, Inc., New York, New
photograph York, a private investment and consulting firm, having served
of Ralph in that capacity for more than the past five years. Mr.
D. DeNunzio] DeNunzio also serves as a director of Harris Corporation,
Ralph D. DeNunzio Federal Express Corporation, and NIKE, Inc.
Age 66
1977<F3><F5>
President and Chief Executive Officer of Barbara Franklin
Enterprises, Washington, D.C., a private, international
consulting and investment firm, since 1995. Ms. Franklin
[portrait served as the U.S. Secretary of Commerce in the Bush
photograph Administration. She also serves as a director of Aetna,
of Barbara Inc., Cincinnati Milacron Inc., The Dow Chemical Company,
H. Franklin] and MedImmune, Inc.
Barbara Hackman Franklin
Age 57
1993<F2><F4>
2
Nominee, Age and
Year First Principal Occupation and
Elected Director Business Experience
- ---------------- ------------------------
Retired Chairman of the Board of Hixon Properties
Incorporated, San Antonio, Texas, maintaining real estate
[portrait holdings and other investments. Mr. Hixon served as Chairman
photograph of Hixon Properties Incorporated for more than five years.
of Joseph M.
Hixon, III]
Joseph M. Hixon III
Age 59
1988<F2><F5>
[portrait Chief Executive Officer and President of the Corporation.
photograph Mr. Hudson has served as an officer of the Corporation for
of William more than the past five years. He also serves as a director
J. Hudson, of Carpenter Technology Corporation and The Goodyear Tire &
Jr.] Rubber Company.
William J. Hudson, Jr.
Age 63
1992<F1><F5>
President, Chief Operating Officer and a director of Dana
Corporation, Toledo, Ohio, a manufacturer of automotive
components and systems. Mr. Magliochetti has served as
[portrait President of Dana Corporation since 1995, prior to which he
photograph was President of Dana's North American operations. He was
of Joseph M. elected a director of Dana Corporation in 1996 and elected
Magliochetti] Chief Operating Officer in 1997.
Joseph M. Magliochetti
Age 55
1996<F2>
[portrait Chairman of the Board of Directors of the Corporation.
photograph Mr. Marley has served as an officer of the Corporation for
of James E. more than the past five years. He also serves as a director
Marley] of Armstrong World Industries, Inc. and Harsco Corporation.
James E. Marley
Age 62
1986<F1><F5>
[portrait Retired Chairman of the Board of Directors and Chief
photograph Executive Officer of the Corporation. Mr. McInnes served as
of Harold an officer of the Corporation for more than five years. He
A. McInnes] also serves as a director of PPG Industries, Inc.
Harold A. McInnes
Age 70
1981<F1><F4>
3
Nominee, Age and
Year First Principal Occupation and
Elected Director Business Experience
- ---------------- ------------------------
Chairman of the Board and Chief Executive Officer of
Tektronix, Inc., Wilsonville, Oregon, an electronic
equipment manufacturer. Mr. Meyer has served as Chairman of
[portrait the Board and Chief Executive Officer and as a director of
photograph Tektronix for more than the past five years. He also
of Jerome J. serves as a director of Esterline Technologies Corporation
Meyer] and Enron, Corp.
Jerome J. Meyer
Age 60
1996<F2>
President of Evergreen Ventures, Ltd., Cleveland, Ohio, a
family-owned investment company, since 1995. Mr. Morley is
a former President, Chief Executive Officer and director of
Reliance Electric Company, Cleveland, Ohio, a manufacturer
of electrical, mechanical power transmission, and
[portrait telecommunications equipment and systems, having served in
photograph that capacity for more than five years. He also serves as
of John C. a director of Cleveland Cliffs, Inc., Ferro Corporation,
Morley] and Lamson & Sessions, Inc.
John C. Morley
Age 66
1991<F3><F5>
Retired President and Chief Executive Officer of Parker
Hannifin Corporation, Cleveland, Ohio, an international
manufacturer of hydraulic, pneumatic and electromechanical
components. Mr. Schloemer has served as a director of Parker
[portrait Hannifin Corporation for more than the past five years and he
photograph is a former President and Chief Executive Officer of that
of Paul G. company, having served in that capacity for more than five
Schloemer] years. He also serves as a director of Esterline Technologies
Corporation and Rubbermaid Inc.
Paul G. Schloemer
Age 69
1991<F3><F4>
Chairman of the Advisory Council of IBM Japan, Ltd., a
manufacturer of computer systems located in Japan. Mr.
Shiina served as a board member of IBM Japan, Ltd. from 1962
until his retirement as Chief Executive Officer in 1992,
[portrait having served in the capacity as Chief Executive Officer
photograph for more than five years. He also serves as a director of
of Takeo Air Products and Chemicals, Inc. and as a member of the
Shiina] European Advisory Board of Bankers Trust Company.
Takeo Shiina
Age 68
1995<F2>
- ---------
<FN>
<F1> Member of the Executive Committee of the Board.
<F2> Member of the Audit Committee of the Board.
<F3> Member of the Compensation and Management Development
Committee of the Board.
<F4> Member of the Nominating and Governance Committee of the Board.
<F5> Member of the Finance Committee of the Board.
</TABLE>
4
SECURITY OWNERSHIP OF DIRECTORS
The Corporation's Corporate Governance guidelines encourage each member of
the Board of Directors to hold the Corporation's Common Stock in an amount
having a market value of at least four times the annual retainer fee. The
following table identifies the total Common Stock ownership for each Nominee for
director as of March 3, 1998.
<TABLE>
<CAPTION>
Amount of Beneficial Amount of Phantom Total Beneficial
Ownership Ownership and Phantom Ownership
Name of Owner (shares)<F1><F2> (shares)<F3> (shares)
- -------------- --------------------- ------------------ ---------------------
<S> <C> <C> <C>
Ralph D. DeNunzio 8,000 <F5> 3,170 11,170
Barbara H. Franklin 5,400 <F6> 1,879 7,279
Joseph M. Hixon III 1,653,385 <F7> 7,897 1,661,282
William J. Hudson, Jr 359,885 <F14><F15> 35,040<F4> 394,925
Joseph M. Magliochetti 2,000 <F8> 1,945 3,945
James E. Marley 270,062 <F9><F14><F15> 25,737<F4> 295,799
Harold A. McInnes 43,071 0 43,071
Jerome J. Meyer 5,300 <F10> 2,811 8,111
John C. Morley 7,400 <F11> 6,554 13,954
Paul G. Schloemer 8,000 <F12> 0 8,000
Takeo Shiina 6,120 <F13> 2,628 8,748
- ------------
<FN>
<F1> Each Director owns less than 1% of the Corporation's outstanding Common
Stock.
<F2> Unless otherwise indicated, each Nominee for director possesses sole voting
and dispositive power (beneficial ownership) with respect to the shares set
forth opposite his or her name. Numbers shown in this column include
options the director has the right to acquire as beneficial owner within 60
days after March 3, 1998.
<F3> Numbers shown in this column include phantom shares: (i) credited to
outside directors under the Outside Directors Deferred Stock Accumulation
Plan, as described on page 8 of this Proxy Statement; and (ii) credited to
outside and non-employee directors for compensation deferred at the
election of the director, as described on page 7 of this Proxy Statement.
<F4> Designated executive officers of the Corporation may defer up to 50% of
their base salary and all officers are entitled to defer receipt of all or
a portion of their annual cash bonus. Deferred compensation may be
allocated to a phantom AMP Common Stock account under the Corporation's
Deferred Compensation Plan, as described in footnote 1 to the Summary
Compensation Table on page 11 of this Proxy Statement. Such phantom shares
are reported in this number. This number also includes phantom shares of
Common Stock credited to the designated executive officer in an amount
equal to the dividend earned on Performance Restricted Shares, as described
in footnote 3 to the Summary Compensation Table on page 12 and footnote 3
to the Security Ownership of Executive Officers Table on page 20 of this
Proxy Statement.
<F5> Mr. DeNunzio also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1998.
<F6> Ms. Franklin also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1998.
<F7> Mr. Hixon holds 15,791 and 122,192 of these shares in two limited
partnerships and shares voting and dispositive powers. In addition to the
beneficial ownership shown in the table, Mr. Hixon has a 2% residual
beneficial interest but no voting or dispositive powers in a trust that
holds 7,392 shares of Common Stock of the Corporation. He also holds 2,000
options granted under the Corporation's Stock Option Plan for Outside
Directors that are not exercisable until on or after July 1, 1998.
<F8> Mr. Magliochetti also holds 2,000 options granted under the Corporation's
Stock Option Plan for Outside Directors that are not exercisable until on
or after July 1, 1998.
5
<F9> In addition, 211 shares of Common Stock of the Corporation are owned by
members of the immediate family of the Nominee; Mr. Marley disclaims
beneficial ownership of this stock. Additionally, 499 shares of Common
Stock of the Corporation are owned by a member of the immediate family of
Mr. Marley in a custodial account over which the Nominee has voting and
dispositive powers; Mr. Marley disclaims beneficial ownership of this
stock.
<F10>Mr. Meyer also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exerciseable until on or
after July 1, 1998.
<F11>Mr. Morley also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1998.
<F12>Mr. Schloemer holds 1,400 of these shares of Common Stock of the
Corporation in a family trust of which he is co-trustee with his wife and
shares voting and dispositive powers. In addition to the beneficial
ownership shown in the table, he holds 2,000 options granted under the
Corporation's Stock Option Plan for Outside Directors that are not
exercisable until on or after July 1, 1998.
<F13>Mr. Shiina also holds 2,000 options granted under the Corporation's Stock
Option Plan for Outside Directors that are not exercisable until on or
after July 1, 1998.
<F14>A portion of the shares reported for Messrs. Hudson and Marley are
Performance Restricted Shares granted under the Corporation's 1993 Long-
Term Equity Incentive Plan. Further, a portion of the shares reported for
Messrs. Hudson and Marley are held in the Corporation's Employee Savings
and Thrift Plan.
<F15>Under the Corporation's former Bonus Plan (Stock Plus Cash), at December
31, 1997 Mr. Hudson also had 17,402 Stock Bonus Units. Some of the Stock
Bonus Units held by Mr. Hudson will convert within 60 days after March 3,
1998 and are reported in this number. Under the current 1993 Long-Term
Equity Incentive Plan, Mr. Hudson has 419,500 Stock Options, including
61,800 Stock Options transferred to a family limited partnership for the
benefit of Mr. Hudson's immediate family; some of these Stock Options are
exercisable within 60 days after March 3, 1998 and are reported in this
number. Mr. Marley has 303,600 Stock Options; some of these Stock Options
are exercisable within 60 days after March 3, 1998 and are reported in this
number.
</TABLE>
Although the Board of Directors does not contemplate that any of the
Nominees for director will be unable to serve, in the event a vacancy in the
original slate of nominees is occasioned by death or other unexpected
occurrence, (a) shares of stock represented by the proxies shall be voted for
the election of such other nominee as may be designated by the Board of
Directors, or (b) prior to the meeting, the Board of Directors will amend the
Corporation's Bylaws in order to eliminate that office of director for which
such nominee is unable to accept election, or (c) in the event that neither (a)
nor (b) occurs, the Proxy Committee shall nominate other persons in their
discretion and vote the proxies for the election of such persons as directors.
THE BOARD OF DIRECTORS
COMPENSATION
A director who is not an employee of the Corporation is paid $26,000 per
year for services as a director and also $1,000 for each day in attendance at a
meeting of the Board. Additionally, a director is paid $1,000 for attendance at
each meeting of any committee of the Board on which he or she serves. The
chairperson of any such committee is paid an annual retainer of $2,500. An
outside or non-employee director may also be paid $1,000 per day for special
services or assignments requested by either the Chairman or the Chief Executive
Officer and President of the Corporation. A director who is also an employee of
the Corporation does not receive any director or committee fees. During 1997 the
Board of Directors held six meetings.
6
In 1997 total compensation earned by the directors was as follows:
<TABLE>
<CAPTION>
Total Director
Director Compensation
------------------- --------------
<S> <C>
Dexter F. Baker........... $ 40,500 <F1>
Ralph D. DeNunzio......... 43,500
Barbara H. Franklin....... 41,500
Joseph M. Hixon III....... 41,000 <F1>
William J. Hudson, Jr..... 0 <F2>
Joseph M. Magliochetti.... 37,000 <F1>
James E. Marley........... 0 <F2>
Harold A. McInnes......... 134,000 <F3>
Jerome J. Meyer........... 35,000 <F1>
John C. Morley............ 43,500 <F1>
Paul G. Schloemer......... 37,000
Takeo Shiina.............. 36,000 <F1>
- ------------
<FN>
<F1> This compensation includes amounts with respect to which the Director
elected to defer receipt under the terms of the Corporation's deferred
compensation plan for outside and non-employee directors, described below.
<F2> Messrs. Hudson and Marley were employees as well as directors of the
Corporation and therefore did not receive any separate director or
committee fees.
<F3> This compensation includes consulting fees paid to Mr. McInnes, a former
Chairman of the Board and Chief Executive Officer of the Corporation, under
a consulting agreement with the Corporation. Under the agreement Mr.
McInnes was paid a monthly fee of $8,333 for services other than in his
capacity as a director. The consulting agreement expired on December 31,
1997.
</TABLE>
Outside and non-employee directors are permitted to defer receipt of all or
a portion of the annual retainer and the meeting fees. The period of the
deferral is within the discretion of each director, provided however that
payment must be made or commenced no later than the earliest of the death of the
director, a change in control and termination of the director's services, or the
year following the year in which he or she reaches the age of 72. Deferred
compensation may be allocated to either or both of the following investment
options: i) an interest-bearing account with interest credited monthly based on
120% of the Long Term Applicable Federal Rate as published by the Internal
Revenue Service and adjusted quarterly; and ii) a phantom AMP Common Stock
account in which phantom dividends are reinvested in further phantom stock
units. Allocations or changes in allocations can be made annually and apply
prospectively to compensation earned in future years. Payments of deferred
director compensation can be made in a lump sum or in up to ten annual
installments.
The Stock Option Plan for Outside Directors provides that the outside
directors shall receive a grant of 2,000 stock options in the Corporation's
Common Stock when they are first elected to the Board and in each July
thereafter. Up to a maximum of 10 awards may be made to any one director and up
to 300,000 shares may be awarded to all outside directors in the aggregate
during the 10-year term of the plan. These options vest after 1 year and remain
exercisable for 9 years.
BENEFIT PLANS
The Corporation provides benefits to the directors, the amount of which
varies dependent upon whether the director is presently or was ever employed by
the Corporation. The Corporation provides Director and Officer Liability and
Indemnification insurance coverage for all directors. Directors who are not
presently and have never been employed by the Corporation (an "Outside
Director"), are provided with life insurance coverage. Travel accident insurance
coverage is provided to directors who are not currently employed by the
Corporation.
7
All directors are eligible to participate in the Corporation's Employee
Gift Matching Program. Under this program, the Corporation will match qualifying
charitable contributions made by directors to accredited public and private
schools, colleges, universities and graduate schools in the United States. The
maximum aggregate of a director's gifts to all institutions during a calendar
year that will be matched is $5,000.
RETIREMENT
Currently there are two plans that provide retirement-oriented deferred
compensation for Outside Directors (as defined above), conditioned upon 5 years
of service as a member of the Board. Outside Directors elected to the Board on
or after January 1, 1996 generally receive "retirement" compensation under the
Outside Director Deferred Stock Accumulation Plan ("Accumulation Plan"). Outside
Directors who joined the Board prior to January 1, 1996 were provided a one-time
election to continue participation in the retirement plan in place prior to
adoption of the Accumulation Plan or convert to the Accumulation Plan.
Under the Accumulation Plan, each Outside Director will receive 300 shares
of phantom AMP Common Stock when first elected to the Board, and on the first
day of each of the nine subsequent calendar years of Board service. The phantom
share awards are credited to a deferred phantom stock account and have no voting
rights. On each dividend payment date, phantom dividends corresponding to the
number of accumulated phantom shares are credited to the phantom stock account
and deemed to be invested in additional phantom shares.
An Outside Director's deferred phantom stock account vests upon the earlier
of the date the director has at least 5 years of service on the Board, the date
of the director's death while serving on the Board, or the date of the
director's 72nd birthday. If the director terminates Board service with less
than 5 years of service (other than on account of death or attainment of age
72), the account is forfeited. The vested balance in the deferred phantom stock
account is paid to the Outside Director in cash upon termination of Board
service.
Under the retirement plan in effect prior to adoption of the Accumulation
Plan, an Outside Director who has either reached the normal retirement date (the
end of the calendar year in which the director reaches age 72) or retired early
due to disability, and who has served a minimum of five years on the Board, is
eligible for an annual retirement benefit. The annual retirement benefit is
equal to a percentage of the Outside Director's annual base retainer at the time
of retirement, with the actual percentage being based on the Outside Director's
years of service.
In the event of a "change of control", the annual retirement benefit to
which an Outside Director would be entitled based on his or her years of service
at the date service to the Board ceases for any reason shall be fully vested and
payable immediately, without regard to the Outside Director's then attained age.
A "change of control" as that term is used in this Proxy Statement, unless
otherwise indicated, would generally be deemed to have occurred if (a) any
person or group directly or indirectly acquires beneficial ownership of 30% or
more of the Corporation's issued and outstanding shares of Common Stock, or (b)
there occurs a change in the Board such that the directors constituting the
Board at a given point in time (the "Incumbent Board") and any subsequently
elected directors (other than directors whose initial assumption of office is in
connection with an election contest) who were approved by a vote of at least
two-thirds of the directors still in office who either were directors on the
Incumbent Board or whose assumption of office was previously so approved, no
longer constitute a majority of the Board, or (c) a merger or consolidation of
the Corporation or the issuance of voting securities of the Corporation in
connection therewith, other than i) a merger or consolidation resulting in the
voting securities of the Corporation continuing to represent at least 66 2/3% of
the combined
8
voting power of the voting securities of the surviving entity, or ii) a
merger or consolidation effected to implement a recapitalization of the
Corporation in which no person or group directly or indirectly acquires
beneficial ownership of 30% or more of the Corporation's issued and outstanding
shares of Common Stock, or (d) the shareholders of the Corporation approve a
plan of complete liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition of all or substantially all
of the assets of the Corporation, other than such a sale or disposition to an
entity of which at least 70% of the combined voting power of the voting
securities are held by shareholders in substantially the same proportions as
their ownership of the Corporation immediately prior to such sale.
COMMITTEES AND MEETINGS
The Board of Directors has five standing committees: the Audit Committee,
the Compensation and Management Development Committee, the Nominating and
Governance Committee, the Finance Committee and the Executive Committee.
The Audit Committee of the Board of Directors consults with the
Corporation's management regarding selection of the independent public
accountant; concurs in the appointment or dismissal of the Director, Internal
Audit; holds periodic meetings with the Corporation's internal and independent
auditors and financial officers as appropriate to monitor control of the
Corporation's financial resources and audit functions; reviews the arrangements
and related fees for and the scope of the independent auditor's examination;
considers the audit findings and management response; reviews the independent
public accountant's non-audit fees; reviews significant accounting issues,
regulatory changes and accounting or reporting developments and the impact of
such on the Corporation's financial statements; reviews the status of special
investigations; reviews the financial statements; oversees the quarterly
reporting process; discusses with the Corporation's management, the Director,
Internal Audit and in-house legal counsel significant issues relating to
litigation or compliance with environmental or governmental regulations; reviews
the Corporation's electronic data processing procedures and controls; and
reviews the Corporate Code of Conduct and Conflict of Interest policies and
receives reports of disclosures of any deviations from these policies. During
1997 the Audit Committee held five meetings.
The Compensation and Management Development Committee of the Board of
Directors makes recommendations to the Board regarding successors to and the
salaries of the Chairman and the Chief Executive Officer and President; conducts
annual performance reviews of the Chairman and the Chief Executive Officer and
President; reviews the salary budget for the executive officers as a group and
salary recommendations made by the Chief Executive Officer and President for the
named executive officers; makes recommendations to the Board regarding changes
to the Corporation's incentive compensation plans, executive-only benefit plans
and tax-qualified pension and thrift plans; and reviews participation in,
establishes certain targets for, and acts on awards under the Corporation's
incentive compensation plans for management and key employees. During 1997 the
Compensation and Management Development Committee held five meetings.
The Nominating and Governance Committee of the Board of Directors
establishes the criteria for selecting candidates for nomination to the Board;
actively seeks candidates who meet those criteria, are highly qualified and have
diverse backgrounds, including qualified female and minority candidates; makes
recommendations to the Board of nominees to fill vacancies on, or as additions
to, the Board; makes recommendations to the Board on changes in the size,
composition and structure of the Board; makes recommendations to the Board on
compensation and benefit programs for the Board; as appropriate, reviews the
performance of the directors and reports its findings to the Chairman and, in
its discretion, to the Board itself; and considers matters relating to corporate
governance and makes decisions concerning those matters that should be
recommended for action by the Board in executive
9
session. The Nominating and Governance Committee will consider nominees for
election to the Board that are recommended by shareholders provided that a
complete description of the nominees' qualifications, experience and background,
together with a statement signed by each nominee in which he or she consents to
act as such, accompany the recommendations. Such recommendations should be
submitted in writing to the attention of the Chairman of the Corporation, and
should not include self-nominations. During 1997 the Nominating and Governance
Committee held one meeting.
The Finance Committee of the Board of Directors reviews and considers key
financial objectives and measures in the AMP Global Strategic Plan, the
Corporation's cost of capital, cash generation, cash balance objectives and
balance sheet objectives. The Committee also reviews strategic transactions
valued in excess of $10 million; receives periodic reports on the portfolio of
equity/venture capital investments; reviews and assesses the performance and
results of acquisitions and related finance and accounting practices; reviews
management's recommendations regarding public stock issues and public and
private debt issues; advises management and the Board on the Corporation's share
repurchase strategies; periodically reviews the Corporation's dividend policy,
dividend recommendations, stock split proposals and investor relations plans;
reviews periodically the Corporation's risk management policies and practices
(not including internal operating controls and financial reporting procedures
relating to risk management policies and practices); reviews periodic reports
from the Corporation's Pension Committee concerning the investment status,
investment policy guidelines and accounting treatment of the Corporation's
benefit plans involving funds held in trust or otherwise managed and invested on
behalf of the participants in the benefit plans; reviews and approves the
investment policy guidelines for the AMP Foundation's assets; and reviews the
annual charitable giving by the AMP Foundation and the Corporation, and the
policy guidelines governing such charitable giving. During 1997 the Finance
Committee held three meetings.
The Executive Committee of the Board of Directors has been delegated the
authority to act on behalf of the Board with respect to any matter within the
ordinary course of the business of the Corporation. The Committee typically acts
on proposed capital expenditures and financial transactions that require
immediate Board action at times that are not near to the regularly scheduled
Board meetings. Certain matters, including those that under the Pennsylvania
Business Corporation Law cannot be delegated by the Board, are specifically
excluded from the authority of the Executive Committee. All actions taken by the
Committee are reported at the next meeting of the Board for concurrence by the
full Board. During 1997 the Executive Committee did not meet and took no action
either in a meeting of the Committee or by written consent in lieu of a meeting.
10
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
---------------------------------------------- ----------------------------------
Awards
----------------------------------
Other Annual Restricted Securities Underlying All Other
Name and principal Salary Bonus Compensation Stock Awards Options/SARs Compensation
position Year ($) ($) ($) ($) (#) ($)
------------- ---- ------- ------- ------- ------------ --------------------- ------------
(a) (b) (c)<F1> (d)<F1> (e)<F2> (f)<F3> (g)<F4> (h)
- ---------------------------- ---- ------- ------- ------- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Hudson, Jr. 1997 810,000 534,600 35,608 1,861,200 63,900 126,940<F5>
Chief Executive Officer 1996 810,000 0 32,548 1,717,713 75,600 110,640
and President, and a 1995 700,000 437,000 17,947 1,071,875 60,000 173,380
Director
James E. Marley 1997 648,000 429,624 57,707 1,489,900 51,100 99,852<F6>
Chairman 1996 648,000 0 26,018 1,373,438 60,500 85,952
1995 560,000 291,000 40,707 857,500 45,000 83,840
Robert Ripp 1997 400,008 198,804 3,440 733,200 25,100 71,915<F7>
Executive Vice President 1996 375,000 46,875 24,157 578,675 25,500 67,000
1995 325,008 137,933 13,560 390,163 16,700 61,001
Juergen Gromer<F9> 1997 393,189 176,111 28,141 437,100 15,000 0
Vice President 1996 425,626 67,975 19,018 0 22,400 0
1995 412,917 63,687 13,517 0 21,200 0
John E. Gurski 1997 370,008 183,894 165,623 620,400 21,200 49,680<F8>
Vice President 1996 350,004 46,200 225,067 538,388 23,800 40,000
1995 285,000 124,315 172,587 317,275 13,600 55,357
- --------------------
<FN>
<F1> Under the Deferred Compensation Plan, designated executive officers are
permitted to defer receipt of up to 50% of their annual base salary and all
officers of the Corporation are entitled to defer receipt of all or a
portion of their annual cash bonus. The period of deferral is within the
discretion of the executive, but is generally until the year following
termination of employment. During the period of deferral, the deferred
compensation may be allocated or reallocated by the executive between and
among the following investment options: i) an interest-bearing account with
interest credited monthly based on 120% of the Mid-Term Applicable Federal
Rate as published by the Internal Revenue Service, adjusted monthly and ii)
a phantom AMP Common Stock Account in which the phantom dividends are
reinvested in the phantom stock units. Payments of the deferred
compensation can be made at the executive's election in either a lump sum
or up to ten annual installments. Amounts of salary or bonus attributable
to 1995, 1996 and 1997, the receipt of which has been deferred under this
plan, are nevertheless included in columns (c) and (d), as appropriate, of
the Summary Compensation Table.
<F2> Unless otherwise indicated, no executive officer named in the Summary
Compensation Table received personal benefits or perquisites in excess of
the lesser of $50,000 or 10% of his total compensation reported in columns
(c) and (d). Reported in this column is annual compensation related to: (i)
the Cash Bonus paid under the Corporation's former Bonus Plan (Stock Plus
Cash) to cover United States income taxes as described in footnote 1 to the
"Aggregated Option/SAR Exercises in 1997 and FY-End Option/SAR Values"
table, pages 15-16, and fractional
11
shares of the Bonus Plan Stock Bonus; and (ii) reimbursement of relocation
expenses and payments of estimated income taxes relating to reimbursement
of relocation expenses to Mr. Ripp in 1995 through 1997 and Mr. Gurski in
1996 and 1997; (iii) overseas allowances for Mr. Gurski in 1995 and 1996,
and (iv) certain payments of estimated taxes relating to Mr. Gurski's
assignment overseas during 1995 and 1996, including payments made in 1996
and 1997 with regard to previous years' tax obligations and reimbursements
or refunds received by the Corporation for tax payments made in previous
years.
<F3> During 1997, 180,900 shares of restricted stock were granted by the
Corporation, resulting in a total of 438,620 shares of restricted stock
held at December 31, 1997. These shares had an aggregate value of
$18,422,040 based upon a $42.00 per share closing price of the
Corporation's Common Stock as reported on the New York Stock Exchange
Composite Tape on December 31, 1997, and dividends are paid on 43,120 of
these shares to the same extent as any other shares of the Corporation's
Common Stock. The number of shares of restricted stock includes certain
time-vesting restricted shares as well as Performance Restricted Shares
awarded under the Corporation's 1993 Long-Term Equity Incentive Plan, which
vest in 3 years based on achievement of minimum average annual return on
equity and average annual earnings growth objectives for the Corporation.
Dividends earned on Performance Restricted Shares, of which 395,500 were
held at December 31, 1997, are credited to the executive officer's account
and are deemed to be invested in phantom shares of Common Stock. These
phantom shares vest only when, and to the extent the associated Performance
Restricted Shares vest.
<F4> Includes awards made pursuant to the Corporation's 1993 Long-Term Equity
Incentive Plan. The Long-Term Equity Incentive Plan is described in
footnote 1 to the "Option/SAR Grants in 1997" table on pages 13-14 of this
Proxy Statement.
<F5> Includes $3,840 as the company-matching contribution under the Employee
Savings and Thrift Plan; $15,600 as the company-matching contribution under
the Deferred Compensation Plan; and $107,500 as the total premium paid by
the Corporation in 1997 under a split-dollar insurance plan, including both
the portion of the premium that is attributable to term life insurance
coverage for Mr. Hudson and the full dollar value of the remainder of the
premium. The split-dollar insurance plan provides life insurance coverage
for Mr. Hudson equal to twice his base salary (in lieu of the coverage
available under the Corporation's group-term life insurance plan), and a
substantial portion of the value of the advances made to pay the premium as
shown in this table will be repaid to the Corporation from policy proceeds.
<F6> Includes $3,840 as the company-matching contribution under the Employee
Savings and Thrift Plan; $11,712 as the company-matching contribution under
the Deferred Compensation Plan; $4,800 as total director fees paid to Mr.
Marley in 1997 by two wholly-owned subsidiaries of the Corporation; and
$79,500 as the total premium paid by the Corporation in 1997 under a
split-dollar insurance plan, including both the portion of the premium that
is attributable to term life insurance coverage for Mr. Marley and the full
dollar value of the remainder of the premium. The split-dollar insurance
plan provides life insurance coverage for Mr. Marley equal to twice his
base salary (in lieu of the coverage available under the Corporation's
group-term life insurance plan), and a substantial portion of the value of
the advances made to pay the premium as shown in this table will be repaid
to the Corporation from policy proceeds.
<F7> Includes $3,840 as the company-matching contribution under the Employee
Savings and Thrift Plan; $5,760 as the company-matching contribution under
the Deferred Compensation Plan; $4,800 as total director fees paid to Mr.
Ripp in 1997 by two wholly-owned subsidiaries of the Corporation; and
$57,515 as the total premium paid by the Corporation in 1997 under a
split-dollar insurance plan, including both the portion of the premium that
is attributable to term life insurance coverage for Mr. Ripp and the full
dollar value of the remainder of the premium. The split-dollar insurance
plan provides life insurance coverage for Mr. Ripp equal to twice his base
salary (in lieu of the coverage available under the Corporation's group-
term life insurance plan), and a substantial portion of the value of the
advances made to pay the premium as shown in this table will be repaid to
the Corporation from policy proceeds.
12
<F8> Includes $3,840 as the company-matching contribution under the Employee
Savings and Thrift Plan; $5,040 as the company-matching contribution under
the Deferred Compensation Plan; and $40,800 as the total premium paid by
the Corporation in 1997 under a split-dollar insurance plan, including both
the portion of the premium that is attributable to term life insurance
coverage for Mr. Gurski and the full dollar value of the remainder of the
premium. The split-dollar insurance plan provides life insurance coverage
for Mr. Gurski equal to twice his base salary (in lieu of the coverage
available under the Corporation's group-term life insurance plan), and a
substantial portion of the value of the advances made to pay the premium as
shown in this table will be repaid to the Corporation from policy proceeds.
<F9> Mr. Gromer's compensation was paid in German marks. The amounts reported
for Mr. Gromer have been converted to U.S. dollars based on the average
monthly conversion rate calculated using the daily conversion rates listed
by Bloomberg Financial Markets Commodities News.
</TABLE>
<TABLE>
<CAPTION>
Option/SAR Grants in 1997
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term<F3>
------------------------------------------------------------------ -------------------------------
Number of % of Total
Securities Options/
Underlying SARs Exercise Market
Options/SARs Granted to or Base Price at
Granted<F1> Employees Price Expiration Grant 0% 5% 10%
Name Date (#) in 1997 ($/share) Date <F2> ($/share) ($) ($) ($)
---- ---- ------------ ---------- --------- ---------- --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Hudson, Jr...... 7/22/97 63,900 3.16 47.0 7/22/07 47.0 0 1,888,759 4,786,487
Chief Executive
Officer and President,
and a Director
James E. Marley ........... 7/22/97 51,100 2.53 47.0 7/22/07 47.0 0 1,510,416 3,827,691
Chairman
Robert Ripp ............... 7/22/97 25,100 1.24 47.0 7/22/07 47.0 0 741,907 1,880,138
Executive Vice President
Juergen W. Gromer ......... 7/22/97 15,000 0.74 47.0 7/22/07 47.0 0 443,370 1,123,588
Vice President
John E. Gurski ............ 7/22/97 21,200 1.05 47.0 7/22/07 47.0 0 626,631 1,588,005
Vice President
---------
<FN>
<F1> The Corporation's 1993 Long-Term Equity Incentive Plan ("1993 Plan") became
effective on July 1, 1993 and is a long-term incentive compensation program
that is based on stock price appreciation in the form of stock options
(either incentive or non-qualified stock options) and infrequently, in the
discretion of the Corporation, in the form of freestanding SARs payable in
the Corporation's Common Stock or from time to time, in the Corporation's
sole discretion, in cash. The 1993 Plan also provides for the award of
performance-based restricted stock ("Performance Restricted Shares"). The
1993 Plan is administered by the Compensation and Management Development
Committee of the Corporation's Board of Directors ("Committee"). Under the
1993 Plan, each employee designated by the Committee to participate is
credited with stock options having an option price per share of Common
Stock that is not less than 100% of the closing price of the Common Stock
on the New York Stock Exchange Composite Tape on the award date, and/or
stock bonus units (SARs) having a designated value per unit of not less
than 95% of the average closing price of the Common Stock on the New York
Stock Exchange Composite Tape for the 10 trading days immediately prior to
the award date, and/or Performance
13
Restricted Shares. No SAR awards were made under the 1993 Plan in 1997.
Awards of Performance Restricted Shares and stock options that were made to
the named executive officers in 1997 are shown in columns (f) and (g),
respectively, of the Summary Compensation Table, on page 11 of this Proxy
Statement.
With respect to stock options, all options granted in 1997 to the named
executive officers will vest 3 years from the date of award and will expire
7 years after vesting. They have an exercise price equal to 100% of the
closing price of the Common Stock on the New York Stock Exchange on the
award date. Under the authorization of the Committee, all options granted
in 1997 include a term that permits their transfer to immediate family
members, trusts for the exclusive benefit of such members, or partnerships
in which such members are the only partners. Transferred options may not be
further transferred by immediate family members except by will or by the
laws of descent and distribution, and the named executive officers remain
responsible for the income taxes and tax withholding requirements arising
upon the exercise of transferred options.
When SAR awards are made, bonus computations with respect to the stock
bonus units are made on the 4th through 6th anniversaries of the award date
for one-third of each participant's bonus units and are based on the
increase in the market price of the Common Stock over the designated value,
as established on the award date. The bonus typically paid in stock ("Stock
Bonus") is the number of shares of Common Stock having an aggregate market
value on the computation date equivalent to the one-third of the
participant's bonus units multiplied by the increase in market price
described above. A cash bonus ("Supplemental Cash Bonus") is also paid
under the 1993 Plan in conjunction with Stock Bonuses. The Supplemental
Cash Bonus is paid at the same time that payment of the Stock Bonus is made
and is a percentage of the value of the Stock Bonus that is designated at
the time of award and is no greater than that calculated to provide a
payout sufficient to pay the anticipated United States income tax at a
maximum rate for the highest taxable bracket with respect to the aggregate
of the Stock Bonus and the Supplemental Cash Bonus. Supplemental Cash Bonus
awards are not included in this table when stock bonus unit (SAR) awards
are made in the reported year and disclosed in this table.
<F2> The expiration date for stock options under the 1993 Plan is the date
determined by the Committee at the time of the award of such options. When
SARs are granted in the reported year and disclosed in this table, the 6th
anniversary date is designated as the "expiration date" because
computations of the Stock Bonus are made on the 4th through 6th
anniversaries of the award date for one-third of each participant's bonus
units granted in the award.
<F3> In 1997 the named executive officers received awards under the 1993 Plan
entirely in either stock options or Performance Restricted Shares awards,
and therefore assumed values contained in this table relate only to the
options. These values are based on assumed appreciation rates set by the
Securities and Exchange Commission and are not intended to forecast
possible future appreciation, if any, of the Corporation's stock price. The
values are based on the difference between the exercise price and the
exercise price as increased by the assumed annual appreciation rate over
the 10-year term of the options, compounded annually, with said difference
multiplied by the number of options granted as shown in the table.
</TABLE>
14
AGGREGATED OPTION/SAR EXERCISES<F1> IN 1997 AND FY-END OPTION/SAR
Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs on In-The-Money Options/SARs
Shares Acquired Value December 31, 1997 (#) on December 31, 1997 ($)
on Exercise Realized ------------------------------- ----------------------------------
Name (#) ($)<F2> Exercisable/Unexercisable<F3> Exercisable/Unexercisable <F3><F4>
---- --------------- -------- ------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
William J. Hudson, Jr........... 4,861 118,880 220,000 / 216,902 1,980,350 / 643,799
Chief Executive Officer
and President, and a
Director
James E. Marley.................. 2,520 115,290 157,000 / 156,600 1,447,813 / 325,188
Chairman
Robert Ripp...................... 0 0 40,000 / 67,300 252,500 / 137,063
Executive Vice President
Juergen W. Gromer................ 11,103 282,606 15,600 / 64,200 98,475 / 120,400
Vice President
John E. Gurski ................ 621 21,425 44,800 / 58,600 402,425 / 127,925
Vice President
- -----------------------
<FN>
<F1> Exercises shown in this table relate to stock bonus units (SARs) granted
under the Corporation's Bonus Plan (Stock Plus Cash) ("Bonus Plan"), which
preceded the 1993 Plan, and to both stock bonus units (SARs) and stock
options awarded under the 1993 Plan.
With respect to stock bonus units granted under the Bonus Plan and the 1993
Plan, the incentive compensation is based on stock price appreciation in
the form of freestanding SARs payable in the Corporation's Common Stock or
occasionally, in the discretion of the Corporation, in cash. Each employee
designated by the Board of Directors to participate in the Bonus Plan was
credited with stock bonus units having a designated value per unit of not
less than 95% of the closing price of the Common Stock on the New York
Stock Exchange on the award date. Under the 1993 Plan, the stock bonus
units have a designated value per unit of not less than 95% of the average
closing price of the Common Stock on the New York Stock Exchange Composite
Tape for the 10 trading days immediately prior to the award date. The 1993
Plan is more fully described in footnote 1 to the table entitled "Options/
SAR Grants in 1997" on pages 13-14 of this Proxy Statement.
Bonus computations are made on the 4th through 6th anniversaries of the
award date for one-third of each participant's stock bonus units. Bonus
computations for stock bonus units granted under the Bonus Plan are made
using the greater of the increase in the market price of the Common Stock
(a) over the designated value, as established on the award date, or (b)
over an adjusted designated value. The adjusted designated value is 95% of
an amount determined by discounting the market price of the Common Stock on
the computation date by a percentage (not to exceed 7.5% per year) equal to
one-half of the Corporation's compound average annual growth rate in
earnings per share during the period between the award date and the
computation date. Bonus computations for stock bonus units granted under
the 1993 Plan are made by simply using the increase in the market price of
the Common Stock over the designated value as established on the award
date. The bonus typically paid in stock under either plan ("Stock Bonus")
is the number of shares of the Common Stock having an aggregate market
value on the computation date equivalent to the amount computed as
described above.
A cash bonus is also paid under both the Bonus Plan and the 1993 Plan. For
awards under the Bonus Plan that were made between January 27, 1988 and
June 30, 1993, the cash bonus is an amount sufficient to pay the
anticipated United States income tax with respect to both the Bonus
15
Plan Stock Bonus and the cash bonus as determined at the time of the
distribution of the bonuses, not to exceed an amount that is 50% of the
value of the Bonus Plan Stock Bonus. The cash bonus under the 1993 Plan is
described in footnote 1 of the table entitled "Options/SAR Grants in 1997"
on pages 13-14 of this Proxy Statement. The amounts of the cash bonus paid
in 1997 based on distributions made in that year under these plans are
included in column (e), "Other Annual Compensation", of the Summary
Compensation Table on page 11 of this Proxy Statement.
In view of the foregoing, "exercises" for purposes of this table are deemed
to be the Stock Bonus computations that are made on the 4th through 6th
anniversaries of the award date for one-third of each participant's stock
bonus units granted in an award under the Corporation's Bonus Plan and 1993
Plan, together with stock options under the 1993 Plan that were exercised
during 1997. The stock options awarded under the 1993 Plan are described in
footnote 1 of the table entitled "Options/SAR Grants in 1997" on pages
13-14 of this Proxy Statement.
<F2> "Value Realized" includes the amount of appreciation realized upon exercise
of stock options under the 1993 Plan, together with the Stock Bonus paid
under the Bonus Plan and the 1993 Plan based on stock price appreciation.
The figures reported in this column do not include the cash bonus as
described in footnote 1 above.
<F3> The stock bonus units (SARs) awarded under the Bonus Plan and the 1993 Plan
are not exercised by the participants, but are paid based on bonus
computations made on the 4th through 6th anniversaries of the award date
for one-third of each participant's stock bonus units.
<F4> These values relate only to stock options granted under the 1993 Plan and
the Stock Bonus described in footnote 1 above under both the Bonus Plan and
the 1993 Plan. A cash bonus under the Bonus Plan and the 1993 Plan is also
paid as previously described, but is not included in the values disclosed
in this column. With respect to Stock Bonuses under the Bonus Plan, these
values also have been calculated based on the designated values for the
respective awards and without regard to adjusted designated values, as
those terms are defined under the Bonus Plan and described in footnote 1
above.
</TABLE>
RETIREMENT BENEFITS
The Corporation maintains a pension plan ("Pension Plan") for its employees
that is designed and administered to qualify under Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code"). The Pension Plan has been
noncontributory since January 1, 1991. Prior to January 1, 1994 the Pension Plan
was a career average defined benefit plan under which, for each year of covered
service with the Corporation, an employee accrued a benefit equal to 1.67% of
his or her current base earnings. The Pension Plan also included an alternative
formula that updated pension benefits for prior service based on most-recent
3 years average base earnings rates. An employee received the greater of the
benefit the employee had otherwise earned under the Pension Plan or the benefit
calculated under the alternative formula based on most-recent average base
earnings and years of credited service.
Effective as of January 1, 1994 the Corporation amended the Pension Plan to
provide benefits based on final average base earnings and total years of
credited service at retirement. The final average base earnings is determined
based on the average of the year-end annual earnings rates for the 3 years that
represent the employee's highest 3 years average during such employee's last 10
years of service. The benefit is calculated by adding (1) 1.0% of such final
average base earnings, up to the then-current Social Security covered
compensation level ($31,128 in 1998), multiplied by the employee's credited
years of past service (not to exceed 35 years), (2) 1.5% of such final average
base earnings in excess of the Social Security covered compensation level,
multiplied by the employee's credited years of past service (not to exceed 35
years), and (3) 1.2% of such final average base earnings, multiplied by the
number of the employee's credited years of past service in excess of 35 years.
Credited years of past service are counted back to age 21 and one year of
service for participants who joined the Pension Plan when first eligible,
otherwise back to the date of actual enrollment in the Pension Plan. Employees
who were age 60 or older as of January 1, 1994 will receive the higher of the
benefit under the prior
16
career average defined benefit approach or the benefit under the new final
average base earnings method.
Earnings used to calculate benefits under the Pension Plan are restricted
to (a) annual base salary, including amounts deferred under the Corporation's
Employee Savings and Thrift Plan, amounts applied to the employee portion of the
welfare benefit plan premiums pursuant to a salary reduction agreement, and
amounts credited to health care and dependent care flexible spending accounts
pursuant to a salary reduction agreement and (b) for individuals paid on a
commission basis, annual base salary (as described above) plus commissions, but
commissions are included only to the extent that the sum of the annual base
salary and commissions does not exceed a designated amount. Normal Retirement
Date under the Pension Plan is defined as age 65, but there is no actuarial
reduction of a participant's pension for early retirement between the ages of 60
and 65.
The Pension Plan also provides for a special pension benefit formula that
would be used to recalculate benefits in the event of a change in control of the
Corporation. The special formula, which the Corporation plans to review and
modify from time to time as the funding status of the Pension Plan warrants, is
intended to ensure that excess Pension Plan assets at the time of a change in
control are used to provide increased retirement benefits for covered employees.
The special formula is similar in design to the final average earnings formula
described above under the amended Pension Plan, with the 1%, 1.5% and 1.2%
factors replaced by 1.25%, 1.75%, and 1.67%, respectively.
In accordance with Code requirements, the Pension Plan limits the maximum
amount of annual compensation that may be taken into account under the Pension
Plan ($160,000 in 1998) and the maximum annual employer provided benefit that
can be paid under the Pension Plan ($130,000 in 1998). The Corporation maintains
a supplemental employee retirement program ("SERP") pursuant to which certain
employees whose retirement benefits otherwise payable under the Pension Plan are
limited by these Code restrictions will receive payment of a supplemental
pension from non-Pension Plan sources. The total benefit payable under both the
Pension Plan and the SERP is calculated without regard to the Code limitations
applicable to the Pension Plan using the same pension formula(s) applicable
under the Pension Plan and using a 3 years average of both base earnings and
annual cash bonus (whether paid or deferred). The total benefit thus calculated,
reduced by the restricted benefit actually payable from the Pension Plan, is the
benefit payable from the SERP.
17
The following table shows the combined annual retirement benefit payable to
the Corporation's executive officers named in the Summary Compensation Table,
except Mr. Gromer, under both the Pension Plan and the SERP, as amended
effective January 1, 1994, upon normal retirement, based on the indicated amount
of final average remuneration and number of credited years of service.<F1> Mr.
Gromer's annual retirement benefit is calculated under the terms of a retirement
plan maintained by AMP Deutschland that is similar in design to the U.S. Pension
Plan described above. As of January 1, 1998, Mr. Gromer's accrued annual
retirement benefit payable upon normal retirement (age 65) under the AMP
Deutschland plan was $271,118, based upon the average monthly conversion rate
for January 1998, calculated as described in footnote 9 to the Summary
Compensation table on page 13 of this Proxy Statement.
<TABLE>
<CAPTION>
PENSION PLAN TABLE <F4>
Years of Service <F3>
-----------------------------------------------------------
Remuneration<F2> 15 20 25 30 35 40
- ----------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000......... 87,665 116,887 146,109 175,331 204,553 228,553
450,000......... 98,915 131,887 164,859 197,831 230,803 257,803
500,000......... 110,165 146,887 183,609 220,331 257,053 287,053
550,000......... 121,415 161,887 202,359 242,831 283,303 316,303
600,000......... 132,665 176,887 221,109 265,331 309,553 345,553
650,000......... 143,915 191,887 239,859 287,831 335,803 374,803
700,000......... 155,165 206,887 258,609 310,331 362,053 404,053
750,000......... 166,415 221,887 277,359 332,831 388,303 433,303
800,000......... 177,665 236,887 296,109 355,331 414,553 462,553
850,000......... 188,915 251,887 314,859 377,831 440,803 491,803
900,000......... 200,165 266,887 333,609 400,331 467,053 521,053
950,000......... 211,415 281,887 352,359 422,831 493,303 550,303
1,000,000......... 222,665 296,887 371,109 445,331 519,553 579,553
1,050,000......... 233,915 311,887 389,859 467,831 545,803 608,803
1,100,000......... 245,165 326,887 408,609 490,331 572,053 638,053
1,150,000......... 256,415 341,887 427,359 512,831 598,303 667,303
1,200,000......... 267,665 356,887 446,109 535,331 624,553 696,553
1,250,000......... 278,915 371,887 464,859 557,831 650,803 725,803
1,300,000......... 290,165 386,887 483,609 580,331 677,053 755,053
1,350,000......... 301,415 401,887 502,359 602,831 703,303 784,303
1,400,000......... 312,665 416,887 521,109 625,331 729,553 813,553
1,450,000......... 323,915 431,887 539,859 647,831 755,803 842,803
1,500,000......... 335,165 446,887 558,609 670,331 782,053 872,053
1,550,000......... 346,415 461,887 577,359 692,831 808,303 901,303
1,600,000......... 357,665 476,887 596,109 715,331 834,553 930,553
1,650,000......... 368,915 491,887 614,859 737,831 860,803 959,803
1,700,000......... 380,165 506,887 633,609 760,331 887,053 989,053
- ---------------
<FN>
<F1> Effective in April 1997, Mr. Ripp became a participant under the newly-
created AMP Incorporated Supplemental Executive Pension Plan, which was
implemented to provide a competitive annual retirement benefit to
executives, such as Mr. Ripp, who are first employed by the Corporation
mid-to late-career. Under this plan, Mr. Ripp's annual retirement benefit
at Normal Retirement Date is the greater of the combined annual retirement
benefit payable under the Pension Plan and the SERP, as described above, or
30% of his highest 3 years average of base compensation and annual cash
bonuses.
18
<F2> The compensation covered by the combination of the Pension Plan and SERP
includes the employee's final average earnings, as determined by the
average of the 3 years that represents the employee's highest base earnings
during such employee's last 10 years of service, together with the average
of the employee's annual cash bonus payments also paid in such 3 years. In
the case of the named executive officers other than Mr. Gromer, the annual
base earnings considered in such a determination includes the amount of
salary and bonus shown in columns (c) and (d) of the Summary Compensation
Table on page 11 of this Proxy Statement.
<F3> The current estimated credited years of service for the named executive
officers, except J. Gromer, discussed above, are as follows: W. J. Hudson,
Jr. - 32 years; J. E. Marley - 33.5 years; R. Ripp - 3.3 years and J.
Gurski - 24.5 years. The estimated credited years of service for the named
executive officers, except J. Gromer, discussed above, at the Normal
Retirement Date are as follows: W. J. Hudson, Jr. - 33.42 years; J. E.
Marley - 36.08 years; R. Ripp - 11.92 years and J. Gurski - 32.5 years.
<F4> The retirement benefit shown in the Pension Plan Table is a straight life
annuity amount and is not subject to any reduction for Social Security or
other offset amounts. However, as required by law, the form of payment for
married employees under the Pension Plan is a 50% joint and survivor
annuity, which is typically less than the straight life annuity amount.
</TABLE>
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS
In order to further align the interests of the Corporation's executives
with increasing the long-term value of the Corporation, in January 1995 the
Corporation implemented Stock Ownership Guidelines for Senior Management ("Stock
Guidelines"). The Stock Guidelines apply to approximately 130 executives
presently participating in the Stock Option or SAR segment of the 1993 Long-Term
Equity Incentive Plan. Affected executives are encouraged to directly own a
minimum number of real or phantom shares of stock, the value of which is
expressed as a multiple of the executive's annualized base salary. The
multiplier ranges from 4 times salary for the Chairman and the CEO and
President, to .5 times base salary for executives in less senior management
positions. Executives are expected to comply with the Stock Guidelines within a
5-year period.
The AMP equity security ownership as of March 3, 1998 by the named
executive officers and the executive officers of the Corporation on that date is
as follows:
<TABLE>
<CAPTION>
Amounts and
Nature Beneficial Amount of Total Beneficial
of Beneficial Ownership Phantom and Phantom
Name and Address Ownership as a Percent Ownership Ownership
Title of Class of Beneficial Owner (shares) of Class (shares)<F3> (shares)
- -------------- ------------------------ ------------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Common Stock....William J. Hudson, Jr. 359,885 <F1> less than 1 35,040 394,925
Harrisburg, Pennsylvania <F2>
<F4>
Common Stock....James E. Marley 270,062 <F2> less than 1 25,737 295,799
Harrisburg, Pennsylvania <F4>
Common Stock....Robert Ripp 101,028 <F4> less than 1 6,024 107,052
Harrisburg, Pennsylvania
Common Stock....Juergen W. Gromer 39,942 <F4> less than 1 158 40,100
Langen, Germany
Common Stock....John E. Gurski 84,073 <F4> less than 1 12,129 96,202
Harrisburg, Pennsylvania
Common Stock...all Executive Officers 2,896,211 <F1> 1.31 142,215 3,038,426
(18 persons) <F2>
and Directors as a Group <F4>
- -----------------
<FN>
<F1> Three executive officers have the right to acquire an undeterminable number
of shares under the Corporation's Bonus Plan (Stock Plus Cash) within 60
days after March 3, 1998.
19
<F2> A portion of the shares reported for 17 executive officers are held in the
Corporation's Employee Savings and Thrift Plan. Through further
contributions to this plan, all 17 executive officers may acquire an
undeterminable number of additional shares within 60 days after March 3,
1998.
<F3> Numbers in this column include phantom shares credited to executive
officers under a deferred compensation plan and/or in association with
dividend reinvestment of Performance Restricted Shares issued to designated
officers. Pursuant to the deferred compensation plan, designated executive
officers may defer receipt of up to 50% of their annual base salary and all
officers of the Corporation may defer receipt of all or a portion of their
annual cash bonus. Deferred compensation may be allocated to a phantom AMP
Common Stock account, as described in footnote 1 to the Summary
Compensation Table on page 11 of this Proxy Statement. Dividends earned on
Performance Restricted Shares are credited to the executive officer's
account and are deemed to be invested in phantom shares of Common Stock.
These phantom shares vest only when, and to the extent the associated
Performance Restricted Shares vest, as described in footnote 3 to the
Summary Compensation Table on page 12 of this Proxy Statement.
<F4> In addition, a total of 8,782 shares are held by immediate family members
of four executive officers, either directly or in a custodial account over
which the executive officer has voting and dispositive powers; the
executive officers disclaim beneficial ownership. Additionally, a director
has a 2% residual beneficial interest, but no voting or dispositive powers
in a trust that holds 7,392 shares of Common Stock of the Corporation. Of
the beneficial ownership reported in this number, 15,791 and 122,192 shares
are held by a director in two limited partnerships over which he shares
voting and dispositive powers, and another director holds 1,400 shares in a
family trust of which he is co-trustee with his wife and shares voting and
dispositive powers. Also, nine directors hold a total of 64,000 options,
some of which are exercisable within 60 days after March 3, 1998 and are
reported in this number, and eighteen executive officers hold a total of
1,606,145 options, some of which are exercisable within 60 days after March
3, 1998 and are reported in this number, and 44,304 Stock Bonus Units, some
of which will convert within 60 days after March 3, 1998 and are reported
in this number. Of the total number of options held by executive officers
and described above, 419,500 are held by Mr. Hudson, of which 61,800 have
been transferred to a family limited partnership.
</TABLE>
PERFORMANCE GRAPH
The graph shown below depicts the cumulative total shareholder return
(assuming a $100 investment and dividend reinvestment) during the 5-year
period from 1992 - 1997 for the Common Stock of the Corporation compared to
the cumulative total return during the same period for the Standard &
Poor's 500 Stock Index, the peer group index contained in the Corporation's
1997 Proxy Statement ("Prior Peer Group") and the peer group index to be
included in this and future Proxy Statements ("New Peer Group"). The Prior
Peer Group was established in 1996 and essentially consisted of the
companies included in the Electrical Equipment industrial classification of
Standard & Poor's, together with the publicly-held competitors of the
Corporation that were not included in that classification.
The New Peer Group also contains the companies included in the Electrical
Equipment industrial classification of Standard & Poor, together with
publicly-held competitors of the Corporation that are not included in such
classification. The New Peer group does not include one company listed in
Standard & Poor's Electrical Equipment industrial classification, General
Electric Co. ("GE"), because of GE's dissimilar market capitalization and
overall product offering. GE also was not part of the Prior Peer Group.
Differences between the Prior Peer Group and the New Peer Group are: the
addition of Berg Electronics Corp., a competitor of the Corporation that
became publicly-held in 1996; the addition of Belden, Inc., a competitor in
one of the Corporation's emerging product lines; the removal of Augat Inc.
due to Thomas & Betts Corp.'s acquisition of Augat Inc. in 1997; the
deletion
20
of Elexsys Intl. Inc. due to Sanmina Corporation's acquisition of Elexsys
Intl. Inc. in 1997; and the deletion of Westinghouse Electric Corp. (now
part of CBS Corp.) because it no longer is included in Standard & Poor's
Electrical Equipment industrial classification. Further, ADC
Telecommunications, Inc. and Altron Inc. are not part of the New Peer Group
because they are not included in Standard & Poor's Electrical Equipment
industrial classification and, while these companies have some product
lines that compete with some of the Corporation's product lines, overall
the Corporation believes these companies do not adequately represent the
Corporation's industries and do not provide a valid comparison of
performance. The Corporation believes the New Peer Group is representative
of the Corporation's industries and provides a valid comparison of
performance.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL SHAREHOLDER RETURN
1992-97
<S> <C> <C>
$300 |
| Base Period Indexes/Cumulative Returns
| Company/Index Name 1992 1993 1994 1995 1996 1997
$275 | ------------------- ----------- ------ ------ ------ ------ ------
| AMP Incorporated 100 111.76 132.01 142.08 146.24 163.85
| S&P 500 100 110.08 111.53 153.45 188.68 251.63
$250 | Prior Peer Group 100 109.55 115.65 151.96 192.19 226.39
| New Peer Group 100 110.69 115.17 115.17 195.09 241.93
$225 |
|
|
$200 |
|
TOTAL |
SHAREHOLDER $175 |
RETURN<F3> |
(DOLLARS) |
$150 |
|
| AMP _________
$125 | S&P 500 ..........
| Prior Peer Group __ __ __ <F1>
| New Peer Group __.__ <F2>
$100 |___________________________________________________________
92 93 94 95 96 97
- ---------------------
<FN>
<F1> The Prior Peer Group includes the following companies:
ADC Telecommunications Inc. Honeywell, Inc.
Altron Inc. Hubbell Inc., - CL B
Amphenol Corp. Methode Electronics - CL A
Augat Inc. Molex Inc.
Elexsys Intl. Inc. Raychem Corp.
Emerson Electric Co. Robinson Nugent Inc.
General Signal Corp. Thomas & Betts Corp.
Grainger (W W) Inc. Westinghouse Electric Corp.
21
<F2> The New Peer Group includes the following companies:
Amphenol Corp. Hubbell Inc. - CL B
Belden, Inc. Methode Electronics - CL A
Berg Electronics Corp. Molex Inc.
Emerson Electric Co. Raychem Corp.
General Signal Corp. Robinson Nugent Inc.
Grainger (W W) Inc. Thomas & Betts Corp.
Honeywell Inc.
<F3> The Total Shareholder Return assumes a fixed investment of $100 in the AMP
Common Stock or indicated index, and a reinvestment of dividends. The total
return of each company included in the S&P 500, the Prior Peer Group and
the New Peer Group indexes has been weighted in accordance with the
company's market capitalization as of the beginning of the year reported.
The weighting was accomplished by: i) calculating the market capitalization
for each company at the beginning of the respective calendar year based on
the closing stock price and outstanding shares; ii) determining the
percentage that each such market capitalization represents against the
total of such market capitalizations for all companies included in the
index; and iii) multiplying the percentage determined in ii) above by the
total shareholder return of the company in question for the year being
reported.
</TABLE>
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors, among other responsibilities, has responsibility for the
Corporation's executive compensation program. The Committee, which is composed
entirely of outside directors, is chaired by Mr. Ralph D. DeNunzio, President,
Harbor Point Associates, Inc. The other Committee members are Mr. Dexter F.
Baker, Retired Chairman and CEO, Air Products and Chemicals, Inc.; Mr. John C.
Morley, President of Evergreen Ventures, Ltd. and Retired President and CEO,
Reliance Electric Company; and Mr. Paul G. Schloemer, Retired President and CEO,
Parker Hannifin Corporation.
Included within the Committee's executive compensation oversight charter
are the review and approval of salary levels and salary increases for executive
officers, annual Management Incentive Plan cash bonus awards for officers and
other key executives, performance restricted stock and stock option awards under
the 1993 Long-Term Equity Incentive Plan, and any special benefit programs
affecting officers and key executives such as supplemental retirement plans,
deferred compensation plans, change of control agreements and other plans. The
Committee in appropriate cases makes recommendations to the Board of Directors
on matters involving executive compensation.
The overriding objectives of the Corporation's executive compensation
program are to attract and retain qualified executive leadership and to reward
performance that creates shareholder value. In furtherance of these objectives,
the Corporation's executive compensation philosophy is (1) to deliver base
salary compensation that is kept competitive with the executive's counterparts
in the electrical/electronics industry and industry in general and (2) to
provide short-, intermediate-, and long-term incentive compensation plans that
supplement base salary and that correlate to the growth, success and
profitability of the Corporation. As explained below in greater detail, these
at-risk, performance- based incentive compensation plans directly align the
interests of the Corporation's executives with its shareholders and form a
significant portion of the total compensation opportunity for all officers and
key executives.
22
The Corporation annually reviews for the Committee's consideration
compensation surveys and other published compensation data covering comparably-
sized companies in both the electrical/electronics industry and industry in
general to assess whether its executive base salary ranges and total
compensation opportunities remain competitive. Where they do not remain
competitive, appropriate adjustments are made. In this process of comparing the
Corporation's executive compensation levels and practices against those of other
companies, the compensation levels and practices at the companies comprising the
New Peer Group Index in the Performance Graph on pages 20-22 of this Proxy
Statement are periodically reviewed separately, but due to the small sample size
the New Peer Group data alone is not used as the primary comparative benchmark.
Rather, the comparative data relied upon by the Committee is drawn from broader
surveys of comparably-sized companies in the electrical/electronic industry and
industry in general, which surveys include 7 of the 13 New Peer Group companies.
The salaries, and any periodic increases thereof, of the Chairman and the
CEO are determined by the Board of Directors of the Corporation based on
recommendations made by the Committee. These officers in turn recommend the
salary adjustments for the other executive officers, with the review and
oversight of the Committee. The level of base salary compensation for officers
and key executives is determined by both their scope of responsibility and the
competitive salary ranges established by the survey process described above.
Periodic increases in base salary are dependent on the individual's performance
in his or her position for a given period, on the individual's competency, skill
and experience, and on the growth of salary levels both inside and outside the
Corporation.
The AMP Management Incentive Plan provides opportunity for annual cash
bonuses based on two or more of the following weighted performance components:
(1) overall corporate performance for a given year, adjusted to net out
extraordinary, non-recurring gains or losses and then compared against corporate
performance targets for the year (this component is weighted 80% for named
executive officer participants such as the CEO with corporate-wide
responsibilities and 60% for those named executive officers with specific unit
responsibilities); (2) operating unit performance for a given year measured
against operating unit income and AMP value added (AVA) targets for the year
(this component is weighted 20% for named executive officer participants with
specific operating unit responsibilities); and (3) individual performance for a
given year measured against individual performance objectives for such year
(this component is weighted 20% for all named executive officer participants).
For the named executive officers, the corporate performance component of the
Management Incentive Plan annual cash bonus is based on attainment of an
earnings per share (EPS) target. The Committee sets the EPS target for the year
at the start of each year, with the review of the Board of Directors, and also
sets the individual performance objectives of the Chairman and the CEO. In
addition to setting the EPS target, the Committee assigns to each participant
under the Management Incentive Plan minimum, target and maximum bonus
percentages, which vary from participant to participant to reflect competitive
practice and the scope of the participant's responsibility. Actual corporate and
unit performance between 90% and 120% of the target performance levels results
in a bonus calculation that ranges between the participant's assigned minimum
and maximum bonus percentages. The EPS target for 1997 was set at $2.25, which
target performance was to be exclusive of any EPS impact resultant from planned
1997 changes in accounting methods. The actual EPS performance for 1997
(adjusted for plan purposes) was $2.23. In keeping with the pay-for-performance
design and intent of the Management Incentive Plan, this 1997 EPS performance
resulted in a bonus being paid for 1997 under the Management Incentive Plan's
corporate performance component to the named executive officers at a level that
fell between their respective minimum and target bonus levels. The unit and
individual performance targets for 1997 and the actual unit and individual
performance results for 1997 varied widely between units and individuals.
In granting long-term incentive awards during 1997, the Committee gave
considerable weight to the annual long-term incentive award levels and practices
of a diverse range of over 350 major
23
companies that participated in the Towers Perrin survey of long-term incentive
compensation practices. Of the 13 companies comprising the New Peer Group Index
in the Performance Graph on pages 20-22 of this Proxy Statement, 7 were included
in this Towers Perrin survey. The Corporation's long-term incentive award levels
for 1997 were generally set at between the 50th and the 75th percentile of the
award levels reflected in the Towers Perrin survey.
Long-term incentive compensation awards in the form of performance
restricted shares and stock options were made by the Committee in 1997 under the
1993 Long-Term Equity Incentive Plan. The named executive officers and the other
officers who comprise the Corporation's Global Planning Committee received a
1997 long-term incentive award that was split so that approximately 50% of the
value of the 1997 award was provided in the form of performance restricted
shares, with the balance provided in the form of stock options. All other
recipients of a 1997 long-term incentive award received 100% of the award in the
form of stock options.
The performance restricted shares granted in 1997 will be forfeited at the
end of 1999 if the Corporation fails to attain for the three-year period from
January 1, 1997 through December 31, 1999 a minimum average annual level of
return on equity ("ROE") that was set by the Committee at the beginning of 1997.
For this purpose, the Corporation's annual ROE result for each of the three
years will be separately determined, totaled, and divided by three to determine
the average annual ROE. If the average annual ROE over the three-year period is
at least equal to this minimum level, then the extent to which the performance
restricted shares granted in 1997 will become vested at the end of 1999 will be
determined by the Corporation's average annual earnings growth rate over the
same three-year period. A target level of average annual earnings growth over
the three-year period was set by the Committee at the beginning of 1997, and
average annual earnings growth between 0% and this target level will result in
vesting of the performance restricted shares that ranges proportionately from 0%
to 100%. The Committee also set a super-target level of average annual earnings
growth at the beginning of 1997, and average annual earnings growth between the
target level and the super-target level will result in vesting of the
performance restricted shares that ranges proportionately from 100% to 200%.
Performance restricted shares that are forfeited at the end of 1999 either
because of the Corporation's failure to attain the minimum average annual ROE
level or to attain the target level of average annual earnings growth will be
canceled and revert to the Corporation.
In general, the stock options granted in 1997 vest on the third anniversary
of the grant date, are exercisable thereafter until the tenth anniversary of the
award date, and have an exercise price equal to the award date fair market value
of a share of the Corporation's Common Stock.
In 1995, with the review and approval of the Committee, the Corporation
implemented formal share ownership guidelines applicable to its key executives.
By the end of a phase-in period, the guidelines require that the Chairman and
the CEO each own real or phantom shares of Corporation Common Stock with a value
of at least four times annual base salary. The guideline applicable to the other
named executive officers is ownership of shares with a value of at least three
times annual base salary. The primary intent of these guidelines is to
significantly increase the extent to which the personal wealth of the
Corporation's executives is directly linked to the performance of the
Corporation's Common Stock, thereby materially expanding the community of
interest between the executives and the Corporation's shareholders.
Section 162(m) of the Internal Revenue Code imposes a $1,000,000 per year
per named executive officer limitation on the amount of non-performance based
compensation that can be paid and deducted by the Corporation. The Corporation's
policy with respect to this limitation is to maximize the deductibility of all
compensation paid to each named executive officer by (1) delivering compensation
to named executive officers that to a substantial extent meets the Code Section
162(m) definition of performance-based compensation and (2) affording the named
executive officers the opportunity to
24
defer receipt of compensation to years after their retirement. In furtherance of
this policy, the Corporation's Management Incentive Plan, under which the named
executive officers have an opportunity to earn an annual cash bonus, and the
1993 Long-Term Equity Incentive Plan, under which the named executive officers
receive long-term incentive compensation awards, have been designed and are
administered so that all or a significant portion of the compensation received
pursuant to such plans will qualify as performance-based compensation within the
meaning of Section 162(m). In addition, the Corporation has implemented a
Deferred Compensation Plan under which the named executive officers may defer
receipt of up to 50% of annual base salary and up to 100% of annual cash bonus
amounts. All compensation paid to the named executive officers in 1997 was
deductible and it is anticipated that all compensation to be paid to named
executive officers in 1998 will be deductible.
1997 CEO COMPENSATION
Mr. Hudson's base salary rate per annum for 1997 remained at the same level
that was in effect for 1996, $810,000. In deciding not to adjust Mr. Hudson's
salary for 1997, the Committee considered primarily the Corporation's
disappointing growth and performance in 1996.
Mr. Hudson's assigned minimum, target, and maximum annual cash bonus
percentages under the Management Incentive Plan for 1997 were 10%, 65% and 100%,
respectively. Accordingly, Mr. Hudson had the potential to earn an annual bonus
of up to 100% of base annual salary if the Corporation were to attain 120% or
more of the $2.25 EPS target and Mr. Hudson were to fully accomplish his
individual performance targets. Based on the Corporation's adjusted EPS
performance for 1997 and the Committee's assessment of Mr. Hudson's individual
performance, Mr. Hudson's aggregate bonus under the Plan for 1997 was 66% of his
base salary, or $534,600.
On July 22, 1997 Mr. Hudson was awarded 63,900 stock options (2,100
incentive stock options and 61,800 nonqualified stock options) under the 1993
Long-Term Equity Incentive Plan, all with an exercise price of $47.00. These
options will first be exercisable July 22, 2000 and remain exercisable to July
22, 2007. On the same date, Mr. Hudson was also awarded 39,600 performance
restricted shares of Common Stock of the Corporation under the 1993 Long-Term
Equity Incentive Plan. These shares will either vest or be forfeited at the end
of 1999 based on the Corporation's performance in 1997, 1998 and 1999 with
respect to average annual return on equity and average annual earnings growth
targets that were set by the Committee. In making these long-term incentive
awards, the Committee's intent was to continue a practice begun in 1993, when
the Corporation's first stock option plan became effective, of increasing the
proportion of stock-based compensation in the total compensation package of the
Corporation's senior executive officers, particularly the CEO, thereby further
increasing the executives' community of interest with the Corporation's
shareholders. The aggregate long-term incentive award levels set for Mr. Hudson
in 1997 were at approximately the 60th percentile of comparable long-term
incentive award recipients reflected in Towers Perrin survey data relied upon by
the Committee. Since the 1993 inception of the Long-Term Equity Incentive Plan,
Mr. Hudson has been granted a total of 425,500 stock options and 111,500
performance restricted shares of Common Stock of the Corporation.
As of the end of 1997, a portion of the initial performance restricted
share grant made to Mr. Hudson in 1995 under the 1993 Long-Term Equity Incentive
Plan was vested based on the Corporation's performance over the three-year
period of 1995, 1996 and 1997. The Corporation's average annual ROE over the
three-year period, adjusted for Plan purposes, exceeded the minimum threshold
that had been set by the Committee in 1995, and the Corporation's average
earnings growth rate over the three-year period, as defined for Plan purposes,
of 8.42% resulted in Mr. Hudson becoming vested in 56.13%, or 14,033, of the
25,000 performance restricted shares (plus 56.13%, or 869, of the related
dividend reinvestment shares) that had been granted to him in 1995. The unvested
10,967 share balance of the 25,000 share grant (along with the 679 share balance
of the related dividend reinvestment shares) was forfeited back to the
Corporation.
25
In April 1992, Mr. Hudson had been awarded 12,200 stock bonus units under
the Corporation's former Stock Plus Cash Bonus Plan, with a designated value of
$27.88 and an unspecified cash bonus percentage (not in excess of 50%) to cover
United States taxes on the payout, and in April 1993, Mr. Hudson had been
awarded 20,000 stock bonus units under the Corporation's former Stock Plus Cash
Bonus Plan, with a designated value of $28.50 and an unspecified cash bonus
percentage (not in excess of 50%) to cover United States taxes on the payout. In
April 1997, when the fair market value of a share of the Corporation's Common
Stock had increased to $34.50, 4,066 of the 12,200 1992 stock bonus units and
6,666 of the 20,000 1993 stock bonus units matured, resulting in a stock bonus
payment to Mr. Hudson of 2,061 shares of Common Stock of the Corporation and a
cash payment of $35,608. In making these payout calculations, the award date
designated value of $28.50 per stock bonus unit was used to determine the spread
applicable to the maturing April 1993 stock bonus units in lieu of the
alternative designated value defined under the Plan, but the alternative
designated value defined under the Plan of $26.84 was used to determine the
spread applicable to the maturing April 1992 stock bonus units in lieu of the
April 1992 award date designated value of $27.88. The Plan's alternative
designated value, which is based on earnings per share growth between the award
date and the maturity date, is used in payout calculations whenever it would
result in a greater stock bonus payout than would the award date designated
value. (For an explanation of the alternative designated value, see footnote 1
to the Aggregated Option/SAR Exercises in 1997 and FY-End Option/SAR Values
Table, pages 15-16).
The Compensation and Management Development Committee:
Dexter F. Baker Ralph D. DeNunzio, Chairman
John C. Morley Paul G. Schloemer
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
The Corporation has entered into agreements with the named executive
officers to assure their unbiased counsel and continued dedication in the event
of an unsolicited tender offer or other occurrence that may result in a change
of control. The terms of the agreements provide that, in the event of a change
of control, as previously defined on pages 8-9 of this Proxy Statement, and the
termination of the executive's employment at any time during the 2-year period
thereafter, the executive will be paid a lump sum equal to a multiplier of 2 or
3 times the sum of his highest salary rate in effect during the 12 months prior
to termination of employment and his highest annual bonus paid during the prior
3-year period, together with payment of an amount necessary to pay any excise
tax, and any taxes thereon, due on the lump sum or other payment.
Additionally, upon a change of control: i) all awards that the executive
has received under any bonus plans he is participating in will be immediately
vested and either paid or exercisable, as appropriate; ii) the executive will be
paid in cash installments per the terms of the applicable contract for all
restricted stock, if any, issued by contract; iii) he will be vested in deferred
compensation matching amounts; and iv) he will receive continuation of any
existing split dollar life insurance policy until the latter of the policy
anniversary date following the executive's 65th birthday or the 15th anniversary
of the policy. Upon a change of control and termination of the executive's
employment within 2 years thereafter, the executive also shall be vested in all
pension benefits based on the highest annual salary rate in effect during the 12
months prior to termination of employment with respect to the pension plan and,
with respect to the pension restoration plan, the amount of compensation on
which the lump sum severance payment described above is calculated, plus an
additional accrual for 2 or 3 years; shall receive the conversion of the
executive's group term life insurance policy, if any, to a fully paid permanent
life insurance policy remaining in effect for 2 or 3 years at the Corporation's
cost; and shall receive continuation of health, dental, and disability benefits
until the latter of 2 or 3 years, attainment of the age or other condition at
which the benefits discontinue according to the terms of the related plan,
reduced to the extent of comparable benefits provided by a new employer without
cost.
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 there were: a) no transactions between the Corporation and
management, the Directors (and Nominees for director) or related third parties;
b) no business relationship between the Corporation and a Director or Nominee
for director; and c) no indebtedness to the Corporation by management, the
Directors (and Nominees for director) or related third parties or entities, that
must be disclosed.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers, directors, and persons owning more than ten percent
of a registered class of the Corporation's equity securities file reports of
ownership and changes in ownership of all equity and derivative securities of
the Corporation with the Securities and Exchange Commission ("SEC") and the New
York Stock Exchange. The SEC regulations also require that a copy of all such
Section 16(a) forms filed must be furnished to the Corporation by the officers,
directors and greater than ten percent shareholders.
Based solely on a review of the copies of such forms and amendments thereto
received by the Corporation, or written representations from the Corporation's
officers and directors that no Forms 5 were required to be filed, the
Corporation believes that during 1997 all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were met with the exception of Richard P. Clark, for whom inadvertently
153 shares held by one son rather than two sons were reported in a Form 3 as
beneficially owned, and Juergen W. Gromer, for whom an exercise of stock options
was incorrectly reported as a "same day sale" rather than a "cashless for stock"
exercise whereby his holdings were increased by a net of 4,299 shares. Late or
amended filings were made promptly upon discovery of the oversight.
PRINCIPAL SHAREHOLDERS
As of March 3, 1998, the only persons known to management to own beneficially
more than 5% of the outstanding Common Stock of the Corporation are named
below:
- ----------------------------------------------------------------------------
Name Amount
Title of and Address and Nature of Percent
Class of Beneficial Beneficial of Class
Owner Ownership
- ----------------------------------------------------------------------------
Common Stock FMR Corp. 15,908,145 7.23
82 Devonshire Street,
Boston, Massachusetts 02109
The nature of ownership is as follows:
Sole Voting Powers............................. 935,115
Shared Voting Powers........................... 0
Sole Dispositive Powers........................ 15,908,145
Shared Dispositive Powers...................... 0
INDEPENDENT ACCOUNTANTS
The selection of Arthur Andersen LLP as the independent accountants for
previous years has continued during the year 1998. Arthur Andersen LLP has no
financial interest, direct or indirect, in the Corporation or any of its
subsidiaries.
27
A representative of Arthur Andersen LLP will attend the Annual Meeting with
the opportunity to make a statement if he desires to do so and to answer
questions that may be asked of him by the shareholders.
1999 SHAREHOLDER PROPOSALS
Any shareholder, whether of record or a beneficial owner, desiring to
submit a proposal for consideration to appear in the Corporation's 1999 Proxy
Statement shall submit such proposal, typewritten or printed, addressed to the
Corporate Secretary. Such proposal must identify the name and address of the
shareholder, the number of the Corporation's shares held of record or
beneficially, the dates upon which the shareholder acquired such shares and
documentary support for a claim of beneficial ownership. The proposal should be
sent Certified Mail - Return Receipt Requested to the attention of the Corporate
Secretary, P.O. Box 3608, Mail Stop 176-48, Harrisburg, Pennsylvania 17105-3608
and must be received not later than November 16, 1998.
In addition to the foregoing procedure for inclusion of a shareholder
proposal in the Corporation's Proxy Statement, the Corporation will consider
other items of business and nominations for election as director of the
Corporation that are properly brought before the Annual Meeting by a
shareholder. To be properly brought before the Annual Meeting, items of business
must be appropriate subjects for shareholder consideration, timely notice
thereof must be given in writing to the Corporate Secretary, and other
applicable requirements must be met. In general, such notice is timely if it is
received at the principal executive offices of the Corporation at least 60 days
in advance of the date in the then-current year that corresponds to the date of
the previous year's Annual Meeting. Alternative notice deadlines apply if the
date of the Annual Meeting differs by more than 15 days from the date of the
previous year's Annual Meeting. The Bylaws specify the information to be
included in the shareholder's notice.
Shareholders may either recommend nominations of director for consideration
by the Nominating and Governance Committee in the process described on pages
9-10 of this Proxy Statement, or directly nominate persons for election to the
Board by complying with the notice provisions set forth in the Bylaws. In
general, such notice is timely if it is received by the Corporate Secretary at
least 60 days in advance of the date in the then-current year that corresponds
to the date of the previous year's Annual Meeting. Alternative notice deadlines
apply if the date of the Annual Meeting differs by more than 15 days from the
date of the previous year's Annual Meeting or if the election is to be held at a
special meeting of shareholders. The Bylaws specify the information to be
included in the shareholder's notice of nomination.
Interested shareholders can obtain full copies of the Bylaw provisions by
submitting a written request to the Corporate Secretary.
ITEM 2:
PROPOSAL FOR SHAREHOLDER APPROVAL OF THE
AMP INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
On October 22, 1997 the Board of Directors unanimously approved the
Corporation's 1998 Employee Stock Purchase Plan (the "ESPP"), subject to the
approval of the shareholders at the 1998 Annual Meeting. If approved by the
shareholders, the ESPP would become effective July 1, 1998 and assist eligible
employees of the Corporation and certain subsidiaries of the Corporation in the
purchase
28
of the common stock of the Corporation (the "Common Stock"). Through this
acquisition of an increased proprietary interest in the Corporation,
participating employees will have an additional incentive to share in the growth
and prosperity of the Corporation. The Board of Directors believes that employee
participation in ownership of the Corporation is to the combined benefit of the
employee, the Corporation, its subsidiaries and the Corporation's shareholders.
The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
MATERIAL FEATURES OF THE ESPP
Beginning July 1, 1998, eligible employees (as defined below) would have
the right (an "Option") to purchase shares of Common Stock under the ESPP at
discounted prices through automatic payroll deductions. An eligible employee
electing to participate in the ESPP may authorize payroll deductions at the rate
of any whole percentage of the employee's base cash compensation, not to exceed
25% of such compensation or such lesser percentage as designated by the
committee appointed to administer the ESPP, as described below (the
"Committee"). All payroll deductions will be held by the Corporation and
commingled with its other corporate funds, but shall be credited to an
individual stock purchase account that will be established for each
participating employee. No interest will be paid on the amounts credited to such
accounts pending investment, except where required by local law. The purchase of
Common Stock under the ESPP may only be made through payroll deductions, and
additional payments to the individual accounts will not be accepted.
Unless a different purchase period is determined by the Committee, Options
to purchase shares of Common Stock under the ESPP will be automatically
exercised for each participant on the last business day of each calendar
quarter, that is, March 31, June 30, September 30 and December 31. All amounts
accumulated in a participant's individual stock purchase account as of those
dates will be used to purchase the number of shares of Common Stock (including
fractional shares) that can be acquired at an option price that is the lower of:
i) the fair market value of the Common Stock on the first business day of the
applicable calendar quarter, or such other purchase period as may be determined
by the Committee, less a percentage discount as established by the Committee,
but in no event more than 15% (the "Designated Discount"), or ii) the fair
market value on the last business day of each calendar quarter, or such other
purchase period as may be determined by the Committee, less the applicable
Designated Discount. However, the Committee may determine at any time in advance
of a purchase period that the option price shall be the price described in ii)
above. For purposes of the ESPP, the "fair market value" is the closing price of
shares of Common Stock on the New York Stock Exchange on the trading day that
precedes the relevant date of valuation.
In accordance with Section 423(b)(8) of the Code, no participant may
purchase Common Stock in connection with any Option under the Plan at a rate
that exceeds a total of $25,000 in fair market value of Common Stock (based on
the fair market value of the Common Stock at the time each Option is granted)
for all Options outstanding at any time during each calendar year. If a
participant's payroll deductions during a purchase period exceed the purchase
price for this maximum number of shares of Common Stock that may be purchased
under an Option outstanding in any calendar year, the excess shall be retained
in the participant's stock purchase account and applied to the next purchase
period.
If the total number of shares of Common Stock that would otherwise be
issued on the last business day of a calendar quarter or other purchase period
designated by the Committee, based on the fair market value of a share of Common
Stock on that date, exceeds the maximum number of shares offered on the first
business day of such purchase period, based on the fair market value of a share
of Common Stock on that date, then the number of shares that may be purchased
under Options granted for that purchase period shall be reduced on a pro rata
basis in as nearly a uniform manner as shall be practicable and equitable.
Payroll deductions shall also be reduced or refunded as appropriate.
29
The Corporation will deliver to each participant a record of the number of
shares of Common Stock purchased under the ESPP at the end of each calendar
quarter or other purchase period designated by the Committee, together with a
statement of the balance of any amount of payroll deductions remaining in the
participant's stock purchase account. Shares of Common Stock issued pursuant to
the ESPP shall be fully paid and non-assessable, but will be subject to such
delivery requirements, holding periods or other restrictions as the Committee
may establish from time to time. Once such shares have been purchased on behalf
of and delivered to the participant, the participant shall have voting, dividend
and all other shareholder rights with respect to those shares.
A participant may increase or decrease his or her rate of payroll
deductions only effective on the first day of the applicable calendar quarter or
other designated purchase period. A participant may, however, discontinue
participation in the ESPP at any time during a purchase period, in which case
his or her payroll deductions accumulated prior to the end of participation will
remain in the ESPP for the purchase of shares of Common Stock at the end of said
purchase period. Upon such cessation of participation, the employee also will be
subject to any restrictions or waiting periods that the Committee may establish
for future resumption or discontinuation of payroll deductions. In the event of
a participant's retirement, death or other termination of employment for any
reason, all accumulated amounts credited to such participant's share purchase
account shall be paid to the participant or the participant's estate without
interest (except where required by local law) and his or her participation in
the ESPP shall terminate.
The ESPP authorizes the grant of options not governed by Section 423 of the
Code if approved by the Committee. It is anticipated that this provision will be
invoked in connection with employees of affiliates in the United Kingdom, who in
the aggregate constitute 4% of the Corporation's eligible employees globally
and who will likely be offered participation in a Save-As-You-Earn arrangement
qualifying for favorable tax treatment in the United Kingdom. If so authorized,
these United Kingdom participants only will be offered the opportunity to
purchase shares at no more than 20% discount by entering into three-year or
longer contracts with a financial institution that will hold the employees'
payroll deductions pending purchase of the shares. Under the provisions of a
Save-As-You-Earn arrangement, the purchase price for the Options will be
determined at the beginning of the contract period and participants will not be
given the choice of designating a purchase price at the end of the period.
Participants also will bear the risk of currency fluctuations during the
contract period.
The Corporation will bear all administrative expenses of the ESPP.
TERM OF THE PLAN
Upon approval by the shareholders, the ESPP will become effective July 1,
1998 and continue until June 30, 2008 unless previously terminated by the Board
of Directors of the Corporation.
SHARES RESERVED FOR THE PLAN
The ESPP authorizes up to 3,000,000 shares of Common Stock to be purchased
under the plan during its term. The Board of Directors may proportionately
adjust this number of authorized shares, as well as the price per share of
Common Stock covered by each outstanding Option, the number of shares to be
purchased pursuant to such Options and the maximum number of shares subject to
any individual Option outstanding in a calendar year, as applicable, in the
event of any change in the outstanding Common Stock of the Corporation due to
one or more reorganizations, recapitalizations, spin-offs, split-ups, rights
offerings or reductions of shares. Shares covered by an outstanding Option that
is not exercised in whole or in part or is settled in cash shall, to the extent
such shares are not issued, be available for future grants under the ESPP.
Shares of Common Stock issued under the ESPP will be either treasury shares or
authorized and unissued shares. Each share of Common Stock
30
purchased pursuant to the ESPP will be accompanied by a share purchase right
issued under the Corporation's Rights Agreement dated as of October 25, 1989,
as amended.
ELIGIBILITY
Any employee is eligible to participate in the ESPP if he or she is
regularly employed on a full-time basis by the Corporation or by any subsidiary
or affiliate of the Corporation designated by the Board of Directors as covered
by the ESPP. Participation in the ESPP is subject to such administrative rules
governing waiting periods after commencement of employment as may be established
from time to time by the Committee. The Committee also may establish criteria
and procedures governing the eligibility of part-time employees to participate
in the ESPP. No employee holding 5% or more of the Corporation's outstanding
shares of Common Stock may participate in the plan and the Board of Directors,
in its discretion, may also determine that highly compensated employees shall be
ineligible. Approximately 42,500 employees worldwide would have been eligible to
participate in the ESPP as of March 3, 1998. This estimate of eligible employees
excluded employees working in countries with laws that prohibit or materially
restrict participation in this plan.
ADMINISTRATION OF THE PLAN
The Board of Directors of the Corporation will designate a Committee of two
or more members to administer the ESPP. Initially this Committee will consist of
the Chairman, the Chief Executive Officer and the Chief Financial Officer of the
Corporation, but the Board may change the members of the Committee at any time.
The Committee has the full power in its discretion to promulgate rules for the
proper administration of the ESPP, to interpret the provisions of the ESPP, to
make factual determinations relevant to ESPP entitlements and to take all action
that it deems necessary or advisable for the administration of the ESPP,
consistent with the terms of the ESPP. The Committee may adopt rules relating to
the operation and administration of the ESPP to accommodate the specific
requirements of local laws and procedures in jurisdictions outside the United
States. Decisions by the Committee are, in all respects, final and binding on
participants under the plan. The Committee may delegate to one or more
individuals the day-to-day administration of the ESPP. No member of the Board of
Directors or the Committee shall be liable for any action in connection with the
administration of the ESPP if such action is taken in good faith.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors has the right to terminate or suspend the ESPP at
any time and for any reason, or to amend it in any respect; provided, however,
that in the absence of shareholder approval, the Board may not amend the ESPP in
a manner that: i) materially increases the number of shares subject to the ESPP
other than by reason of an adjustment under the circumstances described in
"Shares Reserved for the Plan" above; ii) materially modifies the eligibility
requirements for participation in the ESPP, except as provided for under the
terms of the plan; iii) materially increases the benefits under the ESPP; iv)
reduces the share purchase price other than by reason of an adjustment under the
circumstances described in "Shares Reserved for the Plan" above; or v) extends
the duration of the ESPP beyond June 30, 2008.
NEW PLAN BENEFITS
The number of eligible employees that will elect to participate in the ESPP
and the extent of their participation cannot be determined either in the future
or based on the last completed calendar year as if the ESPP had been in effect.
Accordingly, it is not possible to determine with certainty the number of shares
of Common Stock or their dollar value that will be distributed under the plan.
31
The Corporation anticipates, however, that an average of approximately
300,000 shares of Common Stock will be issued annually during the 10-year term
of the ESPP. Based on a per share price of $43 5/8 (the closing price for Common
Stock on the New York Stock Exchange on March 3, 1998) and assuming each
executive officer of the Corporation participates to the fullest extent
possible, the benefits of the ESPP during 1997 would have been as follows:
AMP INCORPORATED 1998 EMPLOYEE STOCK PURCHASE PLAN
NEW PLAN BENEFITS
Name and Position Benefit (U. S. $) Number of Shares
----------------- ----------------- ----------------
William J. Hudson, Jr. ........... 3,800 575
Chief Executive Officer
and President
James E. Marley ................. 3,800 575
Chairman
Robert Ripp ...................... 3,800 575
Executive Vice President
Juergen W. Gromer ............... 3,800 575
Vice President
John E. Gurski .................. 3,800 575
Vice President
Executive Officers
as a Group ...................... 66,800 10,200
Non-Executive Officer
Employee Group ..................1,900,000 289,800
NON-ASSIGNABILITY
Prior to its settlement in the form of shares of Common Stock or cash, no
Option or other right, benefit or accumulated payroll deduction under the ESPP
may be voluntarily or involuntarily assigned, transferred, pledged or otherwise
disposed of. Options under the ESPP will be exercisable during a participant's
lifetime only by the participant or the participant's guardian or legal
representative.
LIQUIDATION OR CHANGE OF CONTROL
In the event of a liquidation of the Corporation, all outstanding Options
and the ESPP itself will terminate immediately prior to such liquidation and all
accumulated payroll deductions in the stock purchase accounts will be refunded
to the participants, without interest. In the event of a change of control of
the Corporation by a sale of all or substantially all of its assets or by a
merger or consolidation of the Corporation with and into another corporation,
then, in the sole discretion of the Board of Directors, either 1) each Option
shall be assumed, or an equivalent option shall be substituted, by the successor
corporation or its affiliates, 2) all outstanding Options shall be deemed
exercisable on a date, as established by the Board, that is on or before the
effective date of the change of control, or 3) all outstanding Options and the
ESPP itself will terminate and all accumulated payroll deductions in the stock
purchase accounts will be refunded to the participants, without interest.
CERTAIN INCOME TAX EFFECTS OF PLAN PARTICIPATION
Set forth below is a discussion of certain U.S. income tax consequences the
Corporation believes will result from the grant and exercise of Options under
the ESPP. This discussion is based on an analysis of the Code as currently in
effect, existing laws, judicial decisions, administrative rulings and
regulations, and proposed regulations, all of which are subject to change. In
addition to being subject to the U.S. income tax consequences described below,
which is not intended to be a complete
32
description of all U.S. income tax aspects of participation in the ESPP, a
participant may also be subject to foreign, state and local income or other tax
consequences in the jurisdiction in which he or she works and/or resides. The
summary below assumes that the ESPP is approved by the Corporation's
shareholders and it qualifies as an employee stock purchase plan within the
meaning of Section 423 of the Code; if the ESPP is not so approved or otherwise
is not qualified, or in the future becomes non-qualified under Section 423,
participants would recognize as ordinary income on each date that the Options
are exercised an amount equal to the Designated Discount of the fair market
price of the shares of Common Stock purchased upon such exercise.
Under the Code, an eligible employee who elects to participate in an
offering under the ESPP will recognize income for the amounts withheld from his
or her paycheck for the year in which such amounts would otherwise have been
paid to the participant. These amounts will also be deductible by the
Corporation. Participants will not, however, realize additional taxable income
either at the commencement of an offering period and the grant of an Option or
when the shares of Common Stock purchased under the plan are delivered to him or
her. Each participant's basis in shares purchased will equal the amount paid for
such shares.
If the shares purchased upon the exercise of an Option under the ESPP are
not disposed of within 2 years after the date the Option was granted or, if
later, within 1 year after the date of delivery of such shares to the
participant, then upon a subsequent disposition of the shares the participant
will realize ordinary income for that year in an amount equal to the lesser of
(a) the excess of the fair market value of such shares at the time of their
disposition over the purchase price of the shares, or (b) the Designated
Discount of the fair market value of the shares on the date the related Option
was granted. The participant's basis in the shares disposed of will be increased
by an amount equal to the amount of ordinary income determined above, and any
gains or losses realized upon the disposition of the shares and based on this
adjusted basis will be taxable as long-term capital gain. Neither the
Corporation nor any of its subsidiaries and affiliates will be entitled to any
deduction upon the disposition of the shares under the foregoing circumstances.
If the shares are disposed of before the end of either the 2-year or 1-year
periods discussed above (a "disqualifying disposition"), the participant will
realize ordinary income in the year of disposition on an amount equal to the
excess of the fair market value of such shares on the date of purchase over
their purchase price. The participant's basis in the shares disposed of will be
increased by an amount equal to the amount of ordinary income determined above,
and any gains or losses realized upon the disposition of the shares and based on
this adjusted basis will be taxable as either long-term or short-term capital
gain or loss, depending on the holding period for such shares. The Corporation
(or the subsidiary or affiliate for which the participant is employed) will be
entitled to a tax deduction for the amount the participant is required to
include in ordinary income as a result of such disposition.
In the event of the death of a participant prior to the disposition of the
shares (whether or not within the 2-year or 1-year periods described above), a
participant will be subject to ordinary income tax in an amount equal to the
lesser of (a) the Designated Discount of the fair market value of the shares on
the first business day of the purchase period, or (b) the amount, if any, by
which the fair market value of the shares as of the date of death exceeds the
amount actually paid for the shares.
A participant who is neither a citizen nor a resident of the United States
generally will not be subject to the U. S. income tax rules described above with
respect to the shares of Common Stock purchased under the ESPP.
The ESPP is not subject to any provision of the Employee Retirement Income
Security Act of 1974 ("ERISA").
33
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the votes cast by holders of shares
of Common Stock entitled to vote at the 1998 Annual Meeting of Shareholders is
required for approval of the ESPP. The ESPP will not become effective in the
absence of such shareholder approval. Abstentions and broker non-votes (i.e.,
the failure of a broker to vote on behalf of a client on a particular matter,
notwithstanding that the broker has voted on another matter on behalf of such
client) are not counted as votes cast.
BOARD OF DIRECTORS' RECOMMENDATION
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
CORPORATION'S 1998 EMPLOYEE STOCK PURCHASE PLAN.
GENERAL AND OTHER MATTERS
The Corporation knows of no matter that will be brought before the meeting
other than the matters expressly mentioned in the Notice of Annual Meeting of
Shareholders. However, if any further matters properly come before the meeting
or any of its adjournments, the Proxy Committee will vote the shares of stock
represented by the proxies in accordance with their best judgment on such
matters. The Corporation will bear the expense of preparing, printing and
mailing this proxy material, as well as the cost of any required solicitation.
In addition, the Corporation has retained Georgeson & Company Inc. to aid in the
solicitation of proxies from brokers, banks and other nominees as well as
institutional holders, at a fee of $8,500 plus expenses. The Corporation may
also use regular employees, without additional compensation, to solicit proxies
by personal solicitation, telephone or otherwise.
You are urged to mark, sign and return your proxy promptly to make certain
your shares will be voted at the meeting. For your convenience, a stamped
self-addressed envelope is enclosed.
The 1997 Annual Report of the Corporation, including financial statements,
was mailed with this Proxy Statement. The Annual Report is not incorporated in
this Proxy Statement by reference, and is not deemed a part of the proxy
soliciting material.
UPON THE WRITTEN REQUEST OF ANY PERSON WHOSE PROXY IS SOLICITED HEREUNDER,
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO SUCH PERSON A COPY OF ITS ANNUAL
REPORT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K, INCLUDING
THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, FOR THE CALENDAR YEAR 1997.
SUBMIT THE WRITTEN REQUEST TO J. E. MARLEY, CHAIRMAN, P.O. BOX 3608, Mail Stop
176-40, HARRISBURG, PENNSYLVANIA 17105-3608.
Dated: March 16, 1998.
(Recycled Symbol) Printed on Recycled Paper
34
<PAGE>
APPENDIX
--------
[front side of proxy card]
PROXY
AMP INCORPORATED
The undersigned hereby appoints W. J. Hudson, J. E. Marley and D. F.
Henschel, and each of them, his or her proxy, with full power of substitution,
to vote all stock of the undersigned at the ANNUAL MEETING OF THE SHAREHOLDERS
OF THE CORPORATION TO BE HELD ON WEDNESDAY, APRIL 22, 1998, AT 10:30 a.m., LOCAL
TIME, at the AMP Global Executive Leadership Center, 411 South 40th Street,
Harrisburg, Pennsylvania, and at any adjournment or adjournments thereof, hereby
revoking any proxy previously given and ratifying all that said proxy or proxies
may do pursuant hereto. Shares not held in Plan accounts will be voted as
directed on the reverse side of this Proxy card; if no direction is made, the
shares will be voted in accordance with the recommendations of your Board of
Directors. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
For those participants who hold accounts with Common Stock through the AMP
Incorporated Employee Savings and Thrift Plan -- 401(k) ("401(k)") or the MERIT
Plan of Benefits of M/A-COM ("MERIT"): The undersigned instructs the applicable
Trustee under the Plan to vote all shares or fractions of shares credited to the
undersigned's account as of the latest available processing date on or before
March 3, 1998 as directed on the reverse side of this Proxy card. Those shares
in 401(k) accounts for which no directions are received will be voted by the
Trustee in its sole and absolute discretion. Those shares in MERIT accounts for
which no directions are received will be voted by the Trustee in the proportion
established by all directions received from the other participants in the MERIT
Plan.
If you have Common Stock held directly and under one or more of the Plans,
the voting directions on the reverse side of this proxy card will apply to your
combined shares.
(Continued and to be signed on reverse side)
[example of reverse side of proxy card]
----------------------------------
| |
| |
| |
| (1) (2) |
| |
| |
| |
| (3) |
|----------------------------------|
[part (1) information is as follows:]
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR ALL NOMINEES" IN ITEM 1 and "FOR" ITEM 2.
Item 1--Election of the following For all Withheld
Nominees as Directors: Nominees for all
R. D. DeNunzio, B. H. Franklin, Nominees
J. M. Hixon, W. J. Hudson, ____ ____
J. M. Magliochetti, J. E. Marley, | | | |
H. A. McInnes, J. J. Meyer, | | | |
J. C. Morley, P. G. Schloemer and ---- ----
T. Shiina
Withheld for the following only (Write the name
of the Nominee(s) in the space below)
- -----------------------------------------------------------
Item 2 - Proposal to Approve the For Against Abstain
AMP Incorporated 1998 Employee Stock ____ ____ ____
Purchase Plan | | | | | |
| | | | | |
[part (2) information is as follows:] ---- ---- ----
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned
hereby acknowledges receipt of the Notice of the Annual Meeting dated March 16,
1998.
The shares represented by this proxy will be voted as directed by the
shareholder. Abstentions are not counted as votes cast with respect to Items 1
and 2.
YES
[ ] I PLAN TO ATTEND THE ANNUAL MEETING -- please send me an
admission card.
[part (3) information is as follows:]
Signature(s)______________________ Date_______________
NOTE: Please date and sign exactly as name appears hereon. Each joint owner
should sign. When signing as attorney, executor, trustee, guardian or corporate
officer, please give full title as such. Corporations should indicate full
corporate name and have a duly authorized officer sign.
<PAGE>
ADMISSION CARD
The shareholder bearing this ticket
is entitled to attend the Annual
Meeting of Shareholders of
AMP Incorporated
DATE:
Wednesday, April 22, 1998
TIME:
10:30 A.M.
LOCATION:
Global Executive Leadership Center
411 South 40th Street
Harrisburg, Pennsylvania
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AMP INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
Page
I. Purpose 1
2. Definitions 1
3. Eligibility 2
4. Participation 3
5. Offering 4
6. Purchase of Stock 6
7. Payment and Delivery 6
8. Recapitalization 6
9. Merger, Liquidation, Other Corporation Transactions 7
10. Transferability 7
11. Amendment or Termination of the Plan 8
12. Administration 8
13. Committee Rules for Foreign Jurisdictions 9
14. Securities Laws Requirements 9
15. Government Regulations 9
16. No Enlargement of Employee Rights 9
17. Governing Law 9
18. Effective Date 10
AMP INCORPORATED
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of this Plan is to provide an opportunity for Employees of AMP
Incorporated (the "Corporation") and its Designated Subsidiaries, to purchase
Common Stock of the Corporation and thereby to have an additional incentive to
contribute to the prosperity of the Corporation. It is the intention of the
Corporation that the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended, although the
Corporation makes no undertaking nor representation to maintain such
qualification. In addition, this Plan authorizes the grant of options and
issuance of Common Stock which do not qualify under section 423 of the Code
pursuant to sub-plans adopted by the Committee designed to achieve desired tax
or other objectives in particular locations outside the United States.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the committee appointed by the Board in
accordance with Section 12 of the Plan.
(d) "Common Stock" shall mean the Common Stock of the Corporation, or any
stock into which such Common Stock may be converted.
(e) "Compensation" shall mean an Employee's base cash compensation
including non-variable cash payments paid on account of personal
services rendered by the Employee to the Corporation or a Designated
Subsidiary plus pre-tax contributions of the Employee which are part
of deferred compensation or benefit plans maintained by the
Corporation or a Designated Subsidiary, with any modifications
determined by the Committee. The Committee shall have the authority to
determine and approve all forms of pay (such as commissions) to be
included in the definition of Compensation and may change the
definition on a prospective basis.
(f) "Corporation" shall mean AMP Incorporated, a Pennsylvania corporation.
(g) "Designated Subsidiary" shall mean a Subsidiary which has been
designated by the Board as eligible to participate in the Plan with
respect to its Employees.
(h) "Employee" shall mean an individual classified as an employee (within
the meaning of Code Section 3401(c) and the regulations thereunder) by
the Corporation or a Designated Subsidiary on the Corporation's
payroll records during the relevant participation period.
(i) "Entry Date" shall mean the first business day of each Purchase
Period.
(j) "Fair Market Value" shall mean the value of one (1) share of Common
Stock on the relevant date, determined as follows:
(1) If the shares are traded on an exchange, the reported "closing
price" on the trading day which precedes the relevant day (e.g.,
the Entry Date or Purchase Date);
(2) If the shares are traded over-the-counter on the NASDAQ System or
on the NASDAQ National Market System, the mean between the
highest bid and the highest asked prices on said System on the
trading day which precedes the relevant day (e.g., the Entry Date
or Purchase Date); and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Committee in good faith. Such determination
shall be conclusive and binding on all persons.
(k) "Participant" shall mean a participant in the Plan as described in
Section 4 of the Plan.
(l) "Plan" shall mean this employee stock purchase plan.
(m) "Purchase Date" shall mean the last business day of each Purchase
Period.
(n) "Purchase Period" shall mean a three-month, six-month or other period
as determined by the Committee. The first Purchase Period shall
commence on the Plan's Effective Date. Subsequent Purchase Periods, if
any, shall run consecutively after the termination of the preceding
Purchase Period.
(o) "Shareholder" shall mean a record holder of shares entitled to vote
shares of Common Stock under the Corporation's by-laws.
(p) "Subsidiary" shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation,
as described in Code Section 424(f).
3. ELIGIBILITY.
Any Employee regularly employed on a full-time basis by the Corporation or
by any Designated Subsidiary on an Entry Date shall be eligible to participate
in the Plan with respect to the Purchase Period commencing on such Entry Date,
provided that the Committee may establish administrative rules requiring that
employment commence some minimum period (e.g., one pay period) prior to an Entry
Date to be eligible to participate with respect to the Purchase Period beginning
on that Entry Date and provided further that (1) the Committee may extend
eligibility to part-time Employees pursuant to criteria and procedures
established by the Committee and (2) the Committee may impose an eligibility
period on participation of up to two years with respect to participation on any
prospective Entry Date. The Board may also determine that a designated group of
highly compensated Employees are ineligible to participate in the Plan so long
as the excluded category fits within the definition of "highly compensated
employee" in Code section 414(g). An Employee shall be considered employed on a
full-time basis unless his or her customary employment is less than 20 hours per
week or five months per year. No Employee may participate in the Plan if
immediately after an option is granted the Employee owns or is considered to own
(within the meaning of Code Section 424(d)), shares of stock, including stock
which the Employee may purchase by conversion of convertible securities or under
outstanding options granted by the Corporation, possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of the
Corporation or of any of its Subsidiaries. All Employees who participate in the
Plan shall have the same rights and privileges under the Plan except for
differences which may be mandated by local law and which are consistent with
Code Section 423(b)(5); provided, however, that Employees participating in a
sub-plan adopted pursuant to Section 13 which is not designed to qualify under
Code section 423 need not have the same rights and privileges as Employees
participating in the Code section 423 Plan. The Board may impose restrictions on
eligibility and participation of Employees who are officers and directors to
facilitate compliance with federal or state securities laws or foreign laws.
4. PARTICIPATION.
4.1 An Employee who is eligible to participate in the Plan in accordance
with Section 3 may become a Participant by filing, on a date prescribed by the
Committee prior to an applicable Entry Date, a completed payroll deduction
authorization and Plan enrollment form provided by the Corporation or by
following an electronic or other enrollment process as prescribed by the
Committee. An eligible Employee may authorize payroll deductions at the rate of
any whole percentage of the Employee's Compensation, not to exceed twenty-five
percent (25%) of the Employee's Compensation, or such lesser percentage as
specified by the Committee as applied to a Purchase Period. All payroll
deductions may be held by the Corporation and commingled with its other
corporate funds. No interest shall be paid or credited to the Participant with
respect to such payroll deductions except where required by local law as
determined by the Committee. A separate bookkeeping account for each Participant
shall be maintained by the Corporation under the Plan and the amount of each
Participant's payroll deductions shall be credited to such account. A
Participant may not make any additional payments into such account.
4.2 Under procedures established by the Committee, a Participant may
discontinue participation in the Plan at any time during a Purchase Period by
completing and filing a new payroll deduction authorization and Plan enrollment
form with the Corporation or by following electronic or other procedures
prescribed by the Committee. A Participant may increase or decrease his or her
rate of payroll deductions only effective on an Entry Date by filing a new
payroll deduction authorization and Plan enrollment form or by following
electronic or other procedures prescribed by the Committee. If a Participant has
not followed such procedures to discontinue or change the rate of payroll
deductions, the rate of payroll deductions shall continue at the originally
elected rate throughout the Purchase Period and future Purchase Periods unless
the Board determines to change the maximum permissible rate.
If a Participant discontinues participation during an Purchase Period, his
or her accumulated payroll deductions will remain in the Plan for purchase of
shares as specified in Section 6 on the following Purchase Date, but the
Participant will not again participate until he or she re-enrolls in the Plan.
The Committee may establish rules limiting the frequency with which Participants
may discontinue and resume payroll deductions under the Plan and may impose a
waiting period on Participants wishing to resume payroll deductions following
discontinuance. The Committee may also change the rules regarding discontinuance
of participation or changes in participation in the Plan. In the event any
Participant terminates employment with the Corporation or any Subsidiary for any
reason (including death) prior to the expiration of a Purchase Period, the
Participant's participation in the Plan shall terminate and all amounts credited
to the Participant's account shall be paid to the Participant or the
Participant's estate without interest (except where required by local law).
Whether a termination of employment has occurred shall be determined by the
Committee. The Committee may also establish rules regarding when leaves of
absence or change of employment status (e.g., from full-time to part-time) will
be considered to be a termination of employment, and the Committee may establish
termination of employment procedures for this Plan which are independent of
similar rules established under other benefit plans of the Corporation and its
Subsidiaries.
In the event of a Participant's death, any accumulated payroll deductions
will be paid, without interest, to the estate or legal representative of the
Participant.
5. OFFERING.
5.1 The maximum number of shares of Common Stock which may be issued
pursuant to the Plan shall be 3,000,000 shares. The Board or the Committee may
designate any amount of available shares for offering for any Purchase Period
determined pursuant to Section 5.2.
5.2 Each Purchase Period shall be determined by the Committee. Unless
otherwise determined by the Committee, the Plan will operate with successive
quarterly Purchase Periods commencing at the beginning of each calendar quarter.
The Committee shall have the power to change the duration of future Purchase
Periods, without shareholder approval, and without regard to the expectations of
any Participants.
5.3 With respect to each Purchase Period, each eligible Employee who has
elected to participate as provided in Section 4.1 shall be granted an option to
purchase that number of shares of Common Stock which may be purchased with the
payroll deductions accumulated on behalf of such Employee (assuming payroll
deductions at a rate of 25% of Compensation or such lesser percentage of
Compensation as determined by the Committee) during each Purchase Period at the
purchase price specified in Section 5.4 below, subject to the following
additional limitations:
(a) The number of shares which may be purchased by any eligible Employee
on the first Purchase Date to occur in any calendar year may not
exceed the number of shares determined by dividing $25,000 by the Fair
Market Value of a share of Common Stock on the first day of the
Purchase Period in which such Purchase Date occurs.
(b) The number of shares which may be purchased by an Eligible Employee on
any subsequent Purchase Date which occurs in the same calendar year
(as referred to in subsection (a) above) shall not exceed the number
of shares determined by performing the calculation below:
Step One: The number of shares purchased by the Employee during any
Purchase Period whose Purchase Date occurred in the same calendar year
shall be multiplied by the Fair Market Value of a share of Common
Stock on the first day of such previous Purchase Period in which such
shares were purchased.
Step Two: The amount determined in Step One shall be subtracted from
$25,000.
Step Three: The amount determined in Step Two shall be divided by the Fair
Market Value of a share of Common Stock on the first day of the
Purchase Period in which the subsequent Purchase Date (for which the
maximum number of shares which may be purchased is being determined by
this calculation) occurs. The quotient thus obtained shall be the
maximum number of shares which may be purchased by any eligible
Employee on such subsequent Purchase Date.
5.4 The option price under each option shall be the lower of: (i) a
percentage (not less than eighty-five percent (85%)) established by the
Committee ("Designated Percentage") of the Fair Market Value of the Common Stock
on the Entry Date on which an option is granted, or (ii) the Designated
Percentage of the Fair Market Value on the Purchase Date on which the Common
Stock is purchased. The Committee may change the Designated Percentage with
respect to any future Purchase Period, but not below eighty-five percent (85%),
and the Committee may determine with respect to any prospective Purchase Period
that the option price shall be the Designated Percentage of the Fair Market
Value of the Common Stock on the Purchase Date.
5.5 If the total number of shares of Common Stock for which options granted
under the Plan are exercisable exceeds the maximum number of shares offered on
any Entry Date, the number of shares which may be purchased under options
granted on the Entry Date shall be reduced on a pro rata basis in as nearly a
uniform manner as shall be practicable and equitable. In this event, payroll
deductions shall also be reduced or refunded accordingly. If an Employee's
payroll deductions during any Purchase Period exceeds the purchase price for the
maximum number of shares permitted to be purchased under Section 5.3, the excess
shall be retained in the Participant's account and applied to the next Purchase
Period.
5.6 Notwithstanding any other provision of the Plan to the contrary, no
Employee participating in the section 423 Plan shall be granted an option to
purchase Common Stock under the Plan at a rate which exceeds $25,000 of the Fair
Market Value of such Common Stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
The foregoing sentence shall be interpreted so as to comply with Code section
423(b)(8).
6. PURCHASE OF STOCK.
Upon the expiration of each Purchase Period, a Participant's option shall
be exercised automatically for the purchase of that number of full and
fractional shares of Common Stock which the accumulated payroll deductions
credited to the Participant's account at that time shall purchase at the
applicable price specified in Section 5.4, except as otherwise provided in
Section 5.5.
7. PAYMENT AND DELIVERY.
Upon the exercise of an option on each Purchase Date, the Corporation shall
deliver to the Participant a record of the Common Stock purchased and the
balance of any amount of payroll deductions credited to the Participant's
account not used for the purchase, except as specified below. The Committee may
permit or require that shares be deposited directly with a broker designated by
the Participant (or a broker selected by the Committee) or to a designated agent
of the Company, and the Committee may utilize electronic or automated methods of
share transfer. The Committee may require that shares be retained with such
broker or agent for a designated period of time (and may restrict dispositions
during that period) and/or may establish other procedures to permit tracking of
disqualifying dispositions of such shares or to restrict transfer of such
shares. The Committee may require that shares purchased under the Plan shall
automatically participate in a dividend reinvestment plan or program maintained
by the Corporation. The Corporation shall retain the amount of payroll
deductions used to purchase Common Stock as full payment for the Common Stock
and the Common Stock shall then be fully paid and non- assessable. No
Participant shall have any voting, dividend, or other stockholder rights with
respect to shares subject to any option granted under the Plan until the shares
subject to the option have been purchased and delivered to the Participant as
provided in Section 7.
8. RECAPITALIZATION.
If after the grant of an option, but prior to the purchase of Common Stock
under the option, there is any increase or decrease in the number of outstanding
shares of Common Stock because of a stock split, stock dividend, combination or
recapitalization of shares subject to options, the number of shares to be
purchased pursuant to an option, the share limit of Section 5.3 and the maximum
number of shares specified in Section 5.1 shall be proportionately increased or
decreased, the terms relating to the purchase price with respect to the option
shall be appropriately adjusted by the Board, and the Board shall take any
further actions which, in the exercise of its discretion, may be necessary or
appropriate under the circumstances.
The Board, if it so determines in the exercise of its sole discretion, also
may adjust the number of shares specified in Section 5.1, as well as the price
per share of Common Stock covered by each outstanding option and the maximum
number of shares subject to any individual option, in the event the Corporation
effects one or more reorganizations, recapitalizations, spin-offs, split-ups,
rights offerings or reductions of shares of its outstanding Common Stock.
The Board's determinations under this Section 8 shall be conclusive and
binding on all parties.
9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.
In the event of the proposed liquidation or dissolution of the Corporation,
the Purchase Period will terminate immediately prior to the consummation of such
proposed transaction, unless otherwise provided by the Board in its sole
discretion, and all outstanding options shall automatically terminate and the
amounts of all payroll deductions will be refunded without interest to the
Participants.
In the event of a proposed sale of all or substantially all of the assets
of the Corporation, or the merger or consolidation of the Corporation with or
into another corporation, then in the sole discretion of the Board, (1) each
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, (2)
a date established by the Board on or before the date of consummation of such
merger, consolidation or sale shall be treated as an Exercise Date, and all
outstanding options shall be deemed exercisable on such date or (3) all
outstanding options shall terminate and the accumulated payroll deductions shall
be returned to the Participants, without interest.
10. TRANSFERABILITY.
Options granted to Participants may not be voluntarily or involuntarily
assigned, transferred, pledged, or otherwise disposed of in any way, and any
attempted assignment, transfer, pledge, or other disposition shall be null and
void and without effect. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than as permitted by the Code, such act shall be treated as an election by the
Participant to discontinue participation in the Plan pursuant to Section 4.2.
11. AMENDMENT OR TERMINATION OF THE PLAN.
11.1 The Plan shall continue until, June 30, 2008 unless previously
terminated in accordance with Section 11.2.
11.2 The Board may, in its sole discretion, insofar as permitted by law,
terminate or suspend the Plan, or revise or amend it in any respect whatsoever,
except that, without approval of the shareholders, no such revision or amendment
shall:
(a) materially increase the number of shares subject to the Plan, other
than an adjustment under Section 8 of the Plan;
(b) materially modify the requirements as to eligibility for participation
in the Plan, except as otherwise specified in this Plan;
(c) materially increase the benefits accruing to Participants;
(d) reduce the purchase price specified in Section 5.4, except as
specified in Section 8;
(e) extend the term of the Plan beyond the date specified in Section 11.1;
or
(f) amend this Section 11.2 to defeat its purpose.
12. ADMINISTRATION.
The Board shall appoint a Committee consisting of at least two members who
will serve for such period of time as the Board may specify and who may be
removed by the Board at any time. The Committee will have the authority and
responsibility for the day-to-day administration of the Plan, the authority and
responsibility specifically provided in this Plan and any additional duties,
responsibility and authority delegated to the Committee by the Board, which may
include any of the functions assigned to the Board in this Plan. The Committee
may delegate to one or more individuals the day-to-day administration of the
Plan. The Committee shall have full power and authority to promulgate any rules
and regulations which it deems necessary for the proper administration of the
Plan, to interpret the provisions and supervise the administration of the Plan,
to make factual determinations relevant to Plan entitlements, to adopt sub-plans
applicable to specified Subsidiaries or locations and to take all action in
connection with administration of the Plan as it deems necessary or advisable,
consistent with the delegation from the Board. Decisions of the Board and the
Committee shall be final and binding upon all participants. Any decision reduced
to writing and signed by a majority of the members of the Committee shall be
fully effective as if it had been made at a meeting of the Committee duly held.
The Corporation shall pay all expenses incurred in the administration of the
Plan. No Board or Committee member shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
thereunder.
13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.
The Committee may adopt rules or procedures relating to the operation and
administration of the Plan to accommodate the specific requirements of local
laws and procedures. Without limiting the generality of the foregoing, the
Committee is specifically authorized to adopt rules and procedures regarding
handling of payroll deductions, payment of interest, conversion of local
currency, payroll tax, withholding procedures and handling of stock certificates
which vary with local requirements.
The Committee may also adopt sub-plans applicable to particular
Subsidiaries or locations, which sub-plans may be designed to be outside the
scope of Code section 423. The rules of such sub-plans may take precedence over
other provisions of this Plan, with the exception of Section 5.1, but unless
otherwise superseded by the terms of such sub-plan, the provisions of this Plan
shall govern the operation of such sub- plan.
14. SECURITIES LAWS REQUIREMENTS.
The Corporation shall not be under any obligation to issue Common Stock
upon the exercise of any option unless and until the Corporation has determined
that: (i) it and the Participant have taken all actions required to register the
Common Stock under the Securities Act of 1933, or to perfect an exemption from
the registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state, federal and applicable
foreign law have been satisfied.
15. GOVERNMENTAL REGULATIONS.
This Plan and the Corporation's obligation to sell and deliver shares of
its stock under the Plan shall be subject to the approval of any governmental
authority required in connection with the Plan or the authorization, issuance,
sale, or delivery of stock hereunder.
16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of the Corporation or any Designated
Subsidiary or to interfere with the right of the Corporation or Designated
Subsidiary to discharge any Employee at any time.
17. GOVERNING LAW.
This Plan shall be governed by Pennsylvania law.
18. EFFECTIVE DATE.
This Plan shall be effective July 1, 1998, subject to approval of the
shareholders of the Corporation within 12 months of its adoption by the Board of
Directors.
