<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [ ]
Filed by a party other than the registrant [X]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SUNDSTRAND CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SUNDSTRAND CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
LOGO
SUNDSTRAND CORPORATION
ROCKFORD, ILLINOIS
TO SUNDSTRAND STOCKHOLDERS:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Sundstrand Corporation to:
- elect four directors for three-year terms;
- conduct other business properly brought before the meeting.
A copy of the Company's Annual Report on Form 10-K for the year 1997 and
the Company's Summary Annual Report are enclosed.
Your vote is important. Whether you plan to attend or not, please sign,
date and return the enclosed proxy card in the envelope provided. If you attend
the meeting and prefer to vote in person, you may do so.
Very truly yours,
/s/ Robert H. Jenkins
Chairman of the Board, President and
Chief Executive Officer
March 13, 1998
<PAGE> 3
SUNDSTRAND CORPORATION
4949 HARRISON AVENUE
P.O. BOX 7003
ROCKFORD, ILLINOIS 61125-7003
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: TUESDAY, APRIL 21, 1998
TIME: 11:00 A.M. CENTRAL TIME
LOCATION: AUDITORIUM, NORTHERN ILLINOIS UNIVERSITY
ROCKFORD EDUCATION CENTER
8500 EAST STATE STREET
ROCKFORD, ILLINOIS
The Annual Meeting of Stockholders of Sundstrand Corporation will be held
for the following purposes:
1. Elect four directors for three-year terms on
the Board. The Board has nominated for
re-election Ward Smith, J. P. Bolduc, Gerald
Grinstein and Robert H. Jenkins.
2. Conduct other business properly brought before
the meeting.
Stockholders of record at the close of business on February 26, 1998, will
be entitled to vote at the Annual Meeting. A list of these stockholders will be
available from the Manager, Investor Relations at the offices of Sundstrand
Corporation, 4949 Harrison Avenue, Rockford, Illinois 61125 on and after March
30, 1998.
By order of the Board of Directors,
MARY ANN HYNES,
Secretary
March 13, 1998
<PAGE> 4
CONTENTS
Notice of Annual Meeting
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proxy Statement
Proxy Solicitation................................... 1
Voting Securities.................................... 1
M Election of Directors................................. 1
Nominees for Election to Board for Terms Expiring in
2001................................................ 2
Directors Whose Terms Expire in 1999................. 2
Directors Whose Terms Expire in 2000................. 3
Board Meetings and Committees........................ 4
Director Compensation................................ 4
Compensation Committee Interlocks and Insider
Participation....................................... 5
Compensation Committee Report on Executive
Compensation........................................ 5
Ownership of Sundstrand Common Stock................. 8
Summary Compensation Table........................... 9
Option Grants in Last Fiscal Year.................... 11
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values....................... 11
Retirement Plans..................................... 12
Employment Agreements................................ 13
Transactions and Loans with Management............... 16
Performance Graph and Table.......................... 17
Section 16 Compliance................................ 17
Other Business to be Transacted...................... 17
Independent Certified Public Accountants............. 18
Stockholder Proposals for 1999 Annual Meeting........ 18
M To be voted on at the meeting
</TABLE>
------------------------------------
EVERY STOCKHOLDER'S VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD.
<PAGE> 5
SUNDSTRAND CORPORATION
4949 HARRISON AVENUE
P.O. BOX 7003
ROCKFORD, ILLINOIS 61125-7003
MARCH 13, 1998
---------------
PROXY STATEMENT
PROXY SOLICITATION
The Board of Directors of Sundstrand Corporation (the "Company") is
soliciting your proxy to vote your shares on the matters presented at the Annual
Meeting. If you give your proxy to the persons listed on the enclosed proxy
card, you may revoke your proxy at any time prior to the time it is voted. The
Company is paying the cost of soliciting these proxies. Georgeson & Company Inc.
is being paid a fee of $6,500, plus out-of-pocket expenses, to assist with the
solicitation. Officers or other employees of the Company also may participate in
the solicitation, which may be by telephone, facsimile or in person.
VOTING SECURITIES
On February 26, 1998, the record date for voting, there were 57,202,492
shares of outstanding common stock entitled to vote at the meeting. A quorum of
stockholders, consisting of a majority of the outstanding shares present in
person or by proxy, is necessary to hold a valid meeting. Abstentions and broker
nonvotes will be treated as shares that are present and entitled to vote for
purposes of determining a quorum and as a negative vote for purposes of
determining the approval of any matter submitted to a vote. A broker nonvote
occurs when a broker votes on some matters on the proxy card but not on others
because it indicates it does not have discretionary authority. The election of
each nominee will require the affirmative vote of a majority of the shares
present at the meeting.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes as nearly equal in
number as possible. One class is elected at each Annual Meeting to serve for a
three-year term. The Company's by-laws currently provide for nine directors. The
classes of directors are currently unequal due to the reduction of the Board's
size in 1997 following the retirement of several directors.
At the 1998 Annual Meeting the terms of four directors are expiring. Each
of these directors is a nominee and if re-elected at the Annual Meeting, will
hold office for a three-year term expiring in 2001. The other five directors
will continue in office for the remainder of their terms. The proxy holders
intend to vote the proxies they receive for the nominees.
If a nominee is unavailable for election, the proxy holders will vote for a
substitute nominee designated by the Board or, alternatively, the Board may
reduce the number of directors to be elected.
1
<PAGE> 6
NOMINEES FOR ELECTION TO BOARD FOR TERMS EXPIRING IN 2001
WARD SMITH, 67, has served as a director of the Company since 1983. From 1991
until his retirement in 1994 he was the Chairman of NACCO Industries, Inc.,
Mayfield Heights, Ohio, a coal mining company and a manufacturer of small home
appliances and fork lift trucks. He is a director of Gulftech International
Company, Pueblo, Colorado, a manufacturer of produce processing machinery; and a
trustee of various mutual funds managed by Massachusetts Financial Services
Company, Boston, Massachusetts, an investment adviser.
J. P. BOLDUC, 58, has served as a director of the Company since 1991. Mr. Bolduc
is a director and since 1995 Chairman and Chief Executive Officer of JPB
Enterprises, Inc., Columbia, Maryland, a holding company with interests in the
food, beverage, real estate, retail and manufacturing industries. From 1993 to
1995 Mr. Bolduc was President and Chief Executive Officer of W. R. Grace & Co.,
Boca Raton, Florida. He is a director of Marshall & Ilsley Corporation,
Milwaukee, Wisconsin, a multi-bank holding company; Unisys Corporation, Blue
Bell, Pennsylvania, a computer manufacturer and information technology company;
Newmont Mining Corporation, Denver, Colorado, a gold mining and producing
company; Brothers Gourmet Coffees, Inc., Boca Raton, Florida, a specialty coffee
company; and Proudfoot PLC, Richmond, England, an international management
consultancy.
GERALD GRINSTEIN, 65, has served as a director of the Company since 1991. Mr.
Grinstein is a director and since August 1997 the nonexecutive Chairman of the
Board of Delta Air Lines, Inc., Atlanta, Georgia, a commercial airline. From
September 1995 until his retirement at the end of that year he was Chairman of
Burlington Northern Santa Fe Corporation, Fort Worth, Texas, a diversified
company in railroads and other businesses. From October 1990 to September 1995,
Mr. Grinstein was Chairman and Chief Executive Officer of Burlington Northern,
Inc. He is a director of Browning-Ferris Industries, Inc., Houston, Texas, a
waste disposal company; Imperial Holly Corporation, Sugar Land, Texas, a
producer/marketer of refined sugar; and PACCAR Inc., Bellevue, Washington, a
heavy-duty truck manufacturer.
ROBERT H. JENKINS, 55, has served as a director of the Company since 1995 and
has been its Chairman of the Board, President and Chief Executive Officer since
1997. From 1995 to 1997 he was the President and Chief Executive Officer of
Sundstrand. From 1990 to 1995 he was Executive Vice President of Illinois Tool
Works Inc., Glenview, Illinois, a company involved in the manufacture of
construction products, engineered polymers, automotive and specialty components,
packaging products/systems, and finishing systems. He is a director of AK Steel
Holding Corporation, Middletown, Ohio, a steel manufacturer; and Solutia, Inc.,
St. Louis, Missouri, a chemical company.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
KLAUS H. MURMANN, 66, has served as a director of the Company since 1981. Mr.
Murmann is a director and since 1989 Chairman and Chief Executive Officer of
Sauer Inc., Ames, Iowa, a holding company for businesses engaged in the
manufacture of hydrostatic transmissions for use in off-highway mobile
equipment. He is a member of the supervisory boards of Fried. Krupp AG
HoeschKrupp, Essen, a German industrial company; Gildemeister AG, Bielefeld, a
German manufacturer of machine tools; and Preussen Elektra AG, Hannover, a
German utility concern. He is Chairman of the Board of Gothaer Insurance Group,
Gottingen/Cologne, a German insurance company; a member of the board of
BankgesellschaftBerlin AG, Berlin, a German bank; and a director of GKN PLC,
United Kingdom, a manufacturing company.
BERGER G. WALLIN, 67, has served as a director of the Company since 1995. From
January 1996 until his retirement later that year he was the Executive Vice
President for Special Projects of Sundstrand Corporation. From 1990 to 1995 he
was Executive Vice President and Chief Operating Officer, Industrial of
Sundstrand.
2
<PAGE> 7
RICHARD A. ABDOO, 54, has served as a director of the Company since 1996. Mr.
Abdoo is a director and since 1991 the Chairman, President and Chief Executive
Officer of Wisconsin Energy Corporation, Milwaukee, Wisconsin, a public utility
holding company, and since 1990 the Chief Executive Officer of Wisconsin
Electric Power Company, Wisconsin Energy Corporation's principal subsidiary.
From 1990 to 1995 he was Chairman and Chief Executive Officer of Wisconsin
Natural Gas Company, a former subsidiary of Wisconsin Energy Corporation. He is
a director of United Wisconsin Services, Inc., Milwaukee, Wisconsin, a managed
care company; and Marshall & Ilsley Corporation, Milwaukee, Wisconsin, a
multibank holding company.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
CHARLES MARSHALL, 68, has served as a director of the Company since 1989. Since
June 1989 he has been the retired Vice Chairman of American Telephone and
Telegraph Company, New York, New York, a company involved in information
movement, management systems and communications. He is a director of Hartmarx
Corporation, Chicago, Illinois, a company involved in the manufacture of
clothing; Ceridian Corporation, Minneapolis, Minnesota, a diversified company in
financial and educational services; GATX Corporation, Chicago, Illinois, a
company involved in the operation of rail cars and Great Lakes vessels, bulk
liquid terminals and financing for capital equipment and real estate; and Sonat,
Inc., Birmingham, Alabama, a holding company for energy and energy services.
ILENE S. GORDON, 44, has served as a director of the Company since 1997. Since
1997 Ms. Gordon has served as the Vice President and General Manager of the
Folding Carton Business of Tenneco Packaging, a unit of Tenneco, Inc.,
Greenwich, Connecticut, a global manufacturing company with interests in
packaging and automotive parts. From 1994 to 1997 she was Corporate Vice
President, Operations of Tenneco, and from 1992 to 1994 she was Senior Vice
President, Total Quality Management and Corporate Development of Tenneco
Packaging.
3
<PAGE> 8
BOARD MEETINGS AND COMMITTEES
During 1997 the Board met seven times, including two telephonic meetings.
In addition, on one occasion the Board took action by a unanimous written
consent. Klaus H. Murmann is the only director who attended fewer than 75% of
the Board meetings and meetings of committees of which he was a member.
The Board has four standing committees: the Audit, Compensation, Nominating
and Finance Committees.
The members of the Audit Committee are Ward Smith (Chairman), Charles
Marshall, Richard A. Abdoo, Klaus H. Murmann and Ilene S. Gordon. The Audit
Committee reviews the Company's audited financial statements, the report of the
independent accountants, management's accompanying letter, the adequacy of the
Company's internal accounting controls, and the internal audit activity. The
Committee also recommends to the Board the appointment of the independent
accountants and reviews the scope of the audit services they perform. The
Committee met three times during 1997.
The members of the Compensation Committee are Gerald Grinstein (Chairman),
Klaus H. Murmann, Ward Smith and J. P. Bolduc. The Compensation Committee
administers certain stock plans maintained by the Company and fixes the salary
and other forms of compensation paid to the officers and grants of both stock
options and restricted shares of the Company's stock. The Committee met twice
during 1997.
The members of the Finance Committee are Robert H. Jenkins (Chairman),
Berger G. Wallin, Richard A. Abdoo and Ilene S. Gordon. The Finance Committee
reviews the Company's financial condition, proposed financing activities and its
risk management program. The Committee also recommends to the Board changes in
the Company's capital structure, approves the Company's investment and hedging
policies and has certain responsibilities for the Company's retirement plans.
The Committee met twice during 1997.
The members of the Nominating Committee are Charles Marshall (Chairman), J.
P. Bolduc, Berger G. Wallin and Gerald Grinstein. The Nominating Committee
recommends to the Board the directors to serve on each of the Board committees,
changes in the size and composition of the Board and nominees to fill vacancies.
Generally, nonemployee directors are selected on the basis of recognized
achievements in business, education or other professional fields. The Committee
met twice in 1997.
Stockholder nominations for director will be considered by the Nominating
Committee for nomination if they are made in writing and received by the
Company's Secretary at least 90 days before the anniversary date of the prior
year annual meeting. The nomination procedures are discussed in greater detail
in the Company's by-laws. A copy of the procedures may be requested in writing
from the Company's Secretary.
DIRECTOR COMPENSATION
Generally, only those directors who are not salaried employees of the
Company receive compensation for serving on the Board. Robert H. Jenkins is
currently the only Board member who is also a salaried employee. Director
compensation includes:
<TABLE>
<S> <C>
Annual Retainer - $26,000 paid in common stock of the Company
Attendance Fees - $1,200 for each Board meeting
- $1,000 for each Board Committee meeting
- Expenses related to attendance
Stock Options - 2,000 annually
</TABLE>
In addition, at Company expense directors are entitled to a physical
examination for themselves and their spouses, the use of Company planes on an
emergency basis, and participation in the Company's matching gifts program,
which annually matches up to $2,000 of charitable gifts on a $2 for $1 of gift
basis.
Under the Director Emeritus Retirement Plan directors, upon retirement from
the Board, are entitled to an annual retirement benefit equal to the retainer
fee being paid to directors at the time of retirement, to be
4
<PAGE> 9
paid for a period of time equal to the time they served on the Board. Commencing
with the Annual Meeting, there will be no additional retirement benefits accrued
under this plan. However, in place of this benefit directors annually will
receive an award of restricted stock of the Company, the number of shares
currently being equal to $16,500 based on the market price of the stock on the
date of the award. These shares will be released upon the retirement of a
director, subject to the Company's annualized return on equity commencing with
the year of the award equaling at least 12%.
Effective as of the Annual Meeting, each director will be able to have the
annual retainer paid in cash or common stock of the Company or have the payment
deferred in an interest bearing account under the Company's Deferred
Compensation Plan.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Gerald Grinstein
(Chairman), Klaus H. Murmann, Ward Smith and J. P. Bolduc. Klaus H. Murmann is
the Chairman and Chief Executive Officer and a director of Sauer Inc., Ames,
Iowa. Richard M. Schilling, the Company's Vice President and General Counsel and
Secretary until December 31, 1997, during 1997 and currently serves as a
director of Sauer, Inc.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has the overall
responsibility to review and fix the salary and other forms of compensation of
the Company's executive officers, including the amount of restricted stock and
options which will be granted to them under the Company's stock programs. The
Committee consists of four nonemployee directors.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's executive compensation program is designed to:
- maintain an appropriate balance between base salary and short-term and
long-term incentive opportunities, with more compensation at risk at the
higher executive levels;
- provide executives with a compensation package that is competitive,
based on a comparison with a selected peer group of companies, and which
reflects the individual executive's experience, responsibility and
performance;
- tie a portion of an executive's compensation to business results;
- link the financial interests of executives to those of the Company's
stockholders through stock ownership; and
- attract, retain and motivate high-caliber executives on a long-term
basis.
The peer group of companies consist of 22 corporations, of which three are
in the Standard & Poor's Diversified Manufacturing Index and two are in the
Standard & Poor's Aerospace/Defense Index. These indices are incorporated into
the performance graph and table on page 17 of this proxy statement.
The Company's executive compensation program is currently composed of the
following: (1) an annual base salary; (2) an annual cash bonus; (3) the annual
grant of restricted stock and stock options; (4) a general benefit package
consisting of retirement benefits and life, medical and disability insurance;
and (5) personal benefits which include among other things physical
examinations, financial counseling, tax preparation and the use of Company
planes.
The Committee has an established objective that, when compared with the
compensation paid by the peer group of companies, the base salary paid to
Company executive officers shall be at the 60th percentile, with total cash
compensation (salary plus bonus) to be at the 75th percentile, with long-term
incentive
5
<PAGE> 10
compensation (restricted stock and stock option grants) to be at the 50th
percentile, and with net total compensation to be at the 60th percentile.
ANNUAL COMPONENT
BASE SALARY
The Committee annually reviews the salary of each of the Company's
executive officers. In November 1997 the Company's Chief Executive Officer
("CEO") reviewed with the Committee each of the officers' performance, other
than himself, and recommended certain salary changes. Based on this review and
other criteria determined by the Committee, it increased the salary of five of
the eight executive officers, including that of the CEO.
INCENTIVE COMPENSATION PLANS
The Company's Officer and Management Incentive Compensation Plans (the
"Bonus Plans") provide executive officers with the opportunity to receive an
annual cash bonus based upon the achievement by the Company of financial
performance goals set by the Committee. The Committee determines the performance
elements, their relative weight, and the bonus value assigned for various levels
of element achievement. For each element the Committee sets a threshold, target
and maximum achievement level. If the threshold level for any element is not
achieved, no bonus can be earned with respect to that element. At target, the
bonus amount is 100% and at the maximum the bonus amount is 160% of the target
amount. The target bonus amount under the Bonus Plans for each officer is a
percentage of such officer's base salary and varies from 30% to 100% based on
his position. For 1997 Mr. Jenkins had the highest target potential at 100% of
base salary. Notwithstanding the above, if in any year the Company fails to
achieve at least a 12% return on average total equity, no bonuses will be
awarded under the Officer Incentive Compensation Plan in which the five highest
paid executive officers participate.
The Committee selected earnings per share, cash flow from operations after
capital expenditures and return on average total equity as the performance
elements upon which the 1997 bonus compensation would be based, with one-half of
the bonus for Mr. Thomas and Mr. McKenna to be tied to similar performance
elements for the Industrial or Aerospace Segment of the Company as applicable.
The elements were essentially equally weighted, and specific threshold, target
and maximum achievement levels were set.
After the performance of the Company for 1997 was determined (and after
adjustment for unusual and nonrecurring accounting issues), bonuses were
calculated based upon the performance level achieved compared to the
preestablished achievement levels. Although the Committee may adjust the bonus
amounts as calculated, it did not elect to make any adjustments for 1997.
LONG-TERM COMPONENT
STOCK OPTIONS AND RESTRICTED STOCK
The Company maintains stock plans under which the Committee may grant stock
options and restricted stock to executive officers of the Company. The number of
options and restricted shares granted to an officer each year will vary based
upon the position the officer holds and the performance evaluation.
Stock options granted to an executive officer under the Company's Stock
Incentive Plan presently are granted at an exercise price equal to the fair
market value of a share of the Company's common stock on the date of grant,
become exercisable in increments of 25% on each of the second through fifth
anniversary dates of the grant, and generally remain exercisable until the tenth
anniversary date of the grant. Grants of restricted stock are without cost to
the executive officer and vest in increments of 20% per year in each of the
fifth through ninth anniversary dates of the grant.
In November 1997, the Committee awarded both stock options and restricted
stock to the Company's executive officers. The size of the restricted stock
awards generally was consistent with the Committee's
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<PAGE> 11
objectives for long-term incentive compensation and took into account the
Company's anticipated record sales and earnings for the year.
BENEFIT COMPONENT
The Committee annually reviews with the CEO the general and personal
benefits available to the executive officers and makes recommendations as to the
appropriateness of this compensation. The Committee determined that the level of
general and personal benefits is consistent with the Committee's objectives and
accordingly for 1997 did not recommend any changes.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
During the compensation review in November 1997, the Committee decided to
increase Mr. Jenkins' salary from $650,000 to $700,000 since it was determined
to be below the Committee's objective that his salary should be at the 60th
percentile for the peer group of companies and to reflect his role in leading
the Company to the achievement of record sales and earnings.
The cash bonus earned by Mr. Jenkins during 1997 was $1,034,150. This
amount was determined based upon the Company's financial performance as compared
to the preestablished achievement levels for 1997 as discussed under the heading
"Incentive Compensation Plans." Since the Company's performance in 1997, when
compared to the selected preestablished achievement levels was well above
target, Mr. Jenkins' bonus approached the maximum. Mr. Jenkins' opportunity
level for 1997 was 100% of base salary at the target level and 160% of base
salary at the maximum. These opportunity levels have not been changed for 1998.
The Committee, as part of its compensation review in November 1997, granted
to Mr. Jenkins 15,000 shares of restricted stock and 50,000 options which
options have a purchase price of $51.3125 per share representing the fair market
value at the date of grant. In making these grants, the Committee considered the
Company's favorable performance and Mr. Jenkins' role in leading in the Company
to the achievement of record results. In addition, the Committee determined that
these grants were consistent with its objectives for the level of long-term
incentives granted to the Company's CEO as compared to the chief executive
officers of the selected peer group of companies.
COMPENSATION COMMITTEE
Gerald Grinstein, Chairman
Klaus H. Murmann
Ward Smith
J. P. Bolduc
7
<PAGE> 12
OWNERSHIP OF SUNDSTRAND COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of the Company's common stock by (i) each person or group that is
known to be the beneficial owner of more than 5% of the Company's common stock,
(ii) each of the directors and the nominees, (iii) each of the executive
officers named in the Summary Compensation Table on page 9 of this proxy
statement, and (iv) by the nominees, directors and officers as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
COMMON STOCK COMMON STOCK
NAME BENEFICIALLY OWNED OUTSTANDING
---- ------------------ ------------
<S> <C> <C>
FMR Corp., Fidelity Management & Research Company and
Fidelity Management Trust Company......................... 3,048,635(1) 5.3%
Ward Smith.................................................. 10,722*(2) **
J. P. Bolduc................................................ 4,592*(2) **
Gerald Grinstein............................................ 6,611*(2) **
Robert H. Jenkins........................................... 114,956*(2) **
Klaus H. Murmann............................................ 11,664*(2) **
Berger G. Wallin............................................ 126,925*(2) **
Richard A. Abdoo............................................ 1,321*(2) **
Charles Marshall............................................ 12,660*(2) **
Ilene S. Gordon............................................. 209*(2) **
Patrick L. Thomas........................................... 58,108*(2) **
Ronald F. McKenna........................................... 59,894*(2) **
Paul Donovan................................................ 47,307*(2) **
Richard M. Schilling........................................ 159,540*(2) **
Don R. O'Hare............................................... 387,978*(2) **
The Nominees, Directors and Officers as a Group
(18 persons, including those named above)................. 1,002,487*(2) 1.8%
</TABLE>
* Shares owned as of February 13, 1998.
** Less than 1%.
(1) Based on Schedule 13-G dated January 10, 1998, shares held of record by
Fidelity Research & Management Company, an investment adviser registered
under the Investment Advisors Act of 1940, and Fidelity Management Trust
Company, a Massachusetts chartered bank, both located at 82 Devonshire
Street, Boston, Massachusetts 02109. FMR Corp. is the parent holding
company of both entities.
(2) The number of shares of Common Stock beneficially owned includes stock
options awarded under the Company's Stock Incentive Plan, Management Stock
Performance Plan or under the Company's Nonemployee Director Stock Option
Plan that such persons have a right to exercise within 60 days as follows:
Mr. Jenkins -- 22,500; Mr. Thomas -- 11,750; Mr. McKenna -- 13,000; Mr.
Schilling -- 38,250; Mr. O'Hare -- 210,500; Mr. Wallin -- 20,000; Mr.
Smith -- 1,500; Mr. Bolduc -- 1,500; Mr. Grinstein -- 1,500; Mr.
Murmann -- 1,500; and the nominees, directors and officers as a group --
331,950.
8
<PAGE> 13
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the Company's Chairman
of the Board, President and Chief Executive Officer, the Company's four other
most highly compensated executive officers, and the Company's former Chairman of
the Board, who retired on April 15, 1997.
<TABLE>
<CAPTION>
==================================================================================================================
LONG-TERM
COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- ----------------------------
OTHER RESTRICTED
ANNUAL STOCK
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS
POSITION YEAR ($) ($) ($) ($)(2)(3) (#)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Jenkins 1997 $650,000 $1,034,150 $-- $ 769,688 50,000
Chairman of the 1996 650,000 452,075 -- 467,250 40,000
Board, President 1995 150,000 658,794(1) -- 2,078,876 90,000
and Chief
Executive Officer
- ------------------------------------------------------------------------------------------------------------------
Patrick L. Thomas 1997 $375,000 $ 358,838 $-- $ 307,875 30,000
Executive Vice 1996 350,000 194,740 -- 233,625 25,000
President and 1995 300,000 160,680 -- 383,813 --
Chief Operating
Officer, Industrial
- ------------------------------------------------------------------------------------------------------------------
Ronald F. McKenna 1997 $360,000 $ 401,940 $-- $ 307,875 30,000
Executive Vice 1996 263,087 166,920 -- 233,625 25,000
President and
Chief Operating
Officer, Aerospace
- ------------------------------------------------------------------------------------------------------------------
Paul Donovan 1997 $360,000 $ 343,656 $-- $ 256,563 30,000
Executive Vice 1996 330,000 183,612 -- 155,750 20,000
President and 1995 330,000 176,748 -- 191,906 --
Chief Financial
Officer
- ------------------------------------------------------------------------------------------------------------------
Richard M. Schilling* 1997 $235,000 $ 149,554 $-- $ -- --
Vice President and 1996 235,000 128,498 -- 58,406 8,000
General Counsel 1995 225,000 117,832 -- 127,938 --
and Secretary
- ------------------------------------------------------------------------------------------------------------------
Don R. O'Hare 1997 $205,000 $ 301,627 $-- $ -- --
Chairman of the 1996 650,000 452,075 -- -- 30,000
Board Through 1995 650,000 435,175 -- -- 30,000
April 15, 1997
==================================================================================================================
<CAPTION>
======================== ==========================
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)
<S> <C> <C>
Robert H. Jenkins $ 26,709(4)(5)(6)
Chairman of the 83,062(4)(5)(7)
Board, President 8,861(7)
and Chief
Executive Officer
- ---------------------------------------------------------
Patrick L. Thomas $ 18,762(4)(5)(6)
Executive Vice 8,194(4)(5)
President and 51,033(4)(7)
Chief Operating
Officer, Industrial
- ---------------------------------------------------------------
Ronald F. McKenna $ 14,399(4)(5)(6)
Executive Vice 6,541(4)(5)
President and
Chief Operating
Officer, Aerospace
- ---------------------------------------------------------------------
Paul Donovan $ 19,032(4)(5)(6)
Executive Vice 8,003(4)(5)
President and 5,158(4)
Chief Financial
Officer
- ---------------------------------------------------------------------------
Richard M. Schilling* $ 8,283(5)(8)
Vice President and 5,289(5)(8)
General Counsel 3,300(8)
and Secretary
- ---------------------------------------------------------------------------------
Don R. O'Hare $281,487(5)(8)
Chairman of the 15,176(5)(8)
Board Through 9,750(8)
April 15, 1997
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
* Mr. Schilling retired from his position with the Company on December 31, 1997.
(1) The amount represents a $550,000 signing bonus and a $108,794 bonus earned
under the Company's Officer Incentive Compensation Plan.
(2) The amounts represent the fair market value of the shares of restricted
stock awarded to the named executive officer for the year indicated less the
purchase price paid by the executive officer. Dividends on restricted stock
are paid at the same time and in the same amounts as dividends paid on
Common Stock, but such amounts are not included in this column.
(3) On December 31, 1997, Mr. Jenkins held 91,000 shares of restricted stock
which had an aggregate market value of $4,465,750; Mr. Thomas held 34,000
shares of restricted stock which had an aggregate market value of
$1,669,000; Mr. McKenna held 30,400 shares of restricted stock which had an
aggregate market value of $1,491,600; Mr. Donovan held 46,800 shares of
restricted stock which had an aggregate market value of $2,295,450; and Mr.
Schilling held 22,900 shares of restricted stock which had an
9
<PAGE> 14
aggregate market value of $1,123,475. The restrictions on Mr. Schilling's
shares lapsed on December 31, 1997, as a result of his retirement.
(4) The amounts include for each year the portion of the projected cash
surrender value available to the executive officer at the maturity of his
split-dollar life insurance policy under the Executive Life Insurance
Program, as follows:
<TABLE>
<CAPTION>
1997 ALLOCATION 1996 ALLOCATION 1995 ALLOCATION
OF PROJECTED CASH OF PROJECTED CASH OF PROJECTED CASH
EXECUTIVE OFFICER SURRENDER VALUE SURRENDER VALUE SURRENDER VALUE
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Robert H. Jenkins...................... $12,703 $10,131 --
Patrick L. Thomas...................... 5,517 5,641 $4,651
Ronald F. McKenna...................... 5,532 5,226 --
Paul Donovan........................... 5,532 5,469 5,158
Richard M. Schilling................... -- -- --
Don R. O'Hare.......................... -- -- --
</TABLE>
(5) The amounts include contributions by the Company on behalf of the executive
officer under the Company's Employee Savings Plan and the Supplemental
Savings Plan (as further described in this proxy statement on page 13), as
follows:
<TABLE>
<CAPTION>
1997 1996
SAVINGS PLAN SAVINGS PLAN
EXECUTIVE OFFICER CONTRIBUTION CONTRIBUTION
----------------- ------------- -------------
<S> <C> <C>
Robert H. Jenkins........................................... $11,021 $3,794
Patrickw L. Thomas.......................................... 5,697 2,553
Ronald F. McKenna........................................... 4,750 1,315
Paul Donovan................................................ 5,436 2,534
Richard M. Schilling........................................ 3,489 1,764
Don R. O'Hare............................................... 6,571 5,426
</TABLE>
(6) The amounts include the difference between market interest rates determined
pursuant to rules of the Securities and Exchange Commission ("SEC") and the
interest credited by the Company on salary and bonus deferred by the
executive officers under the Company's Deferred Compensation Plan. The
difference between the market interest rates and the earned rates for each
executive officer was as follows:
<TABLE>
<CAPTION>
1997 DIFFERENCE
BETWEEN MARKET INTEREST
EXECUTIVE OFFICER RATES AND EARNED RATES
----------------- -----------------------
<S> <C>
Robert H. Jenkins........................................... $2,985
Patrick L. Thomas........................................... 7,548
Ronald F. McKenna........................................... 4,117
Paul Donovan................................................ 8,064
Richard M. Schilling........................................ --
Don R. O'Hare............................................... --
</TABLE>
(7) The amounts set forth include costs incurred by the Company in connection
with Mr. Jenkins' and Mr. Thomas' relocations. With respect to Mr. Jenkins
the costs were $69,137 in 1996 and $8,861 in 1995. With respect to Mr.
Thomas the costs were $46,382 in 1995.
(8) The amounts include the dollar value of term life insurance premiums paid by
the Company for the group term life insurance component of the Executive
Life Insurance Program, and an imputed value based upon the equivalent of
term life insurance premiums for the survivor income benefit component of
the Executive Life Insurance Program, which were $6,188 for 1997 and $9,750
for 1996 and 1995 for Mr. O'Hare and $4,794 for 1997, $3,525 for 1996, and
$3,300 for 1995 for Mr. Schilling. The 1997 amount for Mr. O'Hare also
includes $249,228 earned pursuant to a consulting agreement which began
April 15, 1997, and $19,500 in Director Emeritus Retirement payments.
10
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
Set forth below are the 1997 grants of nonqualified stock options under the
Stock Incentive Plan to named executive officers. The hypothetical present
values on date of grant shown for stock options granted in 1997 are presented
pursuant to the rules of the SEC and calculated under the Black-Scholes model
for pricing options. The actual value before tax will be the excess of the
market price of the common stock at the time of exercise over the grant price.
There is no assurance that the present value shown in the table will be
realized.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
==================================================================================================================================
NUMBER OF % OF TOTAL OPTIONS EXERCISE OR
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED TO(1) IN FISCAL YEAR ($/SHARE) DATE PRESENT VALUE(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Jenkins 50,000 6.78% $51.3125 11/18/07 $744,390
- ----------------------------------------------------------------------------------------------------------------------------------
Patrick L. Thomas 30,000 4.07% 51.3125 11/18/07 446,634
- ----------------------------------------------------------------------------------------------------------------------------------
Ronald F. McKenna 30,000 4.07% 51.3125 11/18/07 446,634
- ----------------------------------------------------------------------------------------------------------------------------------
Paul Donovan 30,000 4.07% 51.3125 11/18/07 446,634
- ----------------------------------------------------------------------------------------------------------------------------------
Richard M. Schilling -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Don R. O'Hare -- -- -- -- --
==================================================================================================================================
</TABLE>
(1) Options become exercisable at a rate of 25% of each grant on the second
through fifth anniversary dates of the date of grant, provided that in the
event of a Change in Control as defined on pages 15 and 16 of this proxy
statement, such options shall become immediately exercisable.
(2) These values are based upon the Black-Scholes option pricing model, which is
a mathematical formula used to value options traded on stock exchanges.
Factors used to value the options granted to each named executive officer on
November 18, 1997, included a capital expected volatility rate of 20.8
percent, a risk-free rate of return based upon a ten year zero-coupon
Treasury bond at 5.86 percent, a dividend yield of 1.3 percent, a projected
time of exercise of seven years and a forfeiture rate of three percent.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information on the exercise of stock options
by named executive officers in 1997 as well as the number of options which were
exercisable and the number of options which were not exercisable in 1997 and the
value of such options based upon the difference between the exercise price and
the market price of the underlying shares as of December 31, 1997. The actual
value before tax will be the excess of the market price of Sundstrand Common
Stock over the exercise price at the time of execution. There is no assurance
that the values shown in the table will be realized.
11
<PAGE> 16
<TABLE>
<CAPTION>
=================================================================================================================================
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FY-END OPTIONS AT FY-END
NAME ACQUIRED ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert H. Jenkins -- -- 22,500/157,500 $ 382,851/$1,561,053
- ---------------------------------------------------------------------------------------------------------------------------------
Patrick L. Thomas -- -- 11,750/ 60,000 336,453/ 392,188
- ---------------------------------------------------------------------------------------------------------------------------------
Ronald F. McKenna -- -- 13,000/ 58,000 380,000/ 338,438
- ---------------------------------------------------------------------------------------------------------------------------------
Paul Donovan 10,312 $237,332 10,314/ 60,000 293,463/ 475,000
- ---------------------------------------------------------------------------------------------------------------------------------
Richard M. Schilling -- -- 38,250/ 0 945,234/ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Don R. O'Hare 1,500 56,859 210,500/ 0 4,200,542/ 0
=================================================================================================================================
</TABLE>
RETIREMENT PLANS
Generally, the retirement benefit to which an executive officer will be
entitled upon retirement is provided under the tax-qualified Sundstrand
Corporation Retirement Plan-Aerospace (the "Retirement Plan") and the
non-tax-qualified supplemental retirement plan (the "Supplemental Retirement
Plan"). The eligibility for both plans is the same. The Supplemental Retirement
Plan provides a lump sum option for the total accrued benefit, while the
Retirement Plan provides a lump sum option for the portion of the benefit
accrued through December 31, 1991.
The following table sets forth estimated annual retirement benefits for
representative years of service and three-year average annual earnings amounts.
<TABLE>
<CAPTION>
==============================================================================================================================
HIGHEST CONSECUTIVE
THREE-YEAR AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFIT
ANNUAL EARNINGS FOR REPRESENTATIVE YEARS OF SERVICE
- ------------------------------------------------------------------------------------------------------------------------------
30 OR
10 YEARS 15 YEARS 20 YEARS 25 YEARS MORE YEARS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 66,667 $100,000 $133,333 $ 166,667 $ 200,000
- ------------------------------------------------------------------------------------------------------------------------------
600,000 133,333 200,000 266,667 333,333 400,000
- ------------------------------------------------------------------------------------------------------------------------------
900,000 200,000 300,000 400,000 500,000 600,000
- ------------------------------------------------------------------------------------------------------------------------------
1,200,000 266,667 400,000 533,333 666,667 800,000
- ------------------------------------------------------------------------------------------------------------------------------
1,500,000 333,333 500,000 666,667 833,333 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------
1,800,000 400,000 600,000 800,000 1,000,000 1,200,000
- ------------------------------------------------------------------------------------------------------------------------------
2,100,000 466,667 700,000 933,333 1,166,667 1,400,000
==============================================================================================================================
</TABLE>
12
<PAGE> 17
The combined amounts shown in the Salary and Bonus columns of the Summary
Compensation Table on page 9 of this proxy statement are expected to approximate
the three-year average annual earnings of an executive officer which would be
used to determine his total retirement benefit under the Retirement Plan and the
Supplemental Retirement Plan.
Messrs. Jenkins, Thomas, McKenna and Donovan, upon attainment of age 65,
the normal retirement age under the plans, will have 12.5, 40.7, 35.9 and 24.0
actual years of service with the Company, respectively. Mr. Schilling, upon his
retirement, had 29.8 years of service with the Company. Mr. O'Hare has
previously been paid his retirement benefit under the Retirement Plan and the
Supplemental Retirement Plan.
Although the Retirement Plan benefit formula includes a reduction for 50%
of a participant's monthly primary Social Security benefit earned at retirement,
the amounts shown in the table do not reflect this reduction. The benefit
amounts shown in the table are calculated based upon the straight life annuity
form of payment under the plans.
In addition to the foregoing, the Company in 1997 matched, at the rate of
$0.50 for each $1.00 of contribution, contributions made by an executive officer
to the Company's Employee Savings Plan with a current maximum match of 1% of the
executive officer's eligible compensation. These amounts are reflected in the
Summary Compensation Table on page 9 of this proxy statement. Under the
Company's nonqualified Supplemental Savings Plan, benefits are provided which
are not available under the Employee Savings Plan because of Internal Revenue
Code limitations on the amount of annual compensation that may be considered for
determining contributions to the Employee Savings Plan. The Supplemental Savings
Plan was terminated effective as of December 31, 1997. The benefits under this
plan will be available under the Company's Deferred Compensation Plan in the
future.
At the time of his employment, Mr. Jenkins entered into an unfunded
retirement agreement with the Company which provides that he will receive a
nonqualified benefit which, when combined with his benefits under the Retirement
Plan and the Supplemental Retirement Plan, will equal the benefit that would be
payable from these plans if it is assumed at such time that he had twice his
actual years of service with the Company. The agreement also provides that Mr.
Jenkins shall be entitled to receive a nonqualified benefit without regard to
any service requirement for eligibility. The estimated annual pension benefit
payable under the agreement to Mr. Jenkins at his normal retirement age, which
benefit is in addition to the benefit payable under the Retirement Plan and
Supplemental Retirement Plan, is $464,543.
Mr. Jenkins, and Mr. O'Hare until his retirement from the Board, accrued a
benefit under the Director Emeritus Retirement Plan, as described on pages 4 and
5 of this proxy statement.
EMPLOYMENT AGREEMENTS
The Company maintains an employment agreement with Mr. Jenkins (the
"Jenkins Agreement") that is designed to assure the Company of the benefit of
his services in an executive capacity. The agreement covers a three-year period
(the "Employment Period"), and, unless written notice is given to the contrary,
on each September 30 the Employment Period is automatically extended for an
additional year. Under the agreement, Mr. Jenkins covenants during the
Employment Period not to compete with the Company or to disclose confidential
information concerning the Company.
The Jenkins Agreement provides that throughout the Employment Period, the
Company shall neither demote Mr. Jenkins nor assign to him any duties or
responsibilities that are inconsistent with his position, duties and
responsibilities as the Company's Chief Executive Officer. The agreement also
provides that the Company may not assign duties to Mr. Jenkins which would
require him to move the location of his principal business office or principal
place of residence outside of the Rockford, Illinois area. Under the agreement,
Mr. Jenkins shall receive during the Employment Period a salary of not less than
$700,000 per year, paid vacations and holidays, and fringe benefits and
perquisites. He also shall be eligible to participate in the Company's employee
benefit plans, practices and programs, and shall be eligible to participate in
such executive benefit or incentive plans as are in effect, including the
Company's Bonus Plan, the Stock Incentive
13
<PAGE> 18
Plan, the 1989 Restricted Stock Plan, the Deferred Compensation Plan and the
Supplemental Retirement Plan.
In the event the Company fails to meets its obligation under the agreement,
Mr. Jenkins will be entitled to receive for the remainder of the Employment
Period the salary and benefits he would have otherwise received if his
employment had continued for such period. These benefits would not be payable,
however, in the event his employment is terminated by reason of (a) conviction
of a felony, (b) death, or (c) breach during the Employment Period of either his
covenant not to compete or his covenant not to disclose confidential information
and failure to cure such breach (the "Enumerated Reasons"). The Jenkins
Agreement also provides for the reimbursement of legal expenses incurred in
connection with certain claims or legal proceedings brought under or involving
the agreement.
The Jenkins Agreement requires the Company to make an additional "gross-up
payment" to Mr. Jenkins to offset fully the effect of any excise tax imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), on any payment made to him in connection with his employment with the
Company (the "Gross-up Payment"). The amount of the Gross-up Payment, if any,
may be substantial and will depend upon numerous factors, including the price
per share of the common stock of the Company and the extent, if any, that
payments or benefits made to Mr. Jenkins constitute "excess parachute payments"
within the meaning of Section 280G of the Code.
The Jenkins Agreement provides that upon a Change in Control (as described
on pages 15 and 16 of this proxy statement) during the Employment Period the
following will occur: (a) all restrictions on any stock purchased by or
otherwise granted to Mr. Jenkins pursuant to the Company's 1989 Restricted Stock
Plan, the Company's Stock Incentive Plan and any other restricted stock plan
sponsored by the Company shall lapse and all such stock shall immediately vest
and be delivered to Mr. Jenkins, and all outstanding stock options held by him
shall become fully vested and immediately exercisable; and (b) commencing at the
time of Mr. Jenkins' termination of employment or if later his attainment of age
65, he shall be provided with the same health care coverage as provided to other
eligible retirees at that time and with a life insurance benefit of one time his
annual base salary at the higher of the annual rate in effect at the time of his
termination of employment or immediately prior to the Change in Control; and (c)
Mr. Jenkins will become fully vested in a retirement benefit determined pursuant
to the provisions of the Retirement Plan, with such benefit calculated as though
he had 20 years of participation under the Retirement Plan. The agreement also
provides that upon his termination of employment following a Change in Control
in addition to all other amounts payable under the agreement, he will within
five days of such termination be paid in a single lump sum all amounts accrued
but unpaid under the agreement, including salary, vacation pay, bonuses and
other incentive compensation plus, if his employment is terminated for any
reason other than the Enumerated Reasons, a bonus equal to the largest bonus
received during the three years preceding the termination of employment
multiplied by a fraction, which will not be less than 1, the numerator of which
is the number of months remaining in his Employment Period and the denominator
of which is 12, or, if his employment is terminated for one of the Enumerated
Reasons, a bonus equal to the amount that would have been paid if it were
assumed his employment had continued to the end of the year and it were assumed
all performance targets and goals were met multiplied by a fraction which shall
not be less than 0, the numerator of which is the number of months remaining in
the year through the date of termination and the denominator of which is 12.
Assuming a Change in Control occurred on March 1, 1998, and his employment
were terminated by the Company on that date for a reason other than an
Enumerated Reason, Mr. Jenkins would have been eligible to receive a bonus of
$2,855,664. In addition, he would have been entitled to receive 91,000 shares of
restricted stock and the 157,500 unexercisable stock options held by him would
have become fully exercisable. Mr. Jenkins also would have been entitled to have
his base salary continued for the Employment Period which would result in
payments during that time totaling $1,808,333 and he would have been entitled to
continue to receive incentive compensation and other personal benefits. He also
immediately would become fully vested in a benefit which, as stated above, would
be calculated as though he had accrued 20 years of participation in the
Retirement Plan, which benefit would be payable under the Retirement and
Supplemental Retirement Plans and under his retirement agreement, as discussed
on pages 12 and 13.
14
<PAGE> 19
On July 20, 1989, the Company entered into an employment agreement with Mr.
Donovan, which agreement was amended on August 7, 1990. On February 21, 1995 and
June 18, 1996, the Company entered into employment agreements with Messrs.
Thomas and McKenna, respectively, which are substantially identical to Mr.
Donovan's employment agreement, as amended. The three agreements are hereinafter
collectively referred to as the "Employment Agreement." The rights and
obligations set forth in the Employment Agreement arise for a period of up to
three years following a Change in Control (the "Term") provided the Change in
Control occurs during the "Protected Period" defined in the Employment
Agreement. The Employment Agreement sets forth the terms and conditions of the
executive's employment, annual base salary and participation by the executive in
the Company's benefit plans. If the executive's employment is terminated during
the Term (a) by the Company other than for "Cause" (as defined in the Employment
Agreement), (b) by the executive for "Good Reason" (as defined in the Employment
Agreement) or (c) by the executive for any reason or without reason during the
60-day period which commences on the date six months following a Change in
Control, he will be entitled to receive (w) a "Pro-Rata Bonus" (as defined in
the Employment Agreement), (x) a lump sum cash payment equal to three times the
sum of his base salary and bonus (the base salary at least equal to his base
salary in effect prior to a Change in Control and the bonus equal to the "Bonus
Amount" as defined in the Employment Agreement), subject to certain adjustments,
(y) continuation of life insurance, disability, medical, dental and
hospitalization benefits for a period of up to 36 months and (z) a lump sum cash
payment reflecting certain retirement benefits he would have been entitled to
receive had he remained employed by the Company for an additional three years,
subject to certain adjustments.
In addition, under the Employment Agreement all restrictions on any
outstanding incentive awards will lapse and become fully vested, and all
outstanding stock options shall become fully vested and immediately exercisable.
The Employment Agreement also provides that the Company will pay all legal fees
and related expenses incurred by the executive arising out of his employment or
termination of employment if, in general, the circumstances for which he has
retained legal counsel occurred on or after a Change in Control. Under the
Employment Agreement, the Company also is required to make an additional
"gross-up payment" to the executive to fully offset the effect of any excise tax
imposed under Section 4999 of the Code on any payment made to him under the
Employment Agreement, the 1982 and 1989 Restricted Stock Plans, the Stock
Incentive Plan, or any other incentive compensation or bonus plan (the
"Gross-up"). The amount of the Gross-up, if any, may be substantial and will
depend upon numerous factors, including the price per share of the Common Stock
of the Company and the extent, if any, that payments or benefits made to the
executive constitute "excess parachute payments" within the meaning of Section
280G of the Code.
Assuming a Change in Control occurred on March 1, 1998, and their
employment was terminated on that date, the approximate amount of cash payments
that would have been made pursuant to the Employment Agreement as described
above (other than the Gross-up Payment, if applicable) would have been
$3,166,884 for Mr. Thomas, $4,422,215 for Mr. McKenna and $2,672,066 for Mr.
Donovan. The number of shares of restricted stock they would have been entitled
to receive and the number of unexercisable stock options which would have become
fully exercisable as a result of the Change in Control would have been 34,000
shares and 60,000 stock options for Mr. Thomas, 30,400 shares and 58,000 stock
options for Mr. McKenna, and 42,000 shares and 60,000 stock options for Mr.
Donovan. In addition, personal benefits would continue for the term of the
Employment Agreement, and as set forth above, each of the executives would also
have for a period of up to 36 months continued life insurance, disability,
medical, dental and hospitalization benefits. The retirement benefit to which
each of the executives would be entitled would be paid pursuant to the
Retirement and Supplemental Retirement Plans as discussed on pages 12 and 13 of
this proxy statement.
In general, for purposes of the Jenkins Agreement, each Employment
Agreement and the Stock Incentive Plan, a Change in Control is defined as any of
the following events: (a) the acquisition (other than from the Company) by any
person (as defined in Sections 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended [the "1934 Act"]) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of 33% or more of the combined
voting power of the Company's then-outstanding voting securities; (b) the
individuals who, as of the date the agreements were executed, are members of the
Company's Board of Directors (the "Incumbent Board"), cease for any reason to
constitute a majority of the
15
<PAGE> 20
Board, unless the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of a majority of the
Incumbent Board; or (c) approval by stockholders of the Company of (i) a merger
or consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation, do not, as a result of such
merger or consolidation, own, directly or indirectly, more than 67% of the
combined voting power of the then-outstanding voting securities of the
corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such merger or
consolidation or (ii) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company. A Change in Control shall not be deemed to occur by
reason of an acquisition referred to in clause (a) above because 33% or more of
the combined voting power of the Company's then-outstanding securities is
acquired by (x) a trustee or other fiduciary holding securities under one or
more employee benefit plans maintained by the Company or any of its subsidiaries
or (y) any corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Company in the same proportion
as their ownership of stock in the Company immediately prior to such
acquisition.
In conjunction with his December 31, 1997, retirement, the Company entered
into an agreement with Mr. Schilling under which he will provide consulting
services for 18 months at $25,000 per month. In addition, it provides for the
payment of certain benefits incidental to his retirement and for the accelerated
vesting of his stock options and restricted stock.
The Company also maintains a consulting agreement with Mr. O'Hare which
became effective April 15, 1997. The agreement covers a three-year period and
provides for the payment of an annual fee of $360,000.
TRANSACTIONS AND LOANS WITH MANAGEMENT
Since the beginning of 1997 through February 13, 1998, the following
executive officers sold to the Company shares of the Company's common stock
which they owned: Mr. Donovan -- 18,312 shares ($863,145); Mr.
Schilling -- 6,000 shares ($286,625); and DeWayne J. Fellows, Vice President and
Controller -- 1,320 shares ($76,395).
Effective October 1, 1992, the Company discontinued making loans under its
1984 Elected Officers' Loan Program but allowed existing loans to continue to
maturity. As of February 26, 1998, the following executive officers had loans
outstanding in excess of $60,000: Mr. Donovan -- $957,000; and Mr.
Fellows -- $215,000. Mr. Schilling also has a loan outstanding of $870,000. The
interest rate charged on each of the loans is 5.89 percent, and they will mature
on September 1, 2000. The loans are fully collateralized. The indicated amounts
were the largest amounts outstanding during 1997.
16
<PAGE> 21
PERFORMANCE GRAPH AND TABLE
The following performance graph and table compare the five-year cumulative
total stockholder return, assuming reinvestment of dividends, on $100 invested
on December 31, 1992, in each of Sundstrand Corporation common stock, Standard &
Poor's 500 Stock Index, Standard & Poor's Aerospace/Defense Index and Standard &
Poor's Diversified Manufacturing Index. The Standard & Poor's Aerospace/Defense
and Diversified Manufacturing Indices were selected as properly reflecting the
Company's involvement in the aerospace market and industrial market segments,
the sales of which segments were 57.1% and 42.9%, respectively, of the Company's
total sales in 1997.
Performance Graph
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
COMPANY/INDEX 1992 1993 1994 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
Sundstrand $100 $108 $120 $189 $232 $279
S&P 500 $100 $110 $112 $154 $189 $252
S&P Aerospace/Defense $100 $130 $139 $230 $297 $308
S&P Diversified Mfg. $100 $121 $124 $175 $234 $322
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers to file reports with the Securities and
Exchange Commission and the New York Stock Exchange indicating their beneficial
ownership of the Company's common stock.
Based upon a review of forms which were received with respect to 1997, the
Company believes that all Section 16(a) filing requirements applicable to its
directors and officers have been met, except that Ward Smith, J. P. Bolduc,
Klaus H. Murmann, Berger G. Wallin and Richard A. Abdoo each filed one late
report on Form 4 covering shares issued to them under the Company's Nonemployee
Director Compensation Plan and options granted to them under the Company's
Nonemployee Director Stock Option Plan.
OTHER BUSINESS TO BE TRANSACTED
The election of directors is the only business which management knows will
be presented at the Annual Meeting. If any other matter is properly brought
before the meeting, the persons named in the enclosed proxy will vote the proxy
in accordance with their judgment on such matters.
17
<PAGE> 22
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Ernst & Young LLP were the Company's independent certified public
accountants for 1997 and have been selected as its independent certified public
accountants for 1998. Representatives of Ernst & Young will be present at the
Annual Meeting and will be given the opportunity to make any comments they wish
and to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Annual Meeting in
1999 and to be included in the Company's 1999 Proxy Statement must be received
by the Company not later than November 13, 1998.
If you will be unable to be present at the 1998 Annual Meeting, you are
urged to date, sign and return the enclosed proxy card so that your shares are
represented at the meeting.
By order of the Board of Directors,
MARY ANN HYNES,
Secretary
Rockford, Illinois
March 13, 1998
18
<PAGE> 23
PROXY/VOTING INSTRUCTION CARD
SUNDSTRAND CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON APRIL 21, 1998
The undersigned hereby appoints Robert H. Jenkins and Paul Donovan as proxies,
with powers to be exercised by both or either of them, and with full power of
substitution, to vote as designated on the reverse side all common stock of
SUNDSTRAND CORPORATION according to the number of shares the undersigned is
entitled to vote if personally present at the Annual Meeting of Stockholders of
Sundstrand Corporation to be held in the Auditorium at Northern Illinois
University, Rockford Education Center, 8500 East State Street, Rockford,
Illinois, on April 21, 1998, at 11:00 a.m., Central Time or at any adjournment
thereof.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX ON
THE REVERSE SIDE.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE> 24
- --------------------------------------------------------------------------------
SUNDSTRAND CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
<TABLE>
<CAPTION>
<S><C>
This Proxy will be voted in accordance
with the directions given. The Board of
Directors recommends a vote "FOR" Proposal 1. FOR ALL
If no choice is indicated, this Proxy FOR WITHHOLD (Except Nominee(s)
will be voted "FOR" Proposal 1. ALL ALL written below) 2. In their discretion, the proxies
/ / / / / / are authorized to vote upon such
1. ELECTION OF DIRECTORS-- other business as may properly
Nominees: Ward Smith, J.P. Bolduc, come before the meeting or any
Gerald Grinstein and Robert H. Jenkins adjournment thereof.
- -------------------------------------------------
The undersigned hereby
acknowledges receipt of the
1998 Notice of Annual
Meeting and Proxy Statement.
Signature(s)
------------------
------------------------------
(Please sign your name exactly
as imprinted. In case of
multiple or joint ownership,
all should sign. Persons
signing in a Fiduciary
capacity should include their
position.)
Dated: 1998
-----------------,
</TABLE>
- --------------------------------------------------------------------------------
/ \ FOLD AND DETACH HERE / \
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
