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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FirstEnergy Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
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[LOGO of FirstEnergy]
NOTICE OF
ANNUAL MEETING
OF SHAREHOLDERS
AND
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 29, 1999
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TABLE OF CONTENTS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS................................... 1
PROXY STATEMENT............................................................ 2
ANNUAL MEETING AND VOTING INFORMATION...................................... 2
BOARD OF DIRECTORS INFORMATION............................................. 4
ITEMS TO BE VOTED UPON..................................................... 5
BIOGRAPHICAL INFORMATION ON NOMINEES AND DIRECTORS......................... 10
SECURITY OWNERSHIP TABLE................................................... 13
SUMMARY EXECUTIVE COMPENSATION TABLE....................................... 14
LONG-TERM INCENTIVE PLAN TABLE--AWARDS IN 1998............................. 15
STOCK OPTIONS GRANTED IN 1998.............................................. 15
AGGREGATED STOCK OPTIONS EXERCISED IN 1998 AND
STOCK OPTION VALUES AT DECEMBER 31, 1998.................................. 16
SEVERANCE AGREEMENTS....................................................... 16
EXECUTIVE RETIREMENT PLAN.................................................. 16
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.............. 17
SHAREHOLDER RETURN--PERFORMANCE COMPARISON GRAPHS.......................... 20
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Holders of Shares of Common Stock:
You are invited to attend the 1999 Annual Meeting of Shareholders. The
meeting will be held at 10 a.m. on April 29, 1999, at the John S. Knight
Center, 77 E. Mill Street, Akron, Ohio. The purpose of the meeting will be to:
. Elect three members of the Board of Directors for a term of three years;
. Ratify the appointment of Arthur Andersen LLP as our auditors for 1999;
. Vote on two shareholder proposals, if properly presented at the Annual
Meeting; and
. Take action on other business that may properly come before the meeting.
After reading the accompanying proxy statement, please mark, sign and date
your proxy card and return it in the enclosed envelope to assure your
representation at the meeting.
On behalf of the Board of Directors,
Nancy C. Ashcom
Corporate Secretary
March 22, 1999
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March 22, 1999
PROXY STATEMENT
ANNUAL MEETING AND VOTING INFORMATION
Why am I receiving this proxy statement and proxy card?
You are receiving a proxy statement and proxy card because you were the
owner of shares of common stock of FirstEnergy Corp. (later referred to as the
Company) at the close of business on March 11, 1999. This date is the record
date which was set to determine which shareholders are entitled to vote at the
Annual Meeting (later referred to as the Meeting). This proxy statement
describes issues for you to vote upon and gives you other information about
the Company and its management.
The address of the Company is 76 S. Main Street, Akron, Ohio 44308-1890. The
main subsidiaries of the Company are its four electric utility operating
companies--Ohio Edison, and its subsidiary, Pennsylvania Power, The
Illuminating Company and Toledo Edison. In addition, the Company has several
energy-related services companies.
How do I vote?
You can either vote in person at the Meeting or you can sign, date and mail
your proxy card in the enclosed envelope. If you are a registered shareholder
and your envelope is misplaced, you can send your signed and dated proxy card
to our proxy tabulator at the following address: FirstEnergy Corp., c/o The
Corporation Trust Company, P. O. Box 631, Wilmington, Delaware 19899-9953.
Please use this address only for the purpose of returning your proxy card. If
your shares are held by a broker and your envelope is misplaced, you should
call your broker.
We urge you to vote on each item by marking an (X) in the appropriate boxes
on the proxy card. If you sign and return your proxy card but do not specify
your choices, your shares will be voted as recommended by your Board of
Directors (later referred to as the Board). The Board recommends that you vote
"For" the three nominees to the Board of Directors who are listed in this
proxy statement; "For" the ratification of Arthur Andersen LLP as our
independent auditors; and "Against" both shareholder proposals.
What is a quorum and what other voting information should I be informed of?
We expect to mail the proxy statement and proxy card about March 26. As of
the record date, 236,728,687 shares of common stock were issued and
outstanding. A majority of these shares, represented at the Meeting either in
person or by proxy, constitutes a quorum. A quorum is required to conduct
business at the Meeting. You are entitled to one vote for each share that you
owned on the record date. All shares represented at the Meeting are counted
for the purpose of determining a quorum, without regard to abstentions or
broker non-votes.
If your shares are held by a broker in the broker's name, we encourage you
to provide instructions to your broker by executing the proxy card supplied to
you by the broker. Your broker is permitted to vote your shares on some
matters without your instructions. However, there are some matters on which
the broker cannot vote unless you provide instructions. In that case, your
failure to give voting instructions means that your shares will not be voted
on that item. These non-voted shares are referred to as broker non-votes.
An item to be voted upon may require a percent of votes cast to determine
passage or failure. Votes cast is defined to include both for and against
votes, and excludes abstentions and broker non-votes.
If your proxy card is not voted properly, such as marking more than one box
for an item of business, your vote for that particular item will be treated as
an abstention.
You do not have rights of appraisal if you are a dissenting shareholder in
connection with any item presented.
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You may revoke your proxy card at any time before it is voted at the Meeting
by either sending a revised proxy card dated later than the first; voting in
person at the Meeting; or notifying the Corporate Secretary of the Company in
writing prior to the Meeting.
How are proxy cards being solicited and what is the cost?
The Board is soliciting your vote. We have arranged for the services of
Innisfree M&A Incorporated to solicit proxy cards personally or by telephone,
mail or other electronic means for a fee not to exceed $10,000 plus
reimbursement of expenses. Proxy cards also may be solicited in a similar
manner, without additional compensation, by the officers and employees of the
Company. The Company will pay all solicitation costs, including any
reimbursements to brokers and banks for postage and expenses incurred by them
for sending proxy material to beneficial owners of stock.
Will any other matters be voted upon other than those described in this proxy
statement?
We do not know of any business that will be considered other than the
matters described in this proxy statement. However, if any other matters are
properly presented, your signed proxy card will give authority to the
appointed Proxies to vote on those matters at their discretion, unless you
indicate otherwise.
Do I need an admission ticket to attend the Annual Meeting?
No. An admission ticket is not necessary. However, shareholders are asked to
register upon arrival at the Meeting. While not required, we do ask that
shareholders planning to attend the Meeting mark the appropriate box on their
proxy card to help us prepare for the Meeting.
If your shares are held in the name of a broker and not registered on our
records, upon arrival at the Meeting you will need to present a letter from
your broker indicating ownership of FirstEnergy common stock on the record
date of March 11, 1999.
Where do I find the voting results of the Meeting?
We will announce the preliminary voting results at the Meeting, and we will
publish the final voting results in our second quarter Form 10-Q report which
is filed with the Securities and Exchange Commission. Also, we will provide a
summary of the Meeting in our Midyear Report to Shareholders.
When are shareholder proposals for the year 2000 Annual Meeting due?
A shareholder who wishes to offer a proposal for inclusion in the Company's
proxy statement and proxy card for the year 2000 Annual Meeting should submit
the proposal and any supporting statement to the Corporate Secretary at the
Company's principal office by November 23, 1999. Any proposal received after
that date will not be eligible for inclusion in the year 2000 proxy statement
and proxy card.
A shareholder who wishes to offer a proposal for consideration at the year
2000 Annual Meeting after November 23, 1999, and who wants the proposal
referenced in the Company's proxy statement, may do so by submitting the
proposal to the Corporate Secretary at the Company's principal office by
February 10, 2000. However, in order to actually raise the matter at the
meeting, the shareholder also will have to comply with the notice provisions
contained in the Company's Code of Regulations.
How can I learn more about the operations of the Company?
You can learn more about the operations of the Company by reviewing the
Annual Report to Shareholders for the year ended December 31, 1998. The Annual
Report either is included with the mailing of this proxy statement, or it was
mailed separately before the mailing of this proxy statement.
You can also request a copy of our Form 10-K Annual Report filed with the
Securities and Exchange Commission. We will send this report to you, without
charge, upon written request to Nancy C. Ashcom, Corporate Secretary,
FirstEnergy Corp., 76 S. Main Street, Akron, Ohio 44308-1890.
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BOARD OF DIRECTORS INFORMATION
What function does your Board of Directors perform?
Your Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of your Company. However,
the Board is not involved in day-to-day operations. The directors are kept
informed of the Company's business by various reports and documents sent to
them each month, as well as by operating and financial presentations made at
Board and committee meetings by Company management. The Board has established
committees, which are described below, to assist it in performing its
responsibilities.
How many meetings did the Board hold in 1998?
Your Board held 12 meetings during 1998. All directors attended 75% or more
of the meetings held in 1998 by the Board and committees of which they are
members.
What committees have the Board of Directors established?
The Board has established the committees listed below. All committees are
comprised of non-employee directors. The Biographical Information On Nominees
And Directors section includes committee memberships.
Audit Committee
This five member committee meets with management, financial personnel,
internal auditors and the independent public accountants to consider the
adequacy of the internal controls of the Company and the objectivity of
financial reporting. The Audit Committee recommends to the Board the
appointment of the Company's independent public accountants, subject to
ratification by shareholders at the Annual Meeting. The committee also reviews
the results of management's programs to monitor compliance with the Company's
policies on business ethics and risk management. Both the internal auditors
and the independent public accountants periodically meet alone with the Audit
Committee and always have unrestricted access to the committee. The Audit
Committee met four times in 1998.
Compensation Committee
This five member committee's primary duties are to determine the appropriate
salaries for the chief executive officer and president and to recommend them
to the Board; to discuss salary levels for all other officers with the chief
executive officer; and to maintain an orderly relationship of compensation for
officers which is compatible with industry standards for comparable companies.
The Compensation Committee met five times in 1998.
Finance Committee
This four member committee's primary duties are to monitor the Company's
requirements for funds and financial market conditions; to consult with the
officers of the Company on these matters; and to make recommendations to the
Board. The Finance Committee met once in 1998.
Nominating Committee
This four member committee advises and makes recommendations to the Board
concerning possible candidates to fill vacancies on the Board and reviews the
qualifications of candidates recommended by others. The committee will
consider nominees recommended by shareholders. These recommendations must be
submitted in writing to the committee, in care of the Corporate Secretary of
the Company, at least six months prior to the date of the Annual Meeting.
Shareholder recommendations should be accompanied by a description of the
proposed nominee's qualifications and other relevant biographical information,
together with the written consent of the proposed nominee to be named in the
proxy statement and to serve on the Board. This committee also administers the
Company's Corporate Governance Guidelines. The Nominating Committee met four
times in 1998.
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Nuclear Committee
This three member committee is authorized and directed to monitor and make
recommendations to both management and the Board regarding nuclear matters,
including the operation of all nuclear units in which any subsidiary of the
Company has an ownership interest or other output entitlement. The Nuclear
Committee met five times in 1998.
What is the compensation of directors?
A director who is an employee of the Company receives no compensation for
serving as a director. Directors who are not employees receive an annual
retainer consisting of $20,000 in cash and 750 shares of the Company's common
stock; $1,000 for each Board and committee meeting which they attend; and
reimbursement for expenses related to attending meetings. In addition, the
chairman of each committee receives an additional annual retainer of $2,500.
Directors may elect to defer all or a portion of their retainers and meeting
fees. Of the funds deferred, all or a portion may be deferred into a
FirstEnergy common stock account. Funds deferred into the stock account are
increased by 20% at the time of deferral. Dividends on shares in this account
are reinvested. Payouts are in FirstEnergy common stock. The 20% increase and
any attributable dividends are forfeited if the director leaves the Company
within three years from the date of deferral for any reason other than death,
retirement or disability.
ITEMS TO BE VOTED UPON
Item 1--Election of Directors
You are being asked to vote for Willard R. Holland, Russell W. Maier, and
Jesse T. Williams, Sr. to serve on the Board of Directors for three years.
The Board of Directors currently consists of 12 members divided into three
groups. Three nominees will be elected at this Annual Meeting to serve for a
three-year term. The remaining directors will continue to serve as indicated
in the Biographical Information On Nominees And Directors section, with five
directors having terms expiring in 2000 and four directors having terms
expiring in 2001.
Under the Company's Code of Regulations, at any election of directors, the
persons receiving the greatest number of votes are elected to the vacancies to
be filled. Your Board has no reason to believe that the persons nominated will
not be available to serve after being elected. If any of these nominees would
not be available to serve for any reason after being elected, shares
represented by the appointed Proxies will be voted either for a lesser number
of directors or for another person selected by the Board. However, if the
inability to serve is believed to be temporary in nature, the shares
represented by the appointed Proxies will be voted for that person who, if
elected, will serve when he is able to do so.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ITEM 1.
Item 2--Ratification of the Appointment of Auditors
You are being asked to ratify the appointment of Arthur Andersen LLP as our
auditors for 1999. Ratification requires the favorable vote of a majority of
the votes cast.
Your board has appointed Arthur Andersen LLP, independent public
accountants, as auditors to examine the books and accounts of the Company for
the year 1999. They have performed the annual audit for this Company since it
became a holding company in 1997, and performed the annual audits of its
utility subsidiaries for many years prior to that time. Their representative
is expected to attend the meeting and will have an opportunity to make a
statement and respond to appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ITEM 2.
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Item 3--Shareholder Proposal
You are being asked to vote on the shareholder proposal discussed below.
Adoption of the proposal requires the affirmative vote of 80% of the shares
entitled to vote at the meeting.
A shareholder has indicated that he will again present a proposal at this
year's Annual Meeting that was soundly defeated by shareholders last year.
This proposal seeks to change the process by which the Company's Board of
Directors is elected.
Currently, the Board is divided into three groups, with one group standing
for election each year. This assures that there will always be directors who
are fully familiar with the business of the Company and the issues that it
faces. Having a portion of the directors elected each year tends to cause
corporate raiders--whose first priority is their own short-term gain--to
negotiate an agreement which takes into account the interests of all
shareholders.
Your Board of Directors continues to believe that the current method of
electing directors makes good business sense. The shareholder argues that the
present system protects poor performance. Your Board believes that its
performance has increased shareholder value and helped the Company become a
stronger competitor. However, if shareholders ever become unhappy with the
performance of the Board, that message will be heard loud and clear if
incumbent directors are not re-elected. The change that the shareholder is
asking you to approve will not accomplish any useful purpose. It is a change
that should not be made.
The shareholder's attack on the commitment and impartiality of certain
directors is uncalled for and his assertions have no bearing on what he is
asking you to approve. Your directors place the good of the Company and its
shareholders first and foremost in their minds when they fulfill their duties.
The directors continue to increase their stake in the Company through the
purchase of common stock. Your Board of Directors has confidence that you will
not be distracted by the unwarranted attacks on individual directors. The
Board encourages you to vote AGAINST the proposal.
The following is the complete text of the proposal as submitted. The
proponent's name, address and number of shares held will be furnished upon
written or oral request.
--Beginning of Shareholder Proposal--
"RESOLVED
ELECT THE ENTIRE BOARD OF DIRECTORS EACH YEAR with an independent lead
director: FirstEnergy shareholders request the Board of Directors take all
necessary steps accordingly to amend the company's governing instruments
including, including but not limited to, the corporate by-laws.
This includes the requirement that a majority vote of outstanding shares,
voting on a single issue, is required to change this resolution after
enactment.
SUPPORTING STATEMENT
It is intuitive that, directors accountable through annual election, perform
better. The current piecemeal director election gives directors 3-years of
protection from the consequences of poor performance. With a 3-year lock-out
on voting for each director, FirstEnergy's 12 directors are protected. The
burden of poor performance falls on FirstEnergy's 220,000 stockholders.
Annual reviews for directors, through election, is particularly important
because directors do not depend on FirstEnergy for their livelihood. Yet their
commitment and independence impacts the financial security of 220,000
FirstEnergy shareholders.
This resolution received a substantial 33% approval at the 1998 FirstEnergy
shareholder meeting. This was the resolution's first submittal to FirstEnergy
shareholders.
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FirstEnergy performance will be enhanced if shareholders can vote annually on
Directors that show signs of:
. Lack of commitment and dedication
. Conflict of interest
What evidence is there that directors lack commitment and to FirstEnergy and
have conflicts of interest?
1) These directors own approximately 1500 shares each (per the 1998 proxy):
. Carter
. Maier
. Cartwright
. Conway
. Powers
. Savage
Contrast this to AT&T:
AT&T CEO Michael Armstrong requires directors to invest in AT&T's performance.
Directors required to raise their stock holdings to 8,000 shares each.
-----
USA Today Dec. 19, 1997
2) These directors have outside commitments that impact their service to
FirstEnergy:
. Maier A cross-director with Cartwright -- on Republic board
. Cartwright A cross-director with Maier -- on Republic board
. Powers Challenged with 3 outside board seats
. Cartwright (again) Attended less than 75% of FirstE meetings
. Carter Part-owner in a company that sells to FirstEnergy
Corporate governance experts say cross-directors tend to look out for each
others' interest, rather than those of shareholders.
Business Week March 9, 1998
3) CalPERS argued that board members who stay on for a decade or more should no
longer be considered independent, Business Week, Sept. 15, 1997
. Loughead 19-year FirstEnergy board veteran
. Meadows 18-year FirstEnergy board veteran
"To allow fresh ideas" the National Association of Corporate Directors
guidelines said: Consider limits on length of director service to 10-15 years.
What news reports highlight the need for a dedicated, conflict-free directors?
We don't recommend this stock.
Under deregulation, FirstEnergy has the most exposure to unfavorable
legislative treatment.
FirstEnergy rates are much higher than rates of other Ohio utilities.
Value Line July 10, 1998
FirstEnergy Corp. ranked 4 in Timeliness. Lowest rank is 5.
Value Line Oct. 9, 1998
The Business Week Nov. 25, 1996 Cover Story said for the Best Board:
"PLACE THE ENTIRE BOARD UP FOR ELECTION EVERY YEAR."
Yes on 3"
--End of Shareholder Proposal--
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" ITEM 3.
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Item 4--Shareholder Proposal
You are being asked to vote on the shareholder proposal discussed below.
Adoption of the proposal requires the affirmative vote of a majority of the
votes cast.
This shareholder proposal seeks to restrict severance arrangements, which
the shareholder calls "Golden Parachutes", that the Company may provide its
executive officers.
The term "Golden Parachute" commonly refers to excessively generous
severance benefits. This term dates back to the early 1980s when it was used
in connection with a hostile takeover attempt involving a major oil company.
In 1984, Congress addressed the problem by adopting amendments to the Internal
Revenue Code that prevent corporations from deducting the cost of excessive
severance benefits and impose a 20 percent, non-deductible excise tax on the
recipients of excessive benefits.
Your Board of Directors believes that the use of the term "Golden
Parachutes" to refer to the Company's severance arrangements is unwarranted.
It implies that they are excessive, but they are not. The Company's existing
severance agreements with its executive officers are described on page 16 of
this proxy statement and would not result in excessive payments under current
tax rules. Nevertheless, the same agreements, if entered into in the future,
would require time-consuming and costly shareholder approval if the proposal
is adopted.
Severance arrangements are commonly used as an important tool for attracting
and retaining high-quality executives. Reasonable arrangements enable
executives to avoid being preoccupied with their own futures when a possible
merger arises. Instead, executives are able to concentrate on achieving
maximum shareholder value in the transaction. None of the arguments stated by
the shareholder in support of the proposal apply to reasonable severance
arrangements. In November 1998, the Investor Responsibility Research Center, a
non-profit institution based in Washington, DC, reported that a 1996 study of
1,095 major U.S. corporations by Executive Compensation Reports found that 57
percent provided for severance pay-outs to executives when there is a change
of control situation.
As we stated earlier in this proxy statement, your Board of Directors places
the good of the Company and its shareholders first and foremost in their minds
when they fulfill their duties. Your Board believes that the existing
severance arrangements with executive officers are not excessive. The Board's
approval of these agreements included a comparison to other responsible
companies' agreements. Any future severance agreements will also be subject to
Board approval before they are finalized. There is no reason to inhibit the
Board's flexibility by requiring that future severance agreements also be
approved by the shareholders at an annual meeting. Your Board of Directors
recommends that you vote AGAINST the proposal.
The following is the complete text of the proposal as submitted. The
proponent's name, address and number of shares held will be furnished upon
written or oral request.
--Beginning of Shareholder Proposal--
"RESOLVED:
Executive Severance Pay or benefits, also known as Golden Parachutes, totaling
more than one-year of base salary listed in the annual proxy statement on page
16 must be approved by a majority of stockholders as a separate issue for vote
at the annual shareholder meeting. This applies solely to future contractual
obliagions.
The "one-year of base salary" parachute limit includes all forms of pay and
benefits, but is not limited to cash, stock, options and benefits. The "100%
of base salary" parachute limit includes current pay and deferred pay.
This resolution includes the provision that no severance pay is given for a
merger agreement with less than 50% change in control. No severance pay is
given for a merger that is not completed or is aborted before completion.
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Golden Parachutes are generous severance agreements given to executives in
the event of a merger. Golden parachutes need reasonable limits in light of
the substantial pay executives already receive.
The recent merger of Ohio Edison and Centerior Energy resulted in
substantial Golden Parachutes for Centerior executives. Centerior executives
essentially got paid generously for getting fired from FirstEnergy, the
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successor to their under-performing Centerior company.
. Centerior Energy Corp.'s top 5 executives will receive $7 million in
severance packages.
. Ohio Edison chairman William Holland [now FirstEnergy CEO] to receive
$2-million if he loses his job.
Crain's Cleveland Business Feb. 17, 1997
Recent news reports highlight the need for reasonable limits on Golden
Parachutes, including:
. Please fire me:
. Many Hollywood executives find the fastest way to wealth is getting fired.
Los Angeles Times Nov. 19, 1998
Reasonable golden parachutes limits are needed, particularly in view of the
fact that:
. A conflict of interest is created when executives are guaranteed special pay
for a future merger of acquisition.
. Such awards provide management with a personal incentive to perform their
duties in a way detrimental to shareholder interests.
. While management's first priority is to maximize shareholder value.
. Actions that might temporarily restrain the growth of FirstEnergy may make
the company more attractive as a target of a buy-out that is later aborted.
. Management may also be tempted to support a merger or acquisition proposal
without seeking a better deal for shareholders.
What incidents highlight issues that need immediate attention at FirstEnergy?
. After 2 plants unexpectedly shut down--
$111 million toll extracted from FirstEnergy during June heat-wave.
Cleveland Plain Dealer July 7, 1998
. FirstEnergy suffered huge losses from buying power on the open market during
recent heat wave.
. Losses will result in much lower earnings.
New York Times July 7, 1998
To maximize shareholder value give shareholders:
Opportunity to Vote on Golden Parachutes
Yes on 4"
--End of Shareholder Proposal--
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" ITEM 4.
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BIOGRAPHICAL INFORMATION ON NOMINEES AND DIRECTORS
Nominees for Election as Directors
Terms expiring in the Year 2002:
[PHOTO] Willard R. Holland -- Chairman of the Board and Chief
Executive Officer of the Company since 1997, and of
Pennsylvania Power since 1993. Chairman of the Board and
Chief Executive Officer from 1996-1997, and President and
Chief Executive Officer from 1993-1996 of Ohio Edison.
Age 62. He is also a Director of Ohio Edison, The
Illuminating Company, Toledo Edison and A. Schulman, Inc.
Director of the Company since 1997 and Director of Ohio
Edison since 1991.
[PHOTO] Russell W. Maier -- Retired in 1998 as Chairman of the
Board and Chief Executive Officer (a position held since
1989) of Republic Engineered Steels, Inc., a specialty
bar producer. Age 62. Director of the Company since 1997
and Director of Ohio Edison from 1995-1997.
Committees: Compensation, Nuclear
[PHOTO] Jesse T. Williams, Sr. -- Retired in 1998 as Vice
President of Human Resources Policy, Employment Practices
and Systems (a position held since 1996) of The Goodyear
Tire & Rubber Company, a manufacturer of tires and
rubber-related products. Vice President, Human Resources
Policy and Employment Practices from 1995-1996 and Vice
President, Compensation and Employment Practices from
1993-1995 of The Goodyear Tire & Rubber Company. Age 59.
Director of the Company since 1997 and Director of Ohio
Edison from 1992-1997.
Committees: Audit, Nominating
Other Members of the Board
Terms expiring in the Year 2000:
[PHOTO] H. Peter Burg -- President and Chief Operating Officer
since 1998 of the Company, and President of Ohio Edison,
The Illuminating Company and Toledo Edison since 1997.
President and Chief Financial Officer from 1997-1998 of
the Company. President, Chief Operating Officer and Chief
Financial Officer from 1996-1997, and Senior Vice
President and Chief Financial Officer from 1989-1996 of
Ohio Edison. Age 52. He is also a Director of Ohio
Edison, The Illuminating Company, Toledo Edison and
Pennsylvania Power. Director of the Company since 1997
and Director of Ohio Edison since 1989.
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[PHOTO] Dr. Carol A. Cartwright -- President since 1991 of Kent
State University. Age 57. She is also a Director of M.A.
Hanna Company and KeyCorp. Director of the Company since
1997 and Director of Ohio Edison from 1992-1997.
Committees: Finance, Nominating
[PHOTO] William F. Conway -- President since 1994 of William F.
Conway & Associates, Inc., a management consulting firm.
Executive Vice President-Nuclear from 1989-1994 of
Arizona Public Service Company. Age 68. He is also a
Director of Northeast Utilities System. Director of the
Company since 1997 and Director of Centerior Energy from
1994-1997.
Committees: Audit, Nuclear
[PHOTO] Paul J. Powers -- Chairman of the Board and Chief
Executive Officer since 1987 of Commercial Intertech
Corp., a hydraulic components and metal components
manufacturer, and Chairman of the Board of CUNO, Inc. Age
64. He is also a Director of Global Marine Inc. and Twin
Disc, Incorporated. Director of the Company since 1997
and Director of Ohio Edison from 1992-1997.
Committees: Compensation, Finance
[PHOTO] George M. Smart -- Chairman of the Board and President
since 1993 of Phoenix Packaging Corporation, a
manufacturer of easy-opening lids. Age 53. He is also a
Director of Commercial Intertech Corp. Director of the
Company since 1997 and Director of Ohio Edison from 1988-
1997.
Committees: Audit, Finance
11
<PAGE>
Terms expiring in the Year 2001:
[PHOTO] Robert B. Heisler, Jr. -- President since 1997 of Key
Capital Partners, an investment management, capital
markets, brokerage, private banking and insurance group.
Group Executive Vice President of KeyCorp since 1997.
President and Chief Executive Officer from 1995-1996 of
Society National Bank. Age 50. Director of the Company
since 1998.
Committees: Compensation, Nominating
[PHOTO] Robert L. Loughhead -- Retired in 1987 as Chairman of the
Board, President and Chief Executive Officer of Weirton
Steel Corporation, a manufacturer of steel products. Age
69. Director of the Company since 1997 and Director of
Ohio Edison from 1980-1997.
Committees: Audit, Compensation
[PHOTO] Glenn H. Meadows -- Retired in 1986 as President and
Chief Executive Officer of McNeil Corporation, a
manufacturer of industrial and automotive lubrication
systems, pumps, swimming pool chemicals and equipment.
Age 69. Director of the Company since 1997 and Director
of Ohio Edison from 1981-1997.
Committees: Audit, Compensation, Nuclear
[PHOTO] Robert C. Savage -- President and Chief Executive Officer
since 1973 of Savage & Associates, Inc., an insurance,
financial planning and estate planning firm. Age 61.
Director of the Company since 1997 and Director of
Centerior Energy from 1990-1997.
Committees: Finance, Nominating
12
<PAGE>
SECURITY OWNERSHIP TABLE
The following table shows shares of stock beneficially owned as of December
31, 1998, by each director and nominee; the executive officers named in the
Summary Executive Compensation Table; all directors and executive officers as
a group; and all owners of more than five percent of any class of the
Company's voting securities. It also shows the deferred common stock
equivalents credited as of December 31, 1998, to executive officers
participating in the Executive Incentive Compensation Plan.
<TABLE>
<CAPTION>
Number of Common
Shares Beneficially Stock
Name of Beneficial Owner Class of Stock Owned(1) Equivalents(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
H. Peter Burg Common 11,788 20,119
Dr. Carol A. Cartwright Common 2,713
William F. Conway Common 1,988
Robert B. Heisler, Jr. Common 1,058
Willard R. Holland Common 9,595 59,751
Robert L. Loughhead Common 3,564
Russell W. Maier Common 3,219
Glenn H. Meadows Common 4,247
Paul J. Powers Common 2,431
Robert C. Savage Common 2,239
George M. Smart Common 3,556
Jesse T. Williams, Sr. Common 2,952
Anthony J. Alexander Common 33,665 13,726
Earl T. Carey Common 3,674 9,773
John A. Gill Common 3,871 8,891
All Directors & Executive Officers as
a Group Common 115,681 126,658
State Street Bank and Trust Company(3) Common 15,713,960(6.6%)
Barrow, Hanley, Mewhinney & Strauss,
Inc.(4) Common 13,366,294(5.6%)
</TABLE>
(1) Beneficially owned shares include any shares with respect to which the
person has or shares voting or investment power. The percentage of shares
beneficially owned by any director or nominee, or by all directors and
executive officers as a group, does not exceed one percent of the class
owned.
(2) Common stock equivalents represent the cumulative number of performance
shares credited to each executive officer as of December 31, 1998. The
value of these performance shares is measured in part by the market price
of the Company's common stock. Performance shares do not have voting
rights or other rights associated with ownership of common stock.
(3) State Street Bank and Trust Company (225 Franklin Street, Boston, MA
02110) is Trustee under the Company's Savings Plan which holds 15,713,960
shares (6.6%) of the Company's common stock. It has sole voting power with
respect to 3,410,716 of these shares, shares voting power with respect to
12,053,700 of these shares, and has no voting power with respect to
249,544 of these shares; and it has sole investment power with respect to
3,964,130 of these shares and shares investment power with respect to
11,749,830 of these shares.
(4) Barrow, Hanley, Mewhinney & Strauss, Inc. (3232 McKinney Avenue, 15th
Floor, Dallas, TX 75204), an investment advisor, holds 13,366,294 shares
(5.6%) of the Company's common stock. It has sole voting power with
respect to 3,614,400 of these shares and shares voting power with respect
to 9,751,894 of these shares; and it has sole investment power with
respect to all of these shares.
13
<PAGE>
SUMMARY EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------
Awards Payouts
--------------------- ----------
Annual Compensation Securities Long-Term
Name and -------------------------- Restricted Underlying Incentive All Other
Principal Position Year Salary Bonus(4) Other(1) Stock(2) Options Plan(3)(4) Compensation(5)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Willard R. Holland 1998 $733,921 $159,354 $3,017 $0 51,187 $1,023,378 $151,474
Chairman of the 1997 587,246 289,543 566 0 0 179,596 86,347
Board and Chief 1996 516,658 213,197 630 0 0 62,099 72,307
Executive Officer
H. Peter Burg 1998 $503,136 $ 85,969 $4,255 $0 32,012 $ 283,171 $ 37,332
President and Chief 1997 342,134 148,085 2,589 0 0 69,980 27,122
Operating Officer 1996 246,858 66,756 4,733 0 0 44,841 25,165
Anthony J. Alexander 1998 $367,899 $ 91,119 $3,089 $618,750 18,925 $ 228,695 $ 25,918
Executive Vice 1997 282,234 99,392 1,988 0 0 46,810 15,650
President and General 1996 232,533 53,500 1,930 0 0 30,865 14,223
Counsel
John A. Gill 1998 $260,688 $ 67,027 $3,097 $0 8,796 $ 170,153 $ 41,993
Senior Vice President 1997 213,474 43,545 1,701 0 0 40,466 28,953
1996 202,133 58,335 2,229 0 0 27,161 24,655
Earl T. Carey 1998 $249,055 $ 56,957 $2,878 $0 7,543 $ 101,592 $ 13,483
Vice President 1997 215,708 43,264 213 0 0 0 9,598
1996 194,604 43,702 220 0 0 0 8,619
</TABLE>
(1) Consists of reimbursement for income tax obligations on Executive
Indemnity Program premium and on perquisites.
(2) Reflects the dollar value of restricted common stock award, determined by
multiplying the number of shares awarded by the closing market price of
the Company's common stock on the date of the award. The total number of
all restricted stock holdings and values at December 31, 1998, determined
by multiplying the total number of restricted shares by the closing market
price of the Company's common stock on December 31, 1998, is as follows:
Alexander - 20,000 shares ($651,250). Dividends are paid on
restricted stock.
(3) These amounts represent cash payouts of awards granted in prior years
under the Executive Incentive Compensation Plan.
(4) Includes amounts deferred into the Executive Deferred Compensation Plan.
Amounts deferred into the stock account feature of this Plan are increased
by 20% at the time of deferral and are treated as though invested in
FirstEnergy common stock with a dividend reinvestment feature. The final
payout of the deferred amounts is in FirstEnergy common stock. Any value
not attributable to the dollar amount actually deferred by an executive is
forfeited if he or she resigns or is terminated for cause prior to the
scheduled payout date.
(5) For 1998, amount is comprised of (1) matching Company common stock
contributions under the tax qualified Savings Plan: Holland-$5,887; Burg-
$5,765; Alexander-$5,761; Gill-$2,502; Carey-$5,761; (2) the current
dollar value of the Company's portion of the premiums paid in 1998 for
insurance policies under the Executive Supplemental Life Plan: Holland-
$50,847; Burg-$9,115; Alexander-$10,817; Gill-$2,449; Carey-$7,659; (3)
above market interest earned under the Executive Deferred Compensation
Plan: Holland-$94,740; Burg-$20,228; Alexander-$7,921; Gill-$35,673;
Carey-$58; and (4) a portion of the Executive Indemnity Program premium
reportable as income: Holland-$0; Burg-$2,224; Alexander-$1,419;
Gill-$1,369; Carey-$5.
14
<PAGE>
LONG-TERM INCENTIVE PLAN TABLE--AWARDS IN 1998
<TABLE>
<CAPTION>
Estimated Future Payouts Under
1998 Target Performance or Non-Stock Price Based Plan
Long-Term Other Period -------------------------------------
Incentive Until Maturation Below
Name Opportunity or Payout Threshold Threshold Target Maximum
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. R. Holland $500,354 3 years $0 $250,177 $500,354 $963,181
H. P. Burg $286,432 3 years $0 $143,216 $286,432 $551,382
A. J. Alexander $203,496 3 years $0 $101,748 $203,496 $391,730
J. A. Gill $ 98,350 3 years $0 $ 49,175 $ 98,350 $189,324
E. T. Carey $ 98,315 3 years $0 $ 49,147 $ 98,315 $189,256
</TABLE>
Three-year opportunities are provided to executives. Awards are based upon
corporate and business unit performance compared to preset financial and
operational targets deemed to have importance in creating shareholder value,
as well as upon FirstEnergy's total shareholder return from January 1, 1998,
through December 31, 2000, compared to other investor-owned utilities. All
goals are reviewed and approved by the Compensation Committee of the Board at
the start of the three-year measurement period. Actual awards will range from
$0 for performance that is below threshold, 50% of target for performance at
threshold, 150% of target for outstanding operational performance and 200% of
target for outstanding financial performance that directly enhances
shareholder value. However, an executive must work at least twelve months
during the three-year period to be eligible for an award payout. The final
award payout, if any, will be paid to the executive in cash early in the year
2001.
The maximum, target and threshold amounts will be earned if the Company's
total shareholder return ranks in the top 10%, 34% and 59%, respectively,
relative to the Edison Electric Institute's Index of Investor-Owned Electric
Utility Companies, and if the Company attains selected levels of achievement
in earnings per share, merger savings, shareholder value added, and other
measures related to operational efficiencies and quality of service. Payout
results are based upon the attainment level of each measure which is
interpolated between threshold, target and maximum. Total payout is based on
the accumulation of the outcomes of the individual measures.
STOCK OPTIONS GRANTED IN 1998
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Number of % of Total
Securities Options Grant
Underlying Granted to Exercise Date
Options Employees in or Base Expiration Present
Name Granted Fiscal Year Price Date Value
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. R. Holland 51,187 27% $29.82 6/08/08 $238,020
H. P. Burg 32,012 17% $29.82 6/08/08 $148,856
A. J. Alexander 18,925 10% $29.82 6/08/08 $ 88,001
J. A. Gill 8,796 5% $29.82 6/08/08 $ 38,576
E. T. Carey 7,543 4% $29.82 6/08/08 $ 35,075
</TABLE>
The grant date present values are based upon the Black-Scholes option pricing
model using the following assumptions: stock volatility 0.155 (as measured
over the previous 250 trading days); risk-free rate of return 5.65%; dividend
yield 5.68%; and a 10-year term.
15
<PAGE>
AGGREGATED STOCK OPTIONS EXERCISED IN 1998 AND STOCK OPTION VALUES AT DECEMBER
31, 1998
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options at
Acquired Value December 31, 1998 December 31, 1998
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W. R. Holland 0 $0 0/51,187 $0/$140,380
H. P. Burg 0 $0 0/32,012 $0/$87,793
A. J. Alexander 0 $0 0/18,925 $0/$51,902
J. A. Gill 0 $0 0/8,796 $0/$24,123
E. T. Carey 0 $0 0/7,543 $0/$20,687
</TABLE>
SEVERANCE AGREEMENTS
In 1997, the Company entered into separate severance agreements with Willard
R. Holland, H. Peter Burg, Anthony J. Alexander and John A. Gill. These
agreements provide for the payment of severance benefits if the individual's
employment with FirstEnergy or its subsidiaries is terminated under specified
circumstances within three years after a change in control of FirstEnergy. A
change in control is generally defined as the acquisition of 50 percent or
more of the Company's outstanding common stock or certain mergers or other
business combinations. The agreements are intended to ensure that the
individuals are free from personal distractions in order to put in place the
best plan for shareholders when a change of control is occurring or perceived
as imminent. The principal severance benefits under each agreement include
payment of the following when the individual is terminated or resigns for good
reason, which is generally defined as a material change, following a change of
control, inconsistent with the individual's previous job duties or
compensation:
.the individual's base salary and accrued benefits through the date of
termination, including a pro-rata portion of the annual and all deferred
long-term incentive awards earned;
. 2.99 times the sum of the individual's base salary plus the average of
his annual incentive compensation awards over the past three years;
. Supplemental Executive Retirement Plan (SERP) benefits as follows: if the
individual is less than age 55 at termination, the benefit is calculated
as if he were age 55, offset by compensation earned from subsequent
employers until age 55, at which time it will then be offset by pension
benefits and, at age 62, further offset by social security payments; if
the individual is between age 55 and 62 at termination, the benefit is
calculated in accordance with the SERP and will be offset by social
security payments beginning at age 62; if the individual is age 62 or
more at termination, the benefit is calculated in accordance with the
SERP;
. continuation of group health and life insurance, as if the individual had
retired at the greater of his current age or age 55, and the greater of
his current years of service or actual years of service at age 55; and
. payment of legal fees and expenses as well as any excise taxes resulting
from the agreement.
The severance pay agreements have initial three-year terms and are renewed
automatically each year for an additional year unless expressly discontinued
by the Board. After a change in control, if the individual resigns, he is
prohibited for two years from working for or with competing entities.
EXECUTIVE RETIREMENT PLAN
The FirstEnergy System Supplemental Executive Retirement Plan is limited to
eligible senior executives as approved by the Compensation Committee of the
Board of Directors. At normal retirement, eligible senior executives, which
include all of the officers listed in the Summary Executive Compensation
Table, who have five or more years of service with the Company or its
subsidiaries are provided a retirement benefit. This benefit is equal to the
greater of 65 percent of the executive's highest annual salary, or 55 percent
of the average of the executive's highest three consecutive years of salary
plus annual incentive awards paid after January 1, 1996,
16
<PAGE>
and paid prior to retirement. The benefit is reduced by the executive's
pensions under tax-qualified pension plans of the Company or other employers,
any supplemental pension under the Company's Executive Deferred Compensation
Plan, and social security benefits. Subject to exceptions that might be made
in specific cases, senior executives retiring prior to age 65, or with less
than five years of service, or both, may receive a similar but reduced
benefit. This Plan also provides for disability and surviving spouse benefits.
As of the end of 1998, the estimated annual retirement benefits of the
executive officers listed in the Summary Executive Compensation Table at age
65 from these sources were: W. R. Holland-$477,049; H. P. Burg-$327,038; A. J.
Alexander-$239,134; J. A. Gill-$169,447; and E. T. Carey-$161,886.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
FirstEnergy's executive compensation program is administered by the
Compensation Committee (the "Committee") of the Board of Directors, which has
responsibility for all aspects of the compensation program for the executive
officers of the Company. The Committee is comprised of five directors listed
at the end of this report, none of whom is an employee of the Company, and
each of whom qualifies as a non-employee director for the purpose of Rule 16b-
3 under the Securities Exchange Act of 1934 and an outside director for the
purposes of Section 162(m) of the Internal Revenue Code (the "Code").
The Committee's primary objective is to establish and administer programs to
attract, retain, and motivate skilled and talented executives, and align their
compensation with the Company's performance, business strategies and growth in
shareholder value. Due to the recent merger and recognizing that regulatory
changes will cause the Company to operate in an increasingly competitive
environment, the Committee completed a comprehensive review of the Company's
executive compensation program with the assistance of an outside consultant.
As a result of this review, the Committee has established, and the Board of
Directors has endorsed, an executive compensation philosophy for FirstEnergy
which includes the following elements:
. A "pay-for-performance" orientation under which a significant portion of
total compensation reflects corporate, business unit and individual
performance;
. An emphasis on stock incentives to align closely the interests of
executives with the long-term interests of shareholders;
. An emphasis on total compensation under which base salaries and cash
incentives are targeted generally at or near median competitive levels in
the electric utility industry, but which provides opportunities,
including stock incentives, to achieve total compensation at 75th
percentile utility levels if corporate and individual performance are
both superior;
. An appropriate balance of short-term and long-term compensation which
facilitates retention of talented executives, rewards long-term strategic
results, and encourages FirstEnergy stock ownership; and
. Providing that a greater proportion of an executive's total compensation
opportunity be put at risk through stock and other performance
incentives, and less on salary and benefits, as an executive's level of
responsibility increases.
Recognizing that competitive compensation levels for senior executive
officers at a corporation the size of FirstEnergy may exceed the $1,000,000
deduction limit of Section 162(m) of the Code, it is the Company's policy to
structure executive compensation plans to maximize the deductibility of
executive compensation by minimizing the compensation subject to this limit.
As part of this policy, shareholders approved the FirstEnergy Corp. Executive
and Director Incentive Compensation Plan ("EDICP") in 1998.
1999 Executive Compensation Opportunities
The primary components of the Company's 1999 executive compensation program
will be (1) base salaries; (2) short-term and three-year cash incentive
opportunities; and (3) stock incentive opportunities.
Base Salaries
The base salary range for an executive will be market-based and will be
related to an evaluation of the responsibilities of his/her position. Base
salary ranges generally will be established at or near the median of
17
<PAGE>
salaries paid for comparable positions based upon compensation data compiled
by the Edison Electric Institute and other surveys of executive compensation
at publicly-held utilities with revenue levels comparable to the Company's.
Base salaries for executives will be reviewed annually and will be subject to
adjustment on the basis of individual, business unit and corporate
performance, and competitive market and internal equity considerations.
Cash Incentives
Short-term and three-year incentive opportunities will be provided to
executives. Awards will be based on corporate, business unit and individual
performance compared to preset financial and operational targets deemed to
have importance in creating shareholder value including FirstEnergy's total
shareholder return from January 1, 1999 through December 31, 2001, compared to
other investor-owned utilities. All goals will be reviewed and approved by the
Committee at the start of the measurement periods (both one-year and three-
year). Each participant in the short-term incentive plan will have a specific
target award opportunity between 20% and 45% of base salary and each
participant in the three-year portion of the plan will have a specific target
between 5% and 70% of base salary. Actual awards will range from $0 for
performance below threshold, 50% of target for performance at threshold, 150%
of target for outstanding operational performance and 200% of target for
outstanding financial performance that directly enhances shareholder value.
Awards may also be granted to an executive who demonstrates extraordinary
responsiveness to an unforeseen circumstance or who has a unique
accomplishment of special importance to the Company which was not recognized
during the normal goal setting process.
Stock Incentives
The Committee can designate employees as key employees and grant equity-
based incentives so that the personal interest of the key employee is linked
to the long-term financial success of the Company and growth in shareholder
value.
1998 Executive Compensation
The salary column in the Summary Executive Compensation Table (the "Table")
lists the 1998 base salaries of the named executive officers, including salary
deferred into the FirstEnergy Corp. Executive Deferred Compensation Plan (the
"Deferral Plan") and/or the FirstEnergy Savings Plan. In accordance with our
philosophy, executives received base salary increases in 1998 to place their
salaries at or near the median of salaries of comparable positions in similar-
sized electric utilities.
Under the 1998 Executive Incentive Compensation Plan (the "Incentive Plan"),
a target total incentive opportunity was established for an executive at the
beginning of 1998 which was then allocated into a target short-term incentive
opportunity and a target long-term incentive opportunity. As the level of an
executive's responsibility increased, both the portion of his/her total pay
opportunity that was put at risk and the portion that was tied to the long-
term return of FirstEnergy Corp. common stock increased. For Mr. Holland in
1998, 53% of his total cash compensation was put at risk in the form of
incentive compensation. This amounted to a target total incentive opportunity
of $822,010 of which $321,656 was allocated into a target short-term
opportunity, and $500,354 was allocated into a target long-term incentive
opportunity.
At the beginning of 1998, the Committee reviewed and approved a list of
measurable corporate financial and strategic goals to be used to establish
short-term and long-term objectives for executives participating in the
Incentive Plan. Each executive had a portion of his/her incentive award based
on the achievement of certain specific corporate financial goals of direct
benefit to the shareholder. Additional objectives established for any
executive were other financial or strategic goals from the list that the
executive directly affects or were other specific objectives that were
expected to contribute directly to the achievement of all goals. Actual awards
will range from $0 for performance that is below threshold, 50% of target for
performance at threshold, 150% of target for outstanding operational
performance and 200% of target for outstanding financial performance that
18
<PAGE>
directly enhances shareholder value. The long-term opportunity is based on
performance between January 1, 1998 and December 31, 2000, and will be paid out
in early 2001. The long-term program is described in the narrative under the
Long-Term Incentive Plan Table.
The Committee approved six short-term annual 1998 corporate financial and
strategic objectives for Mr. Holland. These objectives related to the
achievement of confidential target levels regarding earnings per share, merger
savings, shareholder value added, using shareholder value on investment in non-
regulated growth businesses, achieving a level of performance at FirstEnergy's
nuclear facilities as measured by an industry index, and customer service
excellence. These objectives were the basis of 25%, 25%, 20%, 10%, 10%, and
10%, respectively, of Mr. Holland's target annual incentive opportunity. Based
on the level of 1998 achievement of each of these objectives, Mr. Holland
received a short-term incentive award of $159,354. The short-term incentive
award paid to each of the other named executive officers in accordance with the
Incentive Plan is listed in the Bonus column of the Table. The awards include
amounts deferred into the Deferral Plan.
The Committee approved seven long-term 1998 corporate financial and strategic
objectives for Mr. Holland. These objectives related to the achievement of
confidential target levels regarding total shareholder return relative to the
Edison Electric Institute's Index of Investor-Owned Electric Companies (the
"Index"), merger savings, shareholder value added, earnings per share, customer
service excellence, adding increased shareholder value from non-regulated
growth businesses, and achieving a level of performance at FirstEnergy's
nuclear facilities as measured by an industry index. These objectives were the
basis of 40%, 25%, 10%, 10%, 5%, 5%, and 5%, respectively, of Mr. Holland's
target long-term incentive opportunity.
Consistent with the Company's compensation philosophy, in June 1998, the
Committee approved the grant of non-qualified stock options to key executives.
The stock options are 10-year options at a price of $29.82 per share, which was
the Fair Market Value at the time of the grant. The options can be exercised
after four years. Mr. Holland received 51,187 stock options. The grants for
other named executive officers are listed in the Stock Options Granted in 1998
Table.
The Committee also approved the award of 20,000 shares of restricted stock to
Anthony J. Alexander. The restrictions on these shares will lapse in blocks of
5,000 shares on July 1 of 2002, 2003, 2004, and 2005. The preceding schedule
relative to the lapse of restrictions is based upon Mr. Alexander's continued
employment with the Company. If Mr. Alexander terminates his employment with
the Company for reasons other than death, disability, or certain involuntary
reasons, Mr. Alexander will forfeit any shares on which the restrictions have
not lapsed.
In accordance with the Incentive Plan in effect in 1994, Messrs. Holland,
Burg, Alexander, Gill and Carey were required to defer 50% of their 1994 annual
incentive award into the Common Stock Equivalent Account for four years from
1995 through 1998. The terms and conditions of this long-term deferral were
reported in the Ohio Edison Company Proxy Statement for that year. In early
1999, their 1994 Account value was based on an annualized 22.5% total return
for the Company's common stock during this period, a second quintile total
return ranking relative to the Index and a second quintile ranking of the
Company's price change to residential customers relative to a peer group of
twenty electric utilities selected from this Index.
In accordance with the Incentive Plan in effect in 1995, Messrs. Holland,
Burg, Alexander, Gill and Carey received a Common Stock Equivalent grant with a
term of four years from 1995 through 1998. The terms and conditions of this
long-term grant were reported in the Ohio Edison Company Proxy Statement for
that year. In
early 1999, their 1995 Account was valued based on an annualized 22.5% total
return for the Company's common stock during this period and a 26th percentile
total return ranking relative to the Index.
The long-term incentive awards paid to Messrs. Holland, Burg, Alexander, Gill
and Carey, in accordance with the prior Incentive Plans, are listed in the
Long-Term Compensation Payouts column of the Table.
Compensation Committee: Robert L. Loughhead, Chairman
Glenn H. Meadows Russell W. Maier
Paul J. Powers Robert B. Heisler, Jr.
19
<PAGE>
SHAREHOLDER RETURN--PERFORMANCE COMPARISON GRAPHS
The following graphs show the total annual return earned from an investment
in FirstEnergy Common Stock (Ohio Edison Common Stock prior to the merger on
November 8, 1997) compared with the total annual returns earned in the Edison
Electric Institute's Index of Investor-Owned Electric Utility Companies
(referred to below as the EEI Index) and the Standard & Poor's 500 Index of
widely held common stocks (referred to below as the S&P 500 Index). The top
graph shows the total annual returns by year. The bottom graph provides the
cumulative value of a $100 investment on December 31, 1993. Total return
represents stock price changes plus the reinvestment of dividends in the
stock.
[Graph Appears Here]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
FirstEnergy $100 $88.08 $119.68 $124.14 $168.64 $198.57
EEI Index $100 $88.43 $115.86 $117.24 $149.33 $170.07
S&P 500 Index $100 $101.32 $139.40 $171.40 $228.58 $293.91
</TABLE>
20
<PAGE>
[Logo FirstEnergy]
76 South Main St.
Akron, Ohio 44308-1890
- --------------------------------------------------------------------------------
Nancy C. Ashcom
Corporate Secretary
March 22, 1999
Dear Shareholder:
You are invited to attend FirstEnergy's Annual Meeting of Shareholders at
the John S. Knight Center in Akron, Ohio, at 10 a.m. on Thursday, April 29.
Directions to the Knight Center are on the back of this letter.
At the meeting, we will review the Company's performance in 1998 and
discuss our plans for the future. You also will have the opportunity to ask
questions about our operations or business strategies.
You will be voting on four items of business. These items are explained
in the enclosed proxy statement. In addition to the election of three members
to your Board of Directors and the ratification of auditors, you will be voting
on two shareholder proposals. Your Board of Directors recommends that you vote
against both shareholder proposals, which are Items 3 and 4 on the proxy card.
- -------
Please take time to review the proxy statement and then mark your vote on
the proxy card below. After you sign and date your proxy card, please return it
in the enclosed postage-paid envelope.
Your participation and support are important to us as we develop our plans
for success in the future. We hope you can join us at this year's meeting.
Sincerely,
/s/ Nancy C. Ashcom
TEAR HERE
Vote by marking an (X) in the appropriate boxes. When properly executed, your
proxy card will be voted in the manner you direct and, if you do not specify
your choices, your proxy card will be voted FOR Items 1 and 2, and AGAINST Items
3 and 4.
- -------------------------------------------------------------------------------
Your Board of Directors recommends a vote FOR Items 1 and 2.
- -------------------------------------------------------------------------------
1. Election of 3 Directors for 3-year term FOR [ ] WITHHOLD [ ]
Nominees: Williard R. Hollard, Russell W. Maier, Jesse T. Williams, Sr.
FOR, except withhold vote from following nominees:
-------------------------
2. Ratification of Auditors FOR [ ] AGAINST [ ] ABSTAIN [ ]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Your Board of Directors recommends a vote AGAINST Items 3 and 4.
- -------------------------------------------------------------------------------
3. Shareholder Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Shareholder Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
- -------------------------------------------------------------------------------
[ ] To help us in our planning for the meeting, please check this box if
you expect to attend the meeting in person.
Sign below as name(s) appear on this proxy card. If signing for a corporation or
partnership or as an agent, attorney or fiduciary, indicate the capacity in
which you are signing.
X
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X
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Date
<PAGE>
[MAP] [MAP]
[Logo FirstEnergy]
This Proxy Card is Solicited by the Board of Directors for the
Annual Meeting of Shareholders at the John S. Knight Center,
77 E. Mill Street, Akron, Ohio, on Thursday, April 29, 1999,
at 10 a.m., Eastern Time. P
R
The undersigned appoints Nancy C. Ashcom and Edward J. Udovich as Proxies
with the power to appoint their substitute; authorizes them to represent and O
to vote, as directed on the reverse side, all the shares of common stock of
FirstEnergy Corp. which the undersigned would be entitled to vote if X
personally present at the Annual Meeting of Shareholders to be held on April
29, 1999, or at any adjournment; and authorizes them to vote, in their Y
discretion, upon such other business that may properly come before the
meeting.
You are urged to specify your choices by marking the appropriate boxes on the
REVERSE SIDE, but you do not need to mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations.
SIGN THIS CARD ON THE REVERSE SIDE
Please sign and mail promptly to ensure your representation at the meeting.
<PAGE>
[Logo FirstEnergy]
76 South Main St.
Akron, Ohio 44308-1890
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Nancy C. Ashcom
Corporate Secretary
March 22, 1999
Dear Savings Plan Participant:
We encourage you to vote your Savings Plan shares on the business items
that will be presented at our Annual Meeting of Shareholders on Thursday, April
29. For the first time, we are offering you the opportunity to vote your Plan
shares by telephone. We hope that you will take advantage of this quick and
easy means of voting.
You will be voting on four business items, including two shareholder
proposals. Your Board of Directors recommends that you vote Against both
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shareholder proposals, which are Items 3 and 4 on your voting form.
Your Board of Directors also recommends that you vote For Item 1, the
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election of three directors, and For Item 2, the ratification of the appointment
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of auditors.
Please review the enclosed proxy statement. Then vote your shares by either:
(1) Calling toll-free on a touch-tone telephone -- 1-888-216-1289
OR
(2) Completing, signing, dating and returning your voting form in
the envelope provided.
Your vote on these business items is very important to us and we urge you to
vote as soon as possible. If you have any questions, call Investor Services at
1-800-736-3402. Thank you for your continued support.
Sincerely,
/s/ Nancy C. Ashcom
<PAGE>
YOU MAY VOTE BY TELEPHONE TOLL-FREE
OR BY COMPLETING AND MAILING THIS VOTING DIRECTION FORM
Voting by phone is easy, and you can vote 24 hours a day and 7 days a week. Have
this form available when you call the toll-free number. Then, just enter your
control number and follow the simple prompts that will be presented to you.
If you prefer to vote by mail, complete, sign and date this form and return
it in its entirety to the Trustee in the postage-paid envelope provided.
Do not return this form if you vote by telephone.
Call Toll-Free
on a Touch-Tone Phone:
1-888-216-1289
Enter the following Control Number:
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FirstEnergy Corp. Savings Plan
Voting Direction Form
FirstEnergy Annual Meeting of Shareholders - April 29, 1999
To: State Street Bank and Trust Company,
Trustee of the FirstEnergy Corp. Savings Plan
As a participant in the FirstEnergy Savings Plan, I direct State Street
Bank and Trust Company, Trustee, to vote, as directed below, shares of
FirstEnergy common stock which are allocated to my account, and also my
proportionate number of shares which have not been allocated to participants or
for which no direction forms are received, at the Annual Meeting of Shareholders
on April 29, 1999, or at any adjournment, and in its discretion it is
authorized to vote upon any other business that may properly come before the
meeting.
Indicate your direction by making an (X) in the appropriate boxes below. If no
directions are indicated, the shares represented by this signed direction form
will be voted as your Board of Directors recommends, which is FOR Items 1 and 2,
and AGAINST Items 3 and 4.
ALLOCATED SHARES:
- ---------------------------------------------------
YOUR BOARD RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
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Item 1. Election of 3 Directors for 3-year term:
FOR [ ] [ ] WITHHOLD
all nominees listed authority to vote
below (except as for all nominees
printed to the listed below
contrary below)
Nominees: W. R. Holland, R. W. Maier, J. T. Williams, Sr.
INSTRUCTION: To withhold authority to vote for any
individual nominee, print that nominee's name on the
following line.
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Item 2. Ratification of auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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YOUR BOARD RECOMMENDS A VOTE AGAINST ITEMS 3 AND 4.
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Item 3. Shareholder Proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 4. Shareholder Proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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SIGNATURE. Sign as name appears above.
UNALLOCATED SHARES (Proportion to be determined.)
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YOUR BOARD RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
- ---------------------------------------------------
Item 1. Election of 3 Directors for 3-year term:
FOR [ ] [ ] WITHHOLD
all nominees listed authority to vote
below (except as for all nominees
printed to the listed below
contrary below)
Nominees: W. R. Holland, R. W. Maier, J. T. Williams, Sr.
INSTRUCTION: To withhold authority to vote for any
individual nominee, print the nominee's name on the
following line.
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Item 2. Ratification of auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- ---------------------------------------------------
YOUR BOARD RECOMMENDS A VOTE AGAINST ITEMS 3 AND 4.
- ---------------------------------------------------
Item 3. Shareholder Proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 4. Shareholder Proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Date -------------------------------------, 1999
To assure your representation at the meeting, please sign and mail promptly in
the enclosed, postage-paid envelope to State Street Bank and Trust Company,
Box 1997 G.P.O., New York, N.Y. 10117-0024
