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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
EATON CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
E. R. FRANKLIN
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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[EATON COVER ARTWORK]
ANNUAL MEETING OF SHAREHOLDERS
EATON
1994
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NOTICE OF
MEETING
PROXY
STATEMENT
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NOTICE OF MEETING
The 1994 annual meeting of Eaton Corporation shareholders will be held
Wednesday, April 27, at 10:30 A.M. local time at The Forum Conference and
Education Center, One Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio
44114, for the purpose of:
1. Electing directors;
2. Adopting Amended Articles of Incorporation to increase the authorized number
of common shares from 150 million to 300 million;
3. Ratifying the appointment of independent auditors; and
4. Considering reports and such other business, including a shareholder
proposal, as may properly come before the meeting.
These matters are more fully described in the following pages.
The record date for the meeting has been fixed by the Board of Directors as the
close of business on February 28, 1994. Shareholders of record at that time are
entitled to vote at the meeting.
By order of the Board of Directors
Earl R. Franklin
Secretary
March 18, 1994
Your Vote Is Important
To vote your shares, please indicate your choices, sign and date the enclosed
proxy card and return it in the accompanying postage-paid envelope. You will
save your company the expense of a second mailing by returning your proxy card
promptly.
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CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROXY STATEMENT ........................ 3
Proxy Solicitation ..................... 3
Voting at the Meeting .................. 3
Election of Directors .................. 4
Board Committees ....................... 9
Transactions with Associates of Eaton
Directors, Nominees and Executive
Officers ............................. 10
Compensation of Directors .............. 10
Executive Compensation ................. 11
Adoption of Amended Articles of
Incorporation ........................ 25
Ratification of the Appointment of
Independent Auditors ................. 26
Shareholder Proposal ................... 26
Other Business ......................... 28
Ownership of Outstanding Voting
Shares................................ 28
Future Shareholder Proposals ........... 29
</TABLE>
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PROXY STATEMENT
EATON CORPORATION
Eaton Center
Cleveland, Ohio 44114-2584
(216) 523-5000
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This proxy statement and the accompanying proxy form are scheduled to be sent to
shareholders on March 18, 1994. Eaton's annual report for the year ended
December 31, 1993 is scheduled to be mailed to shareholders beginning March 16,
1994.
PROXY SOLICITATION
Eaton's Board of Directors solicits your proxy, in the form enclosed, for use at
the 1994 annual meeting of shareholders and at any adjournments thereof. The
persons appointed by the enclosed form of proxy have advised the Board that it
is their intention to vote at the meeting in compliance with instructions on all
forms of proxy tendered by shareholders and, where no contrary instruction is
indicated on the proxy form, for the election of the persons nominated to serve
as directors, for adoption of the Amended Articles of Incorporation, for
ratification of the appointment of Ernst & Young as independent auditors and
against the shareholder proposal. These matters are described in the following
sections of this proxy statement.
Any shareholder giving a proxy in the form enclosed has the power to revoke it
by giving Eaton written notice before the meeting or by revoking it at the
meeting. All properly executed proxies not revoked will be voted at the meeting.
In addition to soliciting proxies through the mail, certain employees may
solicit proxies in person or by telegraph and telephone. Eaton has retained
Morrow & Co., Inc., 909 Third Avenue, New York, New York 10022, to assist in the
solicitation of proxies, primarily from brokers, banks and other nominees, for a
fee estimated at $7,000. Brokerage firms, nominees, custodians and fiduciaries
may be requested to forward proxy soliciting material to the beneficial owners
of shares of record. All reasonable soliciting costs will be borne by Eaton.
VOTING AT THE MEETING
Each Eaton shareholder of record at the close of business on February 28, 1994
is entitled to one vote for each share then held. On February 28th, 72,388,454
Eaton common shares (par value, 50c each) were outstanding and entitled to vote.
At the 1994 annual meeting, in accordance with Ohio law and Eaton's Amended
Regulations, the inspectors of election appointed by the Board of Directors for
the annual meeting will determine the presence of a quorum and will tabulate the
results of shareholder voting. As provided by Ohio law and Eaton's Amended
Regulations, Eaton shareholders present in person or by proxy at the 1994 annual
meeting will constitute a quorum for such meeting. The inspectors of election
intend to treat properly executed proxies marked "abstain" as "present" for
these purposes. The inspectors will also treat as "present" shares held in
"street name" by brokers that are voted on at least one proposal to come before
the 1994 annual meeting.
Director nominees receiving the greatest number of votes will be elected
directors. Votes withheld in respect of the election of directors will not be
counted in determining the outcome of the election. Adoption of all other
proposals to come before the 1994 annual meeting will require the affirmative
vote of the holders of a majority of the outstanding Eaton common
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shares, which requirement is consistent with the general vote requirement in
Eaton's Amended Articles of Incorporation. The practical effect of this vote
requirement will be that abstentions and shares held in "street name" by brokers
that are not voted in respect of such proposals will be the same as votes
against such proposals.
As provided by Ohio law, each shareholder is entitled to cumulative voting
rights in the election of directors if any shareholder gives written notice to
the President or a Vice President or the Secretary of Eaton at least 48 hours
before the time fixed for the meeting, stating that cumulative voting is
desired, and if an announcement of such notice is made at the beginning of the
meeting by the Chairman or Secretary, or by or on behalf of the shareholder who
gave the notice. If cumulative voting is in effect with respect to an election
of directors, each shareholder then has the right to cumulate his or her voting
power by giving one nominee that number of votes which equals the number of
directors to be elected multiplied by the number of the shareholder's votes, or
by distributing his or her votes on the same principle among two or more
nominees, as he or she sees fit. In the event that cumulative voting is in
effect with respect to an election of directors, the persons named in the proxy
will vote the shares represented by the proxy cumulatively for such of the
nominees as they may in their discretion determine, except that no votes with
respect to any proxy will be cumulated for any nominee for whom the shareholder
executing the proxy has directed that his or her vote be withheld.
1. ELECTION OF DIRECTORS
The Board of Directors is presently composed of thirteen members. The terms of
five directors will expire in April, 1994, and those directors have been
nominated for re-election. Three of the nominees were elected at the 1991 annual
meeting; one was elected at the 1992 annual meeting; and the fifth nominee,
Alexander M. Cutler, was elected by the Board on September 22, 1993 (see pages 5
and 6).
Arthur Dole III, a director since 1969, having attained the normal retirement
age, will resign as director at the conclusion of the annual meeting of
shareholders on April 27. Victor A. Pelson has been nominated to fill the
vacancy thus created, and Henry T. Yang has been nominated for election to a
term ending April, 1995 (see page 6). Following the annual meeting, the Board of
Directors will be composed of fourteen members.
Should any of the nominees become unable or decline to serve, the persons named
in the enclosed proxy shall have discretionary authority to vote for
substitutes. Management, however, has no reason to believe that this will occur.
Company policy calls for normal retirement of non-employee directors at age 68.
Non-employee directors are expected to serve until the annual shareholders
meeting following their 68th birthday.
Following is biographical information about each nominee and each director
continuing in office.
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NOMINEES FOR ELECTION TO TERMS ENDING IN 1997 AND UNTIL THEIR SUCCESSORS ARE
ELECTED AND HAVE QUALIFIED:
<TABLE>
<S> <C> <C> <C>
ALEXANDER M. CUTLER, PHYLLIS B. DAVIS, 62, STEPHEN R. HARDIS, 58, HOOPER G. PATTILLO, 67,
42, is Executive Vice is former Senior Vice is Vice Chairman and is Chairman of the
President and Chief President, Corporate Chief Financial and Board and President of
Operating Officer -- Affairs of Avon Administrative Officer the Pattillo
Controls of Eaton Products, Inc., a of Eaton Corporation. Construction Company,
Corporation. He joined manufacturer and Mr. Hardis served as Inc., an industrial
Cutler-Hammer, Inc. in marketer of cosmetics, Executive Vice construction and
1975, which was toiletries and jewelry. President -- Finance development company. He
subsequently acquired Mrs. Davis joined Avon and Administration has occupied those
by Eaton, and became in 1968, advanced to prior to April, 1986. positions since 1952.
President of Eaton's Group Vice President He joined Eaton in He is a director of
Industrial Group in (U.S.) in 1977 and was 1979. Mr. Hardis is a John Harland Company,
1986. Mr. Cutler was head of its sales and director of First Union Protective Life
named President of the distribution from 1985 Realty Investment Corporation, Simpson
Controls Group in 1989 to 1988. She became Trust, Nordson Paper Company, SunTrust
and Executive Vice Corporate Senior Vice Corporation, Banks, Inc. and the
President -- Operations President of Business Progressive Corporation Trust Company of
in 1991. He was elected Development in 1989 and and KeyCorp. Georgia.
to his current served as Senior Vice DIRECTOR SINCE 1983 DIRECTOR SINCE 1979
position in September, President, Corporate
1993. Affairs from
DIRECTOR SINCE 1990 until her
SEPTEMBER, 1993 retirement
in September, 1991.
Mrs. Davis is a
director of BellSouth
Corporation
and The TJX Companies,
Inc., and a trustee of
various open-end mutual
funds in the Fidelity
Group.
DIRECTOR SINCE 1991
</TABLE>
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NOMINEES FOR ELECTION TO TERMS ENDING AS INDICATED BELOW AND UNTIL THEIR
SUCCESSORS ARE ELECTED AND HAVE QUALIFIED:
<TABLE>
<S> <C> <C>
GARY L. TOOKER, 54, is VICTOR A. PELSON, 56, HENRY T. YANG, Ph.D.,
Vice Chairman and Chief is Executive Vice 53, is Dean of Schools
Executive Officer of President of AT&T and of Engineering and
Motorola, Inc., a Chairman of AT&T's Armstrong Distinguished
manufacturer of Global Operations Team. Professor of
electronics equipment. Mr. Pelson began his Engineering at Purdue
Mr. Tooker joined career with AT&T in University. Dr. Yang
Motorola in 1962 and 1959 and has served in joined Purdue in 1969.
advanced to the many executive He serves on the Board
position of Senior positions, most of Space Industries
Executive Vice recently as Group International, Inc., on
President and Chief Executive and President the Pratt & Whitney
Corporate Staff Officer responsible for AT&T's Technical Advisory
in 1986. He became Communications Services Committee of United
Chief Operating Officer Group. He is a director Technologies
in 1988, President in of AT&T, as well as a Corporation and on the
1990 and Vice Chairman member of its Academic Advisory Board
and Chief Executive Management Executive of the National Academy
Officer in December, Committee, and a of Engineering.
1993. director of United TERM ENDING 1995
DIRECTOR SINCE 1992 Parcel Service.
TERM ENDING 1997 TERM ENDING 1996
</TABLE>
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DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL, 1995:
<TABLE>
<S> <C> <C> <C>
NEIL A. ARMSTRONG, 63, WILLIAM E. BUTLER, 63, A. WILLIAM REYNOLDS, JOHN S. RODEWIG, 60, is
is former Chairman of is Chairman and Chief 60, is Chairman and President of Eaton
Computing Technologies Executive Officer of Chief Executive Officer Corporation and Chief
for Aviation, Inc., a Eaton Corporation. Mr. of GenCorp Inc., a Operating Officer --
computer systems Butler joined Eaton in technology-based Vehicle Components. Mr.
company, a position he 1957, becoming company with positions Rodewig served as
held from 1982 until President of the in aerospace, Operations Vice
1992. He is a director Automotive Components automotive and polymer President for Truck
of Cincinnati Gas & Group in 1979 and products. Mr. Reynolds' Components -- Europe
Electric Company, President and Chief association with from 1979 and in 1989
Cincinnati Milacron, Operating Officer in GenCorp began in advanced to Vice
Inc., RMI Titanium Co., 1989. He was elected September, 1984, as President -- Truck
Thiokol Corporation, President and Chief President and Chief Components Worldwide. He
UAL Corporation and USX Executive Officer in Operating Officer. He was elected President of
Corporation. September, 1991 and became Chief Executive the Truck Components
DIRECTOR SINCE 1981 became Chairman and Officer in August, 1985 Group in January, 1991,
Chief Executive Officer and Chairman in was named President-
in January, 1992. Mr. January, 1987. Mr. Elect and Chief
Butler is a director of Reynolds is a director Operating Officer in
Bearings, Inc., Ferro of Boise Cascade September, 1991 and
Corporation, Pitney Corporation and assumed the presidency
Bowes Inc. and Zurn Chairman of the Federal in January, 1992. He was
Industries, Inc. Reserve Bank of elected to his present
DIRECTOR SINCE 1989 Cleveland. position in September,
DIRECTOR SINCE 1987 1993. He has been
associated with Eaton
since 1956. Mr. Rodewig
is a director of Hayes
Wheels International,
Inc. and FKI plc.
DIRECTOR SINCE 1992
</TABLE>
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DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL, 1996:
<TABLE>
<S> <C> <C>
CHARLES E. HUGEL, 65, JOHN R. MILLER, 56, is FURMAN C. MOSELEY, 59,
is former Chairman and President and Chief is Chairman of Simpson
Chief Executive Officer Executive Officer of Paper Company, having
of Combustion TBN Holdings Inc., a been elected to that
Engineering, Inc., a company engaged in the position in 1969. He is
provider of products acquisition of also President of
and services for the environmental companies Simpson Investment
power, process, primarily in the Company, holding
automation, resource recovery and company for Simpson
environmental control recycling business. He Paper and Simpson
and other markets. Mr. was President, Chief Timber Company. Mr.
Hugel became President Operating Officer and a Moseley is a director
and Chief Executive director of The of Owens-Corning
Officer of Combustion Standard Oil Company Fiberglas Corporation.
Engineering, Inc., in from August, 1980 DIRECTOR SINCE 1975
April, 1984 and through March, 1986.
Chairman and Chief Mr. Miller formerly
Executive Officer in served as Chairman of
July, 1988. He was the Federal Reserve
Chairman of Asea Brown Bank of Cleveland and
Boveri Inc. from is a director of
January, 1990 to American Waste
February, 1991 and, Services, Inc., ManGill
until his retirement in Chemical and Summit
December, 1991, was Environmental Group,
advisor to the Chief Inc.
Executive Officer. Mr. DIRECTOR SINCE 1985
Hugel is a director of
Pitney Bowes Inc.
DIRECTOR SINCE 1978
</TABLE>
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BOARD COMMITTEES: Eaton's Board of Directors has standing Audit, Compensation,
Executive, Finance, Organization and Nominating and Pension Review Committees.
AUDIT COMMITTEE. The functions of the Audit Committee include aiding directors
in fulfilling the Board's responsibility for the quality of financial reporting,
meeting with the Company's director of internal audits to review the annual
internal audit plan and, subsequently, the results thereof, receiving and
considering management recommendations regarding the appointment of independent
auditors, meeting with the independent auditors and management to review the
scope of and the plan for the annual audit and, subsequently, to review the
results of the audit, reviewing any significant changes in accounting policies,
reviewing the annual financial statements, serving as the auditors' access to
the Board (for both internal and independent auditors) and providing oversight
with respect to matters of business ethics. The Audit Committee held three
meetings in 1993. The present members are Mrs. Davis and Messrs. Dole, Hugel,
Pattillo and Reynolds.
COMPENSATION COMMITTEE. The functions of the Compensation Committee include
recommending to the Board of Directors the salary of each elected officer and
the retainer and attendance fees for non-employee directors, increasing or
decreasing the incentive compensation pools generated under the corporate
Executive Incentive Compensation Plan by up to 10%, establishing and determining
the attainment of performance objectives under the Company's long-term incentive
plans, administering stock option plans, reviewing compensation and benefit
plans as they relate to key employees to determine that they remain equitable
and competitive, as well as developing a program to analyze and recommend such
plans for the long range, and evaluating the performance of the Chief Executive
Officer. The Compensation Committee held five meetings in 1993. The present
members are Messrs. Armstrong, Dole, Hugel, Miller and Moseley.
EXECUTIVE COMMITTEE. The functions of the Executive Committee include all of the
functions of the Board of Directors other than the filling of vacancies in the
Board of Directors or in any of its committees. The Executive Committee acts
upon matters requiring Board action during the intervals between Board meetings.
It did not meet in 1993. Messrs. Butler, Rodewig, Hardis and Cutler are members
for the full twelve-month term; each of the other directors serves a four-month
term.
FINANCE COMMITTEE. The functions of the Finance Committee include the periodic
review of Eaton's financial condition and the recommendation of financial
policies, analyzing Company policy regarding its debt-equity relationship,
reviewing and making recommendations regarding the Company's dividend policy,
reviewing the Company's cash flow, proposals for long-and short-term debt
financing and the risk management program. The Finance Committee held three
meetings in 1993. The present members are Messrs. Armstrong, Hardis, Miller,
Moseley and Tooker.
ORGANIZATION AND NOMINATING COMMITTEE. The functions of the Organization and
Nominating Committee include recommending and attracting qualified candidates as
director nominees, recommending the number of directors to serve for each
ensuing year, reviewing and recommending changes in the function and
responsibility of each of the Board's committees, reviewing the evaluation of
the performance of each officer (excluding the Chief Executive Officer),
reviewing the succession planning for key officer positions, reviewing proposed
organization or responsibility changes at the officer level and recommending the
candidate to assume the position of Chief Executive Officer should the position
become vacant due to unforeseen circumstances. The
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Organization and Nominating Committee held three meetings in 1993. The present
members are Messrs. Armstrong, Butler, Dole, Hugel, Miller and Moseley.
The Organization and Nominating Committee will consider persons for nomination
to stand for election as directors who are recommended to it in writing by any
Eaton shareholder. Any shareholder wishing to submit a recommendation to the
committee for consideration as a nominee for election at the annual meeting of
shareholders to be held in 1995 should send a signed letter of recommendation,
to be received before November 4, 1994, to the following address: Eaton
Corporation, Eaton Center, Cleveland, Ohio 44114-2584, attention Corporate
Secretary. Recommendation letters must state the reasons for the recommendation
and contain the full name and address of each proposed nominee as well as a
brief biographical history setting forth past and present directorships,
employments, occupations and civic activities. Any such recommendation should be
accompanied by a written statement from the proposed nominee giving consent to
be named as a candidate and, if nominated and elected, to serve as a director.
PENSION REVIEW COMMITTEE. The functions of the Pension Review Committee include
periodically meeting with management pension committees and any other
fiduciaries appointed by the Board, reviewing their performance and reporting to
the Board suggested modifications to employee pension or profit-sharing
retirement plans. The committee may retain the services of consultants to assist
in the performance of its duties and responsibilities. The Pension Review
Committee held one meeting in 1993. The present members are Mrs. Davis and
Messrs. Hugel, Pattillo, Reynolds and Tooker.
The Board of Directors held eleven meetings in 1993. All of the directors
attended at least 75% of the meetings of the Board and its committees except for
Mr. Moseley and Mr. Tooker, who attended 71% and 73% of such meetings,
respectively. Attendance at meetings of the Board and its committees as a whole
averaged 92%.
TRANSACTIONS WITH ASSOCIATES OF EATON DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS: In the ordinary course of business during 1993, Eaton made purchases
from AT&T, of which Victor A. Pelson is Executive Vice President and Chairman of
the Global Operations Team, in the amount of approximately $9,591,000; from
GenCorp Inc., of which A. William Reynolds is Chairman and Chief Executive
Officer, in the amount of approximately $3,153,000; and from Motorola, Inc., of
which Gary L. Tooker is Vice Chairman and Chief Executive Officer, in the amount
of approximately $2,070,000. Also during 1993, in the ordinary course of
business, sales were made to AT&T in the amount of approximately $12,088,000;
and to Motorola, Inc. in the amount of approximately $4,586,000. The
transactions described in this paragraph were, in the opinion of management,
made on terms as favorable as those obtainable from non-associated parties.
COMPENSATION OF DIRECTORS: Employee directors are not compensated for their
services as directors. Non-employee directors receive an annual retainer of
$25,000, a fee of $1,000 for each Board meeting and each Board committee meeting
attended and a fee of $1,000 for each special presentation attended on non-Board
meeting days. If, however, a meeting of the Organization and Nominating
Committee and a meeting of the Compensation Committee are attended on the same
day, then the non-employee director receives only one committee meeting fee for
both meetings. Non-employee directors who are chairmen of Board committees
receive an additional annual retainer of $3,000, except for the chairman of the
Audit Committee, who receives an annual retainer of $5,000.
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Non-employee directors may elect to defer payment of all or part of their
compensation as directors. Interest on the deferred payments generally is
calculated at the rate specified in the directors' deferred compensation
agreements. The rate of interest for any particular director is based upon the
number of years until the normal retirement date and, in general, is higher than
prevailing market rates of interest. Deferred amounts and accrued interest
normally are paid in installments commencing upon the director's retirement.
However, if determined by a committee of the Board, or, upon the occurrence of a
proposed change in control of the Company (unless otherwise determined by such
committee), the present value of the deferred amounts and future interest will
be paid in a lump sum. A "proposed change in control" means the date upon which
the Company agrees to sell substantially all of its assets, the date that Board
membership changes by at least 25% in any two-year period (without approval of
the continuing directors), or twenty days after (a) the commencement of a tender
offer for 25% or more of the Company's shares, (b) the commencement of a merger
solicitation or (c) the acquisition of 15% of the Company's shares.
In connection with serving on the Board of Directors of a subsidiary of the
Company, Mr. Armstrong received $28,000 from the subsidiary for attendance fees
and annual retainers for 1993. During 1993, he was granted by the subsidiary
10,000 "phantom" stock options under which cash payments may be provided based
upon any increases in the book value per common share of the subsidiary.
Upon leaving the Board, non-employee directors with at least five years of
service are eligible to receive an annual retirement benefit equal to the annual
retainer in effect at the time such directors leave the Board. Directors having
fewer than five years but more than one year of Board service at the time of
their Board retirement receive a proportionately reduced annual benefit. The
annual benefit is paid for the lesser of ten years or life. The present value of
payments under this plan will be paid in a lump sum upon a proposed change in
control of the Company as defined above, unless otherwise determined by a
committee of the Board.
EXECUTIVE COMPENSATION: The following table summarizes the total compensation of
the Chief Executive Officer and the four other most highly compensated executive
officers of Eaton for fiscal years 1993, 1992 and 1991.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
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AWARDS PAYOUTS
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ANNUAL COMPENSATION STOCK LONG-TERM ALL OTHER
NAME AND PRINCIPAL ------------------------------ OPTIONS INCENTIVE COMPENSATION
POSITION YEAR SALARY BONUS (SHARES) PAYOUTS (1)
<S> <C> <C> <C> <C> <C> <C>
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W. E. Butler 1993 $633,925 $634,623 43,100 $160,000 $241,317
Chairman and Chief 1992 585,020 374,817 43,100 160,000 108,808
Executive Officer 1991 464,490 -0- 31,700 100,000 20,931
J. S. Rodewig 1993 $399,190 $373,406 31,700 $ 57,500 $ 72,786
President and Chief 1992 344,445 240,646 31,700 57,500 28,486
Operating Officer -- 1991 264,349 -0- 17,000 38,750 19,085
Vehicle Components
S. R. Hardis 1993 $453,000 $348,045 23,600 $137,500 $250,447
Vice Chairman and 1992 434,000 205,186 23,600 137,500 107,655
Chief Financial and 1991 411,400 -0- 26,600 125,000 16,795
Administrative Officer
A. M. Cutler 1993 $354,360 $292,822 21,300 $ 92,500 $ 21,910
Executive Vice 1992 326,340 157,616 21,300 92,500 12,017
President and Chief 1991 271,760 -0- 17,000 77,500 13,329
Operating Officer --
Controls
G. L. Gherlein 1993 $283,680 $184,583 12,600 $ 57,500 $ 87,296
Executive Vice 1992 271,680 108,619 12,600 57,500 40,102
President and 1991 250,740 -0- 8,900 56,250 15,546
General Counsel
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</TABLE>
(1) All Other Compensation contains several components. The Eaton Corporation
Share Purchase and Investment Plan permits an employee to contribute amounts
ranging from 1% to 6% of his or her salary to the matching portion of the
plan. The Company makes a contribution which, except in special
circumstances, ranges between $.25 and $1.00 for each dollar contributed by
participating employees, as determined under a formula based on the
Company's quarterly earnings per common share. The amount the Company
contributed to the plan during 1993 for each of the named executive officers
was as follows: W. E. Butler, $9,301; J. S. Rodewig, $10,059; S. R. Hardis,
$10,285; A. M. Cutler, $10,394; and G. L. Gherlein, $11,885. The Company
maintains plans pursuant to which short-term and long-term incentive
compensation may be deferred. Under the current rules of the Securities and
Exchange Commission, earnings on such deferrals which are above rates
established by the Internal Revenue Service for various tax law purposes
must be disclosed in the Summary Compensation Table. The amount earned on
these deferrals during 1993, at rates of return which were higher than those
published by the Internal Revenue Service, for each of the named executive
officers was as follows: W. E. Butler, $182,289; J. S. Rodewig, $45,354; S.
R. Hardis, $222,679; A. M. Cutler, $726; and G. L. Gherlein, $61,987. The
Company maintains a program under which each executive officer may acquire
an automobile from the Company. The approximate cost to the Company of the
program for each of the named executive officers for 1993 was as follows: W.
E. Butler, $7,912; J. S. Rodewig, $7,720; S. R. Hardis, $9,728; A. M.
Cutler, $8,892; and G. L. Gherlein, $9,876. The Company also provides
certain executives, including the named executive officers, with the
opportunity to acquire individual whole-life insurance. The annual premiums
paid by the Company during 1993 for each of the named executive officers was
as follows: W. E. Butler, $41,815; J. S. Rodewig, $9,653; S. R. Hardis,
$7,755; A. M. Cutler, $1,898; and G. L. Gherlein, $3,548. Each executive
officer is responsible for paying individual income taxes due with respect
to the Company's automobile and insurance programs.
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AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES: The following table
contains information concerning the exercise of stock options during fiscal year
1993 and the value of unexercised stock options at the end of fiscal year 1993
with respect to the named executive officers.
<TABLE>
<CAPTION>
TOTAL VALUE OF
TOTAL NUMBER OF UNEXERCISED,
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES HELD AT HELD AT
ACQUIRED ON FISCAL YEAR END FISCAL YEAR END
EXERCISE VALUE ----------------------------- ----------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
W. E. Butler None $ None 194,898 -0- $6,169,476 $ 0
J. S. Rodewig None None 104,098 -0- 3,436,066 0
S. R. Hardis 4,604 139,684 117,800 -0- 3,711,972 0
A. M. Cutler 2,820 127,938 105,698 -0- 3,292,513 0
G. L. Gherlein 6,045 301,313 64,898 -0- 2,010,812 0
- --------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION GRANTS: The following table gives information concerning grants of stock
options made during fiscal year 1993 to each of the named executive officers.
No stock appreciation rights were granted during fiscal year 1993.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR OPTION TERM
OPTIONS IN FISCAL OR BASE EXPIRATION -------------------------------------
NAME GRANTED (#) YEAR(1) PRICE DATE 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
W. E. Butler 43,100 5.2% $39.34 01/27/03 $0 $ 1,068,199 $ 2,695,931
J. S. Rodewig 31,700 3.8% 39.34 01/27/03 0 785,659 1,982,854
S. R. Hardis 23,600 2.8% 39.34 01/27/03 0 584,907 1,476,194
A. M. Cutler 21,300 2.6% 39.34 01/27/03 0 527,903 1,332,328
G. L. Gherlein 12,600 1.5% 39.34 01/27/03 0 312,281 788,138
- ----------------------------------------
All Shareholders(2) N/A N/A N/A N/A 0 2,596,010,101 6,551,835,017
</TABLE>
(1) Based on a total of 831,730 options granted to all employees. All options
granted to the named executive officers were granted on January 27, 1993 and
became exercisable on July 27, 1993.
(2) At the assumed annual rates of stock price appreciation of 0%, 5% and 10%,
the value of all 72,292,122 outstanding shares would increase by the amounts
shown. There can be no assurance that the market price of Eaton shares will
increase in the future.
- --------------------------------------------------------------------------------
13
<PAGE> 16
LONG-TERM INCENTIVE PLAN AWARDS: The following table gives information
regarding Long-Term Incentive Plan awards made during fiscal year 1993 to each
of the named executive officers.
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERIOD UNTIL NON-STOCK PRICE BASED PLANS
UNITS OR MATURATION -----------------------------------
NAME OTHER RIGHTS(1) OR PAYOUT THRESHOLD TARGET MAXIMUM
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
W. E. Butler N/A 4 years $286,072 $572,144 $858,216
J. S. Rodewig N/A 4 years 196,374 392,748 589,122
S. R. Hardis N/A 4 years 168,579 337,158 505,737
A. M. Cutler N/A 4 years 156,538 313,075 469,613
G. L. Gherlein N/A 4 years 94,956 189,911 284,867
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The awards made during 1993 were not based on units or shares. Rather, the
estimated future payouts are predicated upon the achievement of corporate
performance goals, specifically, cash flow return on gross capital measured
at the end of the four-year award period. The achievement of approximately
80% of the goal will result in payment of the threshold amount, while
attaining approximately 113% of the goal will result in payment of the
maximum amount. All future payouts, if any, will be made in cash.
COMPENSATION COMMITTEE REPORT: This report by the Compensation Committee of the
Board of Directors sets forth the Committee's compensation policies applicable
to the Company's executive officers and the relationship between executive
compensation and corporate performance.
GENERAL COMPENSATION POLICIES
The Compensation Committee, each member of which is a non-employee director, is
responsible for recommending to the full Board the compensation of the Company's
executive officers. The Compensation Committee's executive compensation policies
are designed to provide levels of compensation that integrate compensation with
the Company's performance goals, reward commendable corporate performance,
recognize individual achievements and assist the Company in attracting,
motivating and retaining highly qualified executives.
The Compensation Committee believes that its policies are best implemented by
providing a compensation package comprised of separate components, all of which
are designed to motivate executive performance, which in turn will enhance the
Company's overall performance. These components are base salary, short-term
incentive compensation and long-term incentive compensation, including stock
options.
It has been the Committee's policy to establish target levels of compensation
for executive officers at approximately the median range of compensation paid by
comparably situated companies included in the survey data bases of several
nationally recognized compensation consulting firms, except that target levels
for long-term incentive cash compensation are established at approximately the
75th percentile. For 1993, base salaries and long-term incentive compensation
paid were below the median and short-term incentive compensation was above the
median.
A significant portion of executive compensation is directly related to the
Company's financial performance and is therefore at risk. For 1993, 52% of the
aggregate cash compensation to
14
<PAGE> 17
executive officers named in the compensation tables was based directly on
specific corporate financial performance criteria as described below. This
performance based portion of compensation includes (a) short-term incentive
compensation and (b) long-term incentive compensation based on corporate
performance during the four-year period 1990-1993. Although the Company's
performance under the short-term incentive compensation plan exceeded target
objectives, its four-year performance under the long-term incentive plan did
not. Assuming the Company meets its established target objectives, 53% to 63% of
aggregate cash compensation to the named executive officers would typically be
based predominantly on corporate financial performance criteria. And stock
option compensation, which is not included in this percentage, is also dependent
to a significant extent on corporate financial performance.
The Compensation Committee believes that consistent achievement of the corporate
financial performance criteria should enhance shareholder value. This
relationship may at times be imprecise, however, because stock price valuation
is influenced by a variety of factors, some of which are not directly related to
corporate performance.
The Compensation Committee reviews the Company's total executive compensation
package to be certain that it is consistent with the Committee's policies. This
review, which is undertaken with the assistance of a nationally recognized
consulting firm at least every other year and was last done in 1992, includes a
comparison of base salary, short-term incentive compensation, long-term
incentive compensation and stock options with similar compensation programs of
other industrial corporations. It also evaluates the balance among the
components of the compensation package and the effectiveness of various
performance standards. Nineteen other industrial corporations were used for
purposes of this comparison. (Sixteen of those corporations are included on the
list of twenty corporations which comprise the peer group whose financial
performance is shown on the graph on page 22. Four of the corporations included
on that list of twenty were omitted because they did not participate in the
consulting firm data base, and three other corporations which did participate
were substituted for purposes of statistical reliability.)
The following sections of this report contain information concerning each
component of the Company's compensation package.
BASE SALARY
In establishing base salaries for executive officer positions, the Compensation
Committee is committed to pay-for-performance, internal equity and external
equity.
Internal equity and external equity are involved in establishing base salary
ranges for executive positions. Internal equity refers to the process of
ensuring that the salary ranges applicable to the Company's executive positions,
relative to themselves and others, correspond to their relative job content and
responsibilities. At least every three years, the Company reviews its executive
positions with a nationally recognized compensation consultant to ensure that
its job evaluation practices are consistent with those of other companies.
Although the Company attempts to be methodical in its approach, to a large
extent internal equity is a subjective process.
External equity refers to the process by which the salary ranges of executive
and other positions are compared to current actual rates for similar positions
at other corporations, as reported in surveys of compensation practices prepared
by nationally recognized compensation consultants. Several such surveys covering
major industrial corporations, and the peer group of nineteen companies
mentioned above, are used in this annual process to help ensure
15
<PAGE> 18
an accurate understanding of compensation being paid by the Company's
competitors in the marketplace. As a matter of policy, base salary ranges
together with short-term incentive compensation described below are targeted at
approximately the 50th percentile for comparable positions at the companies
included in these surveys.
In determining individual base salaries, the Committee considers individual
performance, financial and operational performance of the responsibilities
managed by the executive, budget performance, time in position, experience,
knowledge and current position of the compensation within the salary range.
These factors are considered subjectively in the aggregate and none of them are
accorded a specific weight.
Consistently effective individual performance is a threshold requirement for any
salary increase. Performance is evaluated by the Committee's assessment of how
well the executive officer has discharged his or her responsibilities, taking
into account actual performance in comparison to profit plans, performance of
similarly situated companies, accomplishment of other short-and long-term
objectives and various subjective criteria, including initiative, contribution
to overall Company performance, leadership ability and ethical conduct.
Increases in base salary which result from individual promotions to positions
with higher base salary ranges are typically greater than ordinary performance
increases.
Increases in the 1993 base salaries of the executive officers were based on the
subjective judgment of the Committee, taking into account the performance and
external equity considerations described above. These considerations included
productivity improvements, contributions to the performance of the Company and
the median base salaries of comparable companies.
SHORT-TERM INCENTIVE COMPENSATION
Under the Company's Executive Incentive Compensation Plan, the Company's
executive officers and other key employees have the opportunity to earn annual
performance bonuses. Target bonus opportunities are established by the
Compensation Committee and are expressed as a percentage of the midpoint of the
salary range for each executive officer. The actual bonuses depend upon:
bullet Whether the Company has achieved predetermined levels of cash flow
return on the gross capital employed in the business.* In general
terms, CRC reflects the relationship between the Company's net income
and the capital resources used to generate that income, and eliminates
the effects of goodwill and depreciation. In determining whether the
Company achieved these predetermined levels for 1993 (and will achieve
them for 1994 and 1995), the Board of Directors has neutralized the
effect upon payments under the plan of any charges or write-offs
related to the Company's acquisition of the Distribution and Control
Business Unit from Westinghouse Electric Corporation. In all other
respects, in 1993 the Company achieved the predetermined level of CRC
which was required by the terms of this plan in order to earn the
payments actually made.
bullet Individual performance ratings, which are based upon subjective
evaluations in order to allow maximum flexibility for the recognition
of unanticipated challenges and opportunities. These ratings reflect
the Committee's assessment of individual performance, and take into
account internal corporate measurements such as the
- ---------------
* Cash flow return on gross capital employed in the business is referred to
herein as "CRC".
16
<PAGE> 19
Company's actual performance in comparison to its profit plan. They may also
take into account external forces indicative of the difficulty of the task
confronting the executive, such as general economic conditions experienced by
the Company and the performance of other large industrial corporations.
With respect to the relative weights of these factors used to determine
short-term incentive payments, no payments will be made unless the Company
achieves the predetermined levels of CRC. If those levels are achieved, then the
individual ratings may vary the award. The variations may range from complete
elimination of the award to increasing it up to 150% of the award otherwise
payable to the individual under the plan.
The plan authorizes the Compensation Committee to increase or decrease the total
amount available for bonuses to participants under the plan's formula by up to
10%. On those infrequent occasions when an adjustment is made, the Committee
takes into account external forces indicative of the difficulty of the task
confronting the Company, such as general economic conditions, the performance of
other large industrial corporations, and significant corporate accomplishments.
In deciding whether or not to make any such adjustment, these factors are not
given any pre-assigned weight. It is a subjective decision based upon the
business experience and judgment of the members of the Committee. In 1993 this
authority was exercised to increase the total amount available by 5% in order to
provide appropriate awards to those participants who had made extraordinary
contributions to the acquisition of the Distribution and Control Business Unit
of Westinghouse Electric Corporation ("DCBU"). This acquisition represents
significant progress made by the Company in pursuing its growth objectives. The
aggregate additional amount authorized, however, was not paid because funds
otherwise available under the plan were sufficient to recognize this
accomplishment.
With respect to the 1993 bonuses for executive officers, including the Chief
Executive Officer, the Company's CRC exceeded the level required for payment of
target awards, and bonuses were paid based upon the factors described above.
Awards under the plan may be deferred at the election of executive officers and
other key employees. Amounts deferred until retirement or thereafter are
converted into contingent share units which are based on the fair market value
of common shares of the Company at the time of the award, and which thereafter
track the market value of those shares. Dividend equivalents are credited to
these units in the form of additional contingent share units. After termination
of employment, participants are entitled to the greater of (a) an amount based
on the then-current market value of an Eaton common share or (b) an amount based
on the quarterly average return on 13-week U.S. Treasury Bills.
LONG-TERM CASH COMPENSATION INCENTIVES
The Company provides long-term incentive awards to executive officers and other
senior executives. In establishing long-term incentive plans, the Compensation
Committee and the Board of Directors have concluded that target incentive
compensation opportunities should be established at approximately the 75th
percentile for comparable positions at similarly situated companies, as reported
in the compensation surveys of several nationally recognized compensation
consultants, but that payments should be linked to attaining aggressive Company
performance objectives over the award period, as described below.
Long-term incentives in the form of contingent performance units have been
awarded under the Company's Strategic Incentive and Option Plan. These units
were granted annually prior to
17
<PAGE> 20
1991, and their value depends upon whether the Company achieves threshold,
target or maximum performance objectives during each four-year period beginning
in the years the awards were granted. The performance objectives were
established by the Board of Directors, after consideration of recommendations
from the Compensation Committee. With some minor adjustments, they are expressed
as a percentage of net income to the average capital employed in the Company's
business.
In 1991 the Company implemented a new long-term incentive plan, called the
Executive Strategic Incentive Plan, to replace the expiring Strategic Incentive
and Option Plan. As under the old plan, grants under the new plan are made
annually and their value depends upon whether the Company achieves established
performance objectives during each four-year award period beginning in the years
grants are made.
These performance objectives are established by the Compensation Committee and
are expressed in terms of CRC. After extensive analysis and testing, CRC was
selected as the measurement for performance objectives because the Compensation
Committee concluded that, over time, consistently high CRC provides one of the
best statistical links to sustained high market valuation of a company and that
it reflects the contributions of a company's management.
Performance objectives expressed in terms of CRC, rather than in terms of the
relationship of net income to average capital, were adopted in order to remove
any disincentive to make either the strategic acquisitions or the capital
investments deemed necessary to achieve the Company's long-range plans. When the
performance objectives were changed from a net income basis to CRC, the
Compensation Committee established levels of CRC performance required to earn
awards under the plan which are generally equivalent to the net income-based
objectives and which are consistent with the Committee's philosophy of setting
aggressive performance expectations.
For minimum, target and maximum awards under the plan, the Compensation
Committee determined the appropriate performance objectives, expressed in terms
of levels of CRC, by reviewing the historical CRCs of the nineteen similarly
situated companies included in the peer group mentioned above. Plan performance
objectives for target awards were established at a level equal to the CRC earned
by companies which were performing at approximately the top of the second
highest quartile, as indicated by the historical data, of the peer group.
Assuming performance at or above the minimum performance objectives, awards
under both plans will be paid in cash after the end of each four-year award
period unless the participant has made an irrevocable election to defer all or
part of that award. Awards that are deferred under the Strategic Incentive and
Option Plan appreciate based upon the Company's annual after-tax return on
shareholders' equity. No awards have yet been deferred under the Executive
Strategic Incentive Plan because the first four-year award period under that
plan has not yet been completed.
Performance objectives for the four-year award periods ended in 1993 and 1992
were adjusted in 1992 to reflect the impact on the Company's markets of severe
global economic conditions. Performance objectives for the four-year award
period ended in 1993 were adjusted to eliminate the effect of charges or
writeoffs related to the acquisition of DCBU. The Company met the adjusted
performance objectives for a threshold payment in each of those award periods.
The adjusted performance objectives include a requirement that the Company's
performance equal or exceed that of the median of the peer companies shown on
the performance graph on page 22.
18
<PAGE> 21
STOCK OPTIONS
The Company uses stock options as an important component of its executive
compensation package because they directly align the interests of the executive
officers with those of the Company's shareholders. Stock options provide
officers with the opportunity to buy and maintain an equity interest in the
Company, and to share in the appreciation of the value of the Company's common
shares.
Options are usually issued annually, have an exercise price equal to the fair
market value of the shares on the date of grant and, to encourage a long-term
perspective, have an exercise period of ten years. The size of the option grant
for each executive is targeted at the 50th percentile for comparable positions
at the similarly situated companies included in the compensation surveys of
nationally recognized compensation consultants.
The specific relationship of corporate performance to stock option compensation
is that, over the long run, share price appreciation depends upon corporate
performance, and without share price appreciation the options are of no value.
The Company has not "repriced" stock options once they have been granted, has
not granted options which have an exercise price of less than the share price
upon the date of grant, has not adopted a restricted stock plan and no longer
grants stock appreciation rights.
CHIEF EXECUTIVE OFFICER COMPENSATION AND COMPANY PERFORMANCE
The Chief Executive Officer's compensation for 1993 was earned pursuant to the
executive compensation plans described in the preceding sections of this report.
The performance factors and criteria on which his 1993 compensation was based
are thus the same as those applicable to each of those plans, as summarized in
the preceding sections. The amount of his 1993 base salary was based on an
analysis of compensation at the companies included in compensation surveys and
the nineteen companies in the peer group, level of responsibility, internal
equity, individual performance, time in position, prior experience and
knowledge. The amount of his 1993 earnings under the short-term incentive
compensation plan was based upon the Company's CRC for 1993 and upon his
individual performance rating. His 1993 award under the long-term incentive plan
for the four-year award period beginning in 1993 was based upon compensation
targets set at approximately the 75th percentile of compensation practices at
the similarly situated companies included in the compensation surveys of several
nationally recognized compensation consultants. The value of that award will
depend upon the Company's CRC over the four-year award period ending in 1996.
His 1993 grant of stock options was based on the 50th percentile for comparable
positions at similarly situated companies in the compensation surveys. Each of
these factors and criteria is described in the preceding sections of this
report.
As described in preceding sections of this report, compensation under the
Company's executive compensation plans calls for evaluation of individual
performance. In evaluating the Chief Executive Officer's performance for
purposes of base salary and short-term compensation, the Compensation Committee
took into account a number of performance factors. First, it took into account
the significant progress made by the Company, under the Chief Executive
Officer's leadership, in pursuing its growth objectives. Corporate growth is
critical and the Company is dedicated to pursuing sustainable profitable growth.
In 1993 the Company entered into an agreement to purchase DCBU for a purchase
price of approximately $1.1 billion. The purchase, which was completed on
January 31, 1994 and which complements a number of the Company's existing
product lines, is expected to increase
19
<PAGE> 22
the Company's consolidated annual sales by more than 25%. This acquisition
offers the Company the opportunity to realize substantial synergies in the years
ahead. The combination of Westinghouse power distribution equipment with the
Company's industrial control products creates a strong electrical equipment
competitor. It is an acquisition which the Company won in a competitive bidding
process, and it was completed only after clearing significant regulatory and
other hurdles.
Second, the Committee considered the Company's excellent financial record in
1993. The Company's annual total return to shareholders for 1993 was 26.3%,
which exceeded the performance of the Standard & Poor's 500 Index and that of
the peer group. (See performance graph on page 22.) The Company's 1993 earnings
per share were $3.06 (before an integration charge of $.49 per share and an
extraordinary item of $.10 per share) compared to $2.03 per share for 1992
(before the cumulative effect of accounting charges for postretirement benefits
other than pensions and income taxes). This represents a 51% increase in
earnings per share for the year.
In the opinion of the Committee, the Company's 1993 performance was directly
related to the Chief Executive Officer's consistent emphasis in recent years on
enhancing the Company's competitive position by cost restructuring and by other
improvements in operations. He has focused on enhancing product quality,
tightening cost controls, improving asset
management skills and disposing of lower performing units and facilities. Under
his leadership, Eaton's business units have also established annual productivity
improvement goals, and measurement processes have been implemented to support
this initiative.
TAX DEDUCTION FOR COMPENSATION
An amendment to the Internal Revenue Code, adopted in 1993 and effective January
1, 1994, limits to $1 million the annual income tax deduction for compensation
which may be taken by any publicly held corporation for its Chief Executive
Officer and its other four most highly-compensated officers. This deduction
limit applies to all compensation except formula-driven performance-based
compensation, deferred compensation, preexisting agreements and a few other
items not relevant to the Company.
The Internal Revenue Service has recently issued proposed regulations, including
transition rules, relating to this new law. Based on these materials, it is the
Committee's current understanding that, in order to take advantage of the
exception for performance-based compensation, the compensation must satisfy
certain requirements. These include shareholder approval, the establishment of
performance goals prior to the beginning of the performance period and
administration by a committee of outside or disinterested directors.
The Compensation Committee, of course, would like to preserve the tax deduction
for all compensation payments. It appears that compensation resulting from the
exercise of stock options, one of the major components of the Company's
executive compensation package, will continue to be deductible. It also appears,
however, that compensation paid pursuant to other plans included in the
Company's compensation package may not continue to be deductible unless those
payments are deferred, or unless (among other things) the compensation plans are
modified to completely eliminate the ability of the Compensation Committee to
exercise any discretion after the beginning of a performance period that would
have the effect of increasing the amount earned.
After considerable discussion, the Compensation Committee has concluded that the
removal of its discretion, and that of the Board of Directors, to make
administrative adjustments to its incentive plans which might
20
<PAGE> 23
result in increased awards would not be in the best interests of the Company and
its shareholders. In recent years, the Compensation Committee has dealt with
situations where the exercise of discretion was, in the Committee's opinion,
advisable in order to adhere consistently to the Company's compensation
philosophy. Both positive and negative adjustments have been made. Generally,
these situations develop when unforeseen events beyond the control of management
occur. For example, in 1993 the Company took a charge against earnings to
reflect the costs associated with integrating the DCBU acquisition into the
Company's operations. Given the strategic importance of this acquisition, the
Compensation Committee felt it appropriate to neutralize the effect of this
charge on the Company's incentive plans. Using discretion in this manner allows
the Compensation Committee to apply its business judgment in a manner that is
consistent with the best interests of the Company's shareholders.
The Committee will attempt to preserve the deductibility of compensation
received by the most highly-compensated officers by encouraging voluntary
deferrals by such officers where necessary and practical. The Compensation
Committee will continue to monitor developments in this area.
Respectfully submitted to the Company's shareholders by the Compensation
Committee of the Board of Directors.
Neil A. Armstrong, Chairman
Arthur Dole III
Charles E. Hugel
John R. Miller
Furman C. Moseley
21
<PAGE> 24
COMPANY STOCK PERFORMANCE: The following graph compares the cumulative total
return for Eaton common shares with the S&P 500 Index and a group of 20 peer
companies: Allied-Signal Inc., Arvin Industries, Inc., Cummins Engine Company,
Inc., Dana Corporation, Emerson Electric Co., General Signal Corporation, GTE
Corporation, Honeywell Inc., Johnson Controls, Inc., Motorola, Inc., Navistar
International Corporation, PACCAR Inc., Parker-Hannifin Corporation, Rockwell
International Corporation, SPX Corporation, Sundstrand Corporation, TRINOVA
Corporation, TRW Inc., United Technologies Corporation and
Westinghouse Electric Corporation.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG EATON, S&P 500 INDEX AND PEER COMPANIES
<CAPTION>
1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Peer Companies 1.000 1.324 1.192 1.451 1.635 2.027
Eaton 1.000 1.054 0.955 1.275 1.648 2.081
S&P 500 1.000 1.315 1.273 1.662 1.789 1.969
</TABLE>
Assumes $100 invested on December 31, 1988 in Eaton common shares, the S&P 500
Index and stock of the peer companies. Total return assumes that all dividends
are reinvested when received. The returns of each company in the peer companies
are weighted based on their stock market capitalization.
22
<PAGE> 25
RETIREMENT PLANS: The table below shows the annual normal retirement benefits
payable pursuant to those plans upon retirement at age 65, under the standard
post-retirement single life annuity option, for employees, including officers,
in the compensation ranges specified, under various assumptions with respect to
average final annual compensation and years of credited service. Under the
standard post-retirement surviving spouse option, the participant receives a
reduced pension, and a pension equal to 50% of his or her reduced pension is
payable to his or her surviving spouse. The benefit for an employee electing
that option whose spouse is three years younger would be approximately 11% less
than the amounts shown in the table.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL NORMAL RETIREMENT BENEFITS PURSUANT TO STANDARD
FINAL SINGLE LIFE ANNUITY OPTION FOR YEARS OF CREDITED SERVICE INDICATED
ANNUAL -------------------------------------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
$ 100,000 $ 20,874 $ 27,832 $ 34,790 $ 41,747 $ 48,705 $ 55,663
200,000 43,374 57,832 72,290 86,747 101,205 115,663
300,000 65,874 87,832 109,790 131,747 153,705 175,663
400,000 88,374 117,832 147,290 176,747 206,205 235,663
500,000 110,874 147,832 184,790 221,747 258,705 295,663
600,000 133,374 177,832 222,290 266,747 311,205 355,663
700,000 155,874 207,832 259,790 311,747 363,705 415,663
800,000 178,374 237,832 297,290 356,747 416,205 475,663
900,000 200,874 267,832 334,790 401,747 468,705 535,663
1,000,000 223,374 297,832 372,290 446,747 521,205 595,663
</TABLE>
The information contained in the preceding table is based on the assumption that
the retirement plans will be continued in their present form.
Annual normal retirement benefits are computed at the rate of 1% of average
final annual compensation up to the applicable Social Security integration level
($21,684 for 1993 retirements) plus 1 1/2% of average final annual compensation
in excess of the Social Security integration level, multiplied by the employee's
years of credited service.
An employee's average final annual compensation is the average annual amount of
his or her total compensation (which includes salary and bonus as so identified
in the Summary Compensation Table on page 12) for service during the five
consecutive years within the last ten years of employment for which the
employee's total compensation was greatest. Years of credited service is the
number of years of employment between age 21 and retirement, with a maximum of
44 years. As of January 31, 1994, the number of years of credited service for
each of the individuals named in the Summary Compensation Table on page 12 was
as follows: W. E. Butler, 37.0; A. M. Cutler, 18.4; G. L. Gherlein, 27.6; S. R.
Hardis, 14.4; and J. S. Rodewig, 36.9.
---------------
Certain provisions of the Internal Revenue Code, as amended, limit the annual
benefits which may be paid from a tax-qualified retirement plan. As permitted
under the Code, the Board of Directors has authorized the payment out of Eaton's
general funds of any benefits calculated under the provisions of the applicable
retirement plan which may exceed those limits. The present value of these
benefits will be paid in a single installment upon a proposed change in control
of the Company, as described on page 11, unless otherwise determined by the
Board of Directors.
---------------
23
<PAGE> 26
The Board of Directors has authorized a plan which provides supplemental annual
retirement income to certain executives who do not have the opportunity to
accumulate significant credited service with Eaton, provided that they retire at
age 55 or older and have at least five years of service with Eaton. The amount
of the annual supplement is generally equal to the amount by which a percentage
(described below) of the executive's average final annual compensation exceeds
his earned retirement income (which includes amounts receivable pursuant to the
retirement plans described above as well as pursuant to retirement plans
maintained by the executive's previous employers). The percentage of average
final annual compensation used for this purpose depends upon an executive's age
and years of service at retirement. The percentage ranges from 20% (for
retirements at age 55 with less than 15 years of service) to 45% (for
retirements at age 65 with 15 years or more of service). Under the amended plan,
the present value of payments will be paid in a single installment upon a
proposed change in control of the Company, as described on page 11, unless
otherwise determined by the Board of Directors. Three executive officers
currently are participating in the plan, of whom one, S. R. Hardis, is named in
the Summary Compensation Table on page 12. The estimated annual benefits payable
under this plan to Mr. Hardis are $84,073, based on the assumptions that Mr.
Hardis retires at age 65 and that his base salary and target incentive
compensation increase at 4% per annum.
---------------
Since 1985, the Company has maintained severance pay agreements with all of its
executive officers including the individuals named in the Summary Compensation
Table on page 12. Such agreements provide payments only in the event of
termination of employment following a change in control of the Company, as
described below. The purpose of the severance pay agreements is to encourage the
officers to continue to carry out their duties in the event of a change in
control of the Company. Benefits are paid under the severance pay agreements to
the officers only in the event of a termination of employment following certain
changes in control of the Company through the acquisition of shares representing
25% or more of the voting power of the Company or by virtue of its merger or
consolidation into or sale of assets to another corporation or by virtue of the
individuals who at the beginning of the period constituted the Board of
Directors of the Company ceasing to constitute for any reason during any
two-year period at least a majority of the Board unless the election of each new
director was approved by a two-thirds vote of the directors in office at the
beginning of the period. Each officer would be entitled to certain benefits in
the event that, within a period of five years following such change in control,
the officer's employment with the Company is terminated unless such termination
is (i) due to the officer's death, (ii) by the Company for "cause" or due to the
officer's "disability" or (iii) by the officer other than for "good reason" (as
such terms are defined in the agreements). Benefits are not available if the
Compensation Committee of the Board determines that the change in control was
initiated by the officers. Except as limited under the circumstances described
in the following sentence, such benefits would consist of severance pay equal to
the officer's then-current annual salary plus an amount equal to the officer's
average award under the Executive Incentive Compensation Plan for the preceding
five years multiplied by the lesser of a number not to exceed three or the
number of full calendar years and portion of a calendar year to the nearest
one-tenth remaining until retirement, and continued participation, for three
years or until retirement, if earlier, in all employee benefit programs in which
the officer participated immediately prior to the termination of the officer's
employment. If any of these benefits, either alone or together with any other
24
<PAGE> 27
payments or benefits provided to the officer other than pursuant to the
agreements, would constitute a "parachute payment" subject to the 20% excise tax
under certain provisions of the Internal Revenue Code, the benefits under the
agreements are to be reduced to the largest amount which will result in no
portion of such payments or benefits being subject to the excise tax. Also,
under the agreements, upon a proposed change in control of the Company, as
described on page 11, unless otherwise determined by the Board of Directors, the
Company is required to transfer to a trust an amount sufficient to provide for
the benefits to which the officers would be entitled under the agreements if
their employment were then terminated. If a change in control of the Company
were to occur at the present time
and the employment of all the individuals having the severance pay agreements
were to terminate in a manner entitling them to payments under the agreements,
the aggregate maximum amount of the payments to all such individuals, as a
group, based on their current annual salaries plus the most recent five-year
average of their awards under the Executive Incentive Compensation Plan would be
approximately $17.1 million. The Company has no knowledge or belief that any
change in control of the Company will occur in the foreseeable future. Even if a
change in control were to occur, the individuals (if any) whose employment would
terminate in a manner entitling them to compensation under their agreements
cannot now be determined, and it is possible that no compensation or benefits
will ever be provided under any of the agreements.
2. ADOPTION OF AMENDED ARTICLES OF INCORPORATION TO PROVIDE FOR ADDITIONAL
COMMON SHARES
The Board of Directors recommends the adoption of Amended Articles of
Incorporation to increase the number of authorized Eaton common shares with a
par value of 50c each from 150 million to 300 million.
At January 31, 1994, there was a total of 77,934,196 common shares outstanding,
in Eaton's treasury, and reserved for issuance under stock options. At January
31, 1994, Eaton therefore had 72,065,804 authorized, unissued and unreserved
common shares.
Although management has made no decision to issue substantial numbers of
additional common shares, increasing the number of authorized common shares at
this time will enable Eaton to have available authorized common shares to issue
in a stock split, for acquisitions and for other proper corporate purposes
should the need arise. Although it is anticipated that no shareholder
authorization for the issuance of these common shares will be solicited, in
certain circumstances it may be required.
Although the purposes of the Board of Directors in proposing this amendment are
as stated above, the authorized but unissued common shares could be used by the
Board of Directors to make it more difficult to effect a change in control of
the Company by decreasing the percentage of the share ownership of those persons
seeking to obtain control. For example, common shares could be sold in a private
placement to a purchaser who might oppose a change in control of the Company.
The Board of Directors is not aware of any pending or proposed effort to take
over control of the Company or to change management.
The Company's Amended Articles of Incorporation contain provisions requiring the
affirmative vote of two-thirds of the shareholder voting power to approve
certain mergers, consolidations, dispositions of assets and majority share
acquisitions. The Company's Amended Regulations provide for the classification
of the Board of Directors into three approximately equal classes, only one of
which would be elected annually for a three-year term; the removal of directors
with or without cause by the vote of two-thirds of the shareholder
25
<PAGE> 28
voting power entitled to elect directors in place of those to be removed; the
change in the size of the Board of Directors by the vote of two-thirds of the
shareholder voting power represented at a meeting and entitled to vote; the
calling of special shareholders' meetings by persons who hold not less than 50%
of all Company shares outstanding and entitled to vote; the amendment of the
Amended Regulations without a meeting by the written consent of shareholders
entitled to exercise two-thirds of the voting power on such an amendment; and
the amendment of various provisions of the Amended Regulations only by the
affirmative vote of the shareholders entitled to exercise two-thirds of the
voting power on such an amendment.
This proposal would be implemented by deleting Article FOURTH A and B of the
Amended Articles of Incorporation and by inserting the following in lieu
thereof:
FOURTH: The authorized number of shares of the Corporation is Three Hundred
Fourteen Million One Hundred Six Thousand Three Hundred Ninety-Four
(314,106,394) classified and designated as follows:
A. Serial Preferred Shares: Fourteen Million One Hundred Six Thousand Three
Hundred Ninety-Four (14,106,394) shares are classified and designated as Serial
Preferred Shares without par value and are herein called the "Serial Preferred
Shares"; and
B. Common Shares: Three Hundred Million (300,000,000) shares are classified and
designated as Common Shares with a par value of Fifty Cents (50c) each and are
herein called the "Common Shares".
In all other respects, the proposed Amended Articles of Incorporation would be
identical to the existing Amended Articles of Incorporation.
Upon the issuance of common shares, no Eaton shareholder is entitled, as such,
as a matter of right to subscribe for or purchase any part of such issue.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE PROPOSED AMENDED
ARTICLES OF INCORPORATION.
3. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of its Audit Committee, the Board of Directors has appointed
the accounting firm of Ernst & Young as independent auditors to conduct the
annual audit of Eaton's books and records for 1994. The submittal of this matter
to the shareholders at the annual meeting is not required by law or by Eaton's
Amended Regulations. The Board of Directors is, nevertheless, submitting it to
the shareholders to ascertain their views. If this proposal is not approved at
the annual meeting by the affirmative vote of holders of the
majority of the outstanding common shares of the Company entitled to vote at the
meeting, the Board intends to reconsider its appointment of Ernst & Young as
independent auditors.
A representative of Ernst & Young will be present at the annual meeting to make
a statement, should he or she desire to do so, and to answer any questions
concerning the independent auditors' areas of responsibility.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG.
4. SHAREHOLDER PROPOSAL
The Company has been notified that a shareholder, the General Board of Pension
and Health Benefits of the United Methodist Church (1200 Davis Street, Evanston,
Illinois 60201), holder of 8,430 Eaton common shares as of September 30, 1993,
intends to present a proposal at the annual meeting. Co-sponsors of the proposal
are the Sisters of St. Dominic of Caldwell, New Jersey (52 Old Swartswood
26
<PAGE> 29
Station Road, Newton, New Jersey 07860), holders of 2,000 Eaton common shares as
of November 5, 1993, and the Our Lady of Lourdes Medical Center, New York, New
York (1600 Haddon Avenue, Camden, New Jersey 08103), holder of 4,000 Eaton
common shares as of December 16, 1993. Eaton disclaims any responsibility for
the content of the proposal and supporting statement, which is presented as
received from the shareholders.
---------------
WHEREAS, the Cold War's end has produced critical socioeconomic dislocations,
rather than a peace dividend because of the resultant cutbacks in federal
funding for the development and procurement of weapons systems;
WHEREAS, history teaches that it is easier for plowshare makers to get into
swords than for arms suppliers to diversify into civilian markets;
WHEREAS, reductions in Pentagon budgets have not only caused severe job losses
but also raised the issue of how to make productive use of high-tech resources
and skilled manpower;
WHEREAS, corporations dependent upon military contracts can alleviate many of
the difficulties involved in reordering their priorities and allocating assets
to commercial/industrial ventures, by employing a collaborative planning process
known as economic conversion;
WHEREAS, Eaton Corporation relies on defense business for a significant portion
of its revenues and earnings;
WHEREAS, it would be in the interest of creditors, customers, employees, host
communities, shareholders, vendors and the country for our company to make
economic conversion an integral part of its business plans;
RESOLVED: Shareholders ask the board of directors to prepare and publish within
six months of the 1994 annual meeting, a detailed report on economic conversion,
which would include such data as:
1. The percentage of sales and profits attributable to military contracts during
the most recent fiscal year, plus projections for the 1994-96 period;
2. A census of the employees working on military contracts and an audit of their
skills, in particular, those that could be used on civilian projects;
3. A summary of plans to diversify into nonmilitary markets, institute
retraining programs for workers who might otherwise be let go, provide
outplacement counseling for those who are laid off, and adapt defense plans for
industrial production;
4. A synopsis of working relationships with labor unions, regional planning
commissions, government agencies or other organizations that could assist our
company in identifying and capitalizing on opportunities in the private sector;
5. A briefing on formal in-house programs designed to cushion the impact of
declining Pentagon budgets upon our company's income statement and its work
force.
PROPONENTS' STATEMENT IN SUPPORT OF THE PROPOSAL: Absent, innovative responsive
planning at the corporate level, the sponsors of this resolution believe the
price of peace could prove unnecessarily high in human terms. The financial
hardships due to plant closings have significantly affected families and
communities. Neither the company nor the nation can afford to waste the
technical expertise of a seasoned work force in an increasingly competitive
world. As shareholders, we earnestly hope Eaton Corporation will appreciate the
many benefits of making economic conversion an integral element of corporate
policy.
---------------
27
<PAGE> 30
THE EATON BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE FOREGOING SHAREHOLDER
PROPOSAL FOR THE FOLLOWING REASONS:
Last year, the shareholders of the Company defeated this proposal, with only
10.22% of the votes cast voting in favor of the proposal. A similar proposal was
voted down by the shareholders in 1992.
The Board of Directors opposes this shareholder proposal because of the limited
extent of Eaton's military business and because the proposal calls for detailed
information about a corporate process which is within the area of authority of
the Board of Directors.
Eaton is a diversified, global manufacturer of vehicle powertrain components and
a broad variety of control products. Eaton's business is not dependent upon
Government defense contracts and, consequently, Eaton believes that the
shareholder proposal is misdirected.
Given the limited nature of Eaton's sales to the Government, the Board's opinion
is that a report of the nature requested in the shareholder proposal would serve
no significant purpose and would provide no material information beyond that
already being communicated by the Company to its shareholders, employees and the
general public.
Further, as part of prudent management, the Company continuously analyzes the
prospects for its current product mix and for new or alternate products in an
effort to allocate its resources in a manner that will be in the best interests
of all its shareholders. This includes an analysis of the feasibility of
reallocating resources from the defense business to other Government or
commercial business opportunities. In connection with any decision to commence,
continue or discontinue production of any product, as a matter of corporate and
social responsibility, the Company takes into account the impact of that
decision upon its various constituencies, including its shareholders and
employees. A report to shareholders setting forth the details of this process
would involve shareholders in day-to-day operations, the authority for which is
given to the directors and management under law.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THE FOREGOING SHAREHOLDER PROPOSAL.
5. OTHER BUSINESS
Management does not know of any other matters requiring shareholder action that
may come before the meeting; but, if any are properly presented, the individuals
named in the enclosed form of proxy have discretionary authority to act on such
matters and will vote thereon according to their best judgment.
OWNERSHIP OF OUTSTANDING VOTING SHARES
Set forth below is certain information concerning persons who are known by
Eaton to have reported that they own beneficially more than 5% of any class of
the Company's voting shares as of the most recent practicable date.
TITLE OF CLASS: COMMON SHARES
- ------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF SHARES OF
OF BENEFICIAL OWNER OWNED CLASS
<S> <C> <C>
- --------------------------------------------------
Society Corporation 3,883,623(1) 5.6%
127 Public Square
Cleveland, Ohio 44114-1306
</TABLE>
- ---------------
(1) Society Corporation (now renamed KeyCorp) has filed with the Securities and
Exchange Commission a Schedule 13G dated February 8, 1994, which reports the
beneficial ownership of 3,883,623 Eaton common shares. As reported in the
Schedule 13G, Society Corporation has the sole power to vote or to direct
the vote of 478,468 common shares; sole power to dispose or to direct the
disposition of 170,836 common shares; shared power to vote or to direct the
vote of 3,389,915 common shares; and shared power to dispose or to direct
the disposition of 3,677,321 common shares. (Society National Bank is
trustee for certain employee benefit plans of the Company and its
subsidiaries, which on January 31, 1994 held 10,401,723 common shares for
the benefit of participating employees, or 14.4% of common shares
outstanding.)
28
<PAGE> 31
The following table shows the beneficial ownership, reported to the Company as
of January 31, 1994 of common shares of the Company, including shares as to
which a right to acquire ownership within 60 days after January 31, 1994 exists
through the exercise of stock options, of each director and nominee, the Chief
Executive Officer and the four other most highly compensated executive officers
and, as a group, of such persons and all other executive officers.
<TABLE>
<CAPTION>
TITLE OF CLASS: COMMON SHARES
- ---------------------------------------------
NAME OF NUMBER PERCENT
BENEFICIAL OF SHARES OF
OWNER OWNED(1) CLASS(2)
- ---------------------------------------------
<S> <C> <C>
N. A. Armstrong 1,800(3) --
W. E. Butler 228,431(4,5) --
A. M. Cutler 121,539(3,4,5) --
P. B. Davis 652 --
A. Dole III 31,312 --
G. L. Gherlein 101,311(3,4,5) --
S. R. Hardis 153,867(4,5) --
C. E. Hugel 6,000 --
J. R. Miller 4,500 --
F. C. Moseley 4,650(3) --
H. G. Pattillo 7,500 --
V. A. Pelson 200 --
A. W. Reynolds 6,000 --
J. S. Rodewig 113,218(3,4,5) --
G. L. Tooker 700(3) --
H. T. Yang 120(3) --
Directors, Nominees
and Executive
Officers as a
group of 27 1,214,144(3,4,5) 1.7%
</TABLE>
[FN]
- ---------------
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated.
(2) Less than 1% unless otherwise indicated.
(3) Includes shares held jointly or in other capacities, such as by trust.
(4) Includes shares held under the Eaton Corporation Share Purchase and
Investment Plan as of January 31, 1994. Participants in the Plan are
entitled to direct the Plan trustee's voting of shares which are not
allocated to any participant's account. None of those shares are included
among the shares beneficially owned by the executive officers.
(5) Includes shares which may be acquired within 60 days after January 31, 1994
upon the exercise of outstanding stock options as follows: 194,898; 105,698;
64,898; 102,800; 104,098; and 908,752 shares for, respectively, Messrs.
Butler, Cutler, Gherlein, Hardis, Rodewig and all executive officers as a
group.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and holders of more than 10% of the Company's
common shares to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of common shares and
other equity securities of the Company. The Company believes that during the
year ended December 31, 1993, its officers, directors and holders of more than
10% of the Company's common shares complied with all Section 16(a) filing
requirements.
FUTURE SHAREHOLDER PROPOSALS
Shareholders who wish to submit proposals for inclusion in the proxy statement
and for consideration at the annual meeting must do so on a timely basis. In
order to be included in the proxy statement for the 1995 annual meeting,
proposals must relate to proper subjects and must be received by the Corporate
Secretary, Eaton Corporation, Eaton Center, Cleveland, Ohio 44114-2584, before
November 18, 1994.
By order of the Board of Directors
Earl R. Franklin
Secretary
March 18, 1994
29
<PAGE> 32
ADMISSION TO THE ANNUAL MEETING
Shareholders who plan to attend the 1994 annual meeting of shareholders may
apply for admission tickets at the Registration Desk immediately prior to the
meeting. Those whose shares are registered in a broker's or bank's name should
obtain certification of ownership to bring to the meeting.
EATON CORPORATION
Eaton Center
Cleveland, Ohio 44114-2584
- --------------------------------------------------------------------------------
<PAGE> 33
EATON CORPORATION
EATON CENTER
P CLEVELAND, OHIO 44114-2584
R -------------------------------------------------------------------
O The undersigned hereby appoints W. E. Butler, G. L. Gherlein and E. R.
X Franklin as proxies, each with the power to appoint his substitute,
Y and hereby authorizes them to represent and to vote, as designated on
the reverse side of this card, all of the Eaton common shares,
including reinvestment shares, if any, held by the undersigned on
February 28, 1994, at the annual meeting of shareholders to be held at
The Forum Conference and Education Center, One Cleveland Center,
Cleveland, Ohio on April 27, 1994, at 10:30 a.m. local time and at any
adjournments thereof.
Election of Directors: A. M. Cutler, P. B. Davis, S. R. Hardis, H. G.
Pattillo, V. A. Pelson, G. L. Tooker and H. T.
Yang
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
WHEN PROPERLY EXECUTED, IT WILL BE VOTED FOR ITEMS #1, #2 AND
#3 AND AGAINST ITEM #4 UNLESS CONTRARY INSTRUCTIONS ARE
INDICATED ON THE REVERSE SIDE.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
SEE REVERSE
SIDE
<PAGE> 34
/X/ PLEASE MARK YOUR SHARES IN YOUR NAME REINVESTMENT SHARES
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / BOARD RECOMMENDS A 2. Adopt Amended / / / / / /
Directors VOTE FOR #1, #2 Articles
(see reverse) AND #3.
3. Ratify / / / / / /
Independent
For, except vote withheld Auditors
from the following
nominee(s): BOARD RECOMMENDS A VOTE AGAINST #4.
4. Shareholder / / / / / /
Proposal:
Economic
Conversion
Attend / / 5. In their discretion, the proxies are
Meeting authorized to vote upon such other
business as may properly come before
the meeting.
</TABLE>
SIGNATURE(S) __________________________________________ DATE _____________
SIGNATURE(S) __________________________________________ DATE _____________
NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
<PAGE> 35
CONFIDENTIAL VOTING INSTRUCTIONS
TO SOCIETY NATIONAL BANK, TRUSTEE FOR THE AIL SYSTEMS INC.
EMPLOYEES' INVESTMENT PLAN:
The undersigned, as a participant in the above Plan, hereby directs
the Trustee to vote in person or by proxy all common shares of Eaton
Corporation credited to the undersigned's account under the Plan on
the record date for the annual meeting of shareholders of Eaton
Corporation to be held at The Forum Conference and Education Center,
One Cleveland Center, Cleveland, Ohio, on April 27, 1994, at 10:30
a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2 and #3 and AGAINST Item #4 unless
contrary voting instructions are indicated on the reverse side of this
card. Common shares for which the Trustee does not receive directions
are voted by the Trustee in accordance with and in the same proportion
as the common shares for which it receives voting instructions.
Election of Directors: A. M. Cutler, P. B. Davis, S. R. Hardis,
H. G. Pattillo, V. A. Pelson, G. L. Tooker
and H. T. Yang
SEE REVERSE
SIDE
<PAGE> 36
/X/ PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of FOR WITHHELD BOARD RECOMMENDS A 2. Adopt Amended FOR AGAINST ABSTAIN
Directors / / / / VOTE FOR #1, #2 Articles / / / / / /
(see reverse) AND #3.
3. Ratify / / / / / /
For, except vote withheld from Independent
the following nominee(s) Auditors
BOARD RECOMMENDS A VOTE AGAINST #4.
4. Shareholder / / / / / /
Proposal:
Economic
Conversion
5. In their discretion, the proxies are
authorized to vote upon such other
business as may properly come before
the meeting.
</TABLE>
MEMBER'S SIGNATURE ___________________________________ DATE __________
NOTE: Please sign, date and return promptly to
Society National Bank in the enclosed envelope
to protect confidentiality.
<PAGE> 37
CONFIDENTIAL VOTING INSTRUCTIONS
TO SOCIETY NATIONAL BANK, TRUSTEE FOR THE EATON CORPORATION SHARE
PURCHASE AND INVESTMENT PLAN ("SPIP"):
The undersigned, as a participant in SPIP, hereby directs the Trustee
to vote in person or by proxy (a) all common shares of Eaton
Corporation credited to the undersigned's account under the Plan on
the record date ("allocated shares"); and (b) the proportionate number
of common shares of Eaton Corporation which are not allocated to the
account of any participant ("unallocated shares") and as to which the
undersigned is entitled to direct the voting in accordance with the
Plan provisions, in each case for the annual meeting of shareholders
of Eaton Corporation to be held at The Forum Conference and Education
Center, One Cleveland Center, Cleveland, Ohio, on April 27, 1994, at
10:30 a.m. local time and at any adjournments thereof. The Trustee is
hereby instructed to vote FOR Items #1, #2 and #3 and AGAINST Item #4
unless contrary voting instructions are indicated on the reverse side
of this card. Under SPIP, allocated shares for which the Trustee does
not receive directions in the form of a signed voting instruction card
are voted by the Trustee in accordance with and in the same proportion
as the allocated shares for which it receives voting instructions.
Unallocated shares are voted by the Trustee as directed by the
participants who return signed voting instruction cards. (Any
participant wishing to vote the unallocated shares differently from
the allocated shares may do so by requesting a separate voting
instruction card from Society National Bank at P.O. Box 94717,
Cleveland, Ohio 44101 (216) 689-3604.)
Election of Directors: A. M. Cutler, P. B. Davis, S. R. Hardis, H.
G. Pattillo, V. A. Pelson, G. L. Tooker
and H. T. Yang
SEE REVERSE
SIDE
<PAGE> 38
/X/ PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / BOARD RECOMMENDS A 2. Adopt Amended / / / / / /
Directors VOTE FOR #1, #2 Articles
(see reverse) AND #3.
3. Ratify / / / / / /
Independent
Auditors
For, except vote withheld
from the following BOARD RECOMMENDS A VOTE AGAINST #4.
nominee(s):
4. Shareholder / / / / / /
Proposal:
Economic
Conversion
5. In their discretion, the proxies are authorized
to vote upon such other business as
may properly come before the meeting.
</TABLE>
MEMBER'S SIGNATURE _____________________________________ DATE __________
NOTE: Please sign, date and return promptly to
Society National Bank in the enclosed envelope
to protect confidentiality.
<PAGE> 39
CONFIDENTIAL VOTING INSTRUCTIONS (UNALLOCATED SHARES ONLY)
TO SOCIETY NATIONAL BANK, TRUSTEE FOR THE EATON CORPORATION SHARE
PURCHASE AND INVESTMENT PLAN ("SPIP"):
The undersigned, as a participant in SPIP, hereby directs the Trustee
to vote in person or by proxy the number of common shares of Eaton
Corporation which are not allocated to the account of any participant
in SPIP (the "unallocated shares"); and as to which the undersigned is
entitled to direct the voting in accordance with the provisions of
SPIP for the annual meeting of shareholders of Eaton Corporation to be
held at The Forum Conference and Education Center, One Cleveland
Center, Cleveland, Ohio, on April 27, 1994, at 10:30 a.m. local time
and at any adjournments thereof. The Trustee is hereby instructed to
vote FOR Items #1, #2 and #3 and AGAINST Item #4 unless contrary
voting instructions are indicated on the reverse side of this card.
Unallocated shares are voted by the Trustee as directed by the
participants who return signed voting instruction cards.
Election of Directors: A. M. Cutler, P. B. Davis, S. R. Hardis,
H. G. Pattillo, V. A. Pelson, G. L. Tooker
and H. T. Yang
SEE REVERSE
SIDE
<PAGE> 40
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / BOARD RECOMMENDS A 2. Adopt Amended / / / / / /
Directors VOTE FOR #1, #2 Articles
(see reverse) AND #3.
3. Ratify / / / / / /
Independent
For, except vote withheld Auditors
from the following
nominee(s): BOARD RECOMMENDS A VOTE AGAINST #4.
4. Shareholder / / / / / /
Proposal:
Economic
Conversion
5. In their discretion, the proxies are authorized
to vote upon such other business as
may properly come before the meeting.
</TABLE>
MEMBERS SIGNATURE _____________________________________ DATE ___________
NOTE: Please sign, date and return promptly to
Society National Bank in the enclosed envelope
to protect confidentiality.
