<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
EATON CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
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<PAGE> 2
[EATON COVER ARTWORK]
<PAGE> 3
NOTICE OF MEETING
The 1995 annual meeting of Eaton Corporation shareholders will be held
Wednesday, April 26, 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. Approving the Eaton 1995 Stock Plan;
3. Approving the Eaton Incentive Compensation Deferral Plan;
4. Ratifying the appointment of independent auditors; and
5. Considering reports and such other business 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 27, 1995. 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 17, 1995
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.
<PAGE> 4
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<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
Approval of the Eaton 1995 Stock
Plan ................................. 25
Approval of the Eaton Incentive
Compensation Deferral Plan............ 29
Ratification of the Appointment of
Independent Auditors ................. 32
Other Business ......................... 32
Security Ownership by Management........ 32
Future Shareholder Proposals ........... 33
Exhibit A: Eaton 1995 Stock Plan ....... A-1
Exhibit B: Eaton Incentive Compensation
Deferral Plan......................... B-1
</TABLE>
<PAGE> 5
PROXY STATEMENT
EATON CORPORATION
Eaton Center
Cleveland, Ohio 44114-2584
(216) 523-5000
- ----------------------------------------------
This proxy statement and the accompanying proxy form are scheduled to be sent to
shareholders on March 17, 1995. Eaton's annual report for the year ended
December 31, 1994 is scheduled to be mailed to shareholders beginning March 14,
1995.
PROXY SOLICITATION
Eaton's Board of Directors solicits your proxy, in the form enclosed, for use at
the 1995 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 approval of the 1995 Stock Plan, for approval of the Incentive
Compensation Deferral Plan and for ratification of the appointment of Ernst &
Young LLP as independent auditors. 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 $8,500. 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 27, 1995
is entitled to one vote for each share then held. On February 27th, 77,951,266
Eaton common shares (par value, 50c each) were outstanding and entitled to vote.
At the 1995 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 1995 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 1995 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 1995 annual meeting will require the affirmative
vote of the holders of a majority of the outstanding Eaton common
3
<PAGE> 6
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 treated the same as
votes cast 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 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
four directors, who were elected at the 1992 annual meeting, will expire in
April, 1995, and those directors have been nominated for re-election. The fifth
nominee is Ernie Green, who has not previously been nominated to the Board of
Directors. (See pages 5 and 6.)
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.
Hooper G. Pattillo, a director since 1979, having attained the normal retirement
age, will resign as director at the conclusion of the annual meeting of
shareholders on April 26. (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 the
annual meeting, the Board of Directors will be composed of thirteen members.
Henry T. Yang, Ph.D., who was elected director at the 1994 annual meeting,
resigned from the Board in August to give full attention to the responsibilities
of his new position as Chancellor of the University of California in Santa
Barbara.
Following is biographical information about each nominee and each director
continuing in office.
4
<PAGE> 7
NOMINEES FOR ELECTION TO TERMS ENDING IN 1998 AND UNTIL THEIR SUCCESSORS ARE
ELECTED AND
HAVE QUALIFIED:
<TABLE>
<S> <C> <C>
NEIL A. ARMSTRONG, 64, WILLIAM E. BUTLER, 64, ERNIE GREEN, 56,
is former Chairman of is Chairman and Chief is founder, President
Computing Technologies Executive Officer of and Chief Executive
for Aviation, Inc., a Eaton Corporation. Mr. Officer of EGI, Inc., a
computer systems Butler joined Eaton in manufacturer of
company, a position he 1957, becoming automotive components.
held from 1982 until President of the He is also President of
1992. He is a director Automotive Components Florida Production
of Cincinnati Group in 1979 and Engineering, Inc.,
Milacron, Inc., Cinergy President and Chief subsidiary of EGI. Mr.
Corp., RMI Titanium Operating Officer in Green is standing for
Co., Thiokol 1989. He was elected election to the Eaton
Corporation and USX President and Chief board for the first
Corporation. Executive Officer in time. He is a director
DIRECTOR SINCE 1981 September, 1991 and of Acordia, Inc., Bank
became Chairman and One, Dayton, N.A., DPL
Chief Executive Officer Inc. and Duriron
in January, 1992. Mr. Company, Inc.
Butler is a director of
Bearings, Inc., Ferro
Corporation, Goodyear
Tire & Rubber Company,
Pitney Bowes Inc. and
Zurn Industries, Inc.
DIRECTOR SINCE 1989
</TABLE>
5
<PAGE> 8
NOMINEES FOR ELECTION TO TERMS ENDING IN
1998 AND UNTIL THEIR SUCCESSORS ARE
ELECTED AND HAVE QUALIFIED:
DIRECTORS WHOSE PRESENT TERMS
CONTINUE UNTIL APRIL, 1996:
<TABLE>
<S> <C> <C>
A. WILLIAM REYNOLDS, JOHN S. RODEWIG, 61, is CHARLES E. HUGEL, 66,
61, is Chairman of President of Eaton is former Chairman and
GenCorp Inc., a Corporation and Chief Chief Executive Officer
technology-based Operating Officer - of Combustion
company with positions Vehicle Components. Mr. Engineering, Inc., a
in aerospace, Rodewig served as provider of products
automotive and Operations Vice and services for the
polymer products. Mr. President for Truck power, process,
Reynolds' association Components - Europe automation,
with GenCorp began in from 1979 and in 1989 environmental control
September, 1984, as advanced to Vice and other markets. Mr.
President and Chief President - Truck Hugel became President
Operating Officer. He Components Worldwide. and Chief Executive
was Chief Executive He was elected Officer of Combustion
Officer from August, President of the Truck Engineering, Inc., in
1985 to July, 1994 and Components Group in April, 1984 and
has served as Chairman January, 1991, was Chairman and Chief
since January, 1987. named President- Elect Executive Officer in
Mr. Reynolds is a and Chief Operating July, 1988. He was
director of Boise Officer in September, Chairman of Asea Brown
Cascade Corporation and 1991 and assumed the Boveri Inc. from
Chairman of the Federal presidency in January, January, 1990 to
Reserve Bank of 1992. He was elected to February, 1991 and,
Cleveland. his present position in until his retirement in
DIRECTOR SINCE 1987 September, 1993. He has December, 1991, was
been associated with advisor to the Chief
Eaton since 1956. Mr. Executive Officer. Mr.
Rodewig is a director Hugel is a director of
of AP Parts Pitney Bowes Inc.
International, Inc., DIRECTOR SINCE 1978
Hayes Wheels
International, Inc. and
FKI plc.
DIRECTOR SINCE 1992
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C> <C>
JOHN R. MILLER, 57, is FURMAN C. MOSELEY, 60, VICTOR A. PELSON, 57,
President and Chief is President of Simpson is Executive Vice
Executive Officer of Investment Company, President of AT&T and
TBN Holdings Inc., an holding company for Chairman of AT&T's
environmental company Simpson Paper Company Global Operations Team.
engaged primarily in and Simpson Timber Mr. Pelson began his
the resource recovery Company. He was career with AT&T in
and recycling business. Chairman of Simpson 1959 and has served in
He was President, Chief Paper from 1969 to many executive
Operating Officer and a January, 1995. Mr. positions, most
director of The Moseley is a director recently as Group
Standard Oil Company of Owens-Corning Executive and President
from August, 1980 Fiberglas Corporation. responsible for AT&T's
through March, 1986. DIRECTOR SINCE 1975 Communications Services
Mr. Miller formerly Group. He is a director
served as Chairman of of AT&T, as well as a
the Federal Reserve member of its
Bank of Cleveland and Management Executive
is a director of Committee, and a
American Waste director of United
Services, Inc. and Parcel Service.
ManGill Chemical. DIRECTOR SINCE 1994
DIRECTOR SINCE 1985
</TABLE>
7
<PAGE> 10
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL, 1997:
<TABLE>
<S> <C> <C> <C>
ALEXANDER M. CUTLER, PHYLLIS B. DAVIS, 63, STEPHEN R. HARDIS, 59, GARY L. TOOKER, 55, is
43, is Executive Vice is former Senior Vice is Vice Chairman and Vice Chairman and Chief
President and Chief President, Corporate Chief Financial and Executive Officer of
Operating Officer - Affairs of Avon Administrative Officer Motorola, Inc., a
Controls of Eaton Products, Inc., a of Eaton Corporation. manufacturer of
Corporation. He joined manufacturer and Mr. Hardis served as electronics equipment.
Cutler-Hammer, Inc. in marketer of cosmetics, Executive Vice Mr. Tooker joined
1975, which was toiletries and jewelry. President - Finance and Motorola in 1962 and
subsequently acquired Mrs. Davis joined Avon Administration prior to advanced to the position
by Eaton, and became in 1968, advanced to April, 1986. He joined of Senior Executive Vice
President of Eaton's Group Vice President Eaton in 1979. Mr. President and Chief
Industrial Group in (U.S.) in 1977 and was Hardis is a director of Corporate Staff Officer
1986. Mr. Cutler was head of its sales and First Union Real Estate in 1986. He became Chief
named President of the distribution from 1985 Investments Trust, Operating Officer in
Controls Group in 1989 to 1988. She became KeyCorp, Nordson 1988, President in 1990
and Executive Vice Corporate Senior Vice Corporation and and Vice Chairman and
President - Operations President of Business Progressive Chief Executive Officer
in 1991. He was elected Development in 1989 and Corporation. in December, 1993.
to his current served as Senior Vice DIRECTOR SINCE 1983 DIRECTOR SINCE 1992
position in September, President, Corporate
1993. Affairs from
DIRECTOR SINCE 1993 1990 until her
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>
8
<PAGE> 11
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 1994. The present members are Mrs. Davis and Messrs. 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 those plans 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 six meetings in 1994.
The present members are Messrs. Armstrong, Hugel, Miller, Moseley and Pelson.
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 1994. Mr. Butler is a member for the full twelve-month term;
each of the non-employee 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 two
meetings in 1994. 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 Organization and Nominating
Committee held
9
<PAGE> 12
three meetings in 1994. The present members are Messrs. Armstrong, Butler,
Hugel, Miller, Moseley and Pelson.
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 1996 should send a signed letter of recommendation,
to be received before November 3, 1995, 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 two meetings in 1994. The present members are Mrs. Davis and
Messrs. Hugel, Pattillo, Reynolds and Tooker.
The Board of Directors held nine meetings in 1994. All of the directors except
Mr. Moseley attended at least 75% of the meetings of the Board and its
committees. Attendance at meetings of the Board and its committees as a whole
averaged 91%.
TRANSACTIONS WITH ASSOCIATES OF EATON DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS -- In the ordinary course of business during 1994, 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 $10,904,000; from
GenCorp Inc., of which A. William Reynolds is Chairman, in the amount of
approximately $3,557,000; and from Motorola, Inc., of which Gary L. Tooker is
Vice Chairman and Chief Executive Officer, in the amount of approximately
$3,730,000. Also during 1994, in the ordinary course of business, sales were
made to AT&T in the amount of approximately $12,008,000; to GenCorp Inc. in the
amount of approximately $998,000; to Motorola, Inc. in the amount of
approximately $7,857,000; and to Florida Production Engineering, Inc.,
subsidiary of EGI, Inc., of which Ernie Green is President and Chief Executive
Officer, in the amount of approximately $95,000. 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
$30,000, 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 a non-employee director receives only one committee meeting fee for
both meetings. Non-employee directors receive an additional annual retainer of
$3,000 for each Board committee on which they serve or $5,000 for each committee
which they
10
<PAGE> 13
chair, except that no such retainers are paid for membership or chairmanship of
the Executive Committee or any ad hoc committee of the Board.
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 his or her 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 his serving on the Board of Directors of a subsidiary of the
Company, Mr. Armstrong received $30,000 from the subsidiary for attendance fees
and annual retainers for 1994. During 1994, 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 1994, 1993 and 1992.
11
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
AWARDS PAYOUTS
-------- ---------
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>
- ------------------------
W. E. Butler 1994 $694,155 $1,308,395 43,100 $408,799 $393,979
Chairman and Chief 1993 633,925 634,623 43,100 160,000 241,317
Executive Officer 1992 585,020 374,817 43,100 160,000 108,808
J. S. Rodewig 1994 $428,340 $ 687,355 31,700 $279,181 $117,387
President and Chief 1993 399,190 373,406 31,700 57,500 72,786
Operating Officer -- 1992 344,445 240,646 31,700 57,500 28,486
Vehicle Components
S. R. Hardis 1994 $483,000 $ 613,941 26,300 $258,108 $431,343
Vice Chairman and 1993 453,000 348,045 23,600 137,500 250,447
Chief Financial and 1992 434,000 205,186 23,600 137,500 107,655
Administrative Officer
A. M. Cutler 1994 $388,700 $ 613,941 26,300 $226,876 $ 20,819
Executive Vice 1993 354,360 292,822 21,300 92,500 21,910
President and Chief 1992 326,340 157,616 21,300 92,500 12,017
Operating Officer --
Controls
G. L. Gherlein 1994 $299,040 $ 324,527 15,500 $121,156 $157,037
Executive Vice 1993 283,680 184,583 12,600 57,500 87,296
President and 1992 271,680 108,619 12,600 57,500 40,102
General Counsel
- ----------------------------------------------------------------------------------------------------------
<FN>
(1) All Other Compensation contains several components. The Eaton Corporation
Share Purchase and Investment Plan permits an employee to contribute from 1%
to 6% of his or her salary to the matching portion of the plan. Eaton makes
a matching contribution which, except in special circumstances, ranges
between $.25 and $1.00 for each dollar contributed by the participating
employee, as determined under a formula designed to reflect Eaton's
quarterly earnings per share. The amounts the Company contributed during
1994 for the named executive officers were as follows: W. E. Butler, $8,207;
J. S. Rodewig, $9,000; S. R. Hardis, $8,707; A. M. Cutler, $9,000; and G. L.
Gherlein, $9,597. The Company maintains incentive compensation deferral
plans. Earnings on deferrals during 1994 which were above rates established
by the Internal Revenue Service, for each of the named executive officers,
were as follows: W. E. Butler, $332,776; J. S. Rodewig, $82,162; S. R.
Hardis, $404,291; A. M. Cutler, $826; and G. L. Gherlein, $134,484. Under a
Company program, each executive officer may acquire an automobile. The
approximate cost to the Company of this benefit in 1994 for each of the
named executive officers was as follows: W. E. Butler, $5,209; J. S.
Rodewig, $15,413; S. R. Hardis, $9,659; A. M. Cutler, $8,869; and G. L.
Gherlein, $8,982. The Company 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 1994
for each of the named executive officers were as follows: W. E. Butler,
$47,787; J. S. Rodewig, $10,811; S. R. Hardis, $8,686; A. M. Cutler, $2,126;
and G. L. Gherlein, $3,974. Each executive officer is responsible for paying
individual income taxes due with respect to the Company's automobile and
insurance programs.
</TABLE>
12
<PAGE> 15
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES -- The following table
contains information concerning the exercise of stock options during fiscal year
1994 and the value of unexercised stock options at the end of fiscal year 1994
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 3,202 $146,816 229,998 -0- $3,302,140 $ 0
J. S. Rodewig 3,200 79,386 132,598 -0- 1,641,794 0
S. R. Hardis 13,252 409,350 129,100 -0- 1,792,272 0
A. M. Cutler 1,400 58,401 130,598 -0- 1,895,310 0
G. L. Gherlein -0- -0- 80,398 -0- 1,201,636 0
- --------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION GRANTS -- The following table gives information concerning grants of
stock options made during fiscal year 1994 to each of
the named executive officers. No stock
appreciation rights were granted during fiscal
year 1994.
<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 4.5% $57.69 01/25/04 $0 $ 1,566,457 $ 3,953,438
J. S. Rodewig 31,700 3.3% 57.69 01/25/04 0 1,152,127 2,907,749
S. R. Hardis 26,300 2.7% 57.69 01/25/04 0 955,866 2,412,423
A. M. Cutler 26,300 2.7% 57.69 01/25/04 0 955,866 2,412,423
G. L. Gherlein 15,500 1.6% 57.69 01/25/04 0 563,343 1,421,770
- --------------------
All Shareholders(2) N/A N/A N/A N/A 0 2,834,794,612 7,154,481,639
<FN>
(1) Based on a total of 959,390 options granted to all employees. All options
granted to the named executive officers were granted on January 25, 1994 and
became exercisable on July 25, 1994.
(2) At the assumed annual rates of stock price appreciation of 0%, 5% and 10%,
the value of all 77,997,469 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.
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
LONG-TERM INCENTIVE PLAN AWARDS -- The following table gives information
regarding Long-Term Incentive Plan awards made during fiscal year 1994 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 $297,529 $595,058 $1,190,116
J. S. Rodewig N/A 4 years 204,235 408,471 816,942
S. R. Hardis N/A 4 years 175,342 350,685 701,370
A. M. Cutler N/A 4 years 175,342 350,685 701,370
G. L. Gherlein N/A 4 years 98,764 197,528 395,056
- ----------------------------------------------------------------------------------------------------
<FN>
(1) The awards made during 1994 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
76% of the goal will result in payment of the threshold amount, while
attaining approximately 118% of the goal will result in payment of the
maximum amount. All future payouts, if any, will be made in cash.
</TABLE>
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 of corporate
performance to executive compensation.
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 competitive
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 compensation 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 1994, base salaries were slightly below the median,
short-term incentive was above the median and long-term incentive compensation
was below the 75th percentile.
A significant portion of executive compensation is directly related to the
Company's financial performance and is therefore at risk. For 1994, 68% 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 1991-1994. 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, 50% to 60% 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 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 1994, 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
compensation and the effectiveness of various performance standards. Eighteen
other industrial corporations were used for purposes of this comparison.
(Seventeen 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. Two of the corporations included on that list of twenty were omitted
because they did not participate in the consulting firm data base, and one other
corporation which did participate was substituted for purposes of statistical
reliability.)
The following sections of this report contain information concerning each
component of Company compensation.
Base Salary. In establishing base salaries for executive officer positions, the
Compensation Committee is committed to pay-for-performance, internal equity and
external competitiveness.
Internal equity and external competitiveness are involved in establishing base
salary ranges for executive positions. Internal equity refers to the process by
which the Company's executive positions are evaluated and compared for the
purpose of assuring that salary ranges for those positions fairly reflect
similarities and differences in 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 competitiveness 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
eighteen companies mentioned above, are used in this annual process to help
ensure an accurate understanding of compensation being paid by the Company's
competitors in the marketplace. As a matter of
15
<PAGE> 18
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 determination 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 1994 base salaries of the executive officers were based on the
judgment of the Committee, taking into account the performance and external
competitiveness 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 --
- - Whether the Company has achieved predetermined levels of cash flow return on
the gross capital employed in the business (herein called "CRC").
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 1994, the Board of Directors has
eliminated 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 (DCBU) from Westinghouse Electric Corporation. In all
other respects, in 1994 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.
- - Individual performance ratings, which are based upon the judgment of the
Committee 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 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.
16
<PAGE> 19
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 individual 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. The
Committee did not exercise this authority in 1994.
With respect to the 1994 bonuses for executive officers, including the Chief
Executive Officer, the Company's CRC exceeded the level required for payment of
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 based on the fair market value of common
shares of the Company at the time of the award. Dividend equivalents are
credited to these units in the form of additional contingent share units. Upon
termination of employment, participants are entitled to appreciation on the
amount deferred based on the greater of (a) the then-current market value of an
Eaton common share or (b) the quarterly average return on 13-week U.S. Treasury
Bills.
Long-Term Cash Compensation Incentives. The Company provides long-term cash
incentive awards to executive officers and other senior executives. In
establishing long-term cash 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 1991, and their value depended upon whether the
Company achieved 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 were 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
in which grants are made.
17
<PAGE> 20
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 goals. 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 twenty 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 are 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 were deferred under the Strategic Incentive and Option
Plan appreciate based upon the Company's annual after-tax return on
shareholders' equity. The return on awards deferred under the Executive
Strategic Incentive Plan varies, depending on whether the participant has
elected to defer the award as retirement compensation, variable-term
compensation or short-term compensation. At least 50% of retirement
compensation, or such greater portion as the participant may elect, is converted
to share units based on the price of the Company's common shares, and earns a
return which is the same as for the common shares. The portion of retirement
compensation not allocated to share units, and variable-term compensation, earns
a return equal to the average yield of 10-year U.S. Government Treasury Notes
plus 300 basis points. Short-term compensation earns a return equal to the
quarterly average yield of 13-week U.S. Government Treasury Bills. This deferral
plan is being submitted for approval at the 1995 shareholders' meeting. See
pages 29 to 31.
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
periods ended in 1993 and in 1994 were adjusted to eliminate the effect of
charges or write-offs 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.
Stock Options. The Company uses stock options as an important component of
executive compensation 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
18
<PAGE> 21
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 executives is generally targeted at the 50th percentile for comparable
positions at the similarly situated companies included in the compensation
surveys of nationally recognized compensation consultants. For 1994, the
Committee approved somewhat larger grants to executives (at approximately the
63rd percentile). This maintains grant levels consistent with 1993 levels, as
adjusted to reflect the 1993 two-for-one stock split.
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 and no longer grants stock appreciation rights.
Chief Executive Officer Compensation and Company Performance. The Chief
Executive Officer's compensation for 1994 was earned pursuant to the executive
compensation plans described in the preceding sections of this report. The
performance factors and criteria on which his 1994 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 1994 base salary was based on an analysis
of compensation at the companies included in compensation surveys and the
eighteen companies in the peer group, level of responsibility, internal equity,
individual performance, time in position, prior experience and knowledge. The
amount of his 1994 earnings under the short-term incentive compensation plan was
based upon the Company's CRC for 1994 and his individual performance rating. His
1994 award under the long-term incentive plan for the four-year award period
beginning in 1994 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 1997. His 1994 grant of stock
options was made at a level consistent with the policy applicable to other
executive officers. 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, integrating the operations of DCBU with the Company's
industrial control and power distribution operations. The purchase of DCBU was
completed on January 31, 1994 and complements a number of the Company's existing
product lines. This acquisition offers the Company the opportunity to realize
substantial synergies, and therefore the conduct of the integration process is
critical to the Company's long-term success in this important business area.
Second, the Committee considered the Company's excellent operating performance
in 1994. The Company's 1994 earnings per share were $4.40, compared to $3.06 in
1993 (before an integration charge of $.49 per share and an extraordinary item
of $.05 per share). This
19
<PAGE> 22
represents a 44% increase in earnings per share for the year. Finally, the
Committee considered the Company's financial record in 1994. As indicated by the
performance graph on page 22, the Company's cumulative total return to
shareholders over the past five years significantly exceeded that of the
Standard & Poor's 500 Index and the peer group. That advantage was generated
earlier in the period and maintained in 1994.
In the opinion of the Committee, the Company's 1994 performance was directly
related to the Chief Executive Officer's strategic direction. Under his
guidance, the Company has focused its priorities on sustainable profitable
growth, earnings balance and product leadership. He has consistently emphasized
the importance of improving the Company's competitive position by enhancing
product quality, tightening cost controls, improving asset management skills and
prudently divesting lower performing units and facilities. Under his leadership,
the Company's business units continue to establish annual productivity
improvement goals and to measure their progress against these goals.
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 publicly held
corporations, such as the Company, 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 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, will continue to be deductible. It also appears,
however, that compensation in excess of $1 million paid pursuant to other plans
included in the Company's compensation may not continue to be deductible unless
those payments are deferred, or unless (among other things) the compensation
plans are modified to eliminate completely 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 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. 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
20
<PAGE> 23
this manner allows the Compensation Committee to apply its business judgment in
a manner that is consistent with the best interests of the plan participants and
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
Charles E. Hugel
John R. Miller
Furman C. Moseley
Victor A. Pelson
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.
21
<PAGE> 24
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG EATON, S&P 500 INDEX AND PEER COMPANIES
<TABLE>
Supporting data for stock performance chart:
<CAPTION>
PEER S&P
GROUP EATON 500
----- ----- -----
<S> <C> <C> <C>
1989 1.000 1.000 1.000
1990 0.894 0.906 0.968
1991 1.081 1.210 1.264
1992 1.220 1.564 1.361
1993 1.517 1.955 1.497
1994 1.533 1.952 1.517
</TABLE>
Assumes $100 invested on December 31, 1989 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 group of peer
companies are weighted based on the relative stock market capitalization of
those companies.
RETIREMENT PLANS -- The following table shows the annual normal retirement
benefits payable pursuant to the Company's retirement plans upon retirement at
age 65 at the compensation levels and years of service specified. The table
assumes retirement under the standard post-retirement single life annuity
option. 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.
22
<PAGE> 25
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 $ 20,796 $ 27,728 $ 34,661 $ 41,593 $ 48,525 $ 55,457
200,000 43,296 57,728 72,161 86,593 101,025 115,457
300,000 65,796 87,728 109,661 131,593 153,525 175,457
400,000 88,296 117,728 147,161 176,593 206,025 235,457
500,000 110,796 147,728 184,661 221,593 258,525 295,457
600,000 133,296 177,728 222,161 266,593 311,025 355,457
700,000 155,796 207,728 259,661 311,593 363,525 415,457
800,000 178,296 237,728 297,161 356,593 416,025 475,457
900,000 200,796 267,728 334,661 401,593 468,525 535,457
1,000,000 223,296 297,728 372,161 446,593 521,025 595,457
1,100,000 245,796 327,728 409,661 491,593 573,525 655,457
1,200,000 268,296 357,728 447,161 536,593 626,025 715,457
1,300,000 290,796 387,728 484,661 581,593 678,525 775,457
</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
($22,716 for 1994 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, 1995, 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, 38.0; A. M. Cutler, 19.4; G. L. Gherlein, 28.6; S. R.
Hardis, 15.4; and J. S. Rodewig, 37.9.
---------------
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.
---------------
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 or her earned retirement income (which includes amounts receivable pursuant
to the retirement plans described above as well as retirement plans maintained
by the executive's previous
23
<PAGE> 26
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 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. Four 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 $91,254, 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. A change in control would result from the
acquisition of shares representing 25% or more of the voting power of the
Company or the Company's merger or consolidation into or sale of assets to
another corporation or 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 below, 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. The officer also would be entitled to
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 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
24
<PAGE> 27
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 all the individuals having severance pay agreements were to become entitled
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 $20.4 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. APPROVAL OF THE EATON 1995
STOCK PLAN
Eaton's shareholders have approved stock option plans for employees on several
occasions in the past, most recently in 1991. The Board continues to believe
that share-based incentives are important factors in attracting and retaining
highly qualified individuals, and that they help to align the interests of those
individuals with the interests of the shareholders. A new share plan is needed
at this time because, as of January 31, 1995, only 182,907 common shares
remained available for additional awards under existing plans. In 1994, options
for 959,390 shares were granted to all employees. Therefore, the Board of
Directors is submitting to the shareholders for their approval the Eaton 1995
Stock Plan (the "Plan"). The Plan will authorize the granting of stock options
to non-employee directors, and the granting of stock options and other
share-based awards to salaried employees of the Company and its subsidiaries
selected by the Compensation Committee of the Board of Directors. The purpose of
the Plan is to provide long-term incentive through outstanding service to the
Company and its shareholders and to assist in recruiting and retaining highly
qualified individuals.
A complete copy of the Plan is included as Exhibit A to this proxy statement,
and the following summary is qualified in its entirety by the provisions of the
Plan.
ADMINISTRATION -- The Plan will be administered by the Compensation Committee of
the Board of Directors (the "Committee") with respect to employee awards. The
Committee will be comprised of non-employee directors. The Plan will be
administered by the Non-employee Director Options Committee with respect to non-
employee director options. That committee will be comprised of the members of
the Board who are employees of the Company.
SHARES AVAILABLE -- The total number of the Company's common shares with a par
value of 50c each ("shares") that may be delivered under the Plan cannot exceed
5 million, subject to adjustments for stock splits, stock dividends and other
events affecting the Company's common shares. Shares related to awards that are
forfeited, terminated or unexercised upon expiration shall immediately become
available for other awards. The maximum aggregate number of shares or share
units underlying options or related to other awards that may be granted to any
employee during any three consecutive calendar year period is 500,000.
To avoid dilution resulting from the exercise of stock options, the Board has
authorized the purchase of up to 5 million shares. Under the Board's
authorization, the Company may purchase the shares over a five-year period,
although only a maximum of 1.5 million shares can be purchased in any one year.
The actual number of shares to be purchased will depend upon market conditions.
25
<PAGE> 28
STOCK OPTIONS --
Employee Stock Options. The Committee may grant to employees options which are
intended to qualify as incentive stock options ("Incentive Stock Options") under
the Internal Revenue Code, or options which are not intended to so qualify. Each
option will give the employee the right to purchase a designated number of
shares.
Each option shall be exercisable at such times and for such number of shares as
shall be determined by the Committee as of the date of grant, although grants to
employees subject to Section 16(b) of the Securities Exchange Act of 1934
("16b") shall not be exercisable for at least six months after those options are
granted. The Committee may accelerate the times when an option may be exercised,
and the Management Compensation Committee (comprised of Company officers) may do
likewise for employees who are not subject to 16b.
Non-employee Director Stock Options. Subject to approval by shareholders at the
1995 annual meeting, each person serving as a non-employee director on January
24, 1995 and who continues serving in that capacity after the annual meeting of
shareholders on April 26, 1995, has been granted an option for 5,000 shares at
an exercise price of $48.56, which was the price of a share on January 24. Each
person who becomes a non-employee director after January 24, 1995 shall
automatically be granted an option for 5,000 shares upon the date of his or her
election. Each non-employee director shall automatically be granted options for
1,000 shares on each granting date that he or she continues to serve in that
capacity, beginning in the year after that director receives his or her initial
grant. The granting date is the Tuesday immediately before the fourth Wednesday
of each January. The term of each option shall be ten years from the date of
grant. A non-employee director option shall be fully exercisable six months
following the later of the date of grant or shareholder approval of the Plan.
Price. Each employee and non-employee director's options shall state the number
of shares to which it pertains and the option price. The option price shall be
the fair market value of the shares subject to the option on the date of grant.
The fair market value shall be the mean between the high and low prices as
quoted on the New York Stock Exchange Composite Transactions.
Payment. The exercise price shall be paid in full upon exercise in cash or, if
permitted by the applicable committee, by means of tendering shares or other
consideration valued at fair market value on the date of exercise.
STOCK APPRECIATION RIGHTS -- As indicated in the report of the Compensation
Committee of the Board of Directors on page 19, the Company no longer grants
stock appreciation rights, primarily because of their accounting consequences.
Although the Company does not have any present intention of granting stock
appreciation rights under the Plan, it reserves the right to do so if in the
Committee's opinion it should become advisable to use them.
The Committee may grant stock appreciation rights to eligible employees in
connection with any option granted under the Plan, or separate and apart from
any option. Stock appreciation rights granted in connection with an option
entitle the holder to receive a number of shares, or cash and shares, as the
Committee may determine. The cash or shares that the holder will be entitled to
receive will equal the amount by which the fair market value on the date of
exercise exceeds the option price. Such stock appreciation rights may be
exercised at the same times and to the same extent that the related option may
be exercised.
26
<PAGE> 29
Stock appreciation rights granted separate from any option entitle the holder to
receive a payment equal to the increase in the fair market value of the shares
designated by the right from the date of grant to the date of exercise. Such
stock appreciation rights may be exercised as determined by the Committee.
PERFORMANCE SHARES -- The Committee may grant performance shares to any eligible
employee for no cash consideration, if permitted by applicable law, or for such
consideration as may be determined by the Committee. The Committee shall
establish award periods and shall establish the number of performance shares to
be earned if Company performance objectives are met during the award periods.
The performance objectives shall be stated in terms of cash flow return on gross
capital employed in the Company's business ("CRC"). CRC equals the total of net
income plus depreciation, goodwill amortization and after-tax net interest
divided by the total of capital employed in the business plus accumulated
depreciation minus goodwill and short-term investments. After performance shares
have been awarded and performance objectives have been established, the
Committee may not increase the number of performance shares that may be earned
by any employee upon attainment of any performance objective. The actual levels
of CRC to be achieved, the length of the award periods and other terms and
conditions of the performance shares will be determined by the Committee.
If performance shares are not earned, they will be available for future grants.
OTHER AWARDS -- The Committee may grant other share-based awards to any eligible
employee for no cash consideration, if permitted by applicable law, or for such
consideration as may be determined by the Committee and specified in the grant.
Such grants may include restricted shares. The Committee may specify such
criteria or periods for payment as it shall determine and the extent to which
such criteria or periods have been met shall be conclusively determined by the
Committee. Other share-based grants may be paid in shares or other consideration
related to shares, and shall have such other terms and conditions as determined
by the Committee.
OTHER MATTERS -- The Plan will become effective as of January 1, 1995, if and
when approved by the shareholders at the 1995 annual meeting of shareholders,
and no awards may be granted after December 31, 2004.
Shares available for awards may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
The Plan may be terminated or amended by the Board of Directors without
shareholder approval, except that the Plan may not be amended without
shareholder approval to (i) materially increase the aggregate number of shares
which may be issued under the Plan, (ii) increase the maximum number of shares
which may be granted to any employee, (iii) grant options or stock appreciation
rights at a purchase price below fair market value on the date of grant or (iv)
materially modify the requirements as to eligibility for participation in the
Plan.
The Board of Directors is presently comprised of nine non-employee directors and
four employee directors. The class of employees to whom employee stock options
and other awards may be granted under the Plan is presently comprised of
approximately 280 persons.
The benefits that will be received by employees under the Plan, or that would
have been received under the Plan in 1994 if the Plan had then been in effect,
are not currently determinable. For comparison purposes, please refer to the
stock option grants that were made in 1994 under existing stock option plans, as
shown in the stock option grants table on page 13 and in the following table.
27
<PAGE> 30
- ------------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable
Values at Assumed Annual
Rates of Stock Price
Number Appreciation for Option
of Shares Term
Underlying -------------------------
Options 5% 10%
- -----------------------------------------------------
<S> <C> <C> <C>
Executive 212,550 $7,724,917 $19,496,573
Group
Non-Executive 746,840 27,143,152 68,505,392
Officer
Employee
Group
- -----------------------------------------------------
</TABLE>
If the Plan is approved by shareholders, in 1995, 45,000 stock options will
become effective for the non-employee directors as a group, having potential
realizable values of approximately $1,376,676 and $3,474,468 at assumed annual
rates of stock price appreciation of 5% and 10%, respectively, for the term of
the options.
FEDERAL INCOME TAX IMPLICATIONS --
General. The Plan has been designed to meet the new requirements in Section
162(m) of the Internal Revenue Code for stock options, stock appreciation rights
and performance shares, but has not been designed to meet those requirements for
other awards.
Stock Options. Employees may be granted incentive stock options or nonqualified
options. Under present federal income tax law and regulations, there is no tax
imposed as a result of the grant or exercise of an incentive stock option. The
amount by which the fair market value of the shares received upon exercise
exceeds the option price is an item of tax preference and may be subject to the
alternative minimum tax. If the shares received upon the exercise of an
incentive stock option are not disposed of within two years from the date the
option was granted and within one year after the date the shares are transferred
to the holder, upon the sale of the shares, the difference between the amount
realized on the sale and the option price will be taxed as long-term capital
gain or loss. Eaton will not be entitled to a tax deduction with respect to the
grant or exercise of the incentive stock option or upon the sale of the share
issued upon exercise. If these holding period rules are not met, the holder will
realize ordinary income upon disposition equal to the amount by which the fair
market value of the shares at the time of exercise (or, if lower, the proceeds
of sale) exceeds the option price. Eaton will be entitled to a tax deduction
equal to the ordinary income realized by the holder. Any gain in excess of the
amount taxed as ordinary income will be taxed as short-term or long-term capital
gain.
A person granted a non-qualified stock option will not be taxed upon the grant
of the option, and Eaton will not be entitled to a tax deduction by reason of
the grant. The option holder will realize taxable income upon exercise of the
option in the amount by which the fair market value of the shares received
exceeds the option price. Eaton will be entitled to a tax deduction equal to the
ordinary income to the employee.
Stock Appreciation Rights. Stock appreciation rights will not result in taxable
income to the recipient or a tax deduction for Eaton at the time of grant. The
exercise of stock appreciation rights will result in ordinary income in the
amount of any cash, or the fair market value of any shares, received. Eaton will
be entitled to a tax deduction equal to the ordinary income to the employee.
Performance Shares. Performance shares will not result in taxable income to the
recipient or a tax deduction for Eaton during any period that the recipient's
rights to shares under the award are contingent on Eaton's attainment of
performance goals. At the time the Committee certifies that the Company
performance goal has been met, the recipient will realize taxable ordinary
income equal to the fair market value of the shares at the time of
certification. Eaton will be entitled to a tax deduction in the same amount.
Other Awards. Restricted shares will not be taxable to the recipient, or
deductible by Eaton, when awarded or during the period the shares
28
<PAGE> 31
are restricted. At the time the restriction lapses, the recipient will realize
taxable ordinary income equal to the fair market value of the shares at the time
of lapse, less the amount (if any) paid by the recipient for those shares.
Subject to the provisions of Section 162(m) of the Internal Revenue Code, Eaton
will at that time be entitled to a tax deduction in the same amount.
ACCOUNTING PRACTICE -- There is currently no accounting charge to the income of
the Company in connection with the grant or exercise of a stock option. The
Company's income will be charged to the extent of any appreciation in the fair
value of stock appreciation rights which are outstanding and expected to be
exercised in the future. The Company's income will also be charged for the
expected fair value of shares awarded in the future as performance shares.
VOTE REQUIRED -- The Board's adoption of the Plan is conditioned upon the Plan
receiving the approval of the holders of the majority of the outstanding Eaton
common shares.
The Board of Directors recommends a vote FOR the approval of the Eaton 1995
Stock Plan.
3. APPROVAL OF THE EATON INCENTIVE COMPENSATION DEFERRAL PLAN
Since its approval by shareholders on April 28, 1982, the Company has had in
effect a plan providing for long-term incentive awards and allowing participants
to defer receipt of the amounts earned. In accordance with the terms of that
plan, however, no further deferrals are allowed. The Board continues to believe
that deferral arrangements are important factors in attracting and retaining
highly qualified individuals, in providing an incentive to improve the
profitability, competitiveness and growth of Eaton, and in helping to align the
interests of participants with those of the shareholders. Therefore, the Board
of Directors is submitting the Incentive Compensation Deferral Plan (the "Plan")
to the shareholders for their approval.
A complete copy of the Plan is included as Exhibit B, and the following summary
is qualified in its entirety by the provisions of the Plan.
ELIGIBILITY -- The Plan will authorize deferrals of amounts earned under Eaton's
existing long-term incentive compensation plans by all elected officers and
senior operations managers, and by such other executives as determined by the
Compensation Committee of the Board of Directors ("Committee") with respect to
amounts earned under any incentive compensation plan made available for deferral
by the Committee. The Committee has not selected any other executives for
participation. There presently are approximately 51 officers and senior
operations managers.
DEFERRAL ALTERNATIVES -- For each award period ending during or after 1994,
participants may elect to defer receipt of their eligible incentive compensation
as Short-Term Compensation, Variable-Term Compensation or Retirement
Compensation.
Short-Term Compensation. Short-Term Compensation will be paid to the
participant in a lump sum or in not more than five annual installments as
determined by the Committee, and shall earn a rate of return equal to the
quarterly average yield of 13-week U.S. Government Treasury Bills.
Variable-Term Compensation. Variable-Term Compensation is a response to
amendments to the Internal Revenue Code which limit the deductibility of
individual annual compensation in excess of $1 million. The amount allocated to
Variable-Term Compensation will be the amount determined by the Committee which,
when added to other compensation of the participant, exceeds the deductible
compensation limit imposed by Internal Revenue Code Section 162(m).
Variable-Term Compensation will be deferred until such time (as determined by
the Committee) that the compensation could be
29
<PAGE> 32
paid without exceeding the deductible compensation limit. Variable-Term
Compensation will earn a rate of interest, compounded quarterly, equal to the
average yield of 10-year U.S. Government Treasury Notes plus 300 basis points.
Retirement Compensation. The amount allocated to Retirement Compensation will
be deferred to retirement or to one year after retirement, subject to Committee
discretion as to date of payment. Between fifty percent and one hundred percent,
as elected by the participant, of the amount so allocated will be credited to
Common Share Retirement Compensation and the balance will be credited to
Interest Rate Retirement Compensation. All allocations to Common Share
Retirement Compensation are subject to approval of the Plan by the shareholders.
If that approval is not obtained, those allocations shall instead be made to
Interest Rate Retirement Compensation.
Common Share Retirement Compensation will be converted into share units based
upon the price of Eaton common shares with a par value of $.50 each ("Shares")
immediately following the incentive period in which the compensation to be
deferred was earned. Those share units will be credited with dividend
equivalents, which in turn will be converted into additional share units based
on the Share prices on the dividend payment dates. Upon payment in cash, share
units will be converted to the greater of (a) an amount based on Share prices in
the month preceding the payment, or (b) if an actual change in control of Eaton
shall have occurred within thirty-six months, an amount based on the price paid
in connection with that change in control. Upon payment in Shares, share units
shall be converted to the same number of Shares for distribution to the
participant. Shares available for awards may consist of authorized and unissued
Shares or treasury Shares. To avoid dilution, the Board has authorized the
purchase of up to 5 million Shares. Under the Board's authorization, the
Company may purchase the Shares over a five-year period, although only a
maximum of 1.5 million Shares can be purchased in any one year. The actual
number of Shares purchased will depend on market conditions.
The maximum, cumulative number of share units that may be allocated to all
participants is 2 million, subject to adjustment for stock splits and the like.
Given current levels of Common Share Retirement Compensation (see table on page
31) and Share dividends, this maximum should accommodate Plan requirements for
the foreseeable future.
Interest Rate Retirement Compensation will earn interest, compounded quarterly,
equal to the average yield of 10-year U.S. Government Treasury Notes plus 300
basis points.
AUTOMATIC PAYMENT -- Upon a proposed change in control, Eaton shall make an
immediate lump sum payment to each participant of his or her account balance. At
any time prior to a proposed change in control, however, the Committee may
decide that the lump sum payment shall not be made because it is not then
advisable in order to protect the benefits of the Plan. A proposed change in
control means the first to occur of the following: (i) twenty days after the
commencement of a tender offer for 25% or more of Eaton's outstanding voting
securities; (ii) twenty days after the commencement of solicitation of proxies
for a merger with another corporation which would result, in the Committee's
view, in less than 75% of the voting securities of the resulting corporation
being owned by the former Eaton shareholders; (iii) the date that Eaton enters
into an agreement to sell substantially all of its assets; (iv) within twenty
days after any person becomes the beneficial owner of 15% or more of Eaton's
then outstanding voting securities; or (v) the date that individuals who, at the
beginning of any two consecutive years constitute the Board of Directors, cease
for any reason to constitute at least 76% thereof, unless
30
<PAGE> 33
the election of each new director was approved by at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
ADMINISTRATION -- The Plan will be interpreted and administered by the
Committee. After retirement or other termination of employment, the Committee
will determine whether payment will be in a lump sum or in periodic
installments, the date at which a lump sum payment will be made or periodic
installments will commence, and whether Common Share Retirement Compensation
will be paid in cash or in Shares. In making these determinations, the Committee
may consider the wishes and needs of the participant.
AMENDMENT AND TERMINATION -- Eaton reserves the right, by action of the
Committee, to modify, amend or terminate the Plan except that (a) no amendment
or modification of the Plan permitting officers to receive awards or setting the
formula that determines the amount, price and timing of awards, shall be made
more than once every six months (or at more frequent intervals if permitted by
applicable governmental regulations), (b) no amendment or modification may be
made without shareholder approval which materially increases the aggregate
number of shares which may be issued under the Plan, which materially modifies
the requirements as to eligibility or which materially increases the benefits,
and (c) upon the occurrence of a change in control of Eaton, no amendment,
modification or termination of the Plan shall, without the consent of the
participant, alter or impair any rights or obligations under the Plan with
respect to that participant.
OTHER MATTERS -- Deferrals under the Plan will not be considered taxable income
to the participants until those amounts are distributed to them. Eaton will
receive a deduction for Federal income tax purposes at the same time. Eaton is
considering providing security for deferred compensation, but to date has made
no decision to do so.
The amounts which were allocated under the Plan for the award period ended
December 31, 1994, are set forth in the following table.
Incentive Compensation Deferral Plan
- ------------------------------------------------------
<TABLE>
<CAPTION>
Dollar Number
Value of
Name and Position ($) Units
- --------------------------------------------------
<S> <C> <C>
W. E. Butler, Chairman and $ 408,799 4,108
Chief Executive Officer
J. S. Rodewig, President and 209,385 2,104
Chief Operating Officer -
Vehicle Components
S. R. Hardis, Vice Chairman 258,108 2,594
and Chief Financial and
Administrative Officer
A. M. Cutler, Executive Vice 90,750 912
President and Chief
Operating Officer -
Controls
G. L. Gherlein, Executive 36,454 122
Vice
President and General
Counsel
Executive Group 1,190,536 11,156
Non-Executive Director Group -0- -0-
Non-Executive Officer 1,022,789 9,050
Employee Group
</TABLE>
- ---------------
Share units are available only for deferrals to Common Share Retirement
Compensation, and only a portion of the dollar value of the deferrals shown in
this table was allocated to that type of Retirement Compensation.
VOTE REQUIRED -- The Plan was adopted by the Board of Directors on June 22,
1994, but no allocations to Common Share Retirement Compensation are allowed
unless the Plan is approved by the holders of the majority of the outstanding
Eaton common shares.
The Board of Directors recommends a vote FOR the approval of the Eaton Incentive
Compensation Deferral Plan.
31
<PAGE> 34
4. 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 LLP as independent auditors to conduct the
annual audit of Eaton's books and records for 1995. 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 LLP as
independent auditors.
A representative of Ernst & Young LLP 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 LLP.
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.
SECURITY OWNERSHIP BY MANAGEMENT -- The following table shows the beneficial
ownership, reported to the Company as of January 31, 1995 of common shares of
the Company, including shares as to which a right to acquire ownership within 60
days after January 31, 1995 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 --
W. E. Butler 270,090 (4,5) --
A. M. Cutler 146,963 (3,4,5) --
P. B. Davis 1,173 --
G. L. Gherlein 123,719 (3,4,5) --
E. Green 500 --
S. R. Hardis 180,327 (4,5) --
C. E. Hugel 6,000 --
J. R. Miller 4,500 --
F. C. Moseley 11,600 (3) --
H. G. Pattillo 7,500 (6) --
V. A. Pelson 200 --
A. W. Reynolds 6,000 --
J. S. Rodewig 145,315 (3,4,5) --
G. L. Tooker 1,700 (3) --
Directors, Nominees and
Executive Officers
as a group of 27 1,387,520 (3,4,5) 1.8%
<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, 1995. 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, 1995
upon the exercise of outstanding stock options as follows: 229,998; 130,598;
80,398; 129,100; 132,598; and 1,071,818 shares for, respectively, Messrs.
Butler, Cutler, Gherlein, Hardis, Rodewig and all executive officers as a
group.
(6) Excludes 10,000 shares held by spouse of which beneficial ownership is
disclaimed.
</TABLE>
32
<PAGE> 35
Employee benefit plans of the Company and its subsidiaries on January 31, 1995
held 10,624,007 common shares for the benefit of participating employees, or
13.6% of common shares outstanding.
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, 1994, 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 1996 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, 1995.
By order of the Board of Directors
Earl R. Franklin
Secretary
March 17, 1995
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EXHIBIT A
EATON 1995 STOCK PLAN
1. PURPOSE
The Plan enables non-employee directors and professional and management
employees who contribute significantly to the success of Eaton Corporation (the
"Company") to participate in its future prosperity and growth and to identify
their interests with those of the shareholders. The purpose of the Plan is to
provide long-term incentive through outstanding service to the Company and its
shareholders and to assist in recruiting and retaining people of outstanding
ability and initiative in non-employee director, professional and management
positions.
2. ADMINISTRATION
(A) Employee Awards
With respect to employee awards, the Plan shall be administered by the
Compensation Committee of the Board of Directors (the "Committee"), which shall
consist of at least three non-employee directors selected by the Board. All
other non-employee directors also may serve as alternate members of the
Committee, who may take the place of any absent member or members at any meeting
of the Committee.
(B) Non-employee Director Options
With respect to non-employee director options, the Plan shall be administered by
the Non-employee Director Options Committee, which shall be comprised of the
members of the Board who are employees of the Company.
(C) Authority of Committees
With respect only to those awards for which it has administrative
responsibility, the Committee and the Non-employee Director Options Committee
shall each have complete authority to interpret all provisions of the Plan
consistent with law, to determine the type and terms of awards consistent with
the provisions of the Plan, to prescribe the form of instruments evidencing
awards, to adopt, amend and rescind general and special rules and regulations
for its administration, and to make all other determinations necessary or
advisable for its administration of the Plan. The determinations of each
committee shall be final and conclusive. The committees may act by resolution or
in any other manner permitted by law.
3. SHARES AVAILABLE
The aggregate of (a) the number of Eaton common shares delivered by the Company
in payment and upon exercise of awards to employees and non-employee directors
and (b) the number of shares subject to outstanding awards to employees and
non-employee directors shall not exceed 5,000,000 at any one time, subject to
adjustments as authorized herein. Shares related to awards that are forfeited,
terminated, unexercised upon expiration, settled in cash in lieu of shares or in
such manner that all or some of the shares covered by an award are not issued,
or exchanged for awards that do not involve shares, shall immediately become
available for other awards. Shares available for awards may consist, in whole or
in part, of authorized and unissued shares or treasury shares.
The maximum aggregate number of shares or share units underlying options or
related to other awards that may be granted to any employee during any three
consecutive calendar year period is 500,000.
Awards may be made under the Plan on or after January 1, 1995, subject to
approval of the Plan by shareholders at the 1995 annual meeting.
4. ELIGIBILITY FOR EMPLOYEE AWARDS
Any salaried employee (including officers) of the Company or any of its
subsidiaries
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occupying a professional or management position may be granted an award. The
Committee (a) will designate employees to whom grants are to be made, (b) will
specify the number of options, stock appreciation rights, performance shares,
restricted shares or other stock-based awards subject to each grant, and (c)
subject to Section 5(C), will specify the price of the award.
5. STOCK OPTIONS
(A) Employee Stock Options
Grants. The Committee may grant to eligible employees (i) options which are
intended to qualify as incentive stock options ("Incentive Stock Options") under
the Internal Revenue Code, or (ii) options which are not intended to qualify as
Incentive Stock Options. Each option will give the employee the right to
purchase a designated number of the Company's common shares with a par value of
50c each ("shares"). The aggregate fair market value (at the time of grant) of
shares for Incentive Stock Options under all plans of the Company which become
initially exercisable by an employee during any calendar year shall not exceed
$100,000 (or such other amount as may be provided by the Internal Revenue Code
or regulations thereunder).
Exercise. Each option shall be exercisable on such date or dates, during such
period and for such number of shares, as shall be determined by the Committee as
of the date of grant, although grants to employees subject to Section 16(b) of
the Securities Exchange Act of 1934 ("16b") shall not be exercisable for at
least six months after those options are granted. The Committee may, in its sole
discretion, accelerate the times when an option may be exercised and the
Management Compensation Committee (comprised of Company officers) may do
likewise for employees who are not subject to 16b.
(B) Non-employee Director Stock Options
Grants. Subject to approval by shareholders at the 1995 annual meeting, each
person serving as a non-employee director on January 24, 1995 and who continues
serving in that capacity after the annual meeting of shareholders on April 26,
1995, has been granted an option for 5,000 shares at an exercise price of
$48.56. Each person who becomes a non-employee director after January 24, 1995
automatically shall be granted an option for 5,000 shares upon the date of his
or her election. Each non-employee director shall automatically be granted an
option for 1,000 shares on each granting date that he or she continues to serve
in that capacity, beginning in the year after that director receives his or her
initial grant. The granting date is the Tuesday immediately before the fourth
Wednesday of each January.
Term. The term of each option shall be ten years from the date of grant.
Exercise. An option shall be fully exercisable six months following the later
of the date of grant or shareholder approval of the Plan.
(C) Price
Each employee and non-employee director option shall state the number of shares
to which it pertains and the option price. The option price shall be the fair
market value of the shares subject to the option on the date of grant. The fair
market value shall be the mean between the high and low prices as quoted on the
New York Stock Exchange Composite Transactions.
(D) Payment
The price at which shares may be purchased upon exercise of an employee or
non-employee director option shall be paid in full at the time of exercise in
cash, or, if permitted by the applicable committee, by means of tendering
shares or other consideration valued at fair market value on the date of
exercise, or any
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combination thereof. The applicable committee shall determine acceptable methods
of tendering shares or other consideration.
6. STOCK APPRECIATION RIGHTS
The Committee may grant stock appreciation rights to eligible employees in
connection with any option granted under the Plan, or separate and apart from
any option.
Stock appreciation rights granted in conjunction with an option entitle the
holder of an option, upon exercise of the stock appreciation rights, to
surrender the option, or any applicable portion thereof, to the extent
unexercised, and to receive a number of shares, or cash and shares, as the
Committee may determine. The cash or number of shares that the holder shall be
entitled to receive shall equal in aggregate fair market value the amount by
which the fair market value per share on the date of such exercise (as
determined by the Committee in its sole discretion) shall exceed the option
price per share of the related option, multiplied by the number of shares in
respect of which the stock appreciation rights have been exercised. Stock
appreciation rights granted separate and apart from any option entitle the
holder, upon exercise of such rights, to receive a payment measured by the
increase in the fair market value of a number of shares designated by such
rights from the date of grant to the date of exercise.
The number of shares subject to a stock appreciation right shall be counted
against the individual limit on the maximum number of shares that may be awarded
to any employee during any three consecutive calendar year period, and against
the maximum number of shares which may be delivered under the Plan. The number
of shares subject to a stock appreciation right granted in conjunction with an
option shall be deemed to be the number of shares subject to the option. The
number of shares subject to a freestanding stock appreciation right shall be the
number of shares to which the right applies.
7. PERFORMANCE SHARES
The Committee may grant performance shares to any eligible employee for no cash
consideration, if permitted by applicable law, or for such consideration as may
be determined by the Committee and specified in the grant. The Committee shall
establish award periods and shall establish the number of performance shares to
be earned if Company performance objectives are met. The performance objectives
shall be stated in terms of cash flow return on gross capital employed in the
Company's business ("CRC"). CRC equals the total of net income plus
depreciation, goodwill amortization and after-tax net interest divided by the
total of capital plus accumulated depreciation minus goodwill and short-term
investments. After performance shares have been awarded and performance
objectives have been established, the Committee may not increase the number of
performance shares that may be earned by any employee upon attainment of those
performance objectives within a performance period. The actual levels of CRC to
be achieved, and the length of the performance period and other terms and
conditions of the performance shares, shall be determined by the Committee.
To the extent performance shares are forfeited or the grant of performance
shares has expired or is surrendered, canceled or terminated, the shares subject
to the grant shall be available for future grants if within other plan
limitations.
8. OTHER AWARDS
The Committee may grant other share-based awards to any eligible employee for no
cash consideration, if permitted by applicable law, or for such consideration as
may be determined by the Committee and specified in the grant. Such grants may
include restricted shares. The Committee may specify such criteria or periods
for payment as it shall determine and the extent
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to which such criteria or periods have been met shall be conclusively determined
by the Committee. Other share-based grants may be paid in shares or other
consideration related to shares, as specified by the grant, and shall have such
terms and conditions as shall be determined by the Committee.
9. ASSIGNABILITY
Awards intended to be exempt from 16b are transferable only by will or the laws
of descent and distribution or to such greater extent as permitted by applicable
16b regulations. Such awards are exercisable during the grantee's lifetime only
by him or by his guardian or legal representative or by such others as permitted
by applicable 16b regulations. The appropriate committee shall have
discretionary authority to grant awards not intended to be exempt from 16b which
are transferable to members of an award holder's immediate family, including
trusts for the benefit of such family members and partnerships in which such
family members are the only partners. A transferred award may be exercised or
transferred by the transferee only to the extent that the grantee would have
been entitled had the award not been transferred. Notwithstanding anything
herein to the contrary, the exercise of incentive stock options shall be limited
as required by the Internal Revenue Code and applicable regulations.
10. ADJUSTMENTS
In the event of a reorganization, merger, consolidation, reclassification,
recapitalization, combination or exchange of shares, stock split, stock
dividend, rights offering or similar event affecting shares of the Company, the
appropriate committee shall equitably adjust (a) the number and class of shares
(i) reserved under the Plan, (ii) for which awards may be granted to an
individual, and (iii) covered by outstanding awards denominated in shares or
share units, (b) the prices relating to outstanding awards, and (c) the
appropriate fair market value and other price determinations for such awards.
11. GENERAL PROVISIONS
The Company shall have the right to deduct from any cash payment made under the
Plan any taxes required by law to be withheld. It shall be a condition to the
obligation of the Company to deliver shares that the participant pay the Company
such amount as it may request for the purpose of satisfying any such tax
liability. Any award under the Plan may provide that the participant may elect,
in accordance with any applicable committee regulations, to pay the amount of
such withholding taxes in shares.
No person, estate or other entity shall have any of the rights of a shareholder
with reference to shares subject to an award until a certificate or certificates
for the shares have been delivered to that person, estate or other entity. The
Plan shall not confer upon any non-employee director or employee any right to
continue in that capacity. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not governed by the laws of the United
States, shall be governed by the laws of Ohio.
12. AMENDMENT
The Board of Directors of the Company may alter, amend or terminate the Plan
from time to time, except that the Plan may not be amended without shareholder
approval to (i) materially increase the aggregate number of shares which may be
issued, (ii) increase the maximum number of shares which may be granted to any
employee, (iii) grant options or stock appreciation rights at a purchase price
below fair market value on date of grant, or (iv) materially modify the
requirements as to eligibility for participation in the Plan. The provisions of
the Plan pertaining to the awards to non-employee directors may not be amended
more than once every six months, other than to
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comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder.
13. EFFECTIVE AND TERMINATION DATES
The Plan will become effective as of January 1, 1995, if and when approved by
shareholders holding a majority of the Company's outstanding common shares
entitled to vote at the 1995 annual meeting of shareholders.
No awards shall be granted under the Plan after December 31, 2004. Awards
granted before that date shall remain valid thereafter in accordance with their
terms.
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EXHIBIT B
EATON INCENTIVE COMPENSATION DEFERRAL PLAN
I. PURPOSE
The Incentive Compensation Deferral Plan (the "Plan") enables employees who
contribute significantly to the success of Eaton Corporation (the "Company") to
defer receipt of awards earned under incentive compensation plans. The purpose
of the Plan is to help attract and retain highly qualified individuals, to
provide an incentive to those individuals to improve the profitability,
competitiveness and growth of the Company, and to help align their interests
with those of the shareholders.
II. ELIGIBILITY
All elected officers of the Company are eligible to participate in the Plan with
respect to amounts earned under the Executive Strategic Incentive Plan or any
other Eaton incentive plan made available for deferral hereunder by the
Committee. Such other executives as determined by the Committee shall also be
eligible to participate in the Plan with respect to any amounts earned under any
Eaton incentive compensation plan made available for deferral hereunder by the
Committee, including the Senior Operations Managers Plan.
III. DEFINITIONS
The terms used herein shall have the following meanings:
Account -- A bookkeeping account established by Eaton for a Participant to which
may be credited Deferred Incentive Compensation and earnings or losses thereon.
Agreement -- A written agreement between Eaton and a Participant deferring the
receipt of Incentive Compensation and indicating the term of the deferral.
Beneficiary -- The person or entity designated in writing by the Participant and
delivered to the Committee. If that person or entity is not living or in
existence at the time any unpaid balance of Deferred Incentive Compensation
becomes due after the death of a Participant, the term "Beneficiary" shall mean
the Participant's estate or legal representative or any person, trust or
organization designated in such Participant's will.
Board -- The Board of Directors of Eaton Corporation.
Change in Control of Eaton -- Shall be deemed to occur if (i) a tender offer
shall be consummated for 25% or more of the combined voting power of Eaton's
then outstanding voting securities, (ii) Eaton shall be merged or consolidated
with another corporation and as a result less than 75% of the outstanding voting
securities of the resulting corporation shall be owned by the former
shareholders of Eaton, other than affiliates (within the meaning of the
Securities Exchange Act of 1934 (the "Exchange Act")) of any party to such
merger or consolidation, as the same shall have existed immediately prior to
such merger or consolidation, (iii) Eaton shall sell substantially all of its
assets to another corporation which is not a wholly owned subsidiary of Eaton,
(iv) any "person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of 25%
or more of the combined voting power of Eaton's then outstanding securities; or
(v) during any period of two consecutive years, individuals who at the beginning
of that period constitute the Board cease to constitute at least a majority
thereof unless the election, or the nomination for election by Eaton's
shareholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. For purposes of this Plan, ownership of voting securities shall take
into account and include
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ownership as determined by applying the provisions of Rule 13d-3(d)(l)(i) of the
Exchange Act (as then in effect).
Committee -- The Compensation Committee of the Board.
Common Share Retirement Compensation -- Retirement Compensation which is
converted into share units in accordance with Article VII.
Deferred Incentive Compensation -- That portion of Incentive Compensation
deferred pursuant to the Plan.
Eaton -- Eaton Corporation, an Ohio corporation, and its subsidiaries and
successors and assigns.
Eaton Common Shares -- The common shares of Eaton Corporation with a par value
of 50c each.
Incentive Compensation -- Any payment awarded to a Participant under any
Incentive Compensation Plan.
Incentive Compensation Plan -- Any incentive compensation plan approved by
either the Board or its Compensation Committee.
Interest Rate Retirement Compensation -- Retirement Compensation which is
credited with Treasury Note Based Interest in accordance with Article VII.
Participant -- An employee of Eaton who elects to defer receiving benefits under
an Incentive Compensation Plan designated by the Committee as eligible for
deferral hereunder.
Periodic Installments -- Monthly, quarterly, semiannual or annual payments, over
a period not to exceed fifteen years, as determined by the Committee in its sole
discretion, which are substantially equal in amount, or, in the case of Common
Share Retirement Compensation, substantially equal in the number of share units
being valued and paid or the number of Eaton Common Shares being distributed,
except that earnings attributable to periods following Retirement or Termination
of Employment shall be included with each payment.
Plan -- This Incentive Compensation Deferral Plan pursuant to which Incentive
Compensation may be deferred for later payment.
Proposed Change in Control -- The first to occur of any of the following events
(including the expiration of the periods specified therein):
(i) twenty (20) days after the commencement of a tender offer shall be made for
the ownership of securities of Eaton representing 25% or more of the combined
voting power of Eaton's then outstanding voting securities (unless such tender
offer shall have been withdrawn);
(ii) twenty (20) days after the commencement of solicitation of proxies or
consents for a merger or consolidation with another corporation and as a result
of such merger or consolidation less than 75%, in the Committee's view, of the
outstanding voting securities of the surviving or resulting corporation would be
owned in the aggregate by the former shareholders of Eaton, other than the party
and any affiliates (within the meaning of the Exchange Act) of any party, to
such merger or consolidation, as the same shall have existed immediately prior
to such merger or consolidation;
(iii) upon the date that Eaton shall have entered into an agreement to sell
substantially all of its assets to another corporation which is not a wholly
owned subsidiary of Eaton;
(iv) within twenty (20) days after any "person" (as such term is used in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) becomes the beneficial owner,
directly or indirectly, of securities of Eaton representing 15% or more of the
combined voting power of Eaton's then outstanding securities; or
(v) upon the date that individuals who, at the beginning of any period of two
consecutive years, constitute the Board, cease for any
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reason to constitute at least 76% thereof, unless the election, or the
nomination for election by Eaton's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
For purposes of this definition, ownership of voting securities shall take into
account and include ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) of the Exchange Act (as then in effect).
Retirement -- The Termination of Employment of a Participant who is age
fifty-five or older and who has at least ten years of service with Eaton, who is
age sixty-five or older or who is eligible to receive pension payments under a
pension plan sponsored by Eaton commencing within sixty days of the date of such
Termination of Employment, or who is approved by the Committee to qualify as a
retirement.
Retirement Compensation -- That portion of Incentive Compensation deferred for
payment at Retirement, at one year following Retirement, or in Periodic
Installments commencing after Retirement.
Short-Term Compensation -- That portion of Incentive Compensation deferred for
payment as determined by the Committee in accordance with Article V.
Termination of Employment -- The time when a Participant shall no longer be
employed by Eaton, whether by reason of retirement, death, voluntary
resignation, divestiture, discharge (with or without cause), or such disability
that, under the then current employment practices of Eaton, the employment of
the Participant is deemed to have been terminated.
Treasury Bill Interest Equivalent -- A rate of interest equal to the quarterly
average yield of 13-week U.S. Government Treasury Bills.
Treasury Note Based Interest -- A rate of interest equal to the average yield of
10-year U.S. Government Treasury Notes plus 300 basis points.
Variable-Term Compensation -- That portion of Incentive Compensation deferred
for payment to a Participant until such time as it is determined by the
Committee in its sole discretion that such compensation can be paid in whole or
in part without exceeding the deduction limit imposed by Section 162(m) of the
Internal Revenue Code or without being subject to that section.
IV. ELECTION TO DEFER
Section 4.01 Deferral Options
With respect to any plan eligible for the deferral of Incentive Compensation
hereunder, for each award period ending during or after 1994 (an "Award
Period"), the Participant may elect to defer the receipt of all or part of his
or her Incentive Compensation as Short-Term Compensation, Variable-Term
Compensation or Retirement Compensation. Once a Participant has made an
effective election, he or she may not thereafter change that election or change
any allocation between Short-Term Compensation, Variable-Term Compensation or
Retirement Compensation.
Section 4.02 Amount Deferred
Not less than 10% of Incentive Compensation awarded for any Award Period may be
deferred under the Plan, except that Variable-Term Compensation may be less than
10% of the Incentive Compensation awarded for any Award Period. If a Participant
elects to allocate a portion of Incentive Compensation to both Short-Term
Compensation and Retirement Compensation, the amount allocated to each shall be
not less than 10% of the Incentive Compensation awarded for any Award Period.
Section 4.03 Election Deadline
To be in effect for an Award Period, a Participant's election must be completed,
signed and filed with the Committee on or
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before such date as is necessary to defer an award for Federal income tax
purposes.
V. SHORT-TERM COMPENSATION
If elected by a Participant, payment of the amount of Incentive Compensation
allocated to Short-Term Compensation will be deferred. Treasury Bill Interest
Equivalents shall be credited quarterly to the Participant's Short-Term
Compensation Account until such compensation is paid to the Participant. Short-
Term Compensation, together with credited Treasury Bill Interest Equivalents,
shall be paid to the Participant in a lump sum or in not more than five annual
installments as determined by the Committee.
VI. VARIABLE-TERM COMPENSATION
Section 6.01 Amount and Duration
Variable-Term Compensation is a response to amendments to the Internal Revenue
Code which limit the deductibility of individual annual compensation in excess
of $1 million. Only those Participants whose total taxable compensation is
likely to exceed that amount will be offered the opportunity to select
Variable-Term Compensation.
If elected by a Participant, the amount of Incentive Compensation allocated to
Variable-Term Compensation will be the amount (if any) determined by the
Committee in its sole discretion which, when added to other compensation of the
Participant, exceeds the deductible compensation limit imposed by Internal
Revenue Code Section 162(m). Amounts allocated as Variable-Term Compensation
shall be credited to the Account of the Participant on the date such amounts
would have been paid if there had been no valid deferral election. Variable-Term
Compensation will be deferred until such time as the Committee, in its sole
discretion, shall determine that it, together with the earnings thereon, can be
paid in whole or in part without exceeding the limit imposed by Section 162(m).
Section 6.02 Earnings
The Variable-Term Compensation Account shall be credited with Treasury Note
Based Interest, compounded quarterly until paid.
VII. RETIREMENT COMPENSATION
Section 7.01 Duration
If elected by a Participant, payment of the amount of Incentive Compensation
allocated to Retirement Compensation will be deferred to Retirement or to one
year after Retirement, but subject to Committee discretion as to date of payment
as provided herein. Retirement Compensation shall be credited to the Participant
on the date such amount would have been distributed to him or her if there had
been no valid deferral election by establishing an Account in the Participant's
name.
Section 7.02 Common Share Retirement Compensation
Between fifty percent and one hundred percent, as elected by the Participant, of
the amount allocated to Retirement Compensation shall be credited to Common
Share Retirement Compensation, and the balance shall be credited to Interest
Rate Retirement Compensation.
Common Share Retirement Compensation shall be converted into a number of share
units based upon the average of the mean prices for Eaton Common Shares for the
twenty trading days of the New York Stock Exchange during which Eaton Common
Shares were traded immediately following the end of the incentive period in
which the Incentive Compensation to be deferred was earned. On each Eaton Common
Share dividend payment date, dividend equivalents equal to the actual Eaton
Common Share dividends paid shall be credited to the share units in the
Participant's Account,
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and shall in turn be converted into share units utilizing the mean Eaton Common
Share price on the dividend payment date.
The maximum, cumulative number of share units that may be allocated to all
Participants is 2 million.
Allocations to Common Share Retirement Compensation are subject to approval of
the Plan by the Company's shareholders and to the share unit limitation provided
above. If that approval is not obtained, or if that limitation would be
exceeded, then those allocations shall instead be made to Interest Rate
Retirement Compensation.
Upon payment of Common Share Retirement Compensation in Eaton Common Shares, the
share units standing to the Participant's credit shall be converted to the same
number of Eaton Common Shares for distribution to the Participant.
Upon payment of Common Share Retirement Compensation in cash, including any
installment thereof in the case of Periodic Installments, the share units
required to make the cash payment shall be converted to an amount equal to the
greater of: (a) the product of the average of the mean prices for an Eaton
Common Share for the last twenty trading days of the New York Stock Exchange
during which Eaton Common Shares were traded in the month immediately preceding
the month in which the date of payment occurs, multiplied by the number of share
units then credited to the Participant's Account, or (b) if a Change in Control
of Eaton shall have occurred at any time within thirty-six months immediately
preceding the payment, the product of the number of share units credited to the
Participant's Account at the time of payment multiplied by the highest of (i)
the highest price paid for an Eaton Common Share in any tender offer in
connection with the Change in Control of Eaton; (ii) the price received for an
Eaton Common Share in any merger, consolidation or similar event in connection
with the Change in Control of Eaton; or (iii) the highest price paid for an
Eaton Common Share as reported in any Schedule 13D within the sixty-day period
immediately preceding the Change in Control of Eaton.
Section 7.03 Interest Rate Retirement Compensation
Retirement Compensation not credited to Common Share Retirement Compensation
shall be credited to Interest Rate Retirement Compensation. Interest Rate
Retirement Compensation shall be credited to the Interest Rate Retirement
Compensation Account, which shall earn Treasury Note Based Interest, compounded
quarterly, until paid.
Section 7.04 Periodic Installments
Upon the death of a Participant who has commenced receiving Periodic
Installments, the entire remaining amount of his or her Retirement Compensation
shall be distributed to the Participant's Beneficiary. Such distributions may be
made either in a lump sum or in installments in such amounts and over such
periods, not exceeding the remaining number of annual installments from the date
of death of the Participant, as the Committee may direct in its sole discretion.
Section 7.05 Termination of Employment
The Retirement Compensation Account of a Participant whose employment terminates
for reasons other than Retirement shall be distributed in a lump sum or in
Periodic Installments, as the Committee may determine in its sole discretion.
The lump sum payment shall be made, or the Periodic Installments shall commence,
as the Committee may determine in its sole discretion, no later than the
February 1 of the calendar year immediately after the calendar year that
includes the earliest of: (i) the Participant's death, (ii) the Participant's
attainment of age 55 if he or she was credited with at least 10 years of service
for Eaton (or an affiliate of Eaton), (iii) the Participant's
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attainment of age 65, or (iv) the fifth anniversary of the Participant's
termination of employment.
Earnings shall be credited on undistributed Retirement Compensation Accounts,
and annual installment payments shall be adjusted to reflect such additional
earnings, based on the remaining number of installment payments to be
distributed and based on Treasury Note Based Interest, computed quarterly.
VIII. AMENDMENT AND TERMINATION
Eaton fully expects to continue the Plan but it reserves the right, except as
otherwise provided herein, at any time by action of the Committee, to modify,
amend or terminate the Plan for any reason, including adverse changes in the
federal tax laws. Notwithstanding the foregoing, (a) no amendment or
modification of the provisions of the Plan permitting officers to receive awards
or setting the formula that determines the amount, price and timing of awards,
shall be made more than once every six months (or at more frequent intervals if
permitted by applicable governmental regulations); and (b) upon the occurrence
of a Change in Control of Eaton, no amendment, modification or termination of
the Plan shall, without the consent of the Participant, alter or impair any
rights or obligations under the Plan with respect to such Participant.
IX. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall interpret
the provisions of the Plan where necessary and may adopt procedures for the
administration of the Plan which are consistent with the provisions of the Plan
and any rules adopted by the Committee.
After Retirement or other Termination of Employment, the Committee shall
determine in its sole discretion (i) whether Retirement Compensation shall be
paid in a lump sum or in Periodic Installments, (ii) the date on which a lump
sum payment will be made or Periodic Installments will commence, which in the
case of Retirement shall be not later than one year following the date to which
the deferral was made, and in the case of Termination of Employment for reasons
other than Retirement shall be in accordance with Section 7.05, (iii) whether to
change the Periodic Installments or the number of years over which they are to
be paid, and (iv) whether Common Share Retirement Compensation will be paid in
cash or in Eaton Common Shares. In making these determinations, the Committee
may consider the wishes and needs of the Participant or his or her Beneficiary.
Each Participant or Beneficiary must claim any benefit to which such Beneficiary
may be entitled under the Plan by a written notification to the Committee. If a
claim is denied, it must be denied within a reasonable period of time in a
written notice stating the specific reasons for the denial. The claimant may
have a review of the denial by the Committee by filing a written notice with the
Committee within sixty days after the notice of the denial of his or her claim.
The written decision by the Committee with respect to the review must be given
within one hundred twenty days after receipt of the written request.
The determinations of the Committee shall be final and conclusive.
X. AUTOMATIC LUMP SUM PAYMENT
Except as provided below, upon the date of a Proposed Change in Control, Eaton
shall make an immediate lump sum payment of the Account balances, including all
earnings to that date, to each Participant or his or her Beneficiary. At any
time prior to a Proposed Change in Control, the Committee may decide that the
Lump Sum Payment shall not be made, upon a Proposed Change in Control, because
any such payment is not then advisable, in the
B-6
<PAGE> 47
Committee's judgment, in order to protect the benefits of the Participants under
the Plan. If the Committee makes such a decision, it may thereafter (i) take no
further action, in which case the Lump Sum Payments will not be made, (ii)
reconsider such decision and decide at a later date (which may be subsequent to
a Proposed Change in Control) to terminate the Plan and make Lump Sum Payments,
(iii) provide funding for the Plan benefits by depositing funds in trust for
such purpose or (iv) take no action to protect the Plan benefits.
XI. MISCELLANEOUS
Section 11.01 Adjustments
In the event of a reorganization, merger, consolidation, reclassification,
recapitalization, combination or exchange of shares, stock split, stock
dividend, rights offering or similar event affecting shares of the Company, the
Committee shall equitably adjust the limitation on the number and class of share
units which may be allocated to Participants as Common Share Retirement
Compensation, and the number of share units previously allocated to their
Accounts.
Section 11.02 Designation of Beneficiaries
Each Participant shall have the right, by written instruction to the Committee,
on a form supplied by the Committee, to designate one or more primary and
contingent Beneficiaries (and the proportion to be paid to each, if more than
one is designated) to receive his or her Account balance upon his or her death.
Any such designation shall be revocable by the Participant.
Section 11.03 Committee Actions
All actions of the Committee hereunder may be taken with or without a meeting.
If taken without a meeting, the action shall be in writing and signed by a
majority of the members of the Committee and if taken with a meeting, a majority
of the Committee shall constitute a quorum for any such action. The
determination by the Committee as to the withholding of taxes shall be binding
upon the Participants and their Beneficiaries.
Section 11.04 Assignment
No benefit under the Plan shall be subject to anticipation, alienation, sale,
transfer or encumbrance, and any attempt to do so shall be void. No benefit
hereunder shall in any manner be liable for the debts, contracts, or liabilities
of the person entitled to such benefits. If the Participant or Beneficiary shall
become bankrupt, or attempt to anticipate, alienate, sell, transfer or encumber
any benefit hereunder, then such benefit shall, in the discretion of the
Committee, cease and terminate, and the Committee may hold or apply the same for
the benefit of the Participant or his or her spouse, children, or other
dependents, or any of them, in such manner and in such amounts and proportions
as the Committee may deem proper. During a Participant's lifetime, rights
hereunder are exercisable only by the Participant or that person's guardian or
legal representative. Notwithstanding the foregoing, nothing in this Section
shall prohibit the transfer of any benefit by will or by the laws of descent and
distribution or (if permitted by applicable regulations under Section 16(b) of
the Securities Exchange Act) pursuant to a qualified domestic relations order,
as defined under the Internal Revenue Code and the Employee Retirement Income
Security Act.
Section 11.05 No Funding Required
The obligations of Eaton to make payments shall be a liability of Eaton to the
Participant. Eaton shall not be required to maintain any separate fund or
reserve, or purchase or acquire life insurance on a Participant's life, or
otherwise segregate assets to assure that any particular asset of Eaton is
available to make such payments by reason of Eaton's obligations hereunder.
Nothing contained in the Plan shall be construed as creating a trust or other
B-7
<PAGE> 48
fiduciary relationship between Eaton and a Participant or any other person.
Section 11.06 No Employment Contract
The Plan shall not be deemed to constitute a contract of employment between
Eaton and a Participant. Neither shall the execution of the Plan nor any action
taken by Eaton or the Committee pursuant to the Plan confer on a Participant any
legal right to be continued in any other capacity with Eaton whatsoever.
Section 11.07 Governing Law
The Plan shall be construed and governed in accordance with the law of the State
of Ohio to the extent not covered by Federal law.
B-8
<PAGE> 49
ADMISSION TO THE ANNUAL MEETING
Shareholders who plan to attend the 1995 annual
meeting of shareholders may apply for admission tickets
at the Registration Desk immediately prior to the meeting.
Shareholders whose shares are registered in the name
of a broker or bank should obtain certification of
ownership to bring to the meeting.
EATON CORPORATION
Eaton Center
Cleveland, Ohio 44114-2584
- --------------------------------------------------------------------------------
(LOGO)
<PAGE> 50
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Cutler-Hammer
de Puerto Rico, Inc. Retirement Savings Plan ("Plan"):
The undersigned, as a participant in the 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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Under the Plan,
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 shares for which it receives voting
instructions.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 51
<TABLE>
/ X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly to Key Trust Company of Ohio, N.A. in
the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 52
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton
Corporation Savings Plan for Certain Cutler-Hammer Represented
Employees ("Plan"):
The undersigned, as a participant in the 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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Under the Plan,
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 shares for which it receives voting
instructions.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 53
<TABLE>
/ X / PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly in the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 54
CONFIDENTIAL VOTING INSTRUCTIONS
To Fidelity Management Trust Company, Trustee for the Eaton Corporation
Consolidated Controls Profit Sharing Plan Trust ("Plan"):
The undersigned, as a participant in the 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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Under the Plan,
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 shares for which it receives voting
instructions.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green, A. W. Reynolds
and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 55
<TABLE>
/ X / PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly in the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 56
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the AIL Systems
Inc. Employee Investment Plan and Trust ("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 26, 1995, at 10:30
a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Shares
for which the Trustee does not receive voting instructions will not be
voted by the Trustee.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 57
<TABLE>
/X/ PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / / / / / / /
Directors 2. Approve
(see reverse) 1995
Stock Plan
3. Approve / / / / / /
Incentive
For, except vote withheld Compansation
from the following Deferral
nominee(s): Plan
_____________________________________________
4. Ratify / / / / / /
Appointment
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 and #4.
5. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
PARTICIPANT'S
SIGNATURE____________________________________ DATE _______________
NOTE: Please sign, date and return promptly to
Key Trust Company of Ohio, N.A. in the enclosed
envelope to protect confidentiality.
</TABLE>
<PAGE> 58
P EATON CORPORATION
R EATON CENTER
O CLEVELAND, OHIO 44114-2584
X -------------------------------------------------------
Y (LOGO)
The undersigned hereby appoints W. E. Butler, G. L. Gherlein and
E. R. Franklin as proxies, each with the power to appoint his
substitute, 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 27, 1995, at the annual meeting of shareholders to be held
at The Forum Conference and Education Center, One Cleveland Center,
Cleveland, Ohio on April 26, 1995, at 10:30 a.m. local time and at any
adjournments thereof.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
WHEN PROPERLY EXECUTED, IT WILL BE VOTED FOR ITEMS #1, #2, #3 AND #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> 59
<TABLE>
/X/ PLEASE MARK YOUR SHARES IN YOUR NAME REINVESTMENT SHARES
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / / / / / / /
Directors 2. Approve
(see reverse) 1995
Stock Plan
3. Approve / / / / / /
Incentive
For, except vote withheld Compansation
from the following Deferral
nominee(s): Plan
_____________________________________________
4. Ratify / / / / / /
Appointment
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 and #4.
5. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
SIGNATURE(S) _____________________________________________________ DATE ____________
SIGNATURE(S) _____________________________________________________ DATE ____________
NOTE: Please sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please add your title as such.
</TABLE>
<PAGE> 60
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton
Corporation Share Purchase and Investment Plan ("Plan"):
The undersigned, as a participant in the above Plan, 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") as to which the undersigned is entitled to direct the
voting in accordance with the Plan provisions, in each case at 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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Under the Plan,
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 Key Trust
Company of Ohio, N.A. at P.O. Box 91037, Cleveland, Ohio 44101-3037
(216) 813-6152.)
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 61
<TABLE>
/ X / PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly to Key Trust Company of Ohio, N.A. in
the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 62
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton Corporation Lincoln
Plant Share Purchase and Investment Plan and Trust ("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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Shares for which
the Trustee does not receive voting instructions will not be voted by the
Trustee.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 63
<TABLE>
/ X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly to Key Trust Company of Ohio, N.A. in
the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 64
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton
Corporation Wauwatosa Union Plan and Trust ("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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Shares for which
the Trustee does not receive voting instructions will not be voted by
the Trustee.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 65
<TABLE>
/ X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly to Key Trust Company of Ohio, N.A. in
the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 66
CONFIDENTIAL VOTING INSTRUCTIONS (UNALLOCATED SHARES ONLY)
To Key Trust Company of Ohio, N.A., Trustee for the Eaton
Corporation Share Purchase and Investment Plan ("Plan"):
The undersigned, as a participant in the above Plan, 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 the Plan (the
"unallocated shares") as to which the undersigned is entitled to direct the
voting in accordance with the provisions of the Plan at 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 26, 1995, at
10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #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: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 67
<TABLE>
/ X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly to Key Trust Company of Ohio, N.A. in
the enclosed envelope to protect confidentiality.
</TABLE>
<PAGE> 68
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton Corporation
Investment Plan for Hourly Employees of the Hydraulics Division Hutchinson
Plant ("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 26, 1995,
at 10:30 a.m. local time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1, #2, #3 and #4 unless contrary voting
instructions are indicated on the reverse side of this card. Shares for which
the Trustee does not receive voting instructions will not be voted by the
Trustee.
Election of Directors: N. A. Armstrong, W. E. Butler, E. Green,
A. W. Reynolds and J. S. Rodewig
SEE REVERSE
SIDE
<PAGE> 69
<TABLE>
/ X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Approve 1995 / / / / / /
Directors Stock Plan
(see reverse)
3. Approve Incentive / / / / / /
For, except vote withheld Compensation
from the following Deferral Plan
nominee(s):
___________________________________________ 4. Ratify Appointment / / / / / /
of Independent
Auditors
BOARD RECOMMENDS A VOTE FOR
#1, #2, #3 AND #4.
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
PARTICIPANT'S SIGNATURE ____________________________________ DATE __________
NOTE: Please sign, date and return promptly to Key Trust Company of Ohio, N.A. in
the enclosed envelope to protect confidentiality.
</TABLE>
