<PAGE> 1
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- --------------------------------------------------------------------------------
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]
PROXY STATEMENT
&
NOTICE OF MEETING
1996 ANNUAL MEETING OF SHAREHOLDERS
[EATON LOGO]
<PAGE> 3
NOTICE OF MEETING
The 1996 annual meeting of Eaton Corporation shareholders will be held
Wednesday, April 24, 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. Ratifying the appointment of independent auditors; and
3. 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 26, 1996. Shareholders of record at that time are
entitled to vote at the meeting.
By order of the Board of Directors
/s/ Earl R. Franklin
Earl R. Franklin
Secretary
March 18, 1996
- -------------------------------------------------------------------------------
Your Vote Is Important
To vote your shares, please indicate your choices, sign and date the enclosed
proxy card and return it in the accompanying postage-paid envelope. You will
save your Company the expense of a second mailing by returning your proxy card
promptly.
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<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 ....................... 8
Transactions with Associates of Eaton
Directors, Nominees and Executive
Officers ............................. 9
Compensation of Directors .............. 9
Executive Compensation ................. 10
Ratification of the Appointment of
Independent Auditors ................. 23
Other Business ......................... 23
Security Ownership by Management........ 23
Future Shareholder Proposals ........... 24
</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 18, 1996. Eaton's annual report for the year ended
December 31, 1995 is scheduled to be mailed to shareholders beginning March 14,
1996.
PROXY SOLICITATION
Eaton's Board of Directors solicits your proxy, in the form enclosed, for use at
the 1996 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 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 telephone or facsimile. Eaton has retained
Morrow & Co., Inc., 909 Third Avenue, New York, New York 10022, to assist in the
solicitation of proxies, primarily from brokers, banks and other nominees, for a
fee estimated at $7,000. Brokerage firms, nominees, custodians and fiduciaries
may be requested to forward proxy soliciting material to the beneficial owners
of shares of record. All reasonable soliciting costs will be borne by Eaton.
VOTING AT THE MEETING
Each Eaton shareholder of record at the close of business on February 26, 1996
is entitled to one vote for each share then held. On February 26th, 77,673,349
Eaton common shares (par value, 50c each) were outstanding and entitled to vote.
At the 1996 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 1996 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 1996 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 1996 annual meeting will require the affirmative
vote of the holders of a majority of the outstanding Eaton common shares, which
requirement is consistent with the general vote requirement in Eaton's Amended
3
<PAGE> 6
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 eleven members. The terms of
four directors will expire in April, 1996, and those directors have been
nominated for re-election. Three of the nominees were elected at the 1993 annual
meeting, and one was elected at the 1994 annual meeting. (See page 5.)
Following is biographical information about each nominee and each director
continuing in office.
4
<PAGE> 7
NOMINEES FOR ELECTION TO TERMS ENDING IN 1999 OR WHEN THEIR SUCCESSORS ARE
ELECTED AND HAVE QUALIFIED:
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
CHARLES E. HUGEL, 67, JOHN R. MILLER, 58, is FURMAN C. MOSELEY, 61, VICTOR A. PELSON, 58, is
is former Chairman President and Chief is Chairman of Executive Vice President
and Chief Executive Executive Officer of Sasquatch Publishing of AT&T and Chairman of
Officer of Combustion TBN Holdings Inc., an Company. He is former AT&T's Global Operations
Engineering, Inc., a environmental company President of Simpson Team. Mr. Pelson began
provider of products engaged primarily in Investment Company, his career with AT&T in
and services for the the resource recovery holding company for 1959 and has served in
power, process, and recycling business. Simpson Paper Company many executive
automation, He was President, Chief and Simpson Timber positions, most recently
environmental control Operating Officer and a Company. He was as Group Executive and
and other markets. Mr. director of The Chairman of Simpson President responsible
Hugel became President Standard Oil Company Paper from 1969 to for AT&T's
and Chief Executive from August, 1980 January, 1995 and Communications Services
Officer of Combustion through March, 1986. retired as President of Group. He is a director
Engineering, Inc., in Mr. Miller formerly Simpson Investment in of AT&T, as well as a
April, 1984 and served as Chairman of July, 1995. Mr. Moseley member of its Management
Chairman and Chief the Federal Reserve is a director of Owens- Executive Committee. He
Executive Officer in Bank of Cleveland and Corning Fiberglas will retire from AT&T at
July, 1988. He was is a director of Corporation. the end of March, 1996.
Chairman of Asea Brown American Waste DIRECTOR SINCE 1975 Mr. Pelson is a director
Boveri Inc. from Services, Inc. of United Parcel
January, 1990 to DIRECTOR SINCE 1985 Service.
February, 1991 and, DIRECTOR SINCE 1994
until his retirement in
December, 1991, was
advisor to the Chief
Executive Officer. Mr.
Hugel is a director of
Pitney Bowes Inc.
DIRECTOR SINCE 1978
</TABLE>
5
<PAGE> 8
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL, 1997:
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
ALEXANDER M. CUTLER, PHYLLIS B. DAVIS, 64, STEPHEN R. HARDIS, 60, GARY L. TOOKER, 56, is
44, is President and is former Senior Vice is Chairman and Chief Vice Chairman and Chief
Chief Operating Officer President, Corporate Executive Officer of Executive Officer of
of Eaton Corporation. Affairs of Avon Eaton Corporation. Mr. Motorola, Inc., a
Mr. Cutler joined Products, Inc., a Hardis joined Eaton in manufacturer of
Cutler-Hammer, Inc. manufacturer and 1979 as Executive Vice electronics equipment.
in 1975, which was marketer of cosmetics, President - Finance and Mr. Tooker joined
subsequently acquired toiletries and jewelry. Administration. He was Motorola in 1962 and
by Eaton, and became Mrs. Davis joined Avon elected Vice Chairman advanced to the position
President of Eaton's in 1968, advanced to in 1986 and designated of Senior Executive Vice
Industrial Group in Group Vice President Chief Financial and President and Chief
1986 and President of (U.S.) in 1977 and was Administrative Officer. Corporate Staff Officer
the Controls Group in head of its sales and He became Chief in 1986. He became Chief
1989. He advanced to distribution from 1985 Executive Officer in Operating Officer in
Executive Vice to 1988. She became September, 1995 and 1988, President in 1990
President - Operations Corporate Senior Vice Chairman in January, and Vice Chairman and
in 1991, was elected President of Business 1996. Mr. Hardis is a Chief Executive Officer
Executive Vice Development in 1989 and director of First Union in December, 1993.
President and Chief served as Senior Vice Real Estate Investments DIRECTOR SINCE 1992
Operating Officer - President, Corporate Trust, KeyCorp, Nordson
Controls in September, Affairs from 1990 until Corporation and
1993 and assumed his her retirement in Progressive
present position in September, 1991. Mrs. Corporation.
September, 1995. Davis is a director of DIRECTOR SINCE 1983
DIRECTOR SINCE 1993 BellSouth Corporation
and The TJX Companies,
Inc., and a trustee of
various open-end mutual
funds in the Fidelity
Group.
DIRECTOR SINCE 1991
</TABLE>
6
<PAGE> 9
DIRECTORS WHOSE PRESENT TERMS CONTINUE UNTIL APRIL, 1998:
<TABLE>
<S> <C> <C>
[PHOTO] [PHOTO] [PHOTO]
NEIL A. ARMSTRONG, 65, ERNIE GREEN, 57, is A. WILLIAM REYNOLDS,
is former Chairman of founder, President and 62, is Chief Executive
Computing Technologies Chief Executive Officer of the Old Mill Group,
for Aviation, Inc., a of EGI, Inc., a a private investment
computer systems manufacturer of firm. Mr. Reynolds is
company, a position he automotive components. former Chairman of
held from 1982 until He is also President of GenCorp Inc. He was
1992. He is a director Florida Production Chairman of GenCorp
of Cincinnati Engineering, Inc., from 1987 through
Milacron, Inc., Cinergy subsidiary of EGI. He March, 1995 and Chief
Corp., RMI Titanium is a director of Executive Officer from
Co., Thiokol Acordia, Inc., Bank August, 1985 to July,
Corporation and USX One, Dayton, N.A., DP&L 1994. Mr. Reynolds is a
Corporation. Inc. and Duriron director of Boise
DIRECTOR SINCE 1981 Company, Inc. Cascade Corporation,
DIRECTOR SINCE 1995 Boise Cascade Office
Products Corp. and
Stant Corp. and is
Chairman of the Federal
Reserve Bank of
Cleveland.
DIRECTOR SINCE 1987
</TABLE>
7
<PAGE> 10
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 1995. The present members are Mrs. Davis and Messrs. Green, Hugel
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 and the Incentive Compensation Deferral
Plan, 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 seven meetings in 1995. The present members are Messrs.
Armstrong, Hugel, Miller, Moseley, Pelson and Tooker.
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 1995. Mr. Hardis 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 three
meetings in 1995. The present members are Messrs. Armstrong, Miller, Moseley,
Reynolds 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
8
<PAGE> 11
vacant due to unforeseen circumstances. The Organization and Nominating
Committee held four meetings in 1995. The present members are Messrs. Armstrong,
Hardis, Hugel, Miller, Moseley, Pelson and Tooker.
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 1997 should send a signed letter of recommendation,
to be received before November 8, 1996, 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 consenting 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 1995. The present members are Mrs. Davis and
Messrs. Green, Hugel and Pelson.
The Board of Directors held nine meetings in 1995. All of the directors 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 94%.
TRANSACTIONS WITH ASSOCIATES OF EATON DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS -- In the ordinary course of business during 1995, Eaton made purchases
in the amount of approximately $15,663,000 from AT&T, of which Victor A. Pelson
is Executive Vice President and Chairman of the Global Operations Team;
purchases in the amount of approximately $4,066,000 from GenCorp Inc., of which
A. William Reynolds is former Chairman; and purchases in the amount of
approximately $7,485,000 from Motorola, Inc., of which Gary L. Tooker is Vice
Chairman and Chief Executive Officer. Also during 1995, in the ordinary course
of business, sales were made to AT&T in the amount of approximately $10,272,000;
to GenCorp Inc. in the amount of approximately $867,000; and to Motorola, Inc.
in the amount of approximately $43,957,000. 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 chair, except that no such retainers are paid for membership or
chairmanship of the Executive
9
<PAGE> 12
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.
Pursuant to the Eaton 1995 Stock Plan, as approved by the shareholders, each
person serving as a non-employee director on January 24, 1995 and who continued
serving in that capacity after the annual meeting of shareholders on April 26,
1995 was granted an option for 5,000 shares. Each person who becomes a
non-employee director thereafter will be granted an option for 5,000 shares on
the date of his or her first election to the Board. Beginning in the year
following the initial grant, each non-employee director will receive an option
for 1,000 shares annually during his or her service on the Board.
In connection with his serving on the Board of Directors of a subsidiary of the
Company, Mr. Armstrong received $31,500 from the subsidiary for attendance fees
and annual retainers for 1995. During 1995, 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 who were first elected prior to
1996 are eligible to receive an annual benefit, as described below. Newly
elected directors are not eligible to receive the annual benefit. For Board
service of at least five years, eligible directors receive an annual benefit
equal to the annual retainer in effect at the time such directors leave the
Board. Eligible 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 two individuals who served as Chief Executive Officer of Eaton during
fiscal year 1995 and the five other most highly compensated executive officers
for fiscal year 1995. The table also summarizes compensation of the named
executive officers for fiscal years 1994 and 1993.
10
<PAGE> 13
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
AWARDS PAYOUTS
-------- ---------
ANNUAL COMPENSATION STOCK LONG- TERM ALL OTHER
-------------------------------- OPTIONS INCENTIVE COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) PAYOUTS (1)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
W. E. Butler (Retired) 1995 $800,040 $1,360,786 43,100 $691,872 $483,684
Chairman and Chief 1994 694,155 1,308,395 43,100 408,799 393,979
Executive Officer 1993 633,925 634,623 43,100 160,000 241,317
S. R. Hardis 1995 $580,020 $ 867,720 26,300 $470,912 $499,251
Chairman and Chief 1994 483,000 613,941 26,300 258,108 431,343
Executive Officer 1993 453,000 348,045 23,600 137,500 250,447
J. S. Rodewig (Retired) 1995 $445,020 $ 680,832 31,700 $474,927 $147,482
President and Chief Operating 1994 428,340 687,355 31,700 279,181 117,387
Officer -- Vehicle Components 1993 399,190 373,406 31,700 57,500 72,786
A. M. Cutler 1995 $470,170 $ 626,980 26,300 $385,259 $ 20,554
President and Chief Operating 1994 388,700 613,941 26,300 226,876 20,819
Officer 1993 354,360 292,822 21,300 92,500 21,910
G. L. Gherlein 1995 $319,360 $ 338,026 15,500 $229,663 $155,930
Executive Vice President and 1994 299,040 324,527 15,500 121,156 157,037
General Counsel 1993 283,680 184,583 12,600 57,500 87,296
T. W. O'Boyle 1995 $272,600 $ 305,361 7,300 $137,288 $ 20,776
Senior Vice President -- 1994 241,403 221,403 7,300 144,287 14,961
Truck Components 1993 222,160 120,434 7,300 25,949 21,305
L. M. Oman 1995 $253,040 $ 297,473 8,000 $148,998 $ 23,082
Senior Vice President -- 1994 217,520 230,472 7,300 120,914 19,263
Automotive Components 1993 202,256 119,938 7,300 59,749 19,773
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 amount the Company contributed during 1995
for the named executive officers was as follows: W. E. Butler, $9,900; S. R.
Hardis, $9,900; J. S. Rodewig, $9,000; A. M. Cutler, $9,000; G. L. Gherlein,
$9,544; T. W. O'Boyle, $9,000; and L. M. Oman, $9,000. The Company maintains
plans pursuant to which incentive compensation may be deferred. Earnings on
such deferrals which are above rates established by the Internal Revenue
Service must be disclosed in this table. Those earnings during 1995 for each
of the named executive officers were as follows: W. E. Butler, $388,935; S.
R. Hardis, $470,736; J. S. Rodewig, $96,708; A. M. Cutler, $1,528; G. L.
Gherlein, $130,974; T. W. O'Boyle, $177; and L. M. Oman, $2,321. Under a
Company program, each executive officer may acquire an automobile at an
approximate cost to the Company for each of the named executive officers for
1995 as follows: W. E. Butler, $30,363; S. R. Hardis, $9,060; J. S. Rodewig,
$27,692; A. M. Cutler, $7,333; G. L. Gherlein, $10,870; T. W. O'Boyle,
$9,120; and L. M. Oman, $9,427. 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 1995 for each of the named executive officers were as follows: W. E.
Butler, $54,486; S. R. Hardis, $9,555; J. S. Rodewig, $14,082; A. M. Cutler,
$2,693; G. L. Gherlein, $4,542; T. W. O'Boyle, $2,479; and L. M. Oman,
$2,334. Each executive officer is responsible for paying individual income
taxes due with respect to the Company's automobile and insurance programs.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES -- The following table
contains information concerning the exercise of stock options during fiscal year
1995 and the value of unexercised stock options at the end of fiscal year 1995
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 3,185 $162,958 264,548 0 $4,107,597 $ 0
S. R. Hardis 14,359 482,934 139,400 0 1,980,972 0
J. S. Rodewig 5,208 155,065 157,364 0 2,043,289 0
A. M. Cutler 11,108 458,808 140,550 0 2,013,303 0
G. L. Gherlein 4,428 216,712 89,898 0 1,373,097 0
T. W. O'Boyle 350 6,706 39,470 0 524,275 0
L. M. Oman 0 0 47,200 0 726,974 0
- --------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION GRANTS -- The following table gives information concerning grants of
stock options made during fiscal year 1995 to each of the named executive
officers. No stock appreciation rights were granted during fiscal year 1995.
<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 4.00% $48.56 01/24/05 $0 $ 1,316,236 $ 3,335,601
S. R. Hardis 26,300 2.45% 48.56 01/24/05 0 803,179 2,035,413
J. S. Rodewig 31,700 2.95% 48.56 01/24/05 0 968,090 2,453,330
A. M. Cutler 26,300 2.45% 48.56 01/24/05 0 803,179 2,035,413
G. L. Gherlein 15,500 1.44% 48.56 01/24/05 0 473,356 1,199,578
T. W. O'Boyle 7,300 .68% 48.56 01/24/05 0 222,936 564,963
L. M. Oman 8,000 .74% 48.56 01/24/05 0 244,313 619,137
- --------------------
All Shareholders(2) N/A N/A N/A N/A 0 2,371,051,041 6,008,708,865
</TABLE>
(1) Based on a total of 1,035,570 options granted to all employees. All options
granted to the named executive officers were granted on January 24, 1995 and
became exercisable on July 24, 1995.
(2) At the assumed annual rates of stock price appreciation of 0%, 5% and 10%,
the value of all 77,639,788 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.
- --------------------------------------------------------------------------------
12
<PAGE> 15
LONG-TERM INCENTIVE PLAN AWARDS -- The following table gives information
regarding Long-Term Incentive Plan awards made during fiscal year 1995 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 $ 72,321 $144,641 $ 289,282
S. R. Hardis N/A 4 years 278,173 556,345 1,363,824
J. S. Rodewig N/A 4 years 49,644 99,288 198,576
A. M. Cutler N/A 4 years 202,839 405,678 811,356
G. L. Gherlein N/A 4 years 96,030 192,060 384,120
T. W. O'Boyle N/A 2 years 64,600 129,200 258,400
L. M. Oman N/A 2 years 64,600 129,200 258,400
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The awards made during 1995 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. Effective
September 1, 1995, Messrs. O'Boyle and Oman were promoted to the position of
Senior Vice President. In order to provide for the transition of their
participation under the long-term incentive compensation plan for
non-officer senior operating managers (which provides for awards with
two-year performance periods) (the "non-officer plan") to the long-term
incentive compensation plan for officers (which provides for awards with
four-year performance periods)(the "officer plan"), the Compensation
Committee of the Board of Directors expects to grant partial awards to
Messrs. O'Boyle and Oman in future years under the officer plan. The awards
shown in the above table for Messrs. O'Boyle and Oman were those granted
under the non-officer plan.
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.
13
<PAGE> 16
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
similarly 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 1995, base salaries of the executive officers as a group
were slightly below the median, but, reflecting above-average corporate
performance, both short-term incentive compensation and long-term incentive
compensation were above the median.
A significant portion of executive compensation is directly related to the
Company's financial performance and is therefore at risk. For 1995, 70% of the
aggregate cash compensation to the executive officers named in the compensation
table 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 1992-1995. The Company's
performance under the short-term incentive compensation plan and its four-year
performance under the long-term incentive plan exceeded target objectives.
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 1995, 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. The Committee 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. (These corporations are included on the list of twenty corporations
which comprise the peer group whose financial performance is shown on the graph
on page 20. Two of the corporations included on that list of twenty were omitted
because they did not participate in the consulting firm data base.)
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. To a certain
extent, maintaining internal equity requires the exercise of judgment. At least
every three years, the Company's executive positions are reviewed
14
<PAGE> 17
by a nationally recognized compensation consultant to ensure that the Company's
job evaluation practices are consistent with those of other companies.
External competitiveness refers to the process by which the salary ranges of
executive and other positions are compared to current actual salaries 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 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.
The Committee uses its judgment to determine individual base salaries but
normally 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.
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 1995 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 1995, 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
15
<PAGE> 18
confronting the executive, such as general economic conditions experienced by
the Company and the performance of other large industrial corporations.
With respect to the relative weights of these factors used to determine
short-term incentive payments, no payments will be made unless the Company
achieves the predetermined levels of CRC. If those levels are achieved, then
the individual ratings may vary the CRC adjusted target awards. 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 1995.
With respect to the 1995 bonuses for executive officers, including both the
immediately preceding Chief Executive Officer and the current 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.
Grants under the long-term incentive compensation 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.
These performance objectives are established by the Compensation Committee and
are expressed in terms of CRC. CRC was selected as the measurement for
performance objectives because the Compensation Committee believes 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. Furthermore, this measurement, unlike
others that were considered, does not serve to discourage either the strategic
acquisitions or the capital investments deemed
16
<PAGE> 19
necessary to achieve the Company's long-range goals.
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 eighteen 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 seventy-fifth (75th)
percentile, as indicated by the historical data, of the peer group.
Assuming performance at or above the minimum performance objectives, awards
under the plan 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. The return on awards deferred under the 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 was approved by the shareholders at the 1995
annual meeting.
Performance objectives for the four-year award period ended in 1995 were
adjusted to eliminate the effect of charges or write-offs related to the
Company's acquisition of the Distribution and Control Business Unit (DCBU) from
Westinghouse Electric Corporation. The Company met the performance objective for
a payment between target and maximum for this award period.
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 to share in the appreciation of the value of the Company's
common shares. In 1995, the management of the Company established share
ownership guidelines for its key executives. The Committee endorsed this new
policy and views increased share ownership as a prime purpose for granting stock
options.
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 1995, the
Committee approved grants to executives at levels consistent with grants made in
1994.
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. In September
1995, Mr. Butler resigned his position as Chief Executive Officer in
anticipation of his retirement from the Company at year end. At that time, Mr.
17
<PAGE> 20
Hardis was elected to the office of Chief Executive Officer. Mr. Butler remained
Chairman of the Board until year end. The 1995 compensation for both of these
Chief Executive Officer incumbents was earned pursuant to the executive
compensation plans described in the preceding sections of this report. The
performance factors and criteria on which their 1995 compensation was based are
thus the same as those applicable to each of those plans, as summarized in the
preceding sections. The amounts of their 1995 base salaries were 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. In the case of Mr. Hardis, the base salary adjustment was
attributable primarily to his promotion to Chief Executive Officer. The amounts
of their 1995 awards under the short-term incentive compensation plan were based
upon the Company's CRC for 1995 and their individual performance ratings. Their
1995 awards under the long-term incentive plan for the four-year award period
beginning in 1995 were 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 1998. The 1995 grants of stock
options to Messrs. Butler and Hardis were made at a level consistent with the
policy applicable to the 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 Mr. Butler's performance for purposes of base salary
and short-term incentive compensation, the Compensation Committee took into
account a number of performance factors. First, the Committee took into account
the Company's excellent operating performance in 1995. The Company's 1995
earnings per share were $5.13, compared to $4.40 in 1994, and its Return on
Equity was 21.9%. The Company's overall record results reflect substantial
further improvement from 1994 record totals. Second, the Committee noted that,
while there had been some operational shortfalls, by most measures, the
integration of the DCBU acquisition into the Company's Cutler-Hammer business
was proceeding as scheduled and continued to confirm the key role of this
acquisition in the growth strategy forged by Mr. Butler. Third, the Committee
felt that Mr. Butler's handling of the management succession process was
accomplished in an outstanding fashion. Finally, the Committee believed that Mr.
Butler continued to provide very effective, long-term strategic direction for
the Company.
In the opinion of the Committee, the Company's 1995 performance was directly
related to Mr. Butler's consistent strategic leadership. 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 direction, the
Company's business units continue to establish annual productivity and quality
improvement goals and to measure their progress against these goals.
In the case of Mr. Hardis, the current Chief Executive Officer, the Committee
established his new salary level to be competitive with similarly situated CEOs
while reflecting his substantially increased responsibilities. In determining
his 1995 short-term incentive compensation award,
18
<PAGE> 21
the Committee took into account his leadership role in his former position as
Vice Chairman and Chief Financial and Administrative Officer. In this position
he was a key contributor to the 1995 operating results noted above. In addition,
he made significant contributions to the Company's progress by initiating a
strategic plan review intended to build upon the solid foundation of his
predecessor by focusing on enhanced growth objectives and also started the
Company on a path that will re-engineer the Company's financial administration
processes.
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 four
other most highly-compensated officers. This deduction limit applies to all
compensation except formula-driven performance-based compensation, deferred
compensation, pre-existing agreements and a few other items not relevant to the
Company.
The Internal Revenue Service has issued final regulations, including transition
rules, relating to this new law. Based on these materials, 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 reaffirmed that
the removal of its discretion, and that of the Board of Directors, to make
administrative adjustments to the Company's 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. Using
discretion 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
Gary L. Tooker
19
<PAGE> 22
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.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG EATON, S&P 500 INDEX AND PEER COMPANIES
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PEER GROUP EATON S&P 500
<S> <C> <C> <C>
1990 1.00 1.00 1.00
1991 1.21 1.34 1.31
1992 1.36 1.73 1.41
1993 1.68 2.16 1.55
1994 1.69 2.16 1.57
1995 2.17 2.36 2.15
</TABLE>
Assumes $100 invested on December 31, 1990 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 company's relative stock market
capitalization.
20
<PAGE> 23
RETIREMENT PLANS -- The following table shows the annual normal retirement
benefits payable to officers and other employees of the Company 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.
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>
- ------------
$ 200,000 $ 43,177 $ 57,569 $ 71,961 $ 86,353 $ 100,745 $ 115,138
300,000 65,677 87,569 109,461 131,353 153,245 175,138
400,000 88,177 117,569 146,961 176,353 205,745 235,138
500,000 110,677 147,569 184,461 221,353 258,245 295,138
600,000 133,177 177,569 221,961 266,353 310,745 355,138
700,000 155,677 207,569 259,461 311,353 363,245 415,138
800,000 178,177 237,569 296,961 356,353 415,745 475,138
900,000 200,677 267,569 334,461 401,353 468,245 535,138
1,000,000 223,177 297,569 371,961 446,353 520,745 595,138
1,100,000 245,677 327,569 409,461 491,353 573,245 655,138
1,200,000 268,177 357,569 446,961 536,353 625,745 715,138
1,300,000 290,677 387,569 484,461 581,353 678,245 775,138
</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
($24,312 for 1995 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 11) 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, 1996, the number of years of credited service for
each of the individuals named in the Summary Compensation Table on page 11 was
as follows: W. E. Butler, 39.0; A. M. Cutler, 20.4; G. L. Gherlein, 29.6; S. R.
Hardis, 16.4; T. W. O'Boyle, 29.3; L. M. Oman, 27.6; and J. S. Rodewig, 38.8.
---------------
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
21
<PAGE> 24
single installment upon a proposed change in control of the Company, as
described on page 10, 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
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 10, unless otherwise determined by the Board of
Directors. Three executive officers currently are participating in the plan, of
whom one, S. R. Hardis, is named in the Summary Compensation Table on page 11.
The estimated annual benefits payable under this plan to Mr. Hardis are
$151,178, 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 11. 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 three (or, if less, 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
22
<PAGE> 25
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 10, unless otherwise determined by the Board of Directors, the Company is
required to transfer to a trust an amount sufficient to provide for the benefits
to which the officers would be entitled under the agreements if their employment
were then terminated. If a change in control of the Company were to occur at the
present time
and 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 $24.4 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. 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 1996.
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.
3. 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, 1996 of common shares of
the Company, including shares as to which a right to acquire ownership within 60
days after January 31, 1996 exists through the exercise of stock options, of
each director and nominee, each executive officer named in the Summary
Compensation Table on page 11 and, as a group, of such persons and all other
executive officers.
23
<PAGE> 26
<TABLE>
<CAPTION>
Title of Class: Common Shares
- ---------------------------------------------
Name of Number Percent
Beneficial of Shares of
Owner Owned(1,2) Class(3)
- ---------------------------------------------
<S> <C> <C>
N. A. Armstrong 6,800 (4) --
W. E. Butler 301,881 (5) --
A. M. Cutler 165,697 (4,5) --
P. B. Davis 6,205 --
G. L. Gherlein 136,354 (4,5) --
E. Green 5,500 --
S. R. Hardis 191,916 (5) --
C. E. Hugel 11,000 --
J. R. Miller 9,500 --
F. C. Moseley 19,000 (4) --
T. W. O'Boyle 42,841 (5) --
L. M. Oman 56,013 (5) --
V. A. Pelson 6,200 --
A. W. Reynolds 11,000 --
J. S. Rodewig 171,783 (4,5) --
G. L. Tooker 8,000 (4) --
Directors, Nominees
and Executive
Officers as a
group of 30 1,682,792(4,5) 2.13%
</TABLE>
- ---------------
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated.
(2) Includes shares which may be acquired within 60 days after January 31, 1996
upon the exercise of outstanding stock options as follows: W. E. Butler,
264,548; A. M. Cutler, 140,550; G. L. Gherlein, 89,898; S. R. Hardis,
139,400; T. W. O'Boyle, 39,470; L. M. Oman, 47,200; J. S. Rodewig, 157,364;
and all directors, nominees and executive officers as a group, 1,343,728
shares.
(3) Less than 1% unless otherwise indicated.
(4) Includes shares held jointly or in other capacities, such as by trust.
(5) Includes shares held under the Eaton Corporation Share Purchase and
Investment Plan as of January 31, 1996. 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.
In addition, the named executive officers hold a number of units, each of which
is equal to the value of a common share of the Company, under various deferred
compensation plans as follows: W. E. Butler, 55,401; A. M. Cutler, 4,881; G. L.
Gherlein, 23,176; S. R. Hardis, 84,852; T. W. O'Boyle, 298; L. M. Oman, 1,496;
and J. S. Rodewig, 35,932. (These units are discussed on pages 16 and 17.)
Employee benefit plans of the Company and its subsidiaries on January 31, 1996
held 10,295,957 common shares for the benefit of participating employees, or
13.3% 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, 1995, 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 1997 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, 1996.
By order of the Board of Directors
/s/ Earl R. Franklin
Earl R. Franklin
Secretary
March 18, 1996
24
<PAGE> 27
PASTEUP FROM DESKTOP
Admission to the Annual Meeting
Shareholders who plan to attend the 1996 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
- ----------------------------------------------------------------------------
[EATON LOGO]
<PAGE> 28
EATON CORPORATION
EATON CENTER
P CLEVELAND, OHIO 44114-2584
R
0 -------------------------------------------------------------------
X [LOGO]
Y
The undersigned hereby appoints S. R. Hardis, 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 26, 1996, at the annual meeting of
shareholders to be held at The Forum Conference and Education
Center, One Cleveland Center, Cleveland, Ohio on April 24, 1996, at
10:30 a.m. local time and at any adjournments thereof.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
WHEN PROPERLY EXECUTED, IT WILL BE VOTED FOR ITEMS #1 AND #2
UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE REVERSE SIDE.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
SEE REVERSE
SIDE
<PAGE> 29
<TABLE>
X PLEASE MARK YOUR
VOTES AS IN THIS SHARES IN YOUR NAME REINVESTMENT SHARES
EXAMPLE.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld from the
following nominee(s):
___________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
SIGNATURE(S)____________________________DATE_____________
SIGNATURE(S)____________________________DATE_____________
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such.
<PAGE> 30
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton
Corporation Winamac Plant Hourly 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 (and the undersigned's proportionate share of the unallocated
or undirected common shares as described below) 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 24, 1996, at 10:30 a.m. local
time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1 and #2 unless contrary voting
instructions are indicated on the reverse side of this card. Under
the Plan, a proportionate share of the common shares not allocated
to any account and shares for which the Trustee does not receive
timely voting directions is voted by participants who submit signed
voting instructions.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 31
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
__________________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
<PAGE> 32
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 (and the undersigned's proportionate share of the unallocated
or undirected common shares as described below) 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 24, 1996, at 10:30 a.m. local
time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1 and #2 unless contrary voting
instructions are indicated on the reverse side of this card. Under
the Plan, a proportionate share of the common shares not allocated
to any account and shares for which the Trustee does not receive
timely voting directions is voted by participants who submit signed
voting instructions.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 33
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
____________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. 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> 34
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 (and the undersigned's proportionate share of the unallocated
or undirected common shares as described below) 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 24, 1996, at 10:30 a.m. local
time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1 and #2 unless contrary voting
instructions are indicated on the reverse side of this card. Under
the Plan, a proportionate share of the common shares not allocated
to any account and shares for which the Trustee does not receive
timely voting directions is voted by participants who submit signed
voting instructions.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 35
<TABLE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
_______________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
<PAGE> 36
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 (and the undersigned's proportionate share of the unallocated
or undirected common shares as described below) 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 24, 1996, at 10:30 a.m. local
time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1 and #2 unless contrary voting
instructions are indicated on the reverse side of this card. Under
the Plan, a proportionate share of the common shares not allocated
to any account and shares for which the Trustee does not receive
timely voting directions is voted by participants who submit signed
voting instructions.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 37
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s): BOARD RECOMMENDS A VOTE FOR
_________________________ #1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
<PAGE> 38
CONFIDENTIAL VOTING INSTRUCTIONS
To Key Trust Company of Ohio, N.A., Trustee for the Eaton
Corporation 401K Savings Plan for Hourly Employees of the Airflex
Division ("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 (and the undersigned's proportionate share of the unallocated
or undirected common shares as described below) 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 24, 1996, at 10:30 a.m. local
time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1 and #2 unless contrary voting
instructions are indicated on the reverse side of this card. Under
the Plan, a proportionate share of the common shares not allocated
to any account and shares for which the Trustee does not receive
timely voting directions is voted by participants who submit signed
voting instructions.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 39
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
___________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly come
before the meeting.
</TABLE>
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.
<PAGE> 40
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 (and the undersigned's proportionate share of the unallocated
or undirected common shares as described below) 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 24, 1996, at 10:30 a.m. local
time and at any adjournments thereof. The Trustee is hereby
instructed to vote FOR Items #1 and #2 unless contrary voting
instructions are indicated on the reverse side of this card. Under
the Plan, a proportionate share of the common shares not allocated
to any account and shares for which the Trustee does not receive
timely voting directions is voted by participants who submit signed
voting instructions.
Election of Directors: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 41
<TABLE>
X PLEASE MARK YOUR PLAN SHARES
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
_________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
<PAGE> 42
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 24, 1996,
at 10:30 a.m. local time and at any adjournments thereof. The
Trustee is hereby instructed to vote FOR Items #1 and #2 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: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 43
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
_________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
PARTICIPANT'S SIGNATURE_____________________________DATE_________
NOTE: Please sign, date and return promptly in the enclosed envelope to protect
confidentiality.
<PAGE> 44
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 24, 1996,
at 10:30 a.m. local time and at any adjournments thereof. The
Trustee is hereby instructed to vote FOR Items #1 and #2 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: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 45
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
________________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
PARTICIPANT'S SIGNATURE__________________________DATE ___________
NOTE: Please sign, date and return promptly in the enclosed envelope to protect
confidentiality.
<PAGE> 46
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 24, 1996,
at 10:30 a.m. local time and at any adjournments thereof. The
Trustee is hereby instructed to vote FOR Items #1 and #2 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: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 47
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
______________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
<PAGE> 48
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 24, 1996, at 10:30 a.m. local time and at any
adjournments thereof. The Trustee is hereby instructed to vote FOR
Items #1 and #2 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: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 49
<TABLE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<S> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
_______________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
<PAGE> 50
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 24, 1996, at 10:30 a.m. local time and at
any adjournments thereof. The Trustee is hereby instructed to vote
FOR Items #1 and #2 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: C. E. Hugel, J. R. Miller, F. C. Moseley and
V. A. Pelson
SEE REVERSE
SIDE
<PAGE> 51
<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. Ratify Appointment / / / / / /
Directors of Independent
(see reverse) Auditors
For, except vote withheld
from the following
nominee(s):
____________________________ BOARD RECOMMENDS A VOTE FOR
#1 AND #2.
3. In their discretion, the
proxies are authorized
to vote upon such other
business as may properly
come before the meeting.
</TABLE>
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.
