<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>
CENTERIOR ENERGY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CENTERIOR ENERGY CORPORATION
(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
CENTERIOR
ENERGY [LOGO]
6200 OAK TREE BLVD.
INDEPENDENCE, OHIO 44131
Robert J. Farling
Chairman, President
& Chief Executive
Officer
March 14, 1995
Dear Share Owner:
Attached is your Proxy Statement and Notice of Annual Meeting of Centerior
Energy Corporation. The annual meeting will be held TUESDAY, APRIL 25, 1995 AT
10:00 A.M., Cleveland time, at Gund Arena, 100 Gateway Plaza, Cleveland, Ohio.
On behalf of all directors, I cordially invite you to attend. We will provide
light refreshments prior to the meeting. For those of you who plan to attend the
meeting, a map and directions to Gund Arena appear on the back cover. Entrances
to Gund Arena will open at 9:00 a.m.
The matters to be acted upon at the meeting are important to you as a share
owner. Therefore, whether or not you plan to be present, we urge you to give
your prompt attention to these proposals. Please sign and date the enclosed
proxy card and return it promptly in the postage-paid envelope provided to help
us obtain the representation needed to conduct business at the meeting. We
greatly appreciate the interest shown by our share owners through the voting of
their stock and look forward to having a large representation at the 1995 annual
meeting.
Sincerely,
/s/ Robert J. Farling
<PAGE> 3
LOCAL SHARE OWNER MEETINGS
We again plan to hold evening meetings throughout the Cleveland and Toledo
service areas in May. The meetings will enable us to personally communicate with
local share owners who are unable to attend the annual meeting. The informal
atmosphere gives us an excellent opportunity to hear your thoughts and concerns
on issues affecting you. No formal business will be transacted. We will send
additional information to area share owners as we approach the meeting dates.
<PAGE> 4
CENTERIOR ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHARE OWNERS
March 14, 1995
To the Common Stock Share Owners of
Centerior Energy Corporation:
The annual meeting of the share owners of Centerior Energy Corporation will
be held at Gund Arena, 100 Gateway Plaza, Cleveland, Ohio 44115, on Tuesday,
April 25, 1995 at 10:00 a.m., Cleveland time, for the purpose of acting on the
following matters:
1. Election of 13 directors of the Company;
2. Approval of the Directors Restricted Stock Plan;
3. Approval of the Equity Compensation Plan;
4. Ratification of the appointment by the Board of Directors of Arthur
Andersen LLP as the independent accountants of the Company and its
subsidiaries for 1995;
5. Consideration of the two share owner proposals set forth in the
accompanying proxy statement, if presented to the meeting; and
6. Any other matters which may properly come before the meeting.
Owners of Common Stock of record at the close of business on February 24,
1995 are entitled to vote at the meeting.
By order of the Board of
Directors,
JANIS T. PERCIO, Secretary
<PAGE> 5
CENTERIOR ENERGY CORPORATION
PROXY STATEMENT
OF THE BOARD OF DIRECTORS
March 14, 1995
FOR ANNUAL MEETING OF SHARE OWNERS
April 25, 1995
GENERAL INFORMATION
Centerior Energy Corporation ("Company") is the parent company of The
Cleveland Electric Illuminating Company ("Cleveland Electric"), The Toledo
Edison Company ("Toledo Edison") and Centerior Service Company ("Centerior
Service"). The Company and its three subsidiaries comprise the Centerior System.
The accompanying proxy is solicited by the Board of Directors of the
Company. Any share owner giving such a proxy has the power to revoke it by
giving notice to the Company in writing or in open meeting.
It is contemplated that officers and regular employees of the Centerior
System may solicit the return of proxies by personal interview, mail, telephone
and other electronic means. Banks, brokers and nominees who hold Common Stock of
the Company ("Common Stock") in their names will be furnished proxy material
with the request that they forward it to the beneficial owners of such stock.
The Company will reimburse them for this expense. The entire cost of this
solicitation of proxies will be paid by the Company.
Share owners with impaired vision may obtain audio cassettes of this proxy
statement by writing or calling the Company's Share Owner Services Unit. Written
requests should be addressed to Centerior Energy Corporation, P.O. Box 94661,
Cleveland OH 44101-4661 Attn: Share Owner Services. Telephone requests can be
made by calling (800) 433-7794 or, in the Cleveland area, 447-2400.
Any share owner with a hearing impairment who plans to attend the annual
meeting may request that the Company provide a sign language interpreter at the
meeting. Requests for an interpreter must be received by Share Owner Services no
later than Friday, April 21, 1995.
VOTING SECURITIES
Common Stock is the only class of security entitled to vote at the meeting.
The record date for determining the shares entitled to vote is February 24,
1995. There are 148,031,503 shares of Common Stock outstanding as of that date,
each of which is entitled to one vote.
1
<PAGE> 6
FMR Corp., 82 Devonshire Street, Boston, MA 02109, has notified the Company
that as of December 31, 1994 it was the beneficial owner of 15,203,100 shares of
Common Stock, which is 10.3% of the shares outstanding as of February 24, 1995.
FMR has sole investment power but no voting power for these shares.
Bankers Trust New York Corporation, 280 Park Avenue, New York, NY 10017,
has notified the Company that as of December 31, 1994 it was the beneficial
owner of 10,906,737 shares of Common Stock, which is 7.4% of the shares
outstanding as of February 24, 1995. Bankers Trust has sole investment power for
these shares, sole voting power for 10,906,737 shares and no voting power for
the remaining shares.
The persons named in the proxy will vote all shares in accordance with the
instructions given by the share owners in their respective proxies returned duly
executed and received by the Company on or prior to April 25, 1995 (unless the
meeting is adjourned to a later date, in which case all proxies received on or
prior to such later date will be voted). Except to the extent your instructions
are to the contrary, your shares will be voted as the Board recommends. The
persons named in the proxy will use their discretion to vote all shares they are
entitled to vote with respect to any other matters which may properly come
before the meeting. SHARES HELD FOR PARTICIPANTS IN THE DIVIDEND REINVESTMENT
AND STOCK PURCHASE PLAN AND THE CX-IRA WILL BE VOTED BY THE RESPECTIVE CUSTODIAN
THE SAME WAY AS THE SHARE OWNERS' SHARES OF RECORD, IF ANY, ARE VOTED.
ATTENDANCE AT ANNUAL MEETING
Only share owners of record on the record date for the meeting or their
proxies are entitled to attend and participate in the meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established seven committees to facilitate the carrying out
of its respon-sibilities.
The Audit Committee recommends to the Board annually the firm of
independent accountants to be retained for the ensuing year by the Company and
its subsidiaries and reviews the results of the accountants' examination of the
financial statements of the Company and its subsidiaries and the audit practices
employed by them. The Committee oversees the establishment and administration by
management of effective internal accounting controls and an accounting system
designed to produce financial statements which present fairly the financial
position of the Company and its subsidiaries. The Committee is composed of
outside directors, that is, directors who are not now and who never have been
officers of the Company. The Committee held two meetings in 1994.
2
<PAGE> 7
The Capital Expenditures Committee recommends to the Board annually a
five-year construction program and an annual capital expenditures budget. The
Committee authorizes individual projects involving a commitment in excess of
$1,000,000. It also reviews expenditures made pursuant to the five-year
construction program and annual capital expenditures budget and recommends
changes to the Board. The majority of the Committee is composed of outside
directors. The Committee held four meetings in 1994.
The Environmental and Community Responsibility Committee monitors the
Company's status and compliance with environmental laws, rules and regulations
and reviews and makes recommendations to management and the Board regarding
environmental and other community responsibility programs and issues. The
Committee is composed of a majority of outside directors. The Committee held
three meetings in 1994.
The Executive and Nominating Committee was created in April 1993. The
Committee acts on behalf of the Board between meetings of the Board and has most
of the authority of the Board with certain exceptions. In addition, it
recommends to the Board candidates to be nominated for election as directors of
the Company at the annual meeting each year, persons to fill any vacancies on
the Board and changes in the size of the Board. The Committee is composed of
non-officer directors, that is, directors who are not currently officers of the
Company, and the Chairman of the Company. The Committee held one meeting in
1994. A share owner who wishes to suggest to the Committee a person to be
considered to serve as a director should submit the suggestion in writing to the
Secretary of the Company. The suggestion of the share owner must be received by
the Company not later than the December 1 preceding an annual meeting if the
share owner wants the Committee to consider including that person as a candidate
for director in the proxy statement for that annual meeting.
The Finance Committee reviews and recommends long-range financial policies
and objectives of the Centerior System and specific actions to achieve these
objectives. The Committee also reviews the investment performance of the
trustees and investment managers of the pension and employee savings plans of
the Centerior System and establishes general investment policy for the
investment of pension and savings plan assets with the concurrence of the
respective trustees of those plans. The majority of the Committee is composed of
outside directors. The Committee held four meetings in 1994.
The Human Resources Committee reviews and approves the Centerior System's
overall Compensation Plan, including the pension and employee stock plans. The
Committee recommends to the Board for approval the compensation of the Chairman
and President of the Company. It also approves, recommends or reviews management
proposals concerning the compensation and benefits of most other officers and
certain employees of the Centerior System. The Committee is composed of outside
directors. The Committee held nine meetings in 1994.
3
<PAGE> 8
The Nuclear Committee monitors and consults with and makes recommendations
to management and the Board regarding nuclear matters, including the operation
of all nuclear units in which the Centerior System has an ownership interest or
other output entitlement. The Committee is composed of a majority of outside
directors. The Committee held eight meetings in 1994.
The Board held ten meetings in 1994. The average attendance at the
aggregate of the total number of meetings of the Board and committees was 92%.
Each director attended at least 75% of the aggregate of the meetings of the
Board and the committees on which he or she served.
ELECTION OF DIRECTORS
On June 28, 1994, pursuant to the Regulations of the Company, the Board
increased its size to 13 members and elected William F. Conway to fill the
resulting vacancy, effective July 1, 1994.
Thirteen directors are to be elected at the annual meeting, each with a
term of office until the next annual meeting or until his or her successor is
elected and qualified. Listed below are the 13 candidates of the Board and brief
statements of their business experience during at least the last five years. The
Common Stock beneficially owned by each candidate is set forth in the table on
page 22. All of the candidates currently are members of the Board and are
expected to be able to serve, if elected. The 13 candidates receiving the most
votes will be elected directors.
The shares represented by the proxy, if returned duly executed and timely
received, will be voted for the candidates listed below, except to the extent
the proxy is marked to withhold the authority to vote. Abstentions and broker
non-votes are not counted in the election of directors and thus have no effect.
If voting is cumulative as described below, the persons authorized in the proxy
will distribute the cumulated votes represented by the proxy among those
candidates nominated at the meeting as they shall select. In the event a
candidate listed below becomes unavailable for any reason prior to the meeting,
the persons authorized in the proxy may nominate and vote for a replacement
candidate or they may vote to reduce the number of directors to the number of
candidates listed below who are available.
Under Ohio law, directors can be elected by cumulative voting (1) if a
Common Stock share owner notifies the President, a Vice President or the
Secretary of the Company in writing not less than 48 hours before the time fixed
for the holding of a meeting for the election of directors that he desires
cumulative voting and (2) upon the convening of the meeting, if an announcement
that such notice has been given is made by the chairman or secretary of the
meeting or by or on behalf of the share owner giving such notice. In cumulative
voting, each share owner has votes equal to the total number of shares of record
owned by him multiplied by the number of directors to be elected. These votes
can be cast for a single candidate or distributed in any amounts among any
number of the candidates.
4
<PAGE> 9
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
RICHARD P. ANDERSON, 65, President and Chief Executive Officer 1986
since 1988 of The Andersons Management Corporation, a grain,
farm supply and retailing firm. Previously, he was Managing
Partner of The Andersons. He also is a director of First
Mississippi Corporation and N-Viro International Corporation.
(2) (3)
ALBERT C. BERSTICKER, 60, President and Chief Executive Officer 1990
since May 1991 of Ferro Corporation, a producer of specialty
chemical materials for manufactured products. Mr. Bersticker
was President and Chief Operating Officer of Ferro from April
1988 to May 1991. He has been a director of Ferro since 1978.
Mr. Bersticker also is a director of Brush Wellman Inc.,
Oglebay Norton Company and KeyCorp. (3) (4)
LEIGH CARTER, 69, President and Chief Operating Officer from 1986
August 1986 to September 1990 of The BFGoodrich Company, a
producer of chemicals, plastics and aerospace products. From
January 1980 to September 1990, he was Chairman of Tremco,
Incorporated, a wholly owned subsidiary of BFGoodrich, manufac-
turer of specialty chemical products. He was a director of
BFGoodrich from 1984 to 1991. He is a director of Adams Express
Company, Lamson & Sessions, Morrison Products, Inc., NCC Funds,
Petroleum & Resources Corporation and The Sherwin-Williams
Company. (2) (5) (6)
THOMAS A. COMMES, 52, President and Chief Operating Officer 1987
since June 1986 of The Sherwin-Williams Company, a manufac-
turer of paints and painting supplies. He has been a director
of Sherwin-Williams since April 1980. Mr. Commes also is a
director of KeyCorp. (2) (5) (6)
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
WILLIAM F. CONWAY, 64, President of William F. Conway & Associ- 1994
ates, Inc., a management consulting firm. Mr. Conway was Execu-
tive Vice President-Nuclear from May 1989 to August 1994 of
Arizona Public Service Company, an electric utility. (3) (4)
WAYNE R. EMBRY, 57, President and Chief Operating Officer since 1991
July 1994 of the Cleveland Cavaliers, a professional basketball
team. He was Executive Vice President and General Manager of
the Cavaliers from June 1986 to July 1994. Since January 1986,
Mr. Embry has been Chairman of M. A. L. Co., a fabricator of
hardboard, fiberglass and carpeting materials for the
automotive industry. Mr. Embry was also a marketing consultant,
from 1983 through 1992, for G. Heileman Brewing Company, a
domestic brewery. Mr. Embry is a director of M.A. Hanna
Company, Ohio Casualty Insurance and Society National Bank. (2)
(7) (8)
ROBERT J. FARLING, 58, Chairman, President and Chief Executive 1988
Officer of the Company and Centerior Service since March 1992.
Mr. Farling has also been Chairman and Chief Executive Officer
of Cleveland Electric and Toledo Edison since July 1993. He was
President and Chief Operating Officer of the Company from Octo-
ber 1988 and of Centerior Service from July 1988 to March 1992.
Mr. Farling was Chairman and Chief Executive Officer of Toledo
Edison from October 1988 to May 1990 and of Cleveland Electric
from February 1989 to May 1990. Mr. Farling has been a director
of Cleveland Electric since 1986 and of Toledo Edison since
1988. He also is a director of National City Bank. (3) (5) (6)
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
GEORGE H. KAULL, 63, Chairman from 1959 to January 1994 of 1987
Premix, Inc., a developer, manufacturer and fabricator of
thermoset reinforced composite materials. He was also Chief
Executive Officer of Premix from 1959 to July 1991. Mr. Kaull
has been a director of Premix since 1959. (4) (8)
RICHARD A. MILLER, 68, Chairman and Chief Executive Officer of 1986
the Company and Centerior Service from October 1988 to March
1992. He is a director of The Lubrizol Corporation and Bank
One, Cleveland, N.A. and a member of the Advisory Board of Bank
One Ohio Trust Company, N.A. (4) (5) (6) (7)
FRANK E. MOSIER, 64, Vice Chairman from August 1991 to August 1986
1993 of the Advisory Board of BP America Inc., a producer and
refiner of petroleum products. Mr. Mosier was Vice Chairman of
BP America from April 1988 to August 1991. He also is a
director of Associated Estates Realty Corporation. (4) (6) (7)
(8)
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
SISTER MARY MARTHE REINHARD, SND, 65, Director of Development 1986
for the Sisters of Notre Dame of Cleveland, Ohio since July
1989. (2) (3) (7)
ROBERT C. SAVAGE, 57, President and Chief Executive Officer 1990
since 1973 of Savage & Associates, Inc., an insurance,
financial planning and estate planning firm. He is a director
of Charter One Bank in Toledo and Solar Cells, Inc. (6) (7) (8)
WILLIAM J. WILLIAMS, 66, Chairman of Huntington National Bank 1986
from November 1991 to September 1993. He was Chairman and Chief
Executive Officer of Huntington National Bank from August 1986
to November 1991. Mr. Williams has been a director of
Huntington National Bank and Huntington Bancshares since Febru-
ary 1985. He is a director of Republic Engineered Steels, Inc.
and UNR Industries, Inc. (3) (5) (8)
<FN>
---------------
(1) Centerior Service, Cleveland Electric and Toledo Edison are wholly owned
subsidiaries of the Company. None of the other corporations of which the
candidates are named as a current or former director or officer is or has
been a parent, subsidiary or other affiliate of the Company.
(2) Member of the Audit Committee.
(3) Member of the Nuclear Committee.
(4) Member of the Capital Expenditures Committee.
(5) Member of the Executive and Nominating Committee.
(6) Member of the Finance Committee.
(7) Member of the Environmental and Community Responsibility Committee.
(8) Member of the Human Resources Committee.
</TABLE>
8
<PAGE> 13
In 1994, directors who were not officers of the Company received $1,250 per
month as a retainer fee and $750 for each Board meeting and committee meeting
attended, except that if more than one committee meeting was attended on the
same day, the fee for each additional committee meeting was $500. The Chairmen
of the Audit, Capital Expenditures, Environmental and Community Responsibility,
Finance, Human Resources and Nuclear Committees each received an additional $100
per month as a retainer fee. Directors may elect to defer receipt of their fees.
Effective January 1, 1995, the retainer fee was reduced to $916.67 per
month and the Board and committee meeting fees were increased to $975 for each
meeting attended. If more than one committee meeting is attended on the same
day, the fee for each such additional meeting is $650. The committee chairmen
described above continue to receive an additional $100 per month as a retainer
fee. In addition, pursuant to the Directors Restricted Stock Plan, each
non-employee director was awarded 500 shares of restricted Common Stock
contingent upon share owner approval of such Plan. The Directors Restricted
Stock Plan is described below.
APPROVAL OF THE DIRECTORS RESTRICTED STOCK PLAN
On October 25, 1994, the Board placed into effect, subject to share owner
approval, the Directors Restricted Stock Plan ("Directors Plan"). At the same
time, the Board reduced its annual retainer fee so that a portion of the
directors' retainer would be in the form of Common Stock. If approval of the
Directors Plan is not obtained, the award made on January 1, 1995 will be
revoked.
The purpose of the Directors Plan is to promote the long-term interests of
the Company and its share owners by granting to non-employee directors of the
Company shares of Common Stock as a part of their annual retainer compensation
and, thereby, to (a) attract and retain highly qualified individuals to serve as
non-employee directors of the Company, (b) increase non-employee directors'
Common Stock ownership interest in the Company and (c) further align each
non-employee director's interests with those of the Company's share owners. The
following is a summary of the Directors Plan.
The Directors Plan is intended to be a self-effectuating plan and will be
administered by the Company. On January 1, 1995 and each January 1 thereafter,
as long as the Directors Plan remains in effect, each non-employee director will
automatically be granted 500 shares of restricted Common Stock. Only directors
of the Company who are not employees of the Company are eligible to participate
in the Directors Plan. Currently, 12 directors are eligible. In the future as
other non-employee directors are elected to the Board, they would automatically
become participants in the Directors Plan.
9
<PAGE> 14
The Common Stock awarded pursuant to the Directors Plan will be restricted
against disposition as long as the director remains on the Board. All shares of
restricted Common Stock will be deposited in the Company's Dividend Reinvestment
and Stock Purchase Plan. The dividends paid on such shares will purchase
additional shares of Common Stock which will have the same restriction and
forfeiture provisions as the shares awarded pursuant to the Directors Plan.
In the event of (a) retirement pursuant to any director retirement policy,
(b) retirement due to the director taking a position which would prohibit
continued service on the Board, (c) death, (d) disability as determined by 80%
of the Board excluding the affected director or (e) a change in control of the
Company, all restricted Common Stock will immediately vest. Upon termination for
any other reason, all restricted Common Stock awarded to that director pursuant
to the Directors Plan, including Common Stock purchased with dividends on such
stock, will be forfeited as of the date of such termination and returned to the
Company. During the restriction period, directors will have voting rights on all
shares.
A participant realizes ordinary income in an amount equal to the fair
market value of the restricted Common Stock upon vesting, unless a participant
elects to be taxed in the year the award is made. The Company is entitled to a
federal income tax deduction upon the participant's realization of ordinary
income.
A total of 100,000 shares of Common Stock is reserved for issuance under
the Directors Plan. All awards and Common Stock available under the Directors
Plan are subject to adjustments in the event of a merger, reorganization,
consolidation, stock dividend, stock split or other similar change in corporate
structure of the Company.
The Board may amend, suspend or terminate the Directors Plan at any time
except that (a) no amendment, suspension or termination that would impair the
rights of any director under any award previously granted will be made without
the consent of such director, (b) to be effective any such amendment or
termination shall comply with the Section 16(b) of the Exchange Act, including,
without limitation, share owner approval when required to ensure the receipt of
restricted Common Stock under this plan shall be exempt from Section 16(b) of
the Exchange Act and (c) the terms and provisions of the Directors Plan shall
not be amended more than once every six months, other than to conform to changes
in the Internal Revenue Code of 1986, as amended.
Share owner approval of the Directors Plan requires the affirmative vote of
a majority of the shares of Common Stock voted on the issue. Abstentions and
broker non-votes have no effect.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL WHICH IS
DESIGNATED IN THE PROXY AS ISSUE NO. 2.
10
<PAGE> 15
APPROVAL OF THE EQUITY COMPENSATION PLAN
On November 22, 1994, the Board placed into effect, subject to share owner
approval, the Equity Compensation Plan ("Equity Plan"). If such approval is not
received, the awards made under the Equity Plan will be revoked.
The purpose of the Equity Plan is to advance the long-term interests of the
Company by (a) motivating executive personnel by means of equity-based
incentives, (b) furthering the identity of interests of participants with those
of the share owners of the Company through the ownership and performance of
Common Stock and (c) enhancing the ability of the Company to attract and retain
management personnel upon whose judgment the successful conduct of the Company
largely depends. The Equity Plan is summarized below.
In structuring the Equity Plan, the Board sought to provide for a variety
of awards that could be flexibly administered in order to carry out the purposes
of the Equity Plan. This will permit the Company to keep pace with changing
developments in compensation programs, changes in tax laws, accounting rules,
securities regulations and other rules regarding benefit plans. This will also
help the Company be competitive with those companies that offer creative
incentives to attract and retain employees. The Equity Plan gives the Board
flexibility in creating the terms and restrictions deemed appropriate for each
award.
SHARES AVAILABLE
The maximum number of shares of Common Stock available for awards under the
Equity Plan during any year will equal the sum of (a) 0.5% of the total number
of issued and outstanding shares of Common Stock as of December 31 of the
immediately preceding year; (b) any unused portion of the limit in (a) above
from prior years during the term of the Equity Plan; and (c) any shares of
Common Stock related to awards which terminated in prior years during the term
of the Equity Plan by expiration, forfeiture, cancellation or otherwise without
the issuance of such shares or cash in lieu thereof.
ADMINISTRATION
The Equity Plan provides for administration by the Human Resources
Committee of the Board ("Committee"). No member of the Committee can participate
in the Equity Plan. Among the powers granted to the Committee are the authority
to interpret the Equity Plan, establish rules and regulations for its operation,
select employees of the Company and its subsidiaries to receive awards, and
determine the form, amount and other terms and conditions of awards. The
Committee also has the power to modify or waive restrictions on awards, to amend
awards, and to grant extensions and accelerate awards.
11
<PAGE> 16
ELIGIBILITY FOR PARTICIPATION
Employees of the Company and its subsidiaries are eligible to be selected
to participate in the Equity Plan. The selection of participants is within the
sole discretion of the Committee. Currently, the Committee has selected 50
employees at the department head level and above to participate in the Equity
Plan.
TYPES OF AWARDS
The Equity Plan provides for the grant of any or all of the following types
of awards: (a) stock options, including incentive stock options and
non-qualified stock options; (b) stock appreciation rights, in tandem with stock
options or freestanding; (c) restricted stock; (d) performance shares; and (e)
deferred incentive units. Awards may be granted singly, in combination, or in
tandem as determined by the Committee.
Stock Options. Under the Equity Plan, the Committee may grant awards in
the form of options to purchase shares of the Company's Common Stock. The
Committee will, with regard to each stock option, determine the number of shares
subject to the option, the manner and time of the option's exercise, and the
exercise price per share of stock subject to the option. The exercise price of
any stock option will not be less than 100 percent of the fair market value of
the Common Stock on the date the option is granted.
The exercise price of an option may, at the discretion of the Committee, be
paid by a participant in cash, shares of Common Stock owned by the participant,
a combination thereof, or such other consideration as the Committee may deem
appropriate.
Stock Appreciation Rights. The Equity Plan authorizes the Committee to
grant stock appreciation rights ("SARs") either in tandem with a stock option
("Tandem SARs") or independent of a stock option. An SAR is a right to receive
payment (either in cash, shares of Common Stock, or a combination thereof) equal
to the appreciation in market value of a stated number of shares of Common Stock
from the SAR's price to the market value on the date of its exercise.
A Tandem SAR may be granted either at the time of the grant of the related
stock option or, in the case of a non-qualified stock option, at any time
thereafter during the term of such option. Upon the exercise of a stock option
as to some or all of the shares covered by the award, the related Tandem SAR
will be canceled automatically to the extent that the number of shares subject
to the Tandem SAR exceeds the number of remaining shares subject to the related
stock option. In the same manner, the exercise of a Tandem SAR will result in
the cancellation of the related stock option.
12
<PAGE> 17
Stock Awards. The Equity Plan authorizes the Committee to grant awards in
the form of shares of Common Stock. Such awards will be subject to such terms,
conditions, restrictions and limitations, if any, as the Committee deems
appropriate. Any attempted sale, assignment, pledge or other transfer of
restricted Common Stock during the restriction period will result in a
forfeiture to the Company of all such shares subject to such attempted transfer.
Except as otherwise determined by the Committee, upon termination of employment
of the participant for any reason except retirement, death, permanent disability
or a change in control of the Company during the restriction period, all shares
still subject to restriction shall be forfeited by the participant to the
Company.
Performance Shares. The Equity Plan allows for the grant of performance
shares entitling the participant to receive shares of Common Stock, or the cash
equivalent, as determined by the Committee at the time the awards are made. Such
awards will be contingent upon the attainment of certain performance objectives
over a period determined by the Committee. The performance objectives to be
achieved during a performance period and the measures of whether and to what
degree such objectives have been attained will also be determined by the
Committee.
Deferred Incentive Units. Awards may also be granted in the form of
deferred incentive units which entitle the participant to receive in cash the
fair market value or the appreciation in value of an equivalent number of shares
of Common Stock on a settlement date to be determined by the Committee. The
Committee will determine all other terms, conditions, restrictions and
limitations, if any, of any award of deferred incentive units.
OTHER TERMS OF AWARDS
Awards may be paid in cash, Common Stock or a combination of Common Stock
and cash. If an award is granted in the form of restricted stock, performance
shares or deferred incentive units, the Committee may include as part of such
award an entitlement to receive dividends or dividend equivalents. Awards will
be evidenced by a written agreement containing such terms and conditions,
restrictions and/or limitations of the award.
The Equity Plan provides for adjustments of awards in the event of a
merger, consolidation, reorganization or other similar change in the corporate
structure of the Company. In the event of such a change, all outstanding stock
options and SARs shall become immediately exercisable and all other awards will
immediately vest with all performance goals deemed fully achieved.
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<PAGE> 18
FEDERAL TAX TREATMENT
Under current law, the following is a brief summary of the federal income
tax consequences generally arising with respect to awards under the Equity Plan.
A participant who is granted an incentive stock option will not recognize
any taxable income at the time of the grant of the option or at the time of its
exercise. If the participant does not dispose of the shares acquired pursuant to
an incentive stock option before the later of two years from the date of grant
or one year from the date of exercise, any gain or loss realized on a subsequent
disposition of the shares will be treated as a long-term capital gain or loss,
and the Company will not be entitled to any deduction for federal income tax
purposes.
A participant who is granted a non-qualified stock option will not
recognize taxable income at the time of grant, but will recognize taxable income
at the time of exercise equal to the difference between the exercise price of
the shares and the market value of the shares on the date of exercise. The
Company will be entitled to a tax deduction for the amount of income recognized
by the participant.
A participant who is granted an SAR will not recognize any taxable income
at the time of grant, but will recognize taxable income at the time of exercise
equal to the difference between the exercise price of the shares and the market
price of the shares on the date of exercise, and the Company will be entitled to
a tax deduction for the amount of income recognized by the participant.
A participant who has been granted either deferred incentive units or
performance shares will not recognize taxable income at the time of the grant.
At the time the award is paid a participant will recognize ordinary income equal
to the amount of cash paid or the value of shares delivered, and the Company
will be entitled to a tax deduction for the same amount.
A participant who has been granted restricted Common Stock will not
recognize taxable income at the time of the grant, unless the participant makes
an election to be taxed at the time of the grant. When the restrictions lapse,
the participant will realize taxable income in an amount equal to the excess of
the fair market value of the shares at such time over the amount, if any, paid
for such shares. The Company will be entitled to a federal income tax deduction
upon the participant's realization of ordinary income.
AMENDMENT AND TERMINATION
The Board may amend the Equity Plan at any time but may not, without share
owner approval, adopt any amendment which would increase the number of shares
available for award under the Equity Plan or which would cause the Equity Plan
to lose its exemption under Rule 16b-3 under the Securities Exchange Act of
1934, as amended.
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<PAGE> 19
The Equity Plan has no fixed termination date but may be terminated by the
Board at any time. Termination of the Equity Plan will not affect the status of
any awards outstanding at the date of termination.
EQUITY PLAN AWARDS
The awards made pursuant to the Equity Plan in 1994 are set forth in the
table below. If share owner approval of the Equity Plan is not received, these
awards will be revoked.
<TABLE>
NEW PLAN BENEFITS
EQUITY COMPENSATION PLAN
<CAPTION>
RESTRICTED STOCK(1) STOCK OPTIONS(3)
----------------------- ------------------------
NUMBER NUMBER
DOLLAR OF DOLLAR OF
NAME VALUE(2) UNITS VALUE(4) UNITS
-------------------------------- ----------- ------ ----------- -------
<S> <C> <C> <C> <C>
Robert J. Farling $ 128,975 15,400 $10,400 40,000
Murray R. Edelman 49,413 5,900 5,600 20,000
Donald C. Shelton 33,500 4,000 2,312 13,600
Fred J. Lange, Jr. 30,988 3,700 3,360 12,000
Al R. Temple 22,194 2,650 2,408 8,600
All executive officers as a
group 394,672 47,125 38,164 144,500
All non-executive officers as a
group 252,086 30,100 33,712 120,400
<FN>
----------------------
(1) The Common Stock awarded is restricted against disposition for five
years. If a participant leaves the Company for reasons other than
retirement, death, disability or a change in control of the Company,
the shares will be forfeited back to the Company.
(2) Valued at the closing price of $8.375 on the grant date of November
22, 1994.
(3) The options to purchase Common Stock are 10-year incentive stock
options (except for Messrs. Farling and Shelton) with an exercise
price of $13.20 per share. The options become exercisable in equal
installments on the four succeeding anniversary dates of the grant
beginning on November 22, 1995. The closing price of the Common Stock
on February 24, 1995 was $9.75.
(4) For all participants other than Messrs. Farling and Shelton, option
values are based on the Black-Scholes pricing model using the
following assumptions: expected stock volatility .23 (based on 21
quarters of closing stock prices prior to grant), risk-free rate of
return 8.15%, dividend yield 9.6% and a 10-year term. The option
values for Mr. Farling and Mr. Shelton are based on the same
assumptions except for a risk-free rate of return of 7.97% and 7.72%,
respectively, and option terms of 7.25 years and 3.75 years,
respectively. These assumptions are not intended to be a forecast of
future performance of the Company's Common Stock.
</TABLE>
Share owner approval of the Equity Plan requires the affirmative vote of a
majority of the shares of Common Stock voted on the issue. Abstentions and
broker non-votes have no effect.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL WHICH IS
DESIGNATED IN THE PROXY AS ISSUE NO. 3.
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<PAGE> 20
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board has appointed
Arthur Andersen LLP as independent accountants of the Company and its
subsidiaries for 1995. Arthur Andersen has served as independent accountants of
the Company since 1986 and of Toledo Edison for many years. Although the
appointment of independent accountants is not required to be approved by the
share owners, the Board believes the share owners should participate in this
appointment through ratification. If the share owners do not ratify the
appointment, the Board will reconsider its action.
An Arthur Andersen representative will be present at the annual meeting for
the purpose of making a statement, if he desires to do so, and to respond to
questions.
Share owner ratification of the appointment of Arthur Andersen requires the
affirmative vote of a majority of the shares of Common Stock voted on the issue.
Abstentions and broker non-votes have no effect.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ABOVE PROPOSAL, WHICH IS
DESIGNATED IN THE PROXY AS ISSUE NO. 4.
SHARE OWNER PROPOSAL TO RESTRICT DISCRETIONARY VOTING
The Company has been advised that Dr. Allen Wolff, DVM, 4241 Center Road,
Brunswick, OH 44212, owner of 1,760 shares of Common Stock, intends to present
the following proposal at the 1995 annual meeting:
"Be it resolved that the future proxies of this company, there will be
no discretionary power of voting by the named proxy-holder on any issue
where no direction has been given, including ANY ISSUE "WHICH MAY PROPERLY
COME UP AT THE MEETING"."
STATEMENT OF SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"In general, there are a number of things being done in corporate
America that need to be changed. Among them are term restrictions for
outside directors, paying of bonuses based on objective rather than
subjective parameters, elimination of golden parachutes, stock options,
payment in lieu of income tax (on excessive bonuses), elimination of
retirement for outside directors and many other things.
Many stockholder proposals have been introduced to try to control
compensation to directors and top management and to try to tie them in with
profits and dividends, but the self-perpetuating management opposes this! .
. . If one reviews the biographies of the eleven director nominations for
1994, you would see that ALL were incumbent directors,
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<PAGE> 21
nine had been directors for more than seven years, and seven ten years or
more. Like our representatives in government, that's too long!
Most shareholder proposals fail because (1) the investors are not
organized and offer no alternatives, (2) management already controls a
large number of votes and then rewards itself with more shares to vote
against such proposals, (3) we are not playing on a level field; management
gets to count unmarked proxies as voting in favor of their position and
then is allowed to solicit proxies at the company's expense.
I am particularly dismayed at the statement on proxies that says (in
essence): "Proxies signed, but not specifically marked, will be voted as
management has suggested."
Management says that stockholders clearly understand how their votes
will be counted if they don't put Xs in the boxes; yet many shareholders
don't understand THAT, and it is especially true when shares are carried in
street names. They say that this process allows the stockholder not to be
burdened with making THREE OR FOUR Xs. WOW! How many shareholders even
understand what they are being asked to vote upon?
One need only review the results of voting on shareholder proposals at
the last annual meetings of First Union Real Estate, Chemical Bank, and
Rockefeller Center Properties to see how THIS DECEITFUL and UNDEMOCRATIC
WAY OF COUNTING VOTES was used. Although each of these companies honestly
revealed the results of the balloting, they still used the unmarked proxies
in defeating shareholder proposals that might otherwise have passed.
When I go to the polls and figure there is no clear choice among
candidates and leave that space "unmarked", it is not voted in favor of the
incumbent nor the incumbent's party; it is merely a non-vote."
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO THE SHARE OWNER
PROPOSAL The response of the Board of Directors in opposition to the share
owner proposal is as follows:
The Board of Directors recommends a vote AGAINST this issue.
Under Ohio law, a share owner is entitled to participate at share
owner meetings in person or by proxy. If our share owners choose to
participate at a meeting by proxy, they can direct how their votes will be
cast by either (i) marking a box for each item to be voted on and signing
the proxy card, or (ii) simply signing the proxy card. The adoption of Dr.
Wolff's proposal would take from share owners their right to participate at
share owner meetings when they return a signed, but unmarked proxy card.
This is both unfair and unnecessary.
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<PAGE> 22
In addition, the adoption of this proposal could result in inequitable
share owner actions. Most of the Company's share owners are represented at
its share owner meetings through proxies, while an extremely small
percentage of shares are represented in person. Shares represented by
proxies would be counted toward the establishment of a quorum at the share
owner meeting, thereby allowing all business that could be undertaken at a
share owner meeting to proceed. However, once the items specifically listed
in the proxy statement have been concluded, the share owners present in
person at the meeting could continue to take actions. If the properly
authorized proxies are not able to vote at their discretion, actions that
affect the Company and all of its share owners could be taken by the
direction of the extremely small percentage of share owners that are
present in person at the meeting.
Historically, the Company's proxy statements and proxy cards have
provided share owners with the ability to grant a discretionary proxy in a
manner consistent with the laws of the State of Ohio. Share owners are not
required to mark their proxy cards for a matter described in the Company's
proxy statements in order to have their shares counted in voting for such
matter, so long as their proxy cards are properly signed. The federal proxy
rules promulgated by the Securities and Exchange Commission ("SEC")
explicitly recognize and permit this practice.
The Company's proxy card indicates in bold-face type how your shares
will be voted if no direction is given. That information is also contained
in the text of the Company's proxy statement. The Board of Directors
believes that share owners who take advantage of this procedure are fully
aware of how their proxy cards will be voted and do so because that
procedure provides a convenient method to indicate that the share owner
chooses to vote in accordance with the Board's recommendations. This
reflects customary procedures consistently adhered to by all other public
companies of which the Board is aware. The proposal's deviation from
customary procedures will be adverse to the proxy process itself, as well
as confusing to the overall share owner population.
Your Board of Directors further believes that our current procedures
facilitate the execution and return of proxy cards, resulting in a higher
share owner response than could be expected if share owners were required
to complete each item on the proxy card. This, in turn, helps to minimize
the time and expense incurred in connection with the solicitation of
proxies. The adoption of the proposal would also prohibit us from complying
with the wishes of our share owners because a signed, but unmarked proxy
card must be ignored. Your Board of Directors believes that our procedures,
which follow SEC rules and customary practice in the United States, are
appropriate and essential for good corporate governance.
The proposal appears to reflect the implicit assumption that share
owners are inadvertently returning properly executed but unmarked proxy
cards, unaware as to how
18
<PAGE> 23
they will be voted. The Board does not agree with that assumption and
believes that share owners fully understand the process as it now exists.
The proposal would not give share owners any new rights or powers. It would
take away rights and powers that make it easy for share owners to
participate in share owner meetings.
Approval of this proposal requires the affirmative vote of a majority
of the shares of Common Stock voted on the issue. Abstention and broker
non-votes have no effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL, WHICH IS DESIGNATED IN THE PROXY AS ISSUE NO. 5.
SHARE OWNER PROPOSAL TO CAP EXECUTIVE COMPENSATION
The Company has been advised that Mr. R. E. Kinsala, 218 Southill Road, San
Antonio, TX 78201-6633, owner of 937 shares of Common Stock, intends to present
the following proposal at the 1995 annual meeting:
"As it stands now, we stockholders are suffering the brunt of the
actions by Centerior Energy Executives, namely reduced dividends, and
declining stock values, makes me believe, and I'm sure my belief meets with
majority stockholder approval, that Centerior Executives should also
participate along with the Stockholders, therefore I wish to make the
following proposal for a vote by the shareholders of Centerior Energy Stock
at the next stockholders meeting. This proposal is in two parts:
Part 1. Be it proposed that due to actions by the CEO and the Board of
Directors to lower the dividend rate by a 50% reduction from $1.60 per
share to $.80 per share that the following be implemented upon approval of
the majority stockholders and remain in effect until further notice:
A. Compensation for the CEO be capped at $250,000.00 annually.
B. Compensation for all other Executives be capped at $175,000.00
annually.
C. All Executive pay raises will be held in abeyance.
D. Stock options will not be granted or exercised.
E. Bonuses to Executives, Executive Staff, and/or Board of
Directors members for any reason will not be awarded under any
condition.
Part 2:
Be it further proposed that the proposals in Part 1. be terminated
upon the dividend of Centerior Energy being returned to $1.60 a share,
annually, and the stock value being returned to $16.00 a share."
19
<PAGE> 24
STATEMENT OF THE SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"The reason I am submitting this proposal is that I believe we all
should share in the financial problems of the Corporation. It would not be
fair for the share holders to suffer the entire consequences and allow the
CEO and Directors to continue receiving their perks as if nothing is wrong
with the company. This way encouragement is offered to staff to rectify the
problems sooner, then we all can share in the profits."
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO THE SHARE OWNER
PROPOSAL The response of the Board of Directors in opposition to the share
owner proposal is as follows:
The Board of Directors recommends a vote AGAINST this issue.
As discussed in the "Report of the Human Resources Committee on
Executive Compensation" beginning on page 23, decisions regarding the
amount of compensation for executive officers are based on market
conditions, the performance of the Company and the individual officer, and
other relevant factors. Executive compensation is determined annually to
provide fair compensation for the quality of each officer's performance,
motivation for future performance and incentive to remain employed by the
Company. In addition, payment of a significant component of compensation is
based on the Company meeting or exceeding certain performance standards
established each year. The Board believes that a significant portion of
executive pay should be directly related to corporate performance to more
closely link the interests of executives to those of share owners. The
Equity Plan, described beginning on page 11, further links the interests of
executive and share owners through stock-based awards.
The proposed ceilings on compensation for executive officers and the
CEO are arbitrarily low and have no relation to market conditions. In the
Northern Ohio area, virtually all large publicly-held corporations are
paying one or more executive officers above these levels -- many at
substantially higher levels. Fixed arbitrary limits on compensation would
significantly impair the Board's ability to offer performance-based
incentives and set appropriate compensation levels given the scope of
responsibilities delegated to, and performance by, the Company's officers.
Furthermore, the Company would not remain competitive in attracting and
retaining capable and qualified executives, especially if it were one of a
few companies with such a limitation.
Adoption of this proposal would undermine the link the Board has
sought to establish between executive compensation and corporate
performance. Options to purchase Company Common Stock granted to executive
officers in 1994 (subject to share owner approval of the Equity Plan) have
an exercise price of $13.20. The price was set substantially above current
market value in order to provide further incentive for executive officers
to improve the Company's performance and thereby increase share owner
value.
20
<PAGE> 25
Without such an increase, these options will not have any value. Options
were also granted to encourage stock ownership of the Company. The
elimination of these awards would reduce the link between compensation and
Common Stock performance at the very time when the Board is trying to more
closely link the two.
The Board of Directors believes this proposal is not in the best
interest of the share owners of the Company because adoption of this
proposal would apply a rigid standard in determining executive officers'
compensation, removing the flexibility needed to establish appropriate
levels of compensation. Compensation decisions by the Human Resources
Committee of the Company's Board of Directors must be able to be made on a
case-by-case basis. Executive compensation is an essential tool employed by
the Committee to attract and retain qualified executives and encourage
excellent performance. Without flexibility in establishing appropriate
levels of compensation, such goals cannot be achieved. Capable and highly
qualified management is vital to a company's success. By placing a
below-market ceiling on compensation and eliminating stock-based incentive
awards, this proposal would not allow the Company to adequately compensate
its management and, as a result, could have an adverse impact on the
quality of management, the performance of the Company and, ultimately, on
share owner value.
Approval of this proposal requires the affirmative vote of a majority
of the shares of Common Stock voted on the issue. Abstentions and broker
non-votes have no effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL, WHICH IS DESIGNATED IN THE PROXY AS ISSUE NO. 6.
OTHER BUSINESS
The Board knows of no business to be transacted at the meeting other than
that presented above. However, if other matters do properly come before the
meeting, the accompanying proxy will be voted on such matters in accordance with
the judgment of the persons authorized in the proxy to vote them.
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<PAGE> 26
<TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows shares of Common Stock beneficially owned as of
February 24, 1995 by each director candidate, the executive officers named in
the table under "Executive Compensation -- Compensation" and all directors and
executive officers as a group.
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME BENEFICIALLY OWNED(1)
-------------------------------------------------------------- ---------------------
<S> <C>
Richard P. Anderson........................................... 2,071
Albert C. Bersticker.......................................... 1,509
Leigh Carter.................................................. 2,766
Thomas A. Commes.............................................. 5,509
William F. Conway............................................. 1,000
Wayne R. Embry................................................ 1,509
Robert J. Farling............................................. 36,879(2)
George H. Kaull............................................... 5,551
Richard A. Miller............................................. 12,536
Frank E. Mosier............................................... 2,230
Sister Mary Marthe Reinhard, SND.............................. 1,506(3)
Robert C. Savage.............................................. 1,509
William J. Williams........................................... 2,293
Murray R. Edelman............................................. 14,464(2)
Donald C. Shelton............................................. 5,893
Fred J. Lange, Jr. ........................................... 5,555
Al R. Temple.................................................. 3,428
All directors and executive officers as a group(4)............ 138,869(2)
<FN>
---------------
(1) Beneficially owned shares include any shares with respect to which voting or
investment power is attributed to an individual because of joint or
fiduciary ownership of the shares or relationship to the record owner, such
as a spouse, even if the individual does not consider himself or herself the
beneficial owner. Certain individuals disclaim beneficial ownership of some
of those shares.
(2) Includes the following numbers of shares which are not owned but may be
purchased within 60 days after February 24, 1995 upon exercise of options to
purchase shares of Common Stock: Mr. Farling -- 3,330; Mr. Edelman -- 5,550;
and all directors and executive officers as a group -- 11,655.
(3) Owned by Sisters of Notre Dame.
(4) All directors and executive officers as a group were considered to own
beneficially 0.1% of the Company's Common Stock and none of the Preferred
Stock of Cleveland Electric and Toledo Edison except for one officer who
owns 400 shares of Toledo Edison $2.81 Preferred Stock.
</TABLE>
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<PAGE> 27
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers to file reports of ownership and changes in ownership
with respect to the securities of the Company and its subsidiaries with the SEC
and to furnish copies of these reports to the Company. Based on a review of
these reports and written representations from the Company's directors and
officers regarding the necessity of filing a report, the Company believes that
during 1994 all filing requirements were met on a timely basis except for Mr.
Miller who did not timely file a Form 3 on behalf of a family member's trust for
which he is the Trustee. Mr. Miller had previously reported beneficial ownership
of these shares and filed the Form 3 after receiving notification from the SEC
that a Form 3 was required for the trust.
EXECUTIVE COMPENSATION
REPORT OF HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
GENERAL
The Human Resources Committee, which administers the Company's compensation
program, recognizes that electric utilities operate in an increasingly
competitive environment. It further recognizes that the Company faces
significant challenges in executing its Strategic Plan to make the Company more
competitive. The key objective of that Plan is to enhance share owner value.
Therefore, in late 1994, the Committee recommended, and the Board approved, a
restructuring of the Company's executive compensation program to link executive
compensation more directly to corporate performance. Under the proposed Equity
Plan, compensation would be provided through a combination of programs, the
value of which is based on the price of Common Stock. This change, effective in
1995, is designed to provide further incentive to enhance share owner value.
As discussed above, the Committee administers the Company's compensation
program and the Board sets each executive officer's compensation based on
recommendations of the Committee. In making such recommendations, the Committee
considers: corporate and individual performance; compensation data for other
large electric utilities serving major metropolitan areas and having nuclear
generating units ("comparable utilities"); and for certain utilities of similar
size as the Company based on revenue. These companies are among the utilities
comprising the EEI Index shown on the Performance Graph on page 28. Also, the
Committee is periodically advised by compensation consultants concerning the
competitiveness of Company compensation and the design of the total compensation
package. The Company's Chief Executive Officer ("CEO") participates in the
deliberations of the Committee and the Board but does not participate in the
final determination of his own compensation.
23
<PAGE> 28
In addition to linking executive compensation with corporate performance,
total compensation also will continue to be based on individual performance. As
a result, executive officers' total compensation will be comprised of three
components -- base salary, annual cash incentive awards and long-term incentive
awards. The mix of these components will vary based upon each officer's impact
on corporate goals. For most executive officers, nearly 40% of total
compensation will be based on annual cash and long-term incentives which are
linked to Common Stock performance, with the remainder related to base salary.
The comparable utilities typically provide 20% of executive officer total
compensation in the form of annual and long-term incentive awards. Thus, the
Company's program places more emphasis on the link between compensation and
share owner value.
BASE SALARY
The base salary of each executive officer, except the Vice
President -- Sales and Marketing, is targeted at the median pay level for
similar positions at the comparable utilities. In 1994, the Vice
President -- Sales and Marketing was recruited from outside the electric utility
industry. His base salary was targeted at the median pay level for his position
at the general industry level. Adjustments to base salary are normally made each
year for corporate performance; individual experience, performance and
potential; scope of responsibility; and the competition for an executive both
within and outside the electric utility industry. Recommendations from the CEO
are taken into account in setting base salary for all other executive officers.
In November 1993, the Committee recommended, and the Board approved, that
base salary increases be omitted for all executive officers because of the
Company's financial results. As a result, certain officers' base salaries fell
substantially below the median pay level for similar positions at the comparable
utilities. In recognition of that, the Committee recommended, and the Board
approved, base salary increases for three executive officers effective December
5, 1994 to bring them to about 85% of the median pay level at the comparable
utilities. The Committee also recommended and the Board approved, that base
salaries of all other executive officers remain frozen. In order to prevent
further erosion in base salaries below the target median pay level, in lieu of
base salary increases for 1995, restricted Common Stock was awarded to executive
officers pursuant to the Equity Plan described beginning on page 11. The number
of shares awarded to each executive officer was determined by calculating the
discounted present value of an assumed book value of the Common Stock in 1999
equal to the dollar amount of the foregone base salary increase. The Common
Stock is restricted against disposition for a period of generally five years. If
an officer leaves the Company for reasons other than retirement, death,
disability or a change in control of the Company, the shares of restricted
Common Stock awarded will be forfeited back to the Company. These awards are
contingent upon share owner approval of the Equity Plan.
24
<PAGE> 29
INCENTIVE COMPENSATION
The Company's Executive Incentive Compensation Plan provides both a
short-range cash compensation component and a long-range compensation component
designed to emphasize achievement of short-term corporate and individual
performance goals and long-term goals for the Company. The long-term component
parallels an investment in Company Common Stock. The Board determines the amount
and form of the awards to be granted under the Executive Incentive Compensation
Plan based on the level of achievement of performance goals and the continued
sustainable progress toward achievement of the Company's long-term Strategic
Plan.
When incentive awards are made they may include a cash component, a
long-term component, or both. Cash awards are payable at the time an incentive
award is made. The long-term component is in the form of deferred incentive
units whose value mirrors the performance of the Company's Common Stock,
including the accrual of earnings at a rate equivalent to the dividend rate. The
long-term component vests and is paid in cash after five years except in the
event of death, disability or retirement in which case vesting occurs
immediately. If the executive leaves the Company for reasons other than death,
disability or retirement prior to the vesting date, the long-term component is
forfeited.
The Board establishes corporate and individual goals and performance
measures each year and may grant a portion of each executive officer's incentive
compensation for each of the corporate goals that is achieved. In 1994, the
Board established five corporate goals for all executive officers.
Three levels of performance were established by the Committee for each
corporate goal. In increasing levels of difficulty, the performance levels are
threshold, target and maximum, with threshold being the benchmark level of
performance. A target incentive award may be paid if a corporate goal is
achieved at the target level of performance. Target incentive awards are 25% of
base salary for Vice Presidents, 30% for Senior Vice Presidents, 35% for
Executive Vice Presidents and 50% for the CEO. The award can be more or less
than the target incentive award depending on the weighted average level of
performance for the various goals. Threshold performance is the minimum level of
performance which merits an incentive award. If a corporate goal is met at the
threshold level, the incentive award is 50% of the target level award. The
maximum level award is 50% greater than the target level award. The Committee
and the Board may consider other factors in determining incentive awards.
The Board established ten performance measures for 1994 which related to
the corporate goals established by the Company's Strategic Plan relating to
revenue, customer satisfaction, employee commitment, power production and
financial performance. Those goals were weighted 25%, 15%, 15%, 25% and 20%,
respectively. Five of the performance measures were met at the threshold level
and one performance measure was met at the maximum level. The
25
<PAGE> 30
remaining four measures were below the threshold level. In February 1995, the
Committee recommended, and the Board approved, incentive awards for executive
officers. The awards were 10.27% of base salary for Vice Presidents, 12.33% of
base salary for Senior Vice Presidents, 14.38% of base salary for the Executive
Vice President and 20.55% of base salary for the CEO. The awards for the five
executive officers named in the Summary Compensation Table were in the form of
deferred incentive units as described above. For all other executive officers,
50% of their award was deferred incentive units and 50% was cash.
In late 1994, the Committee also reviewed total compensation data (base
salary and incentive compensation) for utilities of similar size based on
revenue and determined that total compensation for executive officers was
substantially below the median of their peers in this group. The Committee
determined that the gap should be closed over a period of several years in a
manner which would relate compensation directly to Common Stock performance.
The proposed Equity Plan was designed to provide a variety of long-term
incentives which may be used to bridge this gap. In November 1994, the Committee
recommended, and the Board approved, the grant of restricted Common Stock and
stock options under the Equity Plan to executive officers. For each executive
officer, four options were granted for each share of restricted stock. The terms
of the restricted Common Stock awards are the same as those discussed under
"Base Salary" above. The stock options are 10-year incentive stock options
exercisable at a price of $13.20 per share which was about 58% greater than the
$8.375 market price of the Common Stock on the day of the grant. The number of
shares of restricted Common Stock and stock options granted was determined by
calculating the discounted present value of an assumed book value of the Common
Stock in 1999. These grants are contingent upon share owner approval of the
Equity Plan which is discussed in more detail on page 11.
CHIEF EXECUTIVE OFFICER COMPENSATION
In November 1994, the Committee reviewed data from the comparable utilities
and determined that Mr. Farling's base salary was substantially below the median
of his peers. The Committee determined that even a very substantial increase in
his base salary would keep him below the median. However, the Committee
recommended, and the Board approved, that Mr. Farling's base salary remain
unchanged and that he receive 5,400 shares of restricted Common Stock in lieu of
an increase in his 1994 base salary.
In 1994, Mr. Farling's performance for the purpose of determining his
annual incentive was measured against the Company's Strategic Plan objectives.
As described above, five of the performance measures in 1994 relating to the
Company's Strategic Plan were met at the threshold level, one at the maximum
level and four were not achieved. Therefore, Mr. Farling received deferred
incentive units in an amount of 20.55% of his base salary.
26
<PAGE> 31
For the reasons and in the manner discussed above under "Incentive
Compensation", Mr. Farling was granted, pursuant to the Equity Plan, 10,000
shares of restricted Common Stock and 40,000 stock options exercisable at a
price of $13.20 per share.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement through June 1995 with Donald C.
Shelton, Senior Vice President -- Nuclear of Centerior Service, pursuant to
which he receives a base salary of $225,000 and is entitled to participate in
the Company's benefit plans, including the incentive plans discussed above. In
addition, he will be entitled to receive an additional incentive award of up to
30% of his annual base salary contingent upon the achievement of certain nuclear
organizational, performance and cost management goals. Mr. Shelton met 41% of
his 1994 goals and was awarded 2,752 deferred incentive units.
The Company has an employment agreement through December 1996 with Al R.
Temple, Vice President -- Sales and Marketing of Centerior Service, pursuant to
which he receives a base salary of $170,000 and is entitled to participate in
the Company's benefit plans, including the Company's incentive plans discussed
above. In addition, he was entitled to receive an additional incentive award of
up to 20% of his annual base salary contingent upon the achievement of certain
sales, marketing and revenue goals in 1994. Mr. Temple met 80% of his 1994 goals
and was awarded $27,200.
Frank E. Mosier, Chairman
Wayne R. Embry
George H. Kaull
Robert C. Savage
William J. Williams
27
<PAGE> 32
PERFORMANCE GRAPH
The following chart shows an indexed comparison of the cumulative total
return on the Company's Common Stock, the Standard & Poor's 500 Index and the
Edison Electric Institute Index of investor-owned electric utilities at December
31 of each year, assuming that $100 was invested on December 31, 1989 in Company
Common Stock and each index. In each case, dividends have been reinvested.
FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CENTERIOR S&P 500 EEI INDEX
<S> <C> <C> <C>
1989 100 100 100
1990 95.21 96.89 101.37
1991 114.61 126.42 130.64
1992 125.09 136.07 140.59
1993 91.44 149.73 156.22
1994 66.11 151.68 138.14
</TABLE>
COMPENSATION
The following table shows compensation paid by the Centerior System to the
CEO and the executive officers of the Company or Centerior Service at December
31, 1994 who were the next four highest paid executive officers in 1994.
28
<PAGE> 33
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION -------------------------- ALL OTHER COMPENSATION
RESTRICTED SECURITIES ----------------------------------------
NAME AND PRINCIPAL -------------------- STOCK UNDERLYING INSURANCE SAVINGS PLAN
POSITION YEAR SALARY BONUS(2) AWARD(3) OPTIONS PREMIUMS(4) MATCH(5) TOTAL
---------------------- ----- -------- ------- ----------- ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Farling 1994 $360,048 $ 500 $ 128,975 40,000 $19,188 $1,030 $20,218
Chairman, President 1993 360,048 0 0 0 13,250 0 13,250
and CEO of the 1992 319,363 0 0 0 12,197 3,431 15,628
Company and
Centerior Service.
Murray R. Edelman 1994 265,044 500 49,413 20,000 2,696 3,750 6,446
Executive Vice 1993 258,451 0 0 0 4,192 3,690 7,882
President of the 1992 241,210 0 0 0 3,957 3,433 7,390
Company and
Centerior Service.
Donald C. Shelton 1994 225,004 500 33,500 13,600 7,125 2,918 10,043
Senior Vice 1993 197,044 0 0 0 4,556 5,907 10,463
President -- Nuclear 1992 157,874 15,000 0 0 3,883 4,728 8,611
of
Centerior Service.
Fred J. Lange, Jr. 1994 191,404 500 30,988 12,000 3,782 4,527 8,309
Senior Vice 1993 186,698 0 0 0 5,070 5,419 10,489
President of the 1992 157,274 0 0 0 3,900 4,718 8,618
Company and
Centerior Service.
Al R. Temple (6) 1994 143,880 27,700 22,194 8,600 6,525 3,724 10,249
Vice President --
Sales and Marketing
of Centerior
Service.
<FN>
---------------
(1) Contingent upon share owner approval of the Equity Plan described beginning
on page 11.
(2) Includes for each named officer, $500 awarded to all eligible employees
pursuant to the Employee Incentive Compensation Plan. Also, Mr. Temple
received $27,200 pursuant to his employment agreement. See the table on page
30 for long-term incentive awards made in 1994.
(3) Restricted Common Stock awards are valued at the closing market price as of
the date of grant. Restricted Common Stock holdings and the value thereof
based on the closing price of the Common Stock at year-end are as follows:
Mr. Farling -- 15,400 shares ($136,675); Mr. Edelman -- 5,900 shares
($52,363); Mr. Shelton -- 4,000 shares ($35,500); Mr. Lange -- 3,700 shares
($32,838); and Mr. Temple -- 2,650 shares ($23,519). Dividends on the
restricted Common Stock are payable to the named officers.
(4) Represents the portion of premiums for life, accident, personal liability
and supplemental retirement insurance benefits the Company pays for
executive officers to the extent those premiums exceed that which is
uniformly available to salaried employees under the Company's benefit plans.
In addition, the Company provides additional compensation to certain
executive officers to purchase other employee benefits.
(5) The Company provides a 50% matching contribution to the Company's Employee
Savings Plan on a maximum of 6% of an employee's base pay.
(6) Mr. Temple joined the Company on February 28, 1994.
</TABLE>
29
<PAGE> 34
LONG-TERM INCENTIVE PLAN AWARDS
The following table presents information for the executive officers named
in the Summary Compensation Table relating to 1994 long-term incentive awards.
These awards are in the form of deferred incentive units based on the average of
the highest and lowest prices of the Company's Common Stock during the 52-week
period preceding the award. The award vests after five years except in the event
of death, disability or retirement in which case vesting occurs immediately. The
value of the deferred incentive units mirrors the performance of the Company's
Common Stock, including the accrual of earnings at a rate equivalent to the
dividend rate. At the time of vesting, the units are paid in cash, based on the
average of the highest and lowest prices of the Company's Common Stock during
the prior 52 weeks.
<TABLE>
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<CAPTION>
PERFORMANCE
OR
OTHER
PERIOD
NUMBER OF UNTIL
SHARES, UNITS OR MATURATION
NAME OTHER RIGHTS OR PAYOUT
------------------ ---------------- ----------
<S> <C> <C>
Robert J. Farling 7,354 5 years
Murray R. Edelman 3,786 5 years
Donald C. Shelton 5,505(1) 5 years
Fred J. Lange, Jr. 2,454 5 years
Al R. Temple 1,739 5 years
<FN>
---------------
(1) One-half of the deferred incentive units were awarded pursuant to Mr.
Shelton's employment agreement and one-half were awarded pursuant to the
Company's Executive Incentive Compensation Plan.
</TABLE>
STOCK OPTIONS
The following tables present information for the executive officers named
in the table under "Executive Compensation -- Compensation" relating to stock
options granted in 1994 and outstanding at December 31, 1994 under the Cleveland
Electric 1978 Key Employee Stock Option Plan ("1978 Plan") and the Equity
Compensation Plan. The obligations of the Cleveland Plan were assumed by the
Company when Cleveland Electric became a subsidiary. No additional options can
be granted under the 1978 Plan. No options were exercised in 1994.
30
<PAGE> 35
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION GRANT DATE
NAME GRANTED YEAR ($/SH) DATE PRESENT VALUE(1)
------------------ ---------- ---------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Robert J. Farling 40,000 15.1% $13.20 3/4/2002 $ 10,400
Murray R. Edelman 20,000 7.6 13.20 11/22/2004 5,600
Donald C. Shelton 13,600 5.1 13.20 8/15/1998 2,312
Fred J. Lange, Jr. 12,000 4.5 13.20 11/22/2004 3,360
Al R. Temple 8,600 3.3 13.20 11/22/2004 2,408
<FN>
---------------
(1) Values based on the Black-Scholes pricing model. The assumptions used to
determine these values are described on page 15.
</TABLE>
<TABLE>
FISCAL YEAR-END OPTION VALUES
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
--------------------- -------------- -----------------
<S> <C> <C>
Robert J. Farling 3,330/40,000 (1)
Murray R. Edelman 5,550/20,000 (1)
Donald C. Shelton 0/13,600 (1)
Fred J. Lange, Jr. 0/12,000 (1)
Al R. Temple 0/8,600 (1)
<FN>
---------------
(1) None of the outstanding options were in-the-money based on the closing price
of the Company's Common Stock on December 30, 1994 of $8.875.
</TABLE>
PENSION BENEFITS
Centerior System employees, including officers, are covered by the
Company's pension program. The pension program is a noncontributory
fixed-benefit program which provides benefits upon retirement at or after age
55. The annual amount of the pension is based primarily upon the annualized
average straight-time salary and incentive compensation in the 60 consecutive
highest paid months ("covered compensation") and the number of years of service.
The resulting benefit is reduced by a percentage (based on the number of years
of service) of the average FICA wage base. The pension is reduced in the event
of retirement prior to age 62 and in certain cases prior to age 65. Appropriate
reductions are made if the employee elects a joint and survivor, guaranteed
years certain, lump sum or other form of pension in place of payments for life.
To the extent limits imposed by Federal law apply to reduce a pension which
otherwise would be payable under the pension program, the amount of the
reduction will be paid, as permitted by Federal law, directly by the Company.
The following
31
<PAGE> 36
table shows the annual amount of a payment-for-life pension payable to salaried
employees who retire under the pension program at or after age 62 at stated
levels of covered compensation and years of service.
<TABLE>
PENSION PLAN TABLE
<CAPTION>
YEARS OF SERVICE
COVERED ---------------------------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35 40
------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 9,892 $ 19,784 $ 29,677 $ 39,569 $ 44,961 $ 50,353 $ 52,549 $ 54,745
150,000 15,142 30,284 45,427 60,569 68,961 77,353 80,799 84,245
200,000 20,392 40,784 61,177 81,569 92,961 104,353 109,049 113,745
250,000 25,642 51,284 76,927 102,569 116,961 131,353 137,299 143,245
300,000 30,892 61,784 92,677 123,569 140,961 158,353 165,549 172,745
350,000 36,142 72,284 108,427 144,569 164,961 185,353 193,799 202,245
400,000 41,392 82,784 124,177 165,569 188,961 212,353 222,049 231,745
</TABLE>
The following table sets forth the years of service and the covered
compensation as of year end 1994 of the executive officers named in the table
under "Executive Compensation -- Compensation".
<TABLE>
<CAPTION>
YEARS OF COVERED
NAME SERVICE COMPENSATION
---------------------------- --------- ------------
<S> <C> <C>
Robert J. Farling 35 $343,057
Murray R. Edelman 33 260,195
Donald C. Shelton(1) 8 186,003
Fred J. Lange, Jr. 8 167,622
Al R. Temple 1 (2)
<FN>
----------------------
(1) Mr. Shelton's employment agreement provides that as of June 30, 1995
(or such earlier date as may be approved by the Board) the Company
will provide to Mr. Shelton or his beneficiary a pension benefit from
the pension plan, calculated as if the terms of the Company's 1993
Voluntary Transition Program were then in effect.
(2) Mr. Temple is not now vested in the pension program and is therefore
not entitled to any pension.
</TABLE>
PROPOSALS FOR 1996 ANNUAL MEETING
Share owners who wish to submit proposals for inclusion in the Proxy
Statement and proxy of the Board for share owner action at the 1996 annual
meeting must send the proposal and supporting statement, if any, to the
Secretary of the Company so that it will be received not later than November 15,
1995.
By order of the Board of
Directors,
JANIS T. PERCIO, Secretary
32
<PAGE> 37
<TABLE>
<S> <C>
GENERAL INFORMATION
The Gateway Plaza entrance to
Gund Arena is the preferred
entrance since it is the
closest to the Gateway East
parking garage and the meeting
location. The Gund Arena
entrances at the corner of
Huron and Ontario and on East
6th St. will also be open.
Please note that the RTA
walkway from Tower City will
NOT be open.
The wing of the Gateway East
parking garage closest to
Jacobs Field will be open for
parking. The cost to park
there will be $2. Please note
that the bridge from the
garage to Gund Arena will NOT
be open.
</TABLE>
ACCESS ROUTES
FROM THE EAST:
Take I-90/Rt. 2 west; follow signs to Downtown, staying on Rt. 2 as I-90 curves
away to left; exit at E. 9th St.; turn left on E. 9th and proceed south to the
Gateway East parking garage.
FROM THE SOUTH:
Take I-77 north; take E. 9th St. exit; follow signs to either E. 9th St. north
or Ontario St. north to the Gateway East parking garage.
FROM THE WEST OR SOUTHWEST:
Take I-90 east or I-71 north to Inner Belt merge; continue on Inner Belt (I-90)
to either the Ontario St. or E. 9th St. exit; exit right onto Ontario St. north
or E. 9th St. north to Gateway East parking garage.
<PAGE> 38
EXHIBIT INDEX
Exhibit
-------
99(a) Form of proxy card.
99(b) Centerior Energy Corporation Directors
Restricted Stock Plan
99(c) Centerior Energy Corporation Equity
Compensation Plan
<PAGE> 1
Exhibit 99a
(logo) CENTERIOR
ENERGY
March 14, 1995
Dear Share Owner:
Attached below is your proxy card for the annual meeting of
share owners of Centerior Energy Corporation to be held
on April 25, 1995. Six issues are being voted upon at the
meeting this year. The issues are detailed in the enclosed
proxy statement.
The Board of Directors recommends a vote FOR the election of
the 13 named candidates, the adoption of the Directors
Restricted Stock Plan, the adoption of the Equity Compensa-
tion Plan and the ratification of the appointment of Arthur
Andersen LLP as the independent accountants of the Company
and its subsidiaries.
The Board of Directors recommends a vote AGAINST both of the
share owner proposals.
The matters to be acted upon at the meeting are important to
you as a share owner. In order to help us obtain the
representation needed to conduct business at the meeting, we
urge you to return your signed proxy card promptly in the
enclosed postage-paid envelope. We appreciate your support.
Sincerely,
/s/ Robert J. Farling
Robert J. Farling
Chairman, President &
Chief Executive Officer
<TABLE>
<S> <C>
PLEASE DETACH AND RETURN ONLY THE LOWER PORTION IN THE ENVELOPE PROVIDED.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE DIRECTORS RECOMMEND A VOTE FOR THE ELECTION OF ALL CANDIDATES AND ISSUES 2, 3 and 4. THE DIRECTORS RECOMMEND A
------------------------------------------------------------------------------------------ VOTE AGAINST ISSUES 5 AND 6.
(1) ELECTION OF DIRECTORS ----------------------------------
/ / FOR ALL CANDIDATES LISTED BELOW (OR ANY ALTERNATES SELECTED AS STATED IN THE (5) ADOPT SHARE OWNER PROPOSAL TO
PROXY STATEMENT) EXCEPT AS MARKED TO THE CONTRARY BELOW. RESTRICT DISCRETIONARY VOTING
INSTRUCTION: To withhold authority to vote for any individual candidate, mark
the box to the left of the candidate's name. / / FOR
/ / R.P. Anderson / / A.C. Bersticker / / L. Carter / / T.A. Commes / / AGAINST
/ / W.F. Conway / / W.R. Embry / / R.J. Farling / / G.H. Kaull / / R.A. Miller / / ABSTAIN
/ / F.E. Mosier / / Sr. M.M. Reinhard / / R.C. Savage / / W.J. Williams
/ / WITHHOLD AUTHORITY to vote for all named candidates.
------------------------------------------------------------------------------------------------------------------------------------
(2) APPROVE THE DIRECTORS (3) APPROVE THE EQUITY (4) RATIFY APPOINTMENT OF ARTHUR ANDERSEN (6) ADOPT SHARE OWNER PROPOSAL TO
RESTRICTED STOCK PLAN COMPENSATION PLAN LLP AS INDEPENDENT ACCOUNTANTS CAP EXECUTIVE COMPENSATION
/ / FOR / / FOR / / FOR / / FOR
/ / AGAINST / / AGAINST / / AGAINST / / AGAINST
/ / ABSTAIN / / ABSTAIN / / ABSTAIN / / ABSTAIN
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS NAME(S) APPEARS ABOVE AND INDICATE CAPACITY, IF APPROPRIATE
WHEN SIGNING AS ATTORNEY, AGENT, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE SIGN YOUR NAME AND
TITLE. IF A CORPORATION, THE FULL CORPORATE NAME AND SIGNATURE AND TITLE OF AN AUTHORIZED OFFICER ARE REQUIRED. Date _______, 1995
IF A PARTNERSHIP, THE FULL PARTNERSHIP NAME ANO THE SIGNATURE AND TITLE OF AN AUTHORIZED PERSON ARE REQUIRED.
</TABLE>
<PAGE> 2
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CENTERIOR ENERGY CORPORATION
6200 Oak Tree Blvd., Independence, Ohio 44131
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING TO BE HELD ON APRIL 25, 1995
The undersigned hereby appoints Robert J. Farling and Janis T. Percio (and if
only one is present then by that one and with full power of substitution and
revocation) as proxies, with the powers the undersigned would possess if
personally present, to vote all shares of Common Stock of the undersigned in
Centerior Energy Corporation (and to exercise all other share owner rights
and powers) at the annual meeting of its share owners to be held on APRIL 25,
1995, and at any adjournments thereof, upon all matters that may properly
come before the meeting, including the matters identified on the reverse side
of this proxy and described in the proxy statement furnished herewith, subject
to any directions indicated on the reverse side of this proxy.
EXCEPT TO THE EXTENT OTHERWISE SPECIFIED OR IF NO INSTRUCTIONS ARE GIVEN ON
THE REVERSE SIDE, THE BOARD OF DIRECTORS' PROXIES INTEND TO VOTE FOR THE
ELECTION OF THE DIRECTORS AND ISSUES 2, 3 AND 4 AND AGAINST ISSUES 5 AND 6 AS
SET FORTH ON THE REVERSE SIDE.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE
AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 1
Exhibit 99b
10-11-94
CENTERIOR ENERGY CORPORATION
DIRECTORS RESTRICTED STOCK PLAN
1. Purpose. The purpose of the Centerior Energy Corporation
("Corporation") Directors Restricted Stock Plan ("Plan") is to promote the
long-term interests of the Corporation and its share owners by annually
granting to non-employee directors of the Corporation shares of the
Corporation's common stock, without par value, ("Common Stock") as a part of,
and not in addition to, their annual retainer compensation and, thereby, to (a)
attract and retain highly qualified individuals to serve as non-employee
directors of the Corporation, (b) increase non-employee directors' common
stock ownership in the Corporation and (c) further align each non-employee
director's interests with those of the Corporation's share owners.
2. Administration. This Plan shall be self-effectuating. Except as
provided in Sections 6 (iv), 9 and 10 hereof, administrative determinations
necessary or advisable for the administration or interpretation of this Plan in
order to carry out its provisions and purposes shall be made by the
Corporation.
3. Participation. Each non-employee director of the Corporation
shall participate in this Plan. The term "non-employee director" means a
member of the Board of Directors of the Corporation ("Board") at the time of
grant of restricted shares of Common Stock pursuant to this Plan who is not
then an employee of the Corporation or any parent or subsidiary thereof.
4. Grant of Awards. Provided that this Plan has not been terminated,
on January 1, 1995 and each January 1 thereafter each non-employee director
shall automatically be granted 500 shares of Common Stock with the restrictions
set forth in Section 5(a) hereof ("Restricted Stock") at no cost to such
non-employee directors. If the number of shares available pursuant to Section
8(a) hereof is less than the total number that otherwise would be granted
pursuant to this Section 4, each non-employee director shall receive a
proportionately reduced number of shares.
5. Restrictions.
(a) While serving as a director, a director may not,
voluntarily or involuntarily, sell, assign, encumber, pledge or
otherwise transfer any shares of Restricted Stock, or any interest
therein, otherwise than by will or the law of descent and
distribution. Said restrictions shall terminate upon termination of
service as a director, subject to Section 6 hereof. Any attempted
sale, assignment, encumbrance, pledge or other transfer of such
shares, or any interest therein, in derogation of these restrictions
shall result in a forfeiture to the Corporation of all such shares
subject to such attempted transfer. Certificates for Common Stock
delivered pursuant to Sections 4 and 5 hereof may contain a legend
stating any restrictions appertaining thereto.
(b) During the period in which any shares of Restricted Stock are
subject to the restrictions imposed under Section 5(a) hereof, the
director shall have all rights of a Common Stock share owner, except
as specified in Section 5(a) hereof.
(c) All shares of Restricted Stock shall be deposited in the
Corporation's dividend reinvestment plan, if any, in an account for
the benefit of the non-employee director. All dividends paid on such
stock shall be reinvested in Common Stock pursuant to the provisions
of said plan and those shares of Common Stock shall be subject to the
same restrictions and forfeiture provisions set forth in Section 5(a)
and Section 6, respectively, hereof.
<PAGE> 2
(d) If the Corporation does not have a dividend reinvestment
plan, certificates for all shares of Restricted Stock shall be
registered in the name of the non-employee director and shall be
deposited by and on behalf of such director, together with a stock
power properly endorsed in blank, with the Corporation. The
Corporation shall hold and retain such share certificates in a
custodial capacity until the restrictions provided in Section 5(a)
hereof terminate, at which time certificates shall be delivered
promptly to such director.
6. Forfeiture. Upon termination of service as a director for any
reason other than (a) retirement pursuant to any director retirement policy,
(b) retirement due to the director's taking a position with or providing
services to a governmental, charitable or educational institution whose
policies prohibit continued service on the Board, (c) death, (d) disability as
determined by 80% of the Board excluding the affected director or (e) a Change
in Control as defined in Section 11 hereof, all Restricted Stock, including
stock purchased with dividends on said Stock through any dividend reinvestment
plan of the Corporation by such director, shall be forfeited as of the date of
such termination by such director and returned to the Corporation.
7. Source of Common Stock. All shares of the Common Stock of the
Corporation to be used for the purposes of this Plan shall be either (a)
authorized and unissued shares of Common Stock or (b) treasury shares of the
Corporation, including shares of Common Stock previously issued by the
Corporation and outstanding which have been reacquired by the Corporation (and
which have not been cancelled).
8. Limitations and Conditions.
(a) The total number of shares of Common Stock available for
issuance to non-employee directors under this Plan shall be 100,000
shares. The foregoing number may be increased or decreased in
accordance with Section 9 hereof. Any shares of Restricted Stock
granted under this Plan which are subsequently forfeited by any
non-employee director pursuant to Sections 5 and 6 hereof shall again
be available for issuance under this Plan.
(b) Nothing contained in this Plan shall be deemed to
create any right in any non-employee director (i) to remain a member
of the Board, or to be nominated for reelection or to be reelected as
such or (ii) after ceasing to be such a member, to receive any shares
of Common Stock under this Plan to which such non-employee director is
not entitled to under the express provisions of this Plan.
(c) The granting of Restricted Stock and issuance of
shares of Common Stock shall be subject to all applicable rules and
regulations and to such approvals by any governmental agencies or
national securities exchanges as may be required. This Plan shall be
construed in accordance with and governed by the laws of the State of
Ohio.
9. Adjustments.
In the event of any merger, consolidation, stock or other non-cash
dividend, split up, spin off, stock split, stock consolidation, reverse stock
split, issuance of rights or warrants to purchase securities, combination or
exchange of shares or recapitalization or change in capitalization, or any
other similar corporate event, the Board shall, unless doing so would cause or
result in (a) any of the grants or stock deliveries pursuant to this Plan
failing to be exempt from Section 16(b) of the Securities Exchange Act of 1934
("Exchange Act") or (b) any non-employee director failing to qualify as a
"disinterested administrator", within the meaning of Rule 16b-3, with respect
to any plan of the Corporation, automatically make such mathematically
proportionate (or, in the case of Section 9 (iii) hereof only, qualitative)
adjustments in (i) the aggregate number of shares of Common Stock available for
issuance under this Plan, (ii) the number of
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<PAGE> 3
shares of Restricted Stock to be granted annually and (iii) the kind of shares
that may be issued pursuant to this Plan. The determination by the Board as to
the terms of any of the foregoing permissible adjustments shall be, absent
manifest error, conclusive and binding on all persons, as is reasonably
appropriate and equitable.
10. Amendment and Termination.
(a) The Board shall have the power to suspend, amend or
terminate this Plan at any time; provided, however, that to be
effective, any such amendment or termination shall comply with the
requirements of the rules and regulations promulgated under Section
16(b) of the Exchange Act, including, without limitation, share owner
approval where required to maintain Rule 16b-3 status, to the extent
necessary to insure that the receipt of the Restricted Stock by a
non-employee director under this Plan shall be exempt from Section
16(b) of the Exchange Act; and provided, further, that no suspension,
termination or amendment of this Plan shall materially adversely
affect the rights of a non-employee director with respect to any
grants under this Plan granted prior to such suspension, termination
or amendment, without the consent of such director.
(b) Notwithstanding any provision in this Plan to the contrary or
otherwise, the terms and provisions of this Plan shall not be amended
more than once every six months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, and the rules
thereunder.
11. Change in Control. A "Change in Control" shall be deemed to have
occurred if at any time:
(a) any person (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined
voting power of the Corporation's then outstanding securities;
(b) during any period of 24 consecutive calendar months,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof unless
the election of each new director of the Corporation was approved or
recommended by the vote of at least two-thirds of the directors of the
Corporation then still in office who were directors of the Corporation
at the beginning of any such period;
(c) the Corporation merges with or into, or consolidates with,
another corporation following approval of the share owners of the
Corporation of such merger or consolidation and, after giving effect
to such merger or consolidation, less than 60% of the then outstanding
voting securities of the surviving or resulting corporation represent
or were issued in exchange for voting securities of the Corporation
outstanding immediately prior to such merger or consolidation;
(d) there is a sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or
substantially all the assets of the Corporation following approval of
the share owners of the Corporation of such transaction or series of
transactions; or
(e) the share owners of the Corporation shall approve any plan or
proposal for the liquidation or dissolution of the Corporation.
c:\wp51\kl\Stockpla
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<PAGE> 1
Exhibit 99c
Centerior Energy Corporation
Equity Compensation Plan
1. PURPOSE
The purpose of the Plan is to advance the long-term interests of the
Corporation by (i) motivating executive personnel by means of equity-based
incentives, (ii) furthering the identity of interests of Participants with
those of the share owners of the Corporation through the ownership and
performance of the Common Stock and (iii) enhancing the ability of the
Corporation to attract and retain management personnel upon whose judgment the
successful conduct of the business of the Corporation largely depends. Toward
this objective, the Committee or the Board of Directors may grant Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance Shares and
Deferred Incentive Units to selected Employees on the terms and subject to the
conditions set forth in the Plan.
2. DEFINITIONS
2.1 "Administrative Policies" means the administrative policies and
procedures adopted and amended from time to time by the Committee to administer
the Plan.
2.2 "Award" means any form of Stock Option, Stock Appreciation Right,
Restricted Stock, Performance Share or Deferred Incentive Unit granted under
the Plan, whether singly, in combination, or in tandem, to a Participant by
the Committee pursuant to such terms, conditions, restrictions and
limitations, if any, as the Committee may establish by the Award Agreement or
otherwise.
2.3 "Award Agreement" means a written agreement with respect to an Award
between the Corporation and a Participant establishing the terms, conditions,
restrictions and limitations applicable to an Award. To the extent an Award
Agreement is inconsistent with the terms of the Plan, the Plan shall govern the
rights of the Participant thereunder.
2.4 "Board of Directors" means the Board of Directors of the Corporation.
2.5 "Change in Control" shall be deemed to have occurred if at any time or
from time to time after the date of adoption of the Plan:
(a) there is a report filed on Schedule 13D or Schedule 14D-1, each as
adopted under the Exchange Act, disclosing the acquisition of 20% or more of
the voting stock of the Corporation in one transaction or a series of
transactions by any person (as the term "person" is used in Section 13(d) and
Section 14(d)(2) of the Exchange Act);
(b) during any period of 24 consecutive calendar months, individuals who
at the beginning of such period constitute the Directors of the Corporation
cease for any reason to constitute at least a majority thereof unless the
election of each new Director of the Corporation was approved or recommended
by the vote of at least two-thirds of the Directors of the Corporation then
still in office who were Directors of the Corporation at the beginning of any
such period;
<PAGE> 2
(c) the Corporation merges with or into, or consolidates with, another
corporation following approval of the share owners of the Corporation of such
merger or consolidation and, after giving effect to such merger or
consolidation, less than 60% of the then outstanding voting securities of the
surviving or resulting corporation represent or were issued in exchange for
voting securities of the Corporation outstanding immediately prior to such
merger or consolidation;
(d) there is a sale, lease, exchange or other transfer in one transaction
or a series of related transactions of all or substantially all the assets of
the Corporation following approval of the share owners of the Corporation of
such transaction or series of transactions or
(e) the share owners of the Corporation shall approve any plan or proposal
for the liquidation or dissolution of the Corporation.
2.6 "Code'' means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 "Committee" means the Human Resources Committee of the Board, or such
other committee designated by the Board, authorized to administer the Plan
under Section 3 hereof.
2.8 "Common Stock" means Common Stock of the Corporation.
2.9 "Corporation" means Centerior Energy Corporation and its successors,
including the surviving or resulting corporation of any merger of Centerior
Energy Corporation with or into, or any consolidation of Centerior Energy
Corporation with, any other corporation or corporations.
2.10 "Deferred Incentive Unit" shall have the meaning set forth in Section
11(a) hereof.
2.11 "Director" means a member of the Board of Directors.
2.12 "Employee" means any individual employed by the Corporation or a
Subsidiary.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.14 "Fair Market Value" means the average of the high and low sale prices
of the Common Stock as reported in THE WALL STREET JOURNAL report of
NYSE-Composite Transactions for the date on which the determination of fair
market value is made or, if there are no sales of Common Stock on that date,
then on the next preceding date on which there were any sales of Common Stock.
2.15 "Freestanding SAR'' has the meaning set forth in Section 8(a) hereof.
2.16 "Incentive Stock Option" means an Option intended to meet the
requirements of Section 422 of the Code.
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2.17 "Nonqualified Stock option" means an option which is not intended to
meet the requirements of Section 422 of the Code.
2.18 "Option" or "Stock Option" means an option to purchase Common Stock
pursuant to an Award.
2.19 "Participant" means any individual to whom an Award has been granted
by the Committee.
2.20 "Performance Period" shall have the meaning set forth in Section
10(b) hereof.
2.21 "Performance Shares" shall have the meaning set forth in Section
10(a) hereof.
2.22 "Performance Target" shall have the meaning set forth in Section
10(b) hereof.
2.23 "Plan" means the Centerior Energy Corporation Equity Compensation
Plan.
2.24 "Restricted Stock" means shares of Common Stock awarded under Section
9(a) hereof.
2.25 "Restricted Stock Award" means an Award of shares of Common Stock under
Section 9 hereof.
2.26 "SARS" or "Stock Appreciation Right" shall have the meaning set forth
in Section 8(a) hereof.
2.27 "Subsidiary" means a corporation at least 50% of the voting stock of
which is directly or indirectly owned by the Corporation, Centerior Service
Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company
or any other Subsidiary of the Corporation.
2.28 "Tandem SARS" shall have the meaning set forth in Section 8(a) hereof.
3. ADMINISTRATION
The Plan shall be administered under the supervision of the Committee.
Subject to the express provisions of the Plan, the Committee shall have
conclusive authority to construe and interpret the Plan and any Award
Agreement entered into hereunder, to establish, amend and rescind
Administrative Policies for the administration of the Plan, to determine the
Employees who are eligible for an Award and to determine the type, size,
terms, conditions, restrictions and limitations of Awards to be granted to any
Employee and shall have such additional authority as the Board of Directors
may from time to time determine to be necessary or desirable. Decisions of
the Committee shall be binding and conclusive on all persons for all purposes.
The Committee may authorize any one or more of its members or any officer of
the Corporation or its Subsidiaries to
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<PAGE> 4
execute and deliver documents on behalf of the Committee and the Committee may
delegate to one or more employees, agents or officers of the Corporation or
its Subsidiaries, or to one or more third party consultants, accountants,
lawyers or other advisors, such ministerial duties related to the operation of
the Plan as it may deem appropriate. Notwithstanding the foregoing, the Board
of Directors may exercise any authority granted herein to the Committee;
provided, however, that to the extent required by Rule 16b-3 of the Exchange
Act with respect to specific grants of Awards, such power or authority shall
only reside in and such actions or determinations shall only be made by an
administrator or administrators satisfying the disinterested administration
standard contained in Rule 16b-3 of the Exchange Act. The right of
indemnification granted to each Director, Employee and officer of the
Corporation and its Subsidiaries under applicable law and the Regulations of
the Corporation and its Subsidiaries, as from time to time may be in effect,
shall apply to any act or failure to act by the Board of Directors or the
Committee, any of their respective members and any person to whom either of
them may have delegated any authority in connection with administration of the
Plan. Any party performing services with respect to the Plan shall receive
such compensation, in addition to any compensation received as an Employee, as
the Board of Directors shall authorize and such party also shall receive
reimbursement from the Corporation or its Subsidiaries for reasonable expenses
incurred in connection therewith.
4. ELIGIBILITY
Any Employee is eligible to become a Participant.
5. SHARES AVAILABLE
(a) Shares of Common Stock available for issuance under the Plan may be
authorized and unissued shares, treasury shares or shares acquired on the open
market specifically for distribution under the Plan as the Chief Financial
officer of the Corporation may from time to time determine. Subject to the
adjustments provided for in Section 16 hereof, the maximum number of shares of
Common Stock available for grant of Awards under the Plan during any calendar
year shall be equal to the sum of:
(i) 0.5% of the total number of issued and outstanding shares of
Common Stock as of the December 31st of the immediately preceding calendar
year;
(ii) Any unused portion of the limit in (i) above from prior calendar
years during the term of the Plan; and
(iii) Any shares of Common Stock related to Awards which terminated
during prior calendar years during the term of the Plan by expiration,
forfeiture, cancellation or otherwise without the issuance of such shares or
cash in lieu thereof.
Notwithstanding the foregoing, not more than 3,000,000 shares of Common
Stock shall be available for the award of Incentive Stock Options under the
Plan.
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<PAGE> 5
Notwithstanding the foregoing, at no time shall the number of shares deemed
to be available for grant in a calendar year exceed 1% of the total number of
issued and outstanding shares of Common Stock.
(b) For purposes of calculating the number of shares of Common Stock deemed
to be granted hereunder during any calendar year, each Award, whether
denominated in Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares or Deferred Incentive Units, shall be deemed to be a grant
of a number of shares of Common Stock equal to the number of shares (i)
represented by the Stock Options and (ii) shares of Restricted Stock,
Performance Shares, Stock Appreciation Rights or Deferred Incentive Units set
forth in the Award; provided, however,
(i) in the case of any Award as to which the exercise of one right
nullifies the exercisability of another, the number of shares deemed to have
been granted shall be the maximum number of shares (and/or cash equivalents)
that could have been acquired upon the maximum exercise or settlement of the
Award and
(ii) in the case of Performance Share Awards providing for payments in
excess of 100% of the number of shares set forth in the Award Agreement, the
number of shares granted shall be deemed to be the maximum number of shares
(and/or the cash equivalent) thereof issuable under the Award at the highest
level of performance.
(c) For purposes of calculating the number of shares available for grant in
any calendar year, the portion of any Award that has been settled by the
payment of cash or the issuance of shares of Common Stock, or a combination
thereof, shall not be available for regrant under the Plan, irrespective of the
value of the settlement or the method of its payment. The settlement of an
Award shall not be deemed to be the grant of an Award hereunder.
6. TERM
The Plan shall become effective upon adoption by the Board of Directors, but
Awards thereunder shall be conditioned upon approval of the Plan by the share
owners of the Corporation, and the Plan shall remain in effect thereafter until
terminated by the Board of Directors.
7. STOCK OPTIONS
(a) GRANTS. Awards may be granted in the form of Options. Options may be
Incentive Stock Options or Nonqualified Stock Options or a combination of both,
or any particular type of option authorized by the Code from time to time. No
Incentive Stock Option may be granted on a date more than 10 years from the
earlier of (i) the date the share owners of the Corporation approve the Plan or
(ii) the date of adoption of the Plan by the Board of Directors; or such other
date as may be authorized by the Code from time to time. The maximum number of
shares of Common Stock subject to options that may be granted to any Employee
in any calendar year shall be 100,000, subject to adjustment as provided in
Section 16 hereof.
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<PAGE> 6
(b) TERMS AND CONDITIONS OF OPTIONS. An option shall be exercisable in
whole or in such installments and at such times as may be determined by the
Committee; provided, however, that no option shall be exercisable more than 10
years after the date of grant thereof. The Option exercise price shall be
established by the Committee. The exercise price for an Incentive Stock Option
shall not be less than the Fair Market Value of the Common Stock on the grant
date of the Incentive Stock Option.
(c) RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS. Options issued in
the form of Incentive Stock Options shall, in addition to being subject to all
applicable terms, conditions, restrictions and limitations established by the
Committee, comply with Section 422 of the Code. Incentive Stock Options shall
be granted only to full-time Employees within the meaning of Section 424 of the
Code. The aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of shares with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any calendar
year (under this Plan or any other plan of the Corporation or any Subsidiary
which provides for the granting of Incentive Stock Options) may not exceed
$100,000 or such other number as may be authorized under the Code from time to
time. Any Incentive Stock Option that is granted to any Employee who is, at
the time said option is granted, deemed for purposes of Section 422 of the Code
to own shares of the Corporation aggregating more than 10% of the total
combined voting power of all classes of shares of the Corporation or of a
parent or Subsidiary of the Corporation shall have an exercise price that is at
least 110% of the Fair Market Value of the shares at the date of grant and
shall not be exercisable after the expiration of five years from the date it is
granted.
(d) ADDITIONAL TERMS AND CONDITIONS. The Committee may, by way of the
Award Agreement or otherwise, establish such other terms, conditions,
restrictions and limitations, if any, on any Option Award, provided they are
not inconsistent with the Plan.
(e) PAYMENT. Upon exercise, a Participant may pay the exercise price of an
option in cash, in shares of Common Stock (including in the case of the
exercise of Nonqualified Stock Options shares of Common Stock acquired upon the
exercise of a portion of said Option), in exercisable SARs, by delivery by the
Participant of irrevocable instructions to a broker registered under the
Exchange Act to promptly deliver to the Corporation the amount of sale or loan
proceeds to pay the exercise price or a combination of the foregoing, or such
other consideration as the Committee may deem appropriate. If the exercise
price of an option is paid by delivery of shares of Restricted Stock, the
restrictions applicable to such Restricted Stock shall apply to the number of
shares Of Common Stock received upon exercise equal to the number of shares of
Restricted Stock delivered as payment. The Committee may impose such
conditions as it deems appropriate on the use of Common Stock to exercise an
Option.
8. STOCK APPRECIATION RIGHTS
(a) GRANTS. Awards may be granted in the form of stock appreciation
rights ("SARs"). SARs shall entitle the recipient to receive a payment, in
cash, shares of Common Stock or a combination thereof as the Committee
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<PAGE> 7
determines, equal to the appreciation in Fair Market Value of a stated number
of shares of Common Stock from the price stated in the Award Agreement to the
Fair Market Value of the Common Stock on the date of exercise or surrender. An
SAR may be granted in tandem with all or a portion of a related Option under
the Plan ("Tandem SARs") or may be granted separately ("Freestanding SARs"). A
Tandem SAR may be granted either at the time of the grant of the related
Nonqualified Stock Option or at any time thereafter during the term of the
Nonqualified Stock Option. A Tandem SAR related to an Incentive Stock Option
may only be granted at the same time such Option is granted. The base price of
a Tandem SAR shall be the same as the exercise price of the related Option. The
maximum number of shares of Common Stock or equivalents thereof subject to SARs
granted to any Employee in any calendar year shall be 100,000, subject to
adjustment as provided in Section 16 hereof.
(b) TERMS AND CONDITIONS OF TANDEM SARS. A Tandem SAR shall be
exercisable only to the extent that the related Option is exercisable and shall
expire on a date not later than the date on which the related Option expires.
Upon exercise of an Option, the related Tandem SAR shall be cancelled
automatically to the extent of the number of Options exercised, and such shares
shall not thereafter be eligible for grant under Section 5 hereof. Upon
exercise of a Tandem SAR, the related Option shall be cancelled automatically
to the extent of the number of SARs exercised, and such shares shall not
thereafter be eligible for grant under Section 5 hereof.
Tandem SARs may be exercised only after the expiration of six months from
the date of grant of the Tandem SAR. Also, Tandem SARs may be exercised only
(i) on a date when the Fair Market Value exceeds the exercise price stated in
the option related to that SAR, (ii) at the time and to the same extent as the
related Option is exercisable and (iii) by surrender to the Corporation,
unexercised, of the related Option or any applicable portion thereof.
(c) TERMS AND CONDITIONS OF FREESTANDING SARS. Freestanding SARs shall
be exercisable in whole or in such installments and at such times as may be
determined by the Committee; provided that they may be exercised only after the
expiration of six months from the date of grant. The base price of a
Freestanding SAR shall also be determined by the Committee; provided, however,
that such price shall not be less than the Fair Market Value of the Common
Stock on the date of the award of the Freestanding SAR.
(d) DEEMED EXERCISE. The Committee may provide that an SAR shall be
deemed to be exercised at the close of business on the scheduled expiration
date of such SAR, if at such time the SAR by its terms is otherwise exercisable
and, if so exercised, would result in a payment to the Participant.
(e) ADDITIONAL TERMS AND CONDITIONS. The Committee may, consistent
with the Plan, by way of the Award Agreement or otherwise, determine such other
terms, conditions, restrictions and limitations, if any, on any SAR Award.
9. RESTRICTED STOCK AWARDS
(a) GRANTS. Awards may be granted in the form of Restricted Stock
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Awards. The maximum number of shares of Common Stock subject to Restricted
Stock Awards granted to any Employee in any calendar year shall be 100,000,
subject to adjustment as provided in Section 16 hereof.
(b) RESTRICTIONS. Restricted Stock shall be subject to such terms,
conditions, restrictions and limitations, if any, as the Committee deems
appropriate including, but not limited to, restrictions on transferability,
requirements of continued employment or individual performance or the financial
performance of the Corporation. The Committee may modify, or accelerate the
termination of, the restrictions applicable to Restricted Stock under such
circumstances as it deems appropriate. Certificates for Common Stock delivered
pursuant to this Section 9 may contain a legend stating any restrictions
appertaining thereto.
(c) FORFEITURE. Any attempted sale, assignment, encumbrance, pledge or
other transfer of Restricted Stock, or any interest therein, during the
restriction period in derogation of the restrictions on such shares shall
result in a forfeiture to the Corporation of all such shares subject to such
attempted transfer. Except as otherwise determined by the Committee, upon
termination of employment of the Participant for any reason except retirement,
death, permanent disability or a Change in Control during the restriction
period, all shares still subject to restriction shall be forfeited by the
Participant to the Corporation; provided, that, in cases of special
circumstances, the Committee may, in its sole discretion, when it finds that a
waiver would be in the best interests of the Corporation, waive in whole or in
part any or all remaining restrictions with respect to such Participant's
shares. The effect of termination of employment by reason of retirement, death,
permanent disability or Change in Control shall be set forth in the applicable
Award Agreement.
(d) CERTIFICATES. Immediately upon the grant of a Restricted Stock
Award a certificate or certificates for the number of shares of Common Stock
represented by the Award shall be registered in the name of the Participant but
such certificate or certificates shall be held by the Corporation or a
custodian designated by the Corporation until the restrictions on such shares
shall lapse or be waived.
(e) RIGHTS AS SHARE OWNERS. During the period in which any Restricted
Stock held by a Participant is subject to the restrictions imposed under
Section 9(b) hereof, the Committee may, in its discretion, grant to the
Participant all or any of the rights of a share owner with respect to such
shares, including, but not limited to, the right to vote such shares and to
receive dividends.
10. PERFORMANCE SHARES
(a) GRANTS. Awards may be granted in the form of Performance Shares.
Performance Shares means interests the entitlement to which is based upon the
attainment of Performance Targets during a Performance Period. At the end of
the Performance Period, Performance Shares shall be converted into Common Stock
(or the cash equivalent thereof, as determined by the Award Agreement) and
distributed to Participants based upon such entitlement. The maximum number of
shares of Common Stock or equivalents thereof subject to Performance Shares
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granted to any Employee in any calendar year shall be 100,000, subject to
adjustment as provided in Section 16 hereof.
(b) PERFORMANCE CRITERIA. The Committee may grant an Award of
Performance Shares to Participants as of the first day of each Performance
Period. As used herein, the term Performance Period means the period during
which a Performance Target is measured and the term Performance Target means
the goals established by the Committee as of the beginning of each Performance
Period. If at the end of the Performance Period, the Performance Target is
fully met, the Performance Shares will be converted 100% into shares of Common
Stock (or the cash equivalent thereof, as determined by the Award Agreement)
and issued to the Participant. Award payments in excess of 100% shall be
permitted based upon an attainment in excess of 100% of the Performance
Target. If the Performance Target has not been fully met, Performance Shares
will be converted and delivered only to the extent, if any, provided in the
Award Agreement for conversion based upon partial attainment of the
Performance Target and the balance of the Performance Shares will be forfeited
to the Corporation and become available for regrant pursuant to Section 5
hereof. Award payments made in cash rather than the issuance of Common Stock
shall not, by reason of such payment in cash, result in additional shares
being available for regrant pursuant to Section 5 hereof.
(c) ADDITIONAL TERMS AND CONDITIONS. The Committee may, consistent
with the terms of the Plan, by way of the Award Agreement or otherwise,
determine the manner of payment of Awards of Performance Shares and other
terms, conditions, restrictions and limitations, if any, on any Award of
Performance Shares.
11. DEFERRED INCENTIVE UNITS
(a) GRANTS. Awards may be granted in the form of Deferred Incentive
Units. Deferred Incentive Units shall entitle the Participant to receive in
cash the Fair Market Value or the appreciation in value of an equivalent
number of shares of Common Stock on a settlement date determined by the
Committee. The maximum number of Deferred Incentive Units subject to Deferred
Incentive Unit Awards made to any Employee in any calendar year shall be
100,000, subject to adjustment as provided in Section 16 hereof.
(b) TERMS AND CONDITIONS OF DEFERRED INCENTIVE UNITS. The Committee
may, consistent with the Plan, by way of Award Agreement or otherwise,
determine such terms, conditions, restrictions and limitations, if any, on any
Deferred Incentive Unit Award.
12. PERFORMANCE STANDARDS
Performance-based Restricted Stock Awards, Performance Share Awards and
Deferred Incentive Unit Awards may be based upon achievement of performance
targets established in terms of:
(a) return on equity;
(b) return on assets;
(c) growth rates or absolute levels of unit sales, revenues, net income,
operation and maintenance expenses, production costs or capital
expenditures;
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in each case with respect to the Corporation or any business unit thereof and
(d) growth rate of market value of shares of Common Stock;
or various combinations of the foregoing.
13. PAYMENT OF AWARDS
Except as otherwise provided herein, Award Agreements may provide that,
at the discretion of the Committee, payment of Awards may be made in cash,
Common Stock, or a combination of cash and Common Stock as the Committee shall
determine. Payments in the form of Common Stock shall be in whole shares and
cash in lieu of a fractional share, if any. Further, the terms of Award
Agreements may provide for payment of Awards in the form of a lump sum or
installments, as determined by the Committee.
14. DIVIDENDS AND DIVIDEND EQUIVALENTS
If an Award is granted in the form of Restricted Stock, Performance
Shares, Deferred Incentive Units or a Freestanding SAR, the Committee may
choose, at the time of the grant of the Award, to include as part of
such Award an entitlement to receive dividends or dividend equivalents,
subject to such terms, conditions, restrictions and limitations, if any, as
the Committee may establish. Dividends and dividend equivalents shall be paid
in such form and manner and at such time as the Committee shall determine.
All dividends or dividend equivalents which are not paid currently may, at the
Committee's discretion, accrue interest or be reinvested into additional
shares of Common Stock.
15. ASSIGNMENT AND TRANSFER
The rights and interests of a Participant under the Plan may not be
assigned, encumbered or transferred except, in the event of the death of a
Participant, by will or the laws of descent and distribution and during the
lifetime of the Participant may be exercised only by such Participant or
guardian or legal representative; provided, however, that the Committee is
authorized to amend the Plan or outstanding Awards to permit assignment,
encumbrance and transfer if and to the extent that such amendment would not
produce adverse consequences under tax or securities laws.
16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding shares of Common Stock by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
shares issuable pursuant to, and the related exercise prices, if applicable,
then outstanding Awards shall be appropriately adjusted by the Committee to the
extent necessary and in such manner to maintain the benefits of the Participant
under all outstanding Awards substantially as before the occurrence of such
event.
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17. AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER COMPANIES
Awards, whether Incentive Stock Options, Nonqualified Stock Options,
SARs, Restricted Stock, Performance Shares or Deferred Incentive Units, may be
granted under the Plan in substitution for awards held by employees of a
company who become Employees of the Corporation or a Subsidiary as a result of
the merger or consolidation of the employer company with the Corporation or a
Subsidiary, or the acquisition by the Corporation or a Subsidiary of the assets
of the employer company, or the acquisition by the Corporation or a Subsidiary
of stock of the employer company as a result of which it becomes a Subsidiary.
The terms, provisions and benefits of the substitute Awards so granted may vary
from the terms, provisions and benefits set forth in or authorized by the Plan
to such extent as the Committee at the time of the grant may deem appropriate
to conform, in whole or in part, to the terms, provisions and benefits of the
awards in substitution for which they are granted.
18. WITHHOLDING TAXES
The Corporation or the applicable Subsidiary shall be entitled to
deduct from any payment under the Plan, regardless of the form of such payment,
the amount needed to satisfy all applicable Federal, state and local
withholding tax obligations with respect to such payment or may require the
Participant to pay to it such tax obligations prior to and as a condition of
the making of such payment. In accordance with any applicable Administrative
Policies it establishes, the Committee may allow a Participant to pay any
portion of such tax obligations by withholding from any payment of Common Stock
due as a result of such Award or by permitting the Participant to deliver to
the Corporation shares of Common Stock. The Fair Market Value of the shares to
be so held back or delivered to the Corporation shall be determined as of the
date on which the obligation to withhold first arose.
19. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Employee any right to
remain in the employ of the Corporation or any Subsidiary. The Corporation or,
in the case of employment with a Subsidiary, the Subsidiary, reserves the right
to terminate the employment of any Employee at any time. The adoption of the
Plan shall not be deemed to give any Employee or any other individual any right
to be selected as a Participant, to be granted any Awards hereunder or, if
granted an Award in any year, to receive Awards in any subsequent year.
20. AMENDMENT
The Board of Directors or the Committee may suspend or terminate the
Plan at any time or may, from time to time, amend the Plan in any manner, but
may not without share owner approval adopt any amendment which would (a)
materially increase the benefits accruing to Participants under the Plan, (b)
materially increase the number of shares of Common Stock which may be issued
under the Plan (except as specified in Section 16 hereof) or (c) materially
modify the requirements as to eligibility for participation in the Plan. The
Board of Directors or the Committee may amend the terms and conditions
applicable to the
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outstanding Awards (a) in any case where expressly permitted by the terms of
the Plan or an Award Agreement, (b) with the consent of the Participant or (c)
without the consent of the Participant if the amendment is not adverse to the
interests of the Participant. Except as expressly provided in the Plan or the
Award Agreement, the Board of Directors or the Committee may not, without the
consent of the Participant, amend the terms and conditions applicable to an
Award in a manner adverse to the interests of the Participant; provided,
however, that the Board of Directors or the Committee may amend the, or provide
additional, terms and conditions in order to satisfy any provision of any
current or future Federal, state or local tax or other law, regulation or
ruling without the consent of the Participant.
21. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of Ohio, except as pre-empted by applicable Federal law.
22. CHANGE IN CONTROL
Unless otherwise specified in the Award Agreement, upon the occurrence
of a Change in Control of the Corporation, each Award theretofore granted to an
Employee that then remains outstanding shall, subject to the next succeeding
sentence, be modified as follows: (a) any outstanding Option and SAR shall
become immediately exercisable in full, (b) all restrictions on Restricted
Stock and Deferred Incentive Units shall terminate immediately and (c) the
restrictions, conditions and contingencies on any Performance Shares shall be
deemed to have been satisfied in full. Upon occurrence of a Change in Control
of the Corporation, Participants shall be entitled to receive Common Stock in
satisfaction of their rights under Deferred Incentive Unit Awards in accordance
with the amounts otherwise payable by the Corporation pursuant to the Award
Agreement. In no event, however, shall an Employee subject to Section 16(b) of
the Exchange Act sell or exercise any equity security or derivative security,
as defined in said Act or the rules and regulations promulgated thereunder,
acquired pursuant to an Award before the earliest date on which the sale or
exercise is eligible for exemption under Rule 16(b)-3 of said Act.
23. NO RIGHT, TITLE OR INTEREST IN CORPORATION ASSETS
No Participant shall have any rights as a share owner as a result of
participation in the Plan until the date of issuance of a stock certificate in
the Participant's name except, in the case of Restricted Stock, to the extent
provided in Sections 9(d) and 9(e) hereof. To the extent any person acquires a
right to receive payments from the Corporation under the Plan, such rights
shall be no greater than the rights of an unsecured creditor of the
Corporation.
24. PAYMENT BY SUBSIDIARIES
Settlement of Awards to Employees of Subsidiaries shall be made by and
at the expense of such Subsidiary. Except as prohibited by law, if any portion
of an Award is to be settled in shares of Common Stock, the Corporation shall
sell and transfer to the Subsidiary, and the Subsidiary shall purchase, the
number of shares necessary to settle such portion of the Award.
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25. MISCELLANEOUS
References to particular rules, regulations, schedules, forms or
reports of or pursuant to the Exchange Act or the Code include any successor
rules, regulations, schedules, forms or reports.
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