<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY RULE 14A-
6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CENTERIOR ENERGY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
(LOGO)
6200 OAK TREE BLVD.
INDEPENDENCE, OHIO 44131
Robert J. Farling
Chairman, President
& Chief Executive
Officer
March 12, 1996
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 23, 1996 AT
10:00 A.M., Cleveland time, in the Grand Ballroom of Executive Caterers at
Landerhaven, 6111 Landerhaven Drive, Mayfield Heights, 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
showing the location of Executive Caterers at Landerhaven appears on the back
cover of this proxy statement.
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 1996 annual
meeting.
Sincerely,
/s/ Robert J. Farling
<PAGE> 3
CENTERIOR ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHARE OWNERS
March 12, 1996
To the Common Stock Share Owners of
Centerior Energy Corporation:
The annual meeting of the share owners of Centerior Energy Corporation will
be held in the Grand Ballroom of Executive Caterers at Landerhaven, 6111
Landerhaven Drive, Mayfield Heights, Ohio 44124, on Tuesday, April 23, 1996 at
10:00 a.m., Cleveland time, for the purpose of acting on the following matters:
1. Election of 11 directors of the Company;
2. Ratification of the appointment by the Board of Directors of Arthur
Andersen LLP as the independent accountants of the Company and its
subsidiaries for 1996;
3. Consideration of the two share owner proposals set forth in the
accompanying proxy statement, if presented to the meeting; and
4. Any other matters which may properly come before the meeting.
Owners of Common Stock of record at the close of business on February 28,
1996 are entitled to vote at the meeting.
By order of the Board of Directors,
JANIS T. PERCIO, Secretary
<PAGE> 4
CENTERIOR ENERGY CORPORATION
PROXY STATEMENT
OF THE BOARD OF DIRECTORS
March 12, 1996
FOR ANNUAL MEETING OF SHARE OWNERS
April 23, 1996
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") and three other small subsidiaries. The Company and its 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.
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 at
the Company no later than Monday, April 15, 1996.
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 28,
1996. There are 148,027,828 shares of Common Stock outstanding as of that date,
each of which is entitled to one vote.
FMR Corp., 82 Devonshire Street, Boston, MA 02109, has notified the Company
that as of December 31, 1995 it was the beneficial owner of 11,011,800 shares of
Common Stock, which is 7.4% of the shares outstanding as of February 28, 1996.
FMR has sole investment power but no voting power for these shares.
1
<PAGE> 5
T. Rowe Price Associates, Inc., 100 E. Pratt Street, Baltimore, Maryland
21202, has notified the Company that as of December 31, 1995 it was the
beneficial owner of 8,160,600 shares of Common Stock, which is 5.5% of the
shares outstanding as of February 28, 1996. T. Rowe Price has sole investment
power for these shares, sole voting power for 784,200 shares and no voting power
for the remaining shares. T. Rowe Price disclaims beneficial ownership of these
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 23, 1996 (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 responsibilities.
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 1995.
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 expendi-
2
<PAGE> 6
tures 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 three meetings in
1995.
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 1995.
The Executive and Nominating Committee acts on behalf of the Board between
meetings of the Board and has 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 1995. 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 five meetings in 1995.
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 six meetings in 1995.
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
3
<PAGE> 7
Committee is composed of a majority of outside directors. The Committee held
four meetings in 1995.
The Board held nine meetings in 1995. The average attendance at the
aggregate of the total number of meetings of the Board and committees was 95%.
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
In accordance with the retirement policy of the Board, Leigh Carter, who
has served with distinction as a director of the Company since April 1986 and of
Cleveland Electric from April 1979 to October 1988, is not eligible to be a
candidate for election. Accordingly, on January 23, 1996, pursuant to the
Regulations of the Company, the Board reduced its size to 11 members effective
April 23, 1996 when Mr. Carter will retire.
Eleven 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 11 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 14. All of the candidates currently are members of the Board and are
expected to be able to serve, if elected. The 11 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.
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<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
------------ ------------
<S> <C> <C>
[Photo] RICHARD P. ANDERSON, 66, President and Chief Executive Officer 1986
since 1988 of The Andersons Inc., 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)
[Photo] ALBERT C. BERSTICKER, 61, Chairman and Chief Executive Officer 1990
since February 1996 of Ferro Corporation, a producer of
specialty chemical materials for manufactured products. Mr.
Bersticker was President and Chief Executive Officer of Ferro
from May 1991 to February 1996 and President and Chief
Operating Officer 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., KeyCorp and Oglebay Norton Company. (3)
(4)
[Photo] THOMAS A. COMMES, 53, 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 1980. Mr. Commes also is a director
of KeyCorp. (2) (5) (6)
[Photo] WILLIAM F. CONWAY, 65, 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)
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
[Photo] WAYNE R. EMBRY, 58, 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 1986, Mr.
Embry has been Chairman of M. A. L. Co., a fabricator of
hardboard, fiberglass and carpeting materials for the
automotive industry. He 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)
[Photo] ROBERT J. FARLING, 59, 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 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)
[Photo] RICHARD A. MILLER, 69, 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)
[Photo] FRANK E. MOSIER, 65, 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>
6
<PAGE> 10
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE(1) SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
[Photo] SISTER MARY MARTHE REINHARD, SND, 66, Director of Development 1986
for the Sisters of Notre Dame of Cleveland, Ohio since 1989.
(2) (3) (7)
[Photo] ROBERT C. SAVAGE, 58, 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)
[Photo] WILLIAM J. WILLIAMS, 67, 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 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>
7
<PAGE> 11
In 1995, directors who were not officers of the Company received 500 shares
of restricted Common Stock and $11,000 as an annual retainer fee. The shares of
Common Stock are restricted against disposition as long as the director remains
on the Board. If a director leaves the Board for reasons other than retirement
in accordance with the director retirement policy, death, disability or a change
in control of the Company, the shares of restricted Common Stock will be
forfeited back to the Company. Directors who were not officers of the Company
also received $975 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 $650. 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.
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 1996. 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. 2.
SHARE OWNER PROPOSAL TO RESTRICT DISCRETIONARY VOTING
The Company has been advised that a share owner intends to present the
proposal set forth below at the 1996 annual meeting. The name and address of the
proponent and the number of shares owned by the proponent will be furnished by
the Company to any person promptly upon the receipt of their oral or written
request.
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<PAGE> 12
"RESOLVED THAT IN FUTURE PROXIES OF THIS CORPORATION, THERE SHALL BE
NO DISCRETIONARY VOTING BY THE PROXY-HOLDER AND ONLY MARKED ITEMS ARE TO BE
COUNTED."
STATEMENT OF SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"Throughout corporate America, I feel there are many disregards for
shareholder rights disguised as (1) following the minimum requirements of
the S.E.C., (2) doing things the way other corporations do (e.g. executive
pay and perks, formats for meetings and disclosures). This shareholder
proposal is but the first of five things needed to make ALL managers more
responsive to their stockholders.
None of the executive compensation plans are truly objective and the
base year for determining bonuses should not be the year of greatest
losses. An additional column should reveal the total value of all
compensation. Other ways of determining investment value are by increases
(or decreases) in the dividend and investor confidence as determined by the
market price. Good management will show profits even in bad years.
I am particularly dismayed at the statement on proxies that says (in
essence) "proxies signed but not marked will be voted as management has
suggested".
Although Centerior's proxy card resembles almost every other card I
have seen (other than street-name holders), it is nevertheless confusing to
many shareholders. Management says that shareholders clearly understand how
their votes will be counted if they don't put Xs in the boxes and that this
process allows the investor not to be burdened with making two to eight Xs,
after supposedly wading through the entire proxy statement. While all
managements trivialize the importance of the unmarked proxies, none are
willing to allow my proposal to go unchallenged. Trying to read through the
gobbelygook of the proxy statement, how many shareholders even understand
what they are being asked to vote upon, and how many times are management's
proposals open-ended?
In the 1994 proxy statement, concerning three shareholder proposals,
there was the statement "Abstentions and broker non-votes have the same
effect as a vote against the proposal". That same statement was on the
draft of the rebuttal to my 1995 proposal, but was corrected when I
complained to the SEC.
For the 1995 annual meeting, the director-candidate biographies
carefully omitted previous service on the Boards of the predecessor
companies -- Toledo Edison and C.E.I. In addition, over thirteen million
shares held by brokers were voted for them, possibly without being marked
by the shareholders. Since the names of these shareholders are not readily
available to Centerior, it is impossible to know if they even had the
opportunity to vote. Is this democracy?
9
<PAGE> 13
Last year's proposal was said to have garnered 32% of the vote, while
less than 70% of the outstanding shares were represented, including over 4
million abstentions, and among the votes counted against were the unmarked
proxies -- which were almost another 4 million shares.
A rather controversial management compensation plan was said to have
passed by 57%, including the same unmarked 6,992 proxies representing 3.8
million shares.
IF YOU AGREE, PLEASE MARK YOUR PROXY FOR; if you disagree, mark
against. NOTE; PROXIES NOT MARKED WILL BE COUNTED AGAINST THIS RESOLUTION."
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. A similar
proposal was presented to share owners last year by the same proponent and
was defeated.
The supporting statement expresses frustration with "corporate
America" and states that management should be made to be more responsive to
share owners. However, this proposal would not give share owners any new
rights or powers but instead would take away rights and powers that make it
easy for share owners to participate in share owner meetings.
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 this
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.
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
physically present at the meeting.
Historically, the Company's proxy materials have provided share owners
with the ability to grant a discretionary proxy in a manner consistent with
the laws of the State of
10
<PAGE> 14
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 proposal appears to reflect the implicit assumption that share
owners are inadvertently returning properly executed but unmarked proxy
cards, unaware as to how 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 Company's proxy card clearly 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
statements. 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.
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.
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. 3.
SHARE OWNER PROPOSAL TO RESCIND EQUITY COMPENSATION PLAN
The Company has been advised that a share owner intends to present the
proposal set forth below at the 1996 annual meeting. The name and address of the
proponent and the number of shares owned by the proponent will be furnished by
the Company to any person promptly upon the receipt of their oral or written
request.
11
<PAGE> 15
"Resolved, that the vote of the stockholders at the 1995 annual
meeting of the Company approving the so-called "Equity Compensation Plan"
be, and it hereby is, rescinded, and such action is hereby declared null
and void."
STATEMENT OF THE SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"Last year's proxy statement urging us to vote for the "Equity
Compensation Plan" didn't tell us the whole story -- and what it did tell
us has to be dug out by very careful reading. Did it make clear to you that
over a ten-year period the "Equity Compensation Plan" authorizes the
directors who manage it to give away five percent of the whole company to
whatever officers and employees they may choose to favor? (Even at the low
price of $8 a share, that's over fifty-nine million dollars
($59,000,000.00) based on the number of shares outstanding at the end of
1994. If management brings the stock back to the 1993 high of $20 a share,
that's one hundred and forty-eight million dollars ($148,000,000.00).) Did
it tell you what that means in terms of diluting the ownership interest of
the rest of us?
Moreover, the proxy statement told you that "50 employees at the
department head level and above" had already been selected to participate
in the "Equity Compensation Plan." Did it tell you who they were? Did it
tell you on what basis they were chosen? Did it tell you what kinds of
rewards each was going to get, and for what? Did it tell you whether any of
them were the same people who were responsible for the Company's losses and
responsible for our dividend being cut down to one-third of its former
level, and our stock losing more than half of its value?
Many stockholders would naturally feel that the people who were
responsible for running our investment down should not now be rewarded with
a chunk of the Company. But the proxy statement did not give us enough
information to make that judgment in deciding how to vote on the "Equity
Compensation Plan." That vote should be rescinded, and if management wants
to present another proposal for our consideration next year they can do
so -- provided they tell us the whole story."
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. At last
year's annual meeting, share owners voted on and approved the Equity
Compensation Plan ("Plan"). All material facts were provided to share
owners in last year's proxy statement and the favorable vote reflected the
support of the Board's use of this Plan to provide equity-based
compensation to executive officers and other key employees.
12
<PAGE> 16
The supporting statement implies that the 1995 proxy statement did not
meet the required standard of disclosure in presenting the terms of the
Plan in the proxy statement. The Board takes strong issue with this
implication as the applicable disclosure requirements were carefully
reviewed and the 1995 proxy statement fully complied with such disclosure
requirements. The supporting statement suggests that the Company did not
disclose the limits of the Plan and the possible dilutive effect. The
Company clearly indicated that annual awards could be made up to .5% of the
shares outstanding. Currently, there is no dilution as the Company is
fulfilling the Plan's obligations through purchases of Common Stock in the
open market rather than issuing new shares. Furthermore, the awards made to
date under the Plan, as fully disclosed in our proxy statements, did not
approach the maximum levels established by the Plan.
The Board recognizes its responsibilities to the share owners and has
determined and approved compensation levels for the executive officers of
the Company which it believes are fair to share owners and those officers.
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 purpose of the Plan
is to provide stock-based awards to executive officers and other key
employees based on their individual performance as well as Company
performance. Shares of restricted stock and stock options have been granted
to encourage stock ownership of the Company and to provide further
incentive to improve Company performance, thereby increasing share owner
value. The stock options which were awarded pursuant to this Plan have
exercise prices of $11.00, $13.20 and $14.58. The prices were set above
current market value in order to provide further incentive to executives to
improve the Company's performance. The elimination of stock-based awards
would sever the link between compensation and Company performance at the
very time when the Board is trying to more closely align the two.
Last year share owners concluded that the Plan was good for the
Company and its share owners. The proponent's supporting statement provides
no valid reason for rescinding the Plan.
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. 4.
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
13
<PAGE> 17
proxy will be voted on such matters in accordance with the judgment of the
persons authorized in the proxy to vote them.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows shares of Common Stock beneficially owned as of
February 28, 1996 by each director candidate, the executive officers named in
the Summary Compensation Table and all directors and executive officers as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME BENEFICIALLY OWNED(1)
-------------------------------------------------------------- ---------------------
<S> <C>
Richard P. Anderson........................................... 2,761
Albert C. Bersticker.......................................... 2,065
Thomas A. Commes.............................................. 6,065
William F. Conway............................................. 1,556
Wayne R. Embry................................................ 2,065
Robert J. Farling............................................. 59,588(2)
Richard A. Miller............................................. 13,092
Frank E. Mosier............................................... 2,934
Sister Mary Marthe Reinhard, SND.............................. 2,809(3)
Robert C. Savage.............................................. 2,065
William J. Williams........................................... 3,002
Murray R. Edelman............................................. 18,856(2)
Donald C. Shelton............................................. 10,771(2)
Fred J. Lange, Jr. ........................................... 11,890(2)
Al R. Temple.................................................. 5,550(2)
All directors and executive officers as a group(4)............ 198,735(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 28, 1996 upon exercise of options to
purchase shares of Common Stock: Mr. Farling -- 10,000; Mr. Edelman --
5,000; Mr. Shelton -- 3,400; Mr. Lange -- 3,000; Mr. Temple -- 2,150; and
all directors and executive officers as a group -- 33,550.
(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.
</TABLE>
14
<PAGE> 18
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 with the SEC reports of ownership and changes in
ownership with respect to the securities of the Company and its subsidiaries 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
1995 all filing requirements were met on a timely basis.
EXECUTIVE COMPENSATION
REPORT OF HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
GENERAL
The Human Resources Committee, which administers the Company's compensation
program, recognizes that executive management faces significant challenges to
achieve the goals of the Strategic Plan. The overall objective of that Plan is
to enhance share owner value. Accordingly, the Company links executive
compensation more directly to corporate performance through stock-based
compensation in order to provide further incentive to enhance share owner value.
The Board sets each executive officer's total compensation after
considering recommendations of the Committee. In making such recommendations,
the Committee considers corporate and individual performance and compensation
data for other electric utilities with revenues comparable to the Company
("comparable utilities"). These companies are among the utilities comprising the
EEI Index shown on the Performance Graph on page 20. 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.
Executive officers' total compensation is 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 relative
impact on the achievement of corporate goals. For most executive officers, about
40% of total compensation is based on annual cash incentives and long-term
incentives which are linked to Common Stock performance, with the remainder
provided in base salary. Comparable utilities typically provide about 20% of
executive officer total compensation in the form of annual and long-term
incentive awards. Thus, the Company's program places much greater emphasis on
the link between compensation and share owner value.
BASE SALARY
The base salary of each executive officer is targeted at the median base
pay level for similar positions at the comparable utilities. Adjustments to base
salary are normally made each year based on corporate performance; individual
performance, contribution and potential;
15
<PAGE> 19
scope of responsibility; and the marketability of an executive both within and
outside the electric utility industry.
Since November 1993, base salaries for all executive officers have been
frozen, except for those officers who have assumed significantly greater
responsibilities. As a result, base salaries for most officers have fallen
substantially below the median pay level for similar positions at the comparable
utilities. After a comprehensive review of individual performance, in November
1995 restricted Common Stock was awarded to certain executive officers in lieu
of base salary increases in order to partially offset this shortfall. The number
of restricted shares awarded to each executive officer was calculated by taking
the amount of the base salary increase which would have resulted from the
performance evaluation and dividing it by the then-current market value of the
Common Stock. The Common Stock awarded is restricted against disposition for
five years. If an officer leaves the Company for reasons other than retirement,
death, disability or a change in control of the Company, the officer's shares of
restricted Common Stock will be forfeited back to the Company.
In late 1995, the Company restructured into strategic business groups to
better position itself for current and future competitive challenges. This
resulted in substantial increases in responsibility for three of the four newly
named business group heads. The restructuring officially assigned direct
corporate accountability to these four executive officers for areas of
responsibility shared by them following the departure of two executive vice
presidents and several vice presidents in 1993. In recognition of this
significant increase in responsibility and to help ensure management continuity,
the Committee recommended and the Board approved increases for three of the four
officers to bring their base salaries to approximately 90% of the targeted
median base salary level for similar positions at the comparable utilities. As a
result of these increases, the restricted Common Stock awards discussed above
for these officers were lower than they otherwise would have been. In addition,
the four strategic business group heads were granted an aggregate of 210,000
stock options exercisable at a price of $14.58 per share, which was 10% above
book value of the Common Stock at the time of the grant.
INCENTIVE COMPENSATION
The Company's Executive Incentive Compensation Plan provides a short-term
cash compensation component designed to emphasize achievement of short-term
corporate and individual performance goals and a long-term compensation
component designed to emphasize achievement of improved share owner value. The
Committee recommends and the Board ultimately 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 Strategic Plan.
Incentive awards may include a cash component, an equity-based component,
or both. Cash awards are payable at the time an incentive award is made. The
equity-based component may be awarded in the form of deferred incentive units
whose value mirrors the performance
16
<PAGE> 20
of the Company's Common Stock, including the accrual of earnings at a rate
equivalent to the dividend rate. A deferred incentive unit is similar to a share
of restricted Common Stock except that no shares are actually issued. Deferred
incentive units vest and are 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 deferred incentive units are
forfeited.
The Board establishes corporate and individual goals and corresponding
performance measures each year and may award a portion of each executive
officer's incentive compensation for each of the corporate and individual goals
that is achieved. In 1995, the Board established five corporate goals for all
executive officers. In addition, the Board established individual goals for
those officers at the Vice President level and below related to their particular
areas of responsibility in support of the Company's Strategic Plan. For the CEO,
Executive and Senior Vice Presidents, 100% of their incentive compensation was
tied to the corporate goals. For all other Vice Presidents, 75% of their
incentive compensation was tied to the corporate goals and 25% to their
individual goals.
Three levels of performance were established by the Committee for each
corporate and individual goal. In increasing levels of difficulty, the
performance levels are threshold, target and maximum, with threshold being the
minimum acceptable level of performance. A target incentive award may be paid if
a 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. Each such officer's 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 goal is met
at the threshold level, the incentive award is 75% of the target level award.
The maximum level award is two times the target level award. The Committee and
the Board may consider other factors in determining incentive awards.
The Board established six performance measures for 1995 which related to
the five corporate goals established by the Company's Strategic Plan. Those
goals related to financial performance, revenue, customer satisfaction, employee
achievement and power production and were weighted 40%, 20%, 15%, 15% and 10%,
respectively. One of the performance measures was met at the threshold level,
three at the target level and one performance measure was met at the maximum
level. The remaining measure was below the threshold level. Although five of the
six performance measures were met at the threshold level or above in 1995, the
price of the Common Stock at year-end was unchanged from the price at year-end
1994. Therefore, in accordance with the discretion provided under the terms of
the Executive Incentive Compensation Plan, the Committee recommended and the
Board approved that the executive officers would not receive awards for 1995
corporate performance. As a result, the
17
<PAGE> 21
CEO, the Executive Vice President and the Senior Vice Presidents received no
incentive awards for 1995 performance. The awards for Vice Presidents were
significantly reduced and ranged between 4.95% and 11.875% of base salary
depending solely upon the attainment of their individual goals. In order to link
compensation to share owner interests, the Board chose not to award a cash
component but to make each award entirely in the form of deferred incentive
units.
In February 1996, the Committee recommended and the Board approved the
grant of only stock options to executive officers as the long-term component of
their compensation. The previous long-term compensation award made in November
1994 was a combination of stock options and restricted Common Stock. In 1996,
only stock options were selected so that executive officers will benefit from
these awards only if the Common Stock price increases significantly and to place
an even greater portion of compensation at risk. In recognition that stock
options have a lower initial value than restricted Common Stock, the number of
options awarded to each executive officer was approximately twice the total of
stock options and restricted Common Stock awarded in November 1994 to officers
at comparable levels. The stock options are 10-year options exercisable at a
price of $11.00 per share, which was approximately 30% above the market price of
Common Stock on the date of the grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
In November 1995, the Committee reviewed data from the comparable utilities
and determined that Mr. Farling's base salary continues to be significantly
below the median of his peers and that even a substantial increase in his base
salary would keep him well below the median. The Committee recommended, and the
Board approved, that Mr. Farling's base salary remain unchanged and that, in
lieu of a base salary increase, he receive 15,000 shares of restricted Common
Stock and 75,000 stock options exercisable at a price of $14.58 per share.
The results achieved on the six 1995 corporate performance measures
referred to above under "Incentive Compensation" were to be the basis for
determining Mr. Farling's incentive award. However, as also discussed above,
although five of the six performance measures were met, Mr. Farling did not
receive an incentive compensation award for 1995 corporate performance since the
Common Stock price was unchanged from year-end 1994.
Consistent with the desire of the Committee and the Board to further
strengthen the link between share owner value and executive compensation as well
as to place a greater portion of compensation at risk, in February 1996, Mr.
Farling was granted 100,000 stock options with an exercise price of $11.00 per
share as the long-term component of his total compensation. The basis for
determining the number of options granted and the exercise price are the same as
those for executive officers set forth under "Incentive Compensation" above.
18
<PAGE> 22
EMPLOYMENT AGREEMENTS
The Company has an employment agreement through August 1996 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 is eligible for 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 his 1995
goals and was awarded 6,879 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 incentive plans discussed above. He
is also eligible for 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 1995. Mr. Temple met 92% of his 1995 goals and was awarded
$31,150.
Frank E. Mosier, Chairman
Wayne R. Embry
Robert C. Savage
William J. Williams
19
<PAGE> 23
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, 1990 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>
1990 100 100 100
1991 120.64 130.44 128.87
1992 131.80 140.45 138.69
1993 96.63 157.48 154.11
1994 69.84 156.55 136.28
1995 75.78 209.94 178.55
</TABLE>
20
<PAGE> 24
COMPENSATION
The following table shows compensation paid by the Centerior System to the
CEO and the executive officers of the Company ("CEC") or Centerior Service
("CSC") at December 31, 1995 who were the next four highest paid executive
officers in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------------- ALL OTHER COMPENSATION
RESTRICTED SECURITIES ----------------------------------------
NAME AND PRINCIPAL -------------------- STOCK UNDERLYING EMPLOYEE SAVINGS PLAN
POSITION YEAR SALARY BONUS(1) AWARD(2) OPTIONS BENEFITS(3) MATCH(4) TOTAL
- ---------------------- ----- -------- ------- ----------- ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Farling 1995 $360,048 $ 0 $ 144,375 175,000 $19,188 $2,500 $21,688
Chairman, President 1994 360,048 500 128,975 40,000 19,188 1,030 20,218
and CEO of CEC and 1993 360,048 0 0 0 13,250 0 13,250
CSC.
Murray R. Edelman 1995 265,044 0 28,875 110,000 2,386 3,750 6,136
Executive Vice 1994 265,044 500 49,413 20,000 3,334 3,750 7,084
President of CEC and 1993 258,451 0 0 0 4,192 3,690 7,882
CSC.
Donald C. Shelton 1995 225,004 0 9,144 35,000 8,123 4,500 12,623
Senior Vice 1994 225,004 500 33,500 13,600 7,125 2,918 10,043
President -- Nuclear 1993 197,044 0 0 0 5,061 5,907 10,968
of CSC.
Fred J. Lange, Jr. 1995 201,220 0 24,063 100,000 1,869 4,500 6,369
Senior Vice 1994 191,404 500 30,988 12,000 3,782 4,527 8,309
President of CEC and 1993 186,698 0 0 0 5,070 5,419 10,489
CSC.
Al R. Temple (5) 1995 170,040 31,150 7,219 20,000 2,801 4,500 7,301
Vice President -- 1994 143,880 27,700 22,194 8,600 3,085 3,724 6,809
Sales and Marketing
of CSC.
<FN>
- ---------------
(1) Mr. Temple received $31,150 pursuant to his employment agreement. See the
table on page 23 for long-term incentive awards made in 1995.
(2) 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 -- 30,400 shares ($269,800); Mr. Edelman -- 8,900 shares
($78,988); Mr. Shelton -- 4,950 shares ($43,931); Mr. Lange -- 6,200 shares
($55,025); and Mr. Temple -- 3,400 shares ($30,175). Dividends on the
restricted Common Stock are payable to the named officers.
(3) 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.
Also, the Company provides additional compensation to certain executive
officers to purchase other employee benefits.
(4) The Company provides a 50% matching contribution to the Company's Employee
Savings Plan on a maximum of 6% of the greater of an employee's base pay or
$150,000.
(5) Mr. Temple joined the Company on February 28, 1994.
</TABLE>
21
<PAGE> 25
<TABLE>
STOCK OPTIONS
The following tables present information relating to stock options granted
as 1995 compensation to the executive officers named in the Summary Compensation
Table. No options were exercised in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS EXERCISE
SECURITIES GRANTED TO OR BASE GRANT DATE
GRANT UNDERLYING EMPLOYEES PRICE EXPIRATION PRESENT
NAME DATE OPTIONS GRANTED IN FISCAL YEAR ($/SH) DATE VALUE(1)
- ------------------ -------- --------------- ------------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Farling 11/28/95 75,000 26.3% $14.58 12/4/2002 $ 26,250
2/27/96 100,000 16.1 11.00 12/4/2002 43,000
Murray R. Edelman 11/28/95 60,000 21.1 14.58 11/28/2005 22,800
2/27/96 50,000 8.1 11.00 2/27/2006 21,000
Donald C. Shelton 2/27/96 35,000 5.7 11.00 12/31/2001 14,700
Fred J. Lange, Jr. 11/28/95 50,000 17.5 14.58 11/28/2005 19,000
2/27/96 50,000 8.1 11.00 2/27/2006 21,000
Al R. Temple 2/27/96 20,000 3.2 11.00 2/27/2006 8,400
<FN>
- ---------------
(1) Except for Mr. Farling, the November 28, 1995 option values are based on the
Black-Scholes pricing model using the following assumptions: expected stock
volatility .235 (based on 21 quarters of closing stock prices prior to
grant), risk-free rate of return 6.03%, dividend yield 8.3% and a 10-year
term. The option value for Mr. Farling is based on the same assumptions
except for a risk-free rate of return of 5.79% and an option term of 7
years.
Except for Messrs. Farling and Shelton, the February 27, 1996 option values
are based on the Black-Scholes pricing model using the following
assumptions: expected stock volatility .235 (based on 21 quarters of closing
stock prices prior to grant), risk-free rate of return 6.24%, dividend yield
9.1% 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
5.83% and 5.71%, respectively, and option terms of 6.75 years and 6 years,
respectively.
These assumptions are not intended to be a forecast of future performance of
the Company's Common Stock.
</TABLE>
<TABLE>
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- --------------------- ---------------------------- -----------------------------
<S> <C> <C>
Robert J. Farling 10,000/105,000 (2)
Murray R. Edelman 5,000/75,000 (2)
Donald C. Shelton 3,400/10,200 (2)
Fred J. Lange, Jr. 3,000/59,000 (2)
Al R. Temple 2,150/6,450 (2)
<FN>
- ---------------
(1) The number of unexercisable options listed for each officer does not include
the February 27, 1996 grants disclosed in the Option Grants table above.
(2) None of the outstanding options were in-the-money based on the closing price
of the Company's Common Stock on December 29, 1995 of $8.875.
</TABLE>
22
<PAGE> 26
LONG-TERM INCENTIVE AWARDS
The following table presents information for the executive officers named
in the Summary Compensation Table relating to 1995 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 that in the
event of death, disability or retirement 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.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD UNTIL
SHARES, UNITS OR MATURATION
NAME OTHER RIGHTS OR PAYOUT
- ------------------ ---------------- ------------
<S> <C> <C>
Robert J. Farling -- --
Murray R. Edelman -- --
Donald C. Shelton 6,879(1) 5 years
Fred J. Lange, Jr. -- --
Al R. Temple 858(2) 5 years
<FN>
- ---------------
(1) Awarded pursuant to Mr. Shelton's employment agreement.
(2) Awarded pursuant to the Company's Executive Incentive Compensation Plan.
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 table shows the annual amount of a payment-for-life pension
payable to salaried employees
</TABLE>
23
<PAGE> 27
who retire under the pension program at or after age 62 at stated levels of
covered compensation and years of service.
PENSION PLAN TABLE
<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 $ 9,852 $ 19,704 $ 29,556 $ 39,408 $ 44,760 $ 50,112 $ 52,288 $ 54,464
150,000 15,052 30,204 45,306 60,408 68,760 77,112 80,538 83,964
200,000 20,352 40,704 61,056 81,408 92,760 104,112 108,788 113,464
250,000 25,602 51,204 76,806 102,408 116,760 131,112 137,038 142,964
300,000 30,852 61,704 92,556 123,408 140,760 158,512 165,288 172,464
350,000 36,102 72,204 108,306 144,408 164,760 185,112 193,538 201,964
400,000 41,352 82,704 124,056 165,408 188,760 212,112 221,788 231,464
450,000 46,602 93,204 139,806 186,408 212,760 239,112 250,038 260,964
</TABLE>
The following table sets forth the years of service and the covered
compensation as of year-end 1995 of the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
YEARS OF COVERED
NAME SERVICE COMPENSATION
---------------------------- -------- ------------
<S> <C> <C>
Robert J. Farling 36 $377,042
Murray R. Edelman 34 275,822
Donald C. Shelton(1) 9 207,577
Fred J. Lange, Jr. 9 187,549
Al R. Temple 2 (2)
<FN>
----------------------
(1) Mr. Shelton's employment agreement provides that as of August 31,
1996 (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.
PROPOSALS FOR 1997 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 1997 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 12,
1996.
By order of the Board of
Directors,
JANIS T. PERCIO, Secretary
</TABLE>
24
<PAGE> 28
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[Logo] CENTERIOR
ENERGY
Dear Share Owner:
Attached below is your proxy card for the annual meeting of Centerior Energy
Corporation to be held on April 23, 1996.
The four issues being voted upon at the meeting this year are listed below.
These issues are described more fully in the enclosed proxy statement.
1. The election of 11 directors of the Company. The candidates are named on the
proxy card below. The Board of Directors recommends a vote FOR the election
of these candidates.
2. The ratification of the appointment by the Board of Directors of Arthur
Anderson LLP as the independent accountants of the Company and its
subsidaries for 1996. The Board of Directors recommends a vote FOR the
ratification of the appointment of Arthur Andersen LLP.
3. A share owner proposal to restrict discretionary voting. The Board of
Directors recommends a vote AGAINST the share owner proposal.
4. A share owner proposal to rescind the Company's Equity Compensation Plan.
The Board of Directors recommends a vote AGAINST the share owner proposal.
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
PLEASE DETACH AND RETURN ONLY THE LOWER PORTION IN THE ENCLOSED ENVELOPE.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
THE DIRECTORS RECOMMEND A VOTE FOR THE ELECTION OF ALL CANDIDATES AND ISSUE 2 THE DIRECTORS RECOMMEND A VOTE AGAINST ISSUES 3 AND 4
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) ELECTION OF DIRECTORS (2) RATIFY APPOINTMENT OF (3) ADOPT SHARE OWNER (4) ADOPT SHARE OWNER
\ \ FOR ALL CANDIDATES LISTED BELOW (OR ANY ARTHUR ANDERSEN LLP PROPOSAL TO PROPOSAL TO
ALTERNATE CANDIDATES SELECTED AS STATED IN THE AS INDEPENDENT RESTRICT RESCIND THE
PROXY STATEMENT) EXCEPT AS MARKED TO THE CONTRARY ACCOUNTANTS DISCTRETIONARY COMPANY'S EQUITY
BELOW INSTRUCTION: To withhold authority to vote VOTING COMPENSATION PLAN
for any individual candidate mark the box to the
left of the candidate's name. / / FOR / / FOR / / FOR
\ \ R. P. Anderson \ \ A. C. Bersticker
\ \ T. A. Commes \ \ W. F. Conway \ \ W. R. Embry / / AGAINST / / AGAINST / / AGAINST
\ \ R. J. Farling \ \ R. A. Miller
\ \ F. E. Mosier \ \ Sr. M. M. Reinhard / / ABSTAIN / / ABSTAIN / / ABSTAIN
\ \ R. C. Savage \ \ W. J. Williams
\ \ WITHHOLD AUTHORITY TO VOTE FOR ALL NAMED
CANDIDATES
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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PLEASE SIGN EXACTLY AS NAME(S) APPEARS ABOVE AND INDICATED 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. IF A
PARTNERSHIP THE FULL PARTNERSHIP NAME AND THE SIGNATURE
AND TITLE OF AN AUTHORIZED PERSON ARE REQUIRED. DATE____________, 1996
<PAGE> 30
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 23, 1996
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 23, 1996,
and at any adournments 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 ISSUE 2, AND AGAINST ISSUES 3 AND 4 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.
