<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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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: ...........................................................
================================================================================
<PAGE> 2
CENTERIOR ENERGY LOGO
6200 OAK TREE BLVD.
INDEPENDENCE, OHIO 44131
Robert J. Farling
Chairman, President
& Chief Executive
Officer
April 3, 1997
Dear Share Owner:
On behalf of all directors, I cordially invite you to attend the annual meeting
of share owners of Centerior Energy Corporation. The meeting will be held
THURSDAY, MAY 8, 1997 AT 1:30 P.M., Cleveland time, in the Grand Ballroom of
Executive Caterers at Landerhaven, 6111 Landerhaven Drive, Mayfield Heights,
Ohio. 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 the accompanying Proxy Statement and
Notice of Annual Meeting.
I'd like to take this opportunity to thank you for your overwhelming support of
our proposed merger with Ohio Edison to form FirstEnergy Corp. In case you don't
already know, I'm pleased to report that Ohio Edison's share owners strongly
supported the proposed merger as well. While we still must receive a number of
regulatory approvals, including that of the Federal Energy Regulatory Commission
(FERC), we will continue to prepare for completion of the merger in 1997 since
we expect the FERC approval process to be concluded late this year.
At our annual meeting on May 8, we will update you on progress on the merger as
well as take action on matters which 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 the proposals described in the Proxy Statement. 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 for the 1997 annual meeting.
Sincerely,
/s/ Robert J. Farling
<PAGE> 3
CENTERIOR ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHARE OWNERS
April 3, 1997
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 Thursday, May 8, 1997 at
1:30 p.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 1997;
3. Consideration of the share owner proposal 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 March 12, 1997
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
April 3, 1997
FOR ANNUAL MEETING OF SHARE OWNERS
May 8, 1997
COMPANY INFORMATION
Centerior Energy Corporation ("Company") is the parent company of The
Cleveland Electric Illuminating Company ("Cleveland Electric"), The Toledo
Edison Company ("Toledo Edison"), Centerior Service Company ("Centerior
Service") and three other smaller subsidiaries. The Company and its subsidiaries
comprise the Centerior System.
The Boards of Directors of the Company and Ohio Edison Company ("Ohio
Edison") have agreed on a merger. The new company will be named FirstEnergy
Corp. ("FirstEnergy") and will be headquartered in Akron, Ohio. On March 27,
1997, share owners of the Company and of Ohio Edison approved the merger, which
remains subject to certain regulatory approvals. When the merger is complete,
Company share owners will receive 0.525 of a share of FirstEnergy common stock
for each share of Company common stock ("Common Stock") they own, and Ohio
Edison shareholders will receive one share of FirstEnergy common stock for each
share of Ohio Edison common stock they own. Initially, Company share owners will
own approximately one-third, while Ohio Edison shareholders will own about
two-thirds, of the outstanding FirstEnergy common stock. Upon completion of the
merger, Willard R. Holland, who is Chairman of the Board and Chief Executive
Officer of Ohio Edison, will be Chairman of the Board, President and Chief
Executive Officer of FirstEnergy. Robert J. Farling, who is the Chairman,
President and Chief Executive Officer of the Company, will be Vice Chairman of
FirstEnergy. The FirstEnergy Board of Directors is expected to consist of 12
members, selected initially by the Ohio Edison Board.
GENERAL MEETING INFORMATION
Common Stock is the only class of security entitled to vote at the meeting.
Share owners of record on the record date, March 12, 1997, are entitled to
attend and participate in the meeting or to participate by submitting their
proxy. There were 148,025,928 shares of Common Stock outstanding as of the
record date, each of which is entitled to one vote. Any share owner of record
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 April 28, 1997.
1
<PAGE> 5
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 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.
Properly executed proxies received prior to the taking of action at the
annual meeting will be voted in accordance with the directions given. If a
properly executed proxy is returned without voting directions, the shares
represented by such proxy will be voted FOR the nominees for director, FOR the
ratification of auditors, AGAINST the share owner proposal and in accordance
with the best judgment of the proxies on any other matters which properly come
before 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 entirely
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 1996.
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 three meetings in 1996.
The Environmental and Community Responsibility Committee monitors the
Company's status and compliance with environmental laws, rules and regulations
and reviews and makes
2
<PAGE> 6
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 1996.
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 1996. 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 1996.
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 entirely of
outside directors. The Committee held seven meetings in 1996.
The Nuclear Committee monitors, 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 four meetings in 1996.
The Board held 12 meetings in 1996. The average attendance at the Board and
committee meetings was 94%. Each director attended at least 75% of the meetings
of the Board and the committees on which he or she served.
3
<PAGE> 7
ELECTION OF DIRECTORS
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 12. 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.
4
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
RICHARD P. ANDERSON, 67, Chairman and Chief Executive Officer 1986
ANDERSON PICTURE 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 ChemFirst Inc. (1) (2)
ALBERT C. BERSTICKER, 63, Chairman and Chief Executive Officer 1990
BERSTICKER since February 1996 of Ferro Corporation, a producer of
PICTURE specialty chemical materials for manufactured products. Mr.
Bersticker was President and Chief Executive Officer of Ferro
from May 1991 to February 1996. He has been a director of Ferro
since 1978. Mr. Bersticker also is a director of Brush Wellman
Inc., KeyCorp and Oglebay Norton Company. (2) (3) (4)
THOMAS A. COMMES, 54, President and Chief Operating Officer 1987
COMMES PICTURE 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. (1) (4) (5)
WILLIAM F. CONWAY, 66, President of William F. Conway & Associ- 1994
CONWAY PICTURE 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. (2) (3)
(6)
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
WAYNE R. EMBRY, 60, President and Chief Operating Officer since 1991
EMBRY PICTURE 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 KeyBank National Association. (1) (6)
(7)
ROBERT J. FARLING, 60, Chairman, President and Chief Executive 1988
FARLING PICTURE 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) (4) (5)
RICHARD A. MILLER, 70, Chairman and Chief Executive Officer of 1986
MILLER PICTURE the Company and Centerior Service from October 1988 to March
1992. He is a director of Bank One, Cleveland, N.A. (3) (4) (5)
(7) (8)
FRANK E. MOSIER, 66, Vice Chairman from August 1991 to August 1986
MOSIER PICTURE 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 and Boykin
Lodging Company. (3) (5) (6) (7)
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
DIRECTOR OF
THE COMPANY
AND
CENTERIOR
SERVICE
CANDIDATE SINCE
--------------------------------------------------------------- ------------
<S> <C> <C>
SISTER MARY MARTHE REINHARD, SND, 67, Director of Development 1986
REINHARD PICTURE for the Sisters of Notre Dame of Cleveland, Ohio since 1989.
(1) (2) (7)
ROBERT C. SAVAGE, 59, President and Chief Executive Officer 1990
SAVAGE PICTURE since 1973 of Savage & Associates, Inc., an insurance,
financial planning and estate planning firm. He is a director
of Charter One Bank in Toledo, Solar Cells, Inc. and Columbus
Life Insurance Company. (5) (6) (7)
WILLIAM J. WILLIAMS, 68, Chairman of Huntington National Bank 1986
WILLIAMS PICTURE from November 1991 to September 1993. 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. (1) (2) (4) (6)
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Nuclear Committee.
(3) Member of the Capital Expenditures Committee.
(4) Member of the Executive and Nominating Committee.
(5) Member of the Finance Committee.
(6) Member of the Human Resources Committee.
(7) Member of the Environmental and Community Responsibility Committee.
(8) The Board's policy that directors retire at the first annual meeting after
reaching age 70 would have required that Mr. Miller not stand for election
at the annual meeting. However, in view of the pending merger with Ohio
Edison, and Mr. Miller's extensive knowledge of the Company and his
experience in its formation in 1986, the Board waived its retirement policy.
Mr. Miller has consented to stand for reelection and, if reelected, to
continue as a director until the earlier of the completion of the merger
with Ohio Edison or the Company's 1998 annual meeting of share owners.
7
<PAGE> 11
In 1996, 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 1997. Arthur Andersen has served as the Company's independent
accountants since 1986. 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 REGARDING DISCRETIONARY VOTING
The Company has been advised that a share owner intends to present the
proposal set forth below at the 1997 annual meeting. The number of shares the
proponent owns will be furnished by the Company to any person promptly upon the
receipt of their oral or written request.
"MY PROPOSAL IS TO ELIMINATE ALL DISCRETIONARY VOTING WHEN THE
INDIVIDUAL (NOT THE TECHNICAL) SHAREHOLDER HAS NOT ACTUALLY
VOTED BY MARKING THE CARD."
8
<PAGE> 12
STATEMENT OF SHARE OWNER The statement of the share owner submitted in
support of the proposal is as follows:
"I, Allen Wolff, 1553 So. Carpenter Road, Brunswick, Ohio 44212-3826, feel
that there are a number of indiscretions allowing for increased executive
remuneration often in spite of decreased earnings, declining market confidence
and shareholder rewards and for reaffirmations of reigning directors and
management-sponsored (and often self serving) resolutions because of a triple
standard in counting proxies. The space allowed me here will not adequately
permit me to address these issues.
Did you ever wonder how managements put up such high numbers in shares
represented, shares voted for THEIR proposals and AGAINST shareholder proposals?
Shareholder-proposals garnering 10-45% of the vote SHOULD get some attention
from the incumbent management but so often they rest on the fact that it failed.
In addition to counting votes on shares they may NEVER own (SARs and stock
options), they count differently (1) proxies signed but not marked are counted
in favor of management's position (2) proxies held in street names may be voted
in favor of management's slate perhaps without receipt by the real owner and
without any input from him and (3) unvoted proxies held in employee 401K plans
may be COUNTED as voted in the same proportion as those actually voted. In these
days of mergers and downsizing, sometimes employees are AFRAID to vote against
management, sometimes feeling intimidated by communications from management.
Management provides only one slate of director-candidates. It is "take it
or leave it" and opposition can come only from well-financed renegades-sometimes
with less than the best interest of the company in mind. If anything
anti-management comes up at the annual meeting, they already have your proxy to
vote on ANYTHING ELSE if the CEO allows a vote.
Most managements will say that they use the parameters of the SEC in
revealing or not revealing management perks and they may use the date of the
last merger or name change in revealing just how long an individual has been
tenured. Managements say that they boldly tell how unmarked proxies will be
voted and feel that their shareholders appreciate not being required to make a
few Xs after intelligently wading through 20 or more pages of the proxy
statement. Get real! Just because the SEC may allow something does not make it
right. Many things are legal, but immoral.
Management doesn't tell you how to get your proxy from a street name
holder, nor how to appoint another proxy to represent you, nor how to vote for
someone else for director (BUT I WILL).
For those employee-shareholders who are afraid to vote unconfidentially,
but don't agree with management, at least ABSTAIN. That means your vote will not
be counted FOR nor AGAINST. For the independent, but astute shareholder, I ask
you to vote FOR. If you don't understand, ABSTAIN. If you leave it blank, it
will be counted AGAINST."
9
<PAGE> 13
STATEMENT OF THE BOARD OF DIRECTORS IN OPPOSITION TO THE SHARE OWNER
PROPOSAL
The Board of Directors recommends a vote AGAINST this issue. A similar
proposal was presented to share owners in each of the last two years by the same
proponent and was handily defeated each time it was presented. The same
proponent has also presented similar proposals for other companies' annual
meetings, with similar results.
The proposal, if approved, would take away rights and powers share owners
currently have, give a small number of share owners the ability to take actions
unilaterally at a share owner meeting, and increase the Company's cost of share
owner meetings while providing no corresponding value to share owners.
There are essentially two types of discretionary voting. First, there is
discretion for the proxy to vote a signed but unmarked card, as long as the card
states how it will be voted if it is signed but not marked. Second, there is
discretion to vote on matters which properly come before the meeting but are not
known in advance. Both of these types of discretionary authority are permitted
by Securities and Exchange Commission ("SEC") rules, and both make it easier for
informed share owners to participate in meetings. Both would be abolished by the
proposal.
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 counting the votes of many of our share owners, because a signed but
unmarked proxy card would have to be ignored. Your Board of Directors believes
that our procedures, which follow SEC rules and customary practice in the United
States, are necessary for good corporate governance.
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. 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 in their
discretion, actions that affect the Company and all of its share owners could be
taken by the extremely small percentage of share owners physically present at
the meeting.
The proposal does not even address most of the "indiscretions" perceived by
its proponent. For example, after its passage the beneficial owners of shares
held in street name would be no more likely to actually receive proxy materials
than they are currently under applicable (and adequate) rules. Voting by brokers
and other nominees on limited issues would still occur under applicable rules,
where share owners fail to timely sign and return a proxy card. Unallocated
shares held in pension plans would still be voted in the same
10
<PAGE> 14
proportion as allocated shares (a provision intended to help ensure fairness in
any event). Any intimidation employees may feel would not be mitigated by
abolishing discretionary voting. The proposal also would not affect a share
owner's ability to nominate or elect different directors.
Occasionally, the proponent's supporting statement shows a lack of
understanding of the rules. For example, it incorrectly states that management
may count votes based on stock options or stock appreciation rights (SARs). The
fact is that only shares owned of record can be voted. Once the irrelevant and
inaccurate content of the proponent's supporting statement is eliminated, little
remains to help justify the proposal.
The time and effort spent on dealing with this proponent's recurring
proposal is a cost to the Company and thus to you as a share owner.
Unfortunately, SEC rules require us to include his proposal as long as he
continues to submit it, unless it receives less than 10% of the votes cast.
Therefore, we are asking you to vote against the proposal, to bring it to an
end. While we recognize the right of a share owner to submit an appropriate
proposal, we question the value to the Company and share owners of voting on
essentially the same proposal year after year. We believe your resources and
ours can be better utilized.
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.
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, they will be voted upon in accordance with the judgment of the persons
authorized in the proxy.
SECURITY OWNERSHIP
Based upon public filings, at December 31, 1996 the Company had three
beneficial owners of over 5% of its outstanding Common Stock, as summarized
below.
T. Rowe Price Associates, Inc., 100 E. Pratt Street, Baltimore, Maryland
21202, has notified the Company that as of December 31, 1996 it was the
beneficial owner of 14,731,700 shares of Common Stock, which is approximately
10.0% of the shares outstanding as of March 12, 1997. T. Rowe Price has sole
investment power for these shares, sole voting power for 2,874,000 shares and no
voting power for the remaining shares. T. Rowe Price disclaims beneficial
ownership of these shares.
11
<PAGE> 15
Barrow, Hanley, Mewhinney & Strauss, Inc., 3232 McKinney Avenue, 15th
Floor, Dallas, Texas 75204-2429, has notified the Company that as of December
31, 1996 it was the beneficial owner of 8,863,200 shares of Common Stock, which
is approximately 6.0% of the shares outstanding as of March 12, 1997. The firm
has sole investment power and shared voting power for these shares.
Vanguard/Windsor II Fund, 100 Vanguard Blvd., P.O. Box 2600, Malvern,
Pennsylvania 19355, has notified the Company that as of December 31, 1996 it was
the beneficial owner of 8,662,900 shares of Common Stock, which is approximately
5.9% of the shares outstanding as of March 12, 1997. The firm has shared
investment power and sole voting power for these shares.
The following table shows shares of Common Stock beneficially owned as of
March 12, 1997 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........................................... 3,526
Albert C. Bersticker.......................................... 2,673
Thomas A. Commes.............................................. 6,673
William F. Conway............................................. 2,164
Wayne R. Embry................................................ 2,673
Robert J. Farling............................................. 139,531(2)
Richard A. Miller............................................. 13,610
Frank E. Mosier............................................... 3,715
Sister Mary Marthe Reinhard, SND.............................. 3,893(3)
Robert C. Savage.............................................. 2,673
William J. Williams........................................... 3,790
Murray R. Edelman............................................. 62,010(2)
Fred J. Lange, Jr. ........................................... 45,916(2)
Al R. Temple.................................................. 14,700(2)
John P. Stetz................................................. 14,310(2)
Donald C. Shelton............................................. 54,503(2)
All directors and executive officers as a group (26
individuals)................................................ 534,352(2)(4)
</TABLE>
- ---------------
(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 March 12, 1997 upon exercise of options to
purchase shares of Common Stock: Mr. Farling -- 63,750; Mr.
Edelman -- 37,500; Mr. Lange -- 31,000; Mr. Temple -- 9,300; Mr.
Stetz -- 8,800; Mr. Shelton -- 48,600; and all directors and executive
officers as a group -- 289,050.
(3) Owned by Sisters of Notre Dame.
(4) All directors and executive officers as a group were considered to own
beneficially 0.36% of the Company's Common Stock and none of the Preferred
Stock of Cleveland Electric and Toledo Edison.
12
<PAGE> 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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
1996 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 executive management's challenge to enhance share owner
value in an increasingly competitive environment. Accordingly, while executive
officers' total compensation is comprised of three components -- base salary,
annual incentive awards and long-term incentive awards, the Company emphasizes
the link between compensation and share owner value through extensive use of
stock-based incentives. The Board sets each executive officer's total
compensation after considering recommendations of the Committee. For most
executive officers, the portion of their total compensation which is based on
annual and long-term incentives linked to Common Stock performance exceeds the
average of the comparable utilities (described below) which typically provide
about 20% of total compensation in the form of stock-based incentives.
In making its recommendations, the Committee considers corporate
performance, individual contribution to strategic goals and objectives and
compensation data for other electric utilities with revenues comparable to the
Company ("comparable utilities"). These companies are among the utilities
comprising the Edison Electric Institute Index shown on the Performance Graph on
page 17. In addition, the Committee and the Board considered the impact of
changes in compensation in view of the proposed merger with Ohio Edison. 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.
Competition for high quality employees in the nuclear generation industry
is very intense. Accordingly, in order to retain and attract high quality
executive officers and management employees with nuclear generation expertise,
in 1996 the Company implemented a Nuclear Retention Program. Under this program,
certain employees, including John P. Stetz, Senior Vice President-Nuclear, have
three-year compensation agreements which establish base
13
<PAGE> 17
salary, a retention stipend payable in cash annually over the period of the
agreement and cash incentive awards based on nuclear performance goals set
annually. Also in 1996, in order to help assure that the Company's senior
executive officers would objectively assess the proposed merger with Ohio Edison
and would remain with the Company at least through the transition to
FirstEnergy, the Committee recommended and the Board approved the severance
agreements discussed under "Employment and Severance Agreements and Employee
Plans".
BASE SALARY
To the extent not dictated by existing employment agreements, annual
adjustments to base salary are normally based on corporate performance,
individual performance, contribution and potential, scope of responsibility and
the marketability of an executive both inside and outside the electric utility
industry. However, the cash component of base salaries for executive officers
who have not assumed significantly greater responsibilities have been frozen
since November 1993. As a result, cash base salaries of many officers have
fallen well below the median pay level for similar positions at comparable
utilities. To partially offset this cash base salary freeze, restricted Common
Stock was awarded to certain executive officers as a component of base salary.
Similarly, in February 1997, two executive officers received awards of
restricted Common Stock in lieu of base salary increases; others received
increases in base salary to bring their base pay closer to the median pay level
at comparable utilities.
INCENTIVE COMPENSATION
The Company's Executive Incentive Compensation Plan provides a short-term,
or annual, and a long-term compensation component. The short-term component
emphasizes achievement of short-term corporate and individual goals, some of
which may relate to improving share owner value, and the long-term component
emphasizes the achievement of improved share owner value. The Committee
recommends and the Board ultimately determines the amount and form of the short
and long-term awards to be granted to executive officers, based on annual
performance results and sustained progress toward achievement of the Company's
Strategic Plan.
Incentives may be awarded in cash, equity-based units or a combination of
both. Cash awards are payable at the time an incentive award is made.
Equity-based awards are payable in the form of deferred incentive units (DIUs)
whose value mirrors the performance of the Company's Common Stock, including the
accrual of earnings at a rate equivalent to the dividend rate. A DIU is similar
to a share of restricted Common Stock except that no shares are actually issued.
DIUs vest and are paid in cash after five years except in the event of death,
disability or retirement, when vesting occurs immediately. If the executive
leaves the Company for other reasons prior to vesting, the DIUs are forfeited.
The Board establishes corporate and
14
<PAGE> 18
individual goals and corresponding performance measures each year, and may award
incentive compensation for each of the goals achieved based on their respective
weighted value. In 1996, for the CEO and executive officers in charge of the
Company's Strategic Business Groups ("SBG Executives"), 100% of incentive
compensation was tied to the attainment of the corporate goals. For other
executive officers, 75% of incentive compensation was tied to the attainment of
the corporate goals and 25% to individual goals.
The Committee establishes three levels of performance for each corporate
and individual goal, in increasing levels of difficulty -- threshold, target and
maximum. Threshold performance is the minimum level of performance which merits
an incentive award. Target awards are 30% of base salary for Vice Presidents,
40% for SBG Executives and 50% for the CEO. Threshold awards are 75% of target
awards and maximum awards are 200% of target awards. Each executive officer's
incentive award is based on the weighted average and the level of performance
achieved for each of the various goals. The Committee and the Board may also
consider other factors in determining incentive awards.
The Board established five corporate goals and performance measures for
1996 related to the Company's Strategic Plan. The goals for revenue, total
expenditures, cash flow, power production cost and customer satisfaction were
weighted 25%, 25%, 25%, 15% and 10%, respectively. A sixth goal was to achieve
for share owners a total return exceeding that of the S&P 500 Index. Also in
1996, a requirement that the average daily closing Common Stock price for
December 1996 be at least $10 per share was established as a condition for
awarding incentive payments for corporate goals. The average December closing
price was $10.625 per share. One of the performance measures was met at the
threshold level, two at the target level and one at the maximum level. The
remaining measure was below the threshold level. The sixth objective was
achieved, with total return to share owners of 33% exceeding the S&P 500 Index
return of 23%. Based on these results and performance with respect to individual
goals, executive officers are entitled to receive incentive awards. However,
awards, if any, will not be made by the Board until after the outcome of the
vote by Company and Ohio Edison share owners on the proposed merger with Ohio
Edison is known. This will enable the Board to determine if it is appropriate to
make awards and, if so, what level of awards and type of payouts should be given
under the circumstances.
As a further incentive to improve share owner value, in February 1997, the
Committee recommended and the Board approved the grant of stock options and
restricted Common Stock to executive officers as their long-term compensation
component. These grants place a greater portion of compensation at risk and
emphasize the link between compensation and share owner value. The stock options
are 10-year options exercisable at a price of $13.20 per share, which was
approximately 20% above the market price of Common Stock on the date of the
grant. Common Stock awarded is restricted against disposition for five years.
Except as
15
<PAGE> 19
discussed under "Employment and Severance Agreements and Employee Plans", if an
executive officer leaves the Company for reasons other than retirement, death or
disability, that officer's shares of restricted Common Stock and any unexercised
stock options will be forfeited back to the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
Data from the comparable utilities reviewed by the Committee show that the
cash component of Mr. Farling's base salary continues to be significantly below
the median of his peers. As has been the practice for the past several years,
the Committee recommended, and the Board approved, that Mr. Farling's cash base
salary remain unchanged. Also as has been the practice, he received 15,000
shares of restricted Common Stock as a component of base salary. The results
achieved on the 1996 corporate performance measures referred to above under
"Incentive Compensation" will be the basis for determining Mr. Farling's
incentive award. However, as discussed above, no incentive awards, if any, will
be made until after the outcome of the share owner vote on the proposed merger
with Ohio Edison is known.
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 1997,
Mr. Farling was granted 40,000 stock options and 10,000 shares of restricted
Common Stock as the long-term component of his total compensation. The 10-year
options have an exercise price of $13.20 per share, which was approximately 20%
above the market price of Common Stock on the date of the grant.
SUMMARY
In conclusion, the Human Resources Committee believes that the overall
performance of Mr. Farling and the Company's other executives during 1996, in
substantially improving share owner value and the Company's ability to succeed
in a fully competitive electric utility industry, more than justifies the
compensation awards made for their performance.
Frank E. Mosier, Chairman
William F. Conway
Wayne R. Embry
Robert C. Savage
William J. Williams
16
<PAGE> 20
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, 1991 in Company
Common Stock and each index. In each case, dividends are assumed to 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>
1991 100.00 100.00 100.00
1992 109.25 107.62 107.59
1993 80.10 118.45 119.58
1994 57.89 120.00 105.74
1995 62.81 165.11 138.55
1996 83.78 203.00 140.22
</TABLE>
17
<PAGE> 21
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, 1996 who were the next four most highly compensated
executive officers in 1996 and Donald C. Shelton, who would have been among the
four most highly compensated executive officers had he not retired on September
1, 1996.
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 1996 $360,048 0 $ 265,625 40,000 $19,112 $2,500 $21,612
Chairman, President 1995 360,048 0 144,375 175,000 19,188 2,500 21,688
and CEO of CEC 1994 360,048 500 128,975 40,000 19,188 1,030 20,218
and CSC.
Murray R. Edelman 1996 265,044 0 85,000 20,000 2,391 3,750 6,141
Executive Vice 1995 265,044 0 28,875 110,000 2,386 3,750 6,136
President of CEC 1994 265,044 500 49,413 20,000 3,334 3,750 7,084
and CSC.
Fred J. Lange, Jr. 1996 215,020 0 53,125 20,000 1,947 4,500 6,447
Senior Vice 1995 201,220 0 24,063 100,000 1,869 4,500 6,369
President of CEC 1994 191,404 500 30,988 12,000 3,782 4,527 8,309
and CSC.
Al R. Temple (5) 1996 170,040 15,820 21,250 8,000 3,880 4,500 8,380
Vice President -- 1995 170,040 31,150 7,219 20,000 2,801 4,500 7,301
Sales and 1994 143,880 27,700 22,194 8,600 3,085 3,724 6,809
Marketing of CSC.
John P. Stetz (5) 1996 159,260 59,758 21,250 8,000 3,167 4,500 7,667
Senior Vice 1995 150,020 0 6,256 20,000 3,167 4,498 7,665
President -- 1994 60,585 7,700 19,263 7,600 1,447 1,385 2,832
Nuclear of CSC.
Donald C. Shelton 1996 160,099 32,506 0 0 8,122 4,671 12,793
Senior Vice 1995 225,004 0 9,144 35,000 8,123 4,500 12,623
President -- 1994 225,004 500 33,500 13,600 7,125 2,918 10,043
Nuclear of CSC.
</TABLE>
- ---------------
(1) Awards pursuant to the Executive Incentive Compensation Plan have not yet
been made for 1996 performance. Messrs. Temple and Shelton received awards
pursuant to their employment agreements and Mr. Stetz received an award
pursuant to his compensation agreement.
(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 ($326,800); Mr. Edelman -- 8,900 shares
($95,675); Mr. Lange -- 6,200 shares ($66,650); Mr. Temple -- 3,400 shares
($36,550); and Mr. Stetz -- 2,950 shares ($31,713). Mr. Shelton previously
was awarded 4,950 shares of restricted Common Stock; the restrictions lapsed
upon his retirement. 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 includes additional compensation provided 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) Messrs. Temple and Stetz joined the Company February 28 and July 25, 1994,
respectively.
18
<PAGE> 22
EMPLOYMENT AND SEVERANCE AGREEMENTS AND EMPLOYEE PLANS
The Company had an employment agreement through August 1996 with Donald C.
Shelton, retired Senior Vice President -- Nuclear of Centerior Service, pursuant
to which he received a base salary of $225,000 and was entitled to participate
in the Company's benefit plans. In addition, he was 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. For his performance in achieving his 1996 goals, Mr. Shelton was awarded
$32,506. Mr. Shelton retired at the expiration of his contract.
The Company had an employment agreement through December 1996 with Al R.
Temple, Vice President -- Sales and Marketing of Centerior Service, pursuant to
which he received a base salary of $170,000 and was entitled to participate in
the Company's benefit plans. He was 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 1996. For his performance in
achieving his 1996 goals, Mr. Temple was awarded $15,820.
Certain of the Company's employee benefit plans and awards thereunder will
be affected by consummation of the proposed merger with Ohio Edison. Limitations
on restricted stock awarded under the Company's Directors Restricted Stock Plan
and Equity Compensation Plan will lapse automatically upon consummation of the
merger, and thereupon holders will be entitled to receive 0.525 of a share of
FirstEnergy Common Stock for every share of restricted stock held. Under the
Company's Equity Compensation Plan, the consummation of the merger will
constitute a change in control. As a result, all outstanding stock options will
become immediately exercisable in full and will be converted to options to
purchase FirstEnergy Common Stock, exercisable at prices adjusted to reflect the
exchange ratio.
In 1996, the Company entered into severance agreements with Messrs.
Farling, Edelman and Lange providing for the payment of severance benefits in
the event that the individual's employment with the Company was to terminate
other than for cause, death or disability as a result of the merger with Ohio
Edison.
The severance agreements of Messrs. Farling and Edelman provide that in the
event of a termination of either's employment (other than for cause), he is
entitled to receive a payment equal to 2.99 multiplied by the sum of (i) his
highest base salary for any year commencing prior to the merger plus (ii) his
average bonus for the three completed calendar years prior to the merger. In
addition, (i) certain benefit plans will be continued for the three-year period
subsequent to termination of his employment, (ii) certain retirement benefits
will be computed
19
<PAGE> 23
as if his employment had continued through age 65 (in Mr. Edelman's case, 62),
and (iii) certain additional payments will be made to him if he is subject to
excise tax. Mr. Farling is obligated to render consulting services to
FirstEnergy for a period of 42 months following termination of his employment,
for which he will be compensated at a monthly rate of .055833 of his highest
base salary for any year commencing prior to the merger. Mr. Edelman is
obligated to render consulting services to FirstEnergy for a period of 24 months
following termination of his employment, for which he will be compensated at a
monthly rate of $10,000.
The severance agreement of Mr. Lange provides that in the event of a
termination of employment (other than for cause, death or disability), he shall
be entitled to receive a payment equal to three times his base salary. In
addition, (i) certain benefit plans would be continued for three years following
termination, (ii) he would be entitled to a payment reflecting the retirement
benefit he would have been entitled to had his employment continued for the
three-year period following termination of his employment, and (iii) certain
additional payments will be made to him if he is subject to an excise tax.
Under the merger agreement with Ohio Edison, most officers of Ohio Edison
and the Company, including Messrs. Temple and Stetz, may, if an adequate
position is not available or their employment is terminated following the
merger, obtain severance compensation equal to 2.99 times the executive's
three-year average annual salary and bonus, plus health care benefits for three
years. Furthermore, any officer of Ohio Edison or the Company who has entered
into one of the severance agreements described above may elect to cancel that
severance agreement and accept the same benefits offered to other terminated
officers under the merger agreement.
If the employment of the Company's executive officers were terminated on
December 31, 1996 under circumstances entitling them to benefits under these
agreements, the estimated aggregate value of such benefits to them would have
been approximately $9,697,228, including the following estimated amounts that
would have been payable to the executive officers named in the Summary
Compensation Table: Mr. Farling -- $2,420,208; Mr. Edelman -- $1,778,782; Mr.
Lange -- $972,816; Mr. Temple -- $565,059; and Mr. Stetz -- $569,290.
20
<PAGE> 24
STOCK OPTIONS
The following tables present information relating to stock options granted
to the executive officers named in the Summary Compensation Table. Mr. Shelton
retired before the stock options were granted in February 1997. No options were
exercised in 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS EXERCISE
SECURITIES GRANTED TO OR BASE GRANT DATE
GRANT UNDERLYING EMPLOYEES PRICE EXPIRATION PRESENT
NAME DATE OPTIONS GRANTED IN FISCAL YEAR ($/SH) DATE VALUE(1)
- ------------------ -------- --------------- ------------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Farling 2/25/97 40,000 15.0 13.20 3/4/2002 $ 25,600
Murray R. Edelman 2/25/97 20,000 7.5 13.20 11/26/2004 14,400
Fred J. Lange, Jr. 2/25/97 20,000 7.5 13.20 2/25/2007 14,600
Al R. Temple 2/25/97 8,000 3.0 13.20 2/25/2007 5,840
John P. Stetz 2/25/97 8,000 3.0 13.20 2/25/2007 5,840
</TABLE>
- ---------------
(1) Except for Messrs. Farling and Edelman, the February 25, 1997 option values
are based on the Black-Scholes pricing model using the following
assumptions: expected stock volatility .219 (based on 60 months of closing
stock prices prior to grant), risk-free rate of return 6.52%, dividend yield
8.0% and a 10-year term. The option values for Mr. Farling and Mr. Edelman
are based on the same assumptions except for a risk-free rate of return of
6.12% and 6.40%, respectively, and option terms of 5 years and 6.75 years,
respectively, which assume retirement at age 65.
These assumptions are not intended to be a forecast of future performance of
the Company's Common Stock.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- --------------------- ---------------------------- -----------------------------
<S> <C> <C>
Robert J. Farling 63,750/151,250 (2)
Murray R. Edelman 37,500/92,500 (2)
Fred J. Lange, Jr. 31,000/81,000 (2)
Al R. Temple 9,300/19,300 (2)
John P. Stetz 8,800/18,800 (2)
Donald C. Shelton 48,600/0 (2)
</TABLE>
- ---------------
(1) The number of unexercisable options listed for each officer does not include
the February 25, 1997 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 31, 1996 of $10.75.
21
<PAGE> 25
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 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 $ 9,811 $ 19,621 $ 29,432 $ 39,242 $ 44,553 $ 49,864 $ 52,019 $ 54,174
150,000 15,061 30,121 45,182 60,242 68,553 76,864 80,269 83,674
200,000 20,311 40,621 60,932 81,242 92,553 103,864 108,519 113,174
250,000 25,561 51,121 76,682 102,242 116,553 130,864 136,769 142,674
300,000 30,811 61,621 92,342 123,242 140,553 157,864 165,019 172,174
250,000 36,061 72,121 108,182 144,242 164,553 184,864 193,269 201,674
400,000 41,311 82,621 123,932 165,242 188,553 211,864 221,519 231,174
450,000 46,561 93,121 139,682 186,242 212,553 238,864 249,769 260,674
</TABLE>
The following table sets forth the years of service and the covered
compensation as of year-end 1996 of the executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
NAME YEARS OF SERVICE COVERED COMPENSATION
---------------------------- ---------------- --------------------
<S> <C> <C>
Robert J. Farling 37 $398,803
Murray R. Edelman 35 286,463
Fred J. Lange, Jr. 10 207,575
Al R. Temple 2 (1)
John P. Stetz 2 (1)
</TABLE>
----------------------
(1) Messrs. Temple and Stetz are not now vested in the pension program
and therefore are not entitled to any pension.
Note: Mr. Shelton retired September 1, 1996, with $242,280 of covered
compensation and 10 years of service. Under terms of the Company's 1993
Voluntary Transition Program, applicable to him pursuant to his
employment agreement, his years of service were increased to 15 years.
22
<PAGE> 26
PROPOSALS FOR 1998 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 1998 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 11,
1997.
By order of the Board of
Directors,
JANIS T. PERCIO, Secretary
23
<PAGE> 27
[MAP]
<PAGE> 28
<TABLE>
<CAPTION>
[X] Please mark your
votes as in this example.
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratify appoint- / / / / / /
Directors ment of Arthur
(see reverse) Andersen LLP
as independent
accountants
FOR AGAINST ABSTAIN
3. Adopt share owner / / / / / /
proposal to
restrict
discretionary voting
For, except vote withheld from the following nominee(s):
________________________________________________________
Mark box THE BOARD OF DIRECTORS
if change RECOMMENDS A VOTE FOR THE
of address / / ELECTION OF ALL CANDIDATES
is noted AND ISSUE 2 AND A VOTE
on reverse AGAINST ISSUE 3.
side.
SIGNATURE(S)________________________________________________________ DATE ________________, 1997
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.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 MAY 8, 1997
The undersigned hereby appoints E. Lyle Pepin and Janis T. Percio (and
P if only one is present then by that one and with full power of
substitution and revocation) as proxies, with the powers the
R undersigned would possess if personally present, to vote all shares of
Common Stock of the undersigned in Centerior Energy Corporation (and to
O exercise all other share owner rights and powers) at the annual
meeting of its share owners to be held on May 8, 1997, and at any
X adjournments thereof, upon all matters that may properly come before
the meeting, including the matters identified on the reverse side of
Y this proxy and described in the proxy statement furnished herewith,
subject to any directions indicated on the reverse side of this proxy.
<TABLE>
<S> <C>
Candidates for election as directors: Note change of address below
R.P. Anderson, A.C. Bersticker, T.A. Commes, W.F. Conway, _______________________________________
W.R. Embry, R.J. Farling, F.A. Miller, F.E. Mosier, _______________________________________
Sr. M.M. Reinhard, R.C. Savage and W.J. Williams _______________________________________
_______________________________________
(If you have written in the above space,
please mark the change of address box on
the reverse side of this card.)
</TABLE>
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 ISSUE 3 SET FORTH ON THE REVERSE SIDE.
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE
AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
-------------
SEE REVERSE
SIDE
-------------
