SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] 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 Section 240.14a-11(c) or
Section 240.14a-12
PECO ENERGY COMPANY
---------------------------------------------------
(Name of Registrant as Specified In Its Charter)
T. D. CUTLER; G. M. PFEIL (PECO ENERGY);
---------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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.
Title of each class of securities to which transaction applies: _____________
Aggregate number of securities to which transaction applies: ________________
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(1): ______________________________________
Proposed maximum aggregate value of transaction: ____________________________
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: __________________________________________________________
(1) Set forth the amount on which the filing fee is calculated and
state how it was determined. ____________________________________________
<PAGE>
PECO ENERGY COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 9, 1997
Dear Shareholder:
YOU ARE CORDIALLY INVITED TO ATTEND THE 1997 ANNUAL MEETING OF
SHAREHOLDERS WHICH WILL BE HELD ON WEDNESDAY, APRIL 9, 1997, AT 9:30 A.M.
IN THE LECTURE HALL OF THE PENNSYLVANIA CONVENTION CENTER, PHILADELPHIA,
PENNSYLVANIA, LOCATED NEAR THE 13TH AND ARCH STREETS ENTRANCE. PARKING,
FOR WHICH THERE IS A FEE, IS AVAILABLE AT NUMEROUS PARKING FACILITIES IN
THE AREA.
The purposes of the Meeting are as follows:
1. Elect five Class I directors to serve for three-year terms;
2. Approve the appointment of Coopers & Lybrand L.L.P. as auditors for
the year 1997;
3. Approve Management Incentive Compensation Plan;
4. Approve Long-Term Incentive Plan;
5. Consider and take action on the shareholder proposals beginning on
page 20 of the Proxy Statement (if such proposals are presented at
the Meeting); and
6. Transact any other business that may properly come before the
Meeting.
Holders of Common Stock of record at the close of business February 20,
1997, are eligible to vote upon each of the matters listed above. The
number of shares indicated by the asterisk at the top of your proxy card
represents the total number of shares of Common Stock held by you as of
February 20, 1997, including any shares held under the Dividend
Reinvestment and Stock Purchase Plan.
At the Meeting, we will present a report on our current operations and
future plans, followed by a question and answer period during which we will
welcome comments and questions from those present.
We hope you will indicate your continuing interest in the Company and
your support of the Board of Directors by completing, signing and mailing
your proxy promptly. In order to have your proxy voted, please allow the
postal service sufficient time to return your proxy prior to the meeting
date of April 9, 1997.
K. K. COMBS J. F. PAQUETTE, JR.
Deputy General Counsel Chairman of the Board
and Corporate Secretary
Philadelphia, Pennsylvania
March 3, 1997
<PAGE>
PECO ENERGY COMPANY
2301 MARKET STREET
P. O. BOX 8699
PHILADELPHIA, PENNSYLVANIA 19101-8699
PROXY STATEMENT
The accompanying proxy, solicited by the Board of Directors, may be
revoked by the shareholder at any time prior to its exercise by attending
the Meeting and voting in person, by notifying the Corporate Secretary in
person or in writing, or by filing a later-dated proxy. If the shareholder
specifies a choice with respect to any matter to be acted upon, the shares
will be voted accordingly. If no choice is specified, the proxy will be
voted as set forth below.
The approximate date on which this Proxy Statement and proxy are being
sent to shareholders is March 3, 1997. The solicitation of proxies
generally will be by mail. The Company has engaged the firm of Morrow &
Co. to solicit proxies on its behalf at a cost of approximately $35,000;
however, some personal solicitation may be conducted by Company employees.
The Company will bear all costs of solicitation together with the expenses
of banks and brokers which, at the Company's request, will forward proxies
to beneficial owners of shares held of record by such banks and brokers.
On February 20, 1997, the Company had outstanding 222,542,087 shares of
Common Stock. Record holders of Common Stock as of that date are entitled
to one vote per share on all matters presented to the Meeting.
* * *
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors consists of fourteen members, divided into three
classes of directors, with five directors each in Classes I and II, and
four directors in Class III. The terms of the classes are staggered so
that the term of a class expires at each Annual Meeting. The terms of the
five directors in Class I are scheduled to expire at the April 9, 1997
Annual Meeting. These directors are being nominated for reelection at the
Meeting.
A resolution adopted by the Board of Directors in 1973 provides that
directors will offer their resignation from the Board of Directors prior to
the Annual Meeting next following their 70th birthday. Class II Directors
Nelson G. Harris and Edithe J. Levit, and Class III Director Joseph C.
Ladd, are now 70 and pursuant to this resolution, have offered their
resignation effective March 31, 1997. At the January 1997 Board of
Directors meeting, G. Fred DiBona and R. Keith Elliott were elected as
Class II directors by the Board of Directors.
If one or more of the nominees for director becomes unable or unwilling
to serve at the time of the Meeting, the shares represented by proxy will
be voted for the remaining nominees and for any substitute nominee(s)
designated by the Board of Directors or, if none, the size of the Board of
Directors will be reduced accordingly. The Board of Directors does not
anticipate that any nominee will be unavailable or unable to serve.
The election of directors requires the affirmative vote of the holders
of a majority of the shares present, in person or by proxy, and entitled to
vote at the Meeting. Abstentions and broker non-votes will not constitute
or be counted as "votes" cast for purposes of the Meeting. Shares
represented by properly executed proxies will be voted for the five Class I
nominees listed below unless otherwise specified on a shareholder's proxy
card. Any shareholder who wishes to withhold authority from the
proxyholders to vote for the election of directors, or to withhold
authority to vote for any individual nominee, may do so by marking the
proxy to that effect. No proxy may be voted for a greater number of
persons than the number of nominees named.
<PAGE>
EQUITY SECURITIES BENEFICIALLY
OWNED ON DECEMBER 31, 1996
------------------------------
NUMBER OF COMMON SHARES
---------------------------------------------
NOMINEES FOR DIRECTOR BENEFICIALLY OWNED ACQUIRABLE (A) TOTAL
- ------------------------------------------------------------------------------
CLASS I - TERM EXPIRING IN 2000
RICHARD G. GILMORE 2,015 (B)(C) 0 2,015
RICHARD H. GLANTON 1,858 (B) 3,000 4,858
JOSEPH J. McLAUGHLIN 3,166 (B) 11,000 14,166
CORBIN A. McNEILL, JR. 7,696 (B) 298,500 306,196
ROBERT SUBIN 1,326 5,000 6,326
INCUMBENT DIRECTORS
- ---------------------------------
CLASS II - TERM EXPIRING IN 1998
SUSAN W. CATHERWOOD 1,359 11,000 12,359
G. FRED DiBONA 0 0 0
R. KEITH ELLIOTT 0 0 0
JOHN M. PALMS 976 9,500 10,476
JOSEPH F. PAQUETTE, JR. 31,433 (B) 240,000 271,433
CLASS III - TERM EXPIRING IN 1999
- ---------------------------------
M. WALTER D'ALESSIO 1,027 11,000 12,027
JAMES A. HAGEN 1,412 11,000 12,412
KINNAIRD R. McKEE 862 (C) 6,000 6,862
RONALD RUBIN 1,359 (B) 11,000 12,359
OTHER EXECUTIVE OFFICERS
- ---------------------------------
DICKINSON M. SMITH 4,489 164,753 169,242
WILLIAM L. BARDEEN 10,055 55,000 65,055
JAMES W. DURHAM 11,708 110,000 121,708
All current executive officers
and directors as a group
(39 persons) 122,837 (D) 1,870,553 1,993,390
- ------------
NOTE A -- Shares which may be acquired within 60 days upon the exercise
of stock options granted under the Company's Long-Term
Incentive Plan.
NOTE B -- Does not include an aggregate of 540,493 shares of Common
Stock held under PECO Energy Company's Service Annuity Plan.
Messrs. Gilmore, Glanton, McLaughlin, McNeill, Paquette and Rubin
are members of the Executive Committee which monitors the investment
policy and performance of the investments under the Plan. For a
more detailed description of the Executive Committee, see "Audit,
Compensation, Corporate Governance, Executive, Finance, and Nuclear
Committees" section beginning on page 6.
NOTE C -- In addition, Admiral McKee and Mr. Gilmore own 600 and 200
shares, respectively, of 9% Cumulative Monthly Preferred
Securities (MIPS).
NOTE D -- Beneficial ownership represents less than one percent of the
shares of Common Stock outstanding.
* * *
2
<PAGE>
BUSINESS BACKGROUND OF NOMINEES AND DIRECTORS
NOMINEES FOR DIRECTOR -- TERMS EXPIRING IN 2000
################ Richard G. Gilmore, age 69, was first elected to the Board of
# # Directors in 1979. In 1983, he resigned from the Board when
# # he accepted the position of Finance Director of the City of
# ID: # Philadelphia. At that time, he was also Vice President and
# Photo of # Treasurer of The Girard Company (now Mellon Bank Corporation)
# Richard G. # and Executive Vice President and Treasurer of Girard Bank,
# Gilmore # its subsidiary, by which he had been employed since 1972. He
# # resigned from the position of Finance Director in December
# # 1985, at which time he was reelected to the Board. In 1986,
################ he was elected Senior Vice President, Finance and Chief
Financial Officer of the Company and served until 1991 when
he retired. Mr. Gilmore also is a director of CSS
Industries, Inc. and a member of the Board of Directors of
nineteen Legg Mason (or their subsidiary) mutual funds.
################ Richard H. Glanton, age 50, was elected to the Board of
# # Directors in 1991. Since 1987, he has been a partner of the
# # law firm of Reed Smith Shaw & McClay. He also is a director
# ID: # of General Accident Insurance Company of North America,
# Photo of # Philadelphia Suburban Corporation and Philadelphia Suburban
# Richard H. # Water Company and President of the Barnes Foundation. See
# Glanton # footnote 1 on page 5.
# #
# #
################
################ Joseph J. McLaughlin, age 69, was elected to the Board of
# # Directors in 1974. In 1974, Mr. McLaughlin was elected
# # President and Chief Executive Officer of the Beneficial
# ID: # Mutual Savings Bank. He retired from those positions in
# Photo of # 1993. He also is a director of the Beneficial Mutual
# Joseph J. # Savings Bank.
# McLaughlin #
# #
# #
################
################ Corbin A. McNeill, Jr., age 57, was elected to the Board
# # of Directors in 1990. From 1985 to 1987, Mr. McNeill
# # served as Vice President, Nuclear, Public Service Electric
# ID: # and Gas Company. In 1987, he was appointed Senior Vice
# Photo of # President, Nuclear, Public Service Electric and Gas
# Corbin A. # Company. In 1988, he was named the Company's Executive
# McNeill, Jr. # Director, Nuclear, on loan from Public Service Electric
# # and Gas Company, and later was elected Executive Vice
# # President, Nuclear, of the Company. In 1990, he was
################ elected President and Chief Operating Officer. In 1995,
Mr. McNeill was elected to the additional position of
Chief Executive Officer.
3
<PAGE>
################ Robert Subin, age 58, was elected to the Board of
# # Directors in 1994. In 1988, Mr. Subin was elected
# # Corporate Vice President of Campbell Soup Company. In May
# ID: # 1990, he became Vice President -- Grocery Sector, Campbell
# Photo of # North America, and was then promoted to Executive Vice
# Robert # President, International Division in November 1990. In
# Subin # 1992, Mr. Subin was named President, Campbell
# # Europe/America Division and, in 1993, was named President,
# # International Specialty Foods. In August 1994, he was
################ appointed Senior Vice President of Campbell Soup Company,
President, Bakery and Confectionery Division. In 1995, he
was appointed, Senior Vice President -- Finance, Campbell
Soup Company. In 1996, he was appointed to his present
position, Senior Vice President - Global Sourcing and
Engineering, Campbell Soup Company.
INCUBENT DIRECTORS -- TERMS EXPIRING IN 1998
################ Susan W. Catherwood, age 53, was elected to the Board of
# # Directors in 1988. From 1978 to 1984, Mrs. Catherwood was
# # Program Coordinator for the Academy of Music Anniversary
# ID: # Concerts. From 1982 to 1991, she was Chairman, Board of
# Photo of # Overseers, The University of Pennsylvania Museum. In
# Susan W. # 1991, she became Chairman, Trustee Board, University of
# Catherwood # Pennsylvania Medical Center and Health System (formerly
# # University of Pennsylvania Medical Center). She is also a
# # director of The Glenmede Corporation, The Glenmede Trust
################ Company, and The Glenmede Trust Company of New Jersey.
################ G. Fred DiBona, Jr., age 46, was elected to the Board of
# # Directors in 1997. In 1990, Mr. DiBona was named
# # President and Chief Executive Officer of Independence Blue
# ID: # Cross, a heath insurance organization. Mr. DiBona also
# Photo of # serves as President and Chief Executive Officer of
# G. Fred # Keystone Health Plan East, a jointly owned subsidiary of
# DiBona, Jr. # Independence Blue Cross and Pennsylvania Blue Shield.
# # He also serves on the Boards of Tasty Baking Company and
# # Philadelphia Suburban Corporation. He also served as
################ Chairman of the Blue Cross and Blue Shield Association,
the country's largest association of private health
insurers.
################ R. Keith Elliott, age 55, was elected to the Board of
# # Directors in 1997. In 1991, Mr. Elliott joined Hercules
# # Incorporated as a Senior Vice President and Chief
# ID: # Financial Officer. In January 1995, he became Executive
# Photo of # Vice President and Chief Financial Officer, and was then
# R. Keith # promoted to President and Chief Operating Officer in
# Elliott # October 1995. In August 1996, he was named President and
# # Chief Executive Officer. On January 1, 1997, he was
# # appointed to his present position of Chairman, President
################ and Chief Executive Officer. Mr. Elliott also serves on
the Boards of Alliant Techsystems and Wilmington Trust
Company.
################ John M. Palms, Ph.D., age 61, was elected to the Board of
# # Directors in 1990. From 1982 to 1988, Dr. Palms served
# # as Vice President for Academic Affairs at Emory
# ID: # University. In 1988, he became a Charles Howard Chandler
# Photo of # Professor of Physics at Emory University. Dr. Palms was
# John M. # elected President of Georgia State University in 1989, and
# Palms, Ph.D. # in 1991 was elected President of the University of South
# # Carolina. He also is a director of Fortis Inc., Policy
# # Management System Corporation, a trustee of the Institute
################ for Defense Analyses, and a member of the Advisory Council
for the Institute of Nuclear Power Operations (INPO).
4
<PAGE>
################ Joseph F. Paquette, Jr., age 62, was elected to the Board
# # of Directors and President, Chief Operating Officer in
# # March 1988. In April 1988, he was elected Chairman of the
# ID: # Board and Chief Executive Officer. In 1995, he stepped
# Photo of # down from the position of Chief Executive Officer. He is
# Joseph F. # also a director of Associated Electric & Gas Insurance
# Paquette, # Services Limited.
# Jr. #
# #
################
INCUMBENT DIRECTORS -- TERMS EXPIRING IN 1999
################ M. Walter D'Alessio, age 63, was elected to the Board of
# # Directors in 1983. Since 1982, Mr. D'Alessio has been
# # President and Chief Executive Officer of Legg Mason Real
# ID: # Estate Services (previously Latimer & Buck, Inc.),
# Photo of # commercial mortgage banking and pension fund advisors.
# M. Walter # He also is a director of the Philadelphia Stock Exchange,
# D'Alessio # Pennsylvania Blue Shield and Brandywine Real Estate Trust.
# #
# #
################
################ James A. Hagen, age 64, was elected to the Board of
# # Directors in 1990. From May 1989 to March 1995, Mr. Hagen
# # served as Chairman, President and Chief Executive Officer
# ID: # of Conrail. He served as Chairman of the Board of
# Photo of # Directors of Conrail from March 1995, until his retirement
# James A. # in May 1996. Mr. Hagen is also a director of Penn Mutual
# Hagen # Life Insurance Company.
# #
# #
################
################ Kinnaird R. McKee, age 67, was elected to the Board of
# # Directors in 1989. In 1988, Admiral McKee retired from
# # the U.S. Navy. From 1982 until 1988, he served as
# ID: # Director, Navy Nuclear Propulsion. His career included
# Photo of # service as Director of Naval Warfare, Commander of the
# Kinnaird R. # U.S. Third Fleet, and Superintendent, U.S. Naval
# McKee # Academy. He also is a director of Entergy Corporation.
# #
# #
################
################ Ronald Rubin, age 65, was elected to the Board of
# # Directors in 1988. From 1976 to 1992, Mr. Rubin was a
# # General Partner of Richard I. Rubin & Co. Inc., a real
# ID: # estate development and management company. In 1992, that
# Photo of # organization became The Rubin Organization, Inc. and he
# Ronald # became its Chief Executive Officer.
# Rubin #
# #
# #
################
(1) Richard H. Glanton is a partner of the law firm of Reed Smith Shaw &
McClay, which provided legal services to the Company during 1996.
* * *
5
<PAGE>
MEETINGS OF DIRECTORS
The total number of regular and special meetings of the Board of
Directors during 1996 was ten. Each director attended more than
seventy-five percent of the meetings of the Board and the meetings of
committees of which he or she was a member, except Messrs. DiBona and
Elliott who became members of the Board on January 27, 1997.
* * *
AUDIT, COMPENSATION, CORPORATE GOVERNANCE, EXECUTIVE, FINANCE, AND
NUCLEAR COMMITTEES
The Audit Committee consists of S. W. Catherwood (Chairman), M. W.
D'Alessio, and K. R. McKee. The Committee meets quarterly. At each
meeting, the Company's internal auditor reports on completed audits and the
audit program. During the year, the Committee meets with the Company's
independent auditors to review their audit of the consolidated financial
statements; to review the auditors' Report to Management for the preceding
year; to review their plans for conducting the audit for the current year;
to approve their services and fees; and to be informed of proposed or new
accounting practices. The Audit Committee met four times during 1996.
The Compensation Committee consists of R. Subin (Chairman), J. M. Palms
and R. Rubin. The Committee meets as necessary on the call of the Chairman
of the Committee. The Committee makes decisions pertaining to compensation
for the positions of Chief Executive Officer, President, Senior Vice
President and Vice President. These decisions, except for certain
decisions under the Long-Term Incentive Plan, are reviewed by the full
Board. The Compensation Committee met two times during 1996.
The Corporate Governance Committee consists of M. W. D'Alessio
(Chairman), S. W. Catherwood, R. H. Glanton, K. R. McKee and R. Subin. The
Committee establishes the criteria and evaluates the effectiveness of the
Board and each Committee, sets compensation for the positions of Director
and Chairman, and coordinates activities associated with management
succession planning on behalf of the Board and reviews and monitors
management development programs for officers and employees. The Committee
also recommends to the Board of Directors candidates for election to the
Board of Directors, with such candidates to be sought from an appropriate
variety of sources such as those with managerial experience as business
executives or with suitable academic or scientific backgrounds. While the
Committee normally expects to be able to identify from its own resources an
ample number of qualified candidates, it will review recommendations from
shareholders of persons to be considered as nominees at the 1997 Annual
Meeting of Shareholders if such recommendations are submitted in writing to
the Corporate Secretary at the address set forth on page 1.
The determination of nominees recommended by the Committee is within
the sole discretion of the Committee, and the final selection of nominees
is within the sole discretion of the Board of Directors. Therefore, no
assurance can be given that persons recommended by shareholders will be
nominated as directors. The Company's Bylaws do not permit shareholders to
nominate candidates from the floor at the Annual Meeting without prior
notification to the Corporate Secretary. Any such notification would have
to include certain information detailed in the Company's Bylaws. Shareholders
who desire to nominate a candidate from the floor at the 1997 Annual
Meeting should contact the Company's Corporate Secretary, Ms. K. K. Combs.
Nominations must be received 14 calendar days prior to the Annual Meeting
(March 26, 1997). The Corporate Governance Committee met seven times
during 1996.
The Executive Committee consists of J. F. Paquette, Jr. (Chairman),
R. G. Gilmore, R. H. Glanton, J. J. McLaughlin, C. A. McNeill, Jr. and
R. Rubin. The Committee meets quarterly. During intervals between meetings
of the Board of Directors, the Executive Committee may exercise all powers
of the Board of Directors in the management of all affairs of the Company.
This Committee also has fiduciary responsibilities associated with the
Company's Service Annuity Plan, including setting and monitoring the
investment policy and reviewing the transactions and performance of the
investment managers. The Executive Committee met four times during 1996.
6
<PAGE>
The Finance Committee was established in 1994 to assist management in
reviewing financial and other opportunities. The Committee consists of R.
G. Gilmore (Chairman), and M. W. D'Alessio. The Committee met two times
during 1996.
The Nuclear Committee consists of J. M. Palms (Chairman), R. G.
Gilmore, K. R. McKee and J. J. McLaughlin. The Committee was established
in 1987 to assist the Board of Directors in the proper discharge of the
Board's responsibilities for oversight of the nuclear operations of the
Company. The Nuclear Committee met eleven times during 1996.
* * *
REMUNERATION OF DIRECTORS
The Company's total compensation target for directors who are not
officers of the Company is the lowest 25th percentile of the general
industry average. Directors are remunerated in cash and deferred stock
units as set forth below, and are reimbursed expenses, if any, for
attendance at meetings:
$21,000 Annual Board retainer
$ 1,000 Meeting Fee
$ 2,000 Annual retainer for Chairmanship of Audit, Nuclear and
Special Committees
$ 1,000 Annual retainer for Chairmanship of Compensation,
Corporate Governance and Finance Committees
715 Deferred stock units
Effective January 1997, the Company has terminated all future
retirement benefit accruals and stock options for non-employee directors,
except for directors retiring before 1999 who may elect to receive benefits
under the previous plan. Accrued benefits under the terminated plan have
been replaced with a one-time grant of deferred PECO Energy Company stock
units equal to the present value of all accrued benefits for each director.
The equivalent future retirement benefits plus the value of stock options
have been replaced with annual grants of deferred stock units.
Directors are required to own at least 3,000 shares of PECO Energy
Company common stock and/or stock units within three years after their
election to the Board of Directors.
The Company has an unfunded Deferred Compensation Plan for non-officer
directors which permits such directors to defer all or a portion of their
remuneration. Amounts deferred will be credited with interest, compounded
quarterly, equal to the average prime commercial lending rate of The Chase
Manhattan Bank, N.A., in effect on the 15th day of each month, plus
one-half of one percent or they will be credited as though they were
invested in the following four mutual funds: the Fidelity Contrafund; the
Janus Fund; the Putnam Fund for Growth & Income; and the Dodge & Cox
Balanced Fund. The amounts deferred and the interest credited thereon are
unfunded obligations of the Company and may not be distributed to the
participant (except to meet a financial hardship) until that person ceases
to be a director, retires, or reaches age 65.
Directors who are also officers of the Company do not receive director
fees.
* * *
EXECUTIVE COMPENSATION DISCLOSURE
The following three tables show information relating to the Chief
Executive Officer and the four most highly compensated executive officers
during the calendar year 1996.
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
COMPENSATION
ANNUAL COMPENSATION LONG-TERM COMPENSATION ($)
-----------------------------------------------------------------------------------------
AWARDS PAYOUTS
----------------------------------------
RESTRICTED LONG-TERM
STOCK INCENTIVE PLAN
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER ($) AWARD(S) ($) OPTIONS (#) PAYOUTS ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph F. Paquette, Jr. 1996 528,006 285,480 0 0 50,000 0 0
Chairman of the Board 1995 497,614 400,119 0 0 50,000 219,000 0
1994 485,332 403,262 0 0 50,000 0 0
Corbin A. McNeill, Jr. 1996 505,440 218,868 0 0 50,000 0 0
President and Chief 1995 444,986 272,675 0 0 50,000 153,300 0
Executive Officer 1994 379,386 135,857 0 0 30,000 0 0
Dickinson M. Smith 1996 322,273 103,664 0 0 20,000 0 0
President, 1995 264,495 117,335 0 0 20,000 76,650 0
PECO Nuclear 1994 236,298 87,200 0 0 20,000 0 0
and Chief Nuclear Officer
William L. Bardeen 1996 329,212 60,917 0 0 20,000 0 0
Senior Vice President 1995 314,010 109,388 0 0 20,000 139,525 0
and Group Executive, 1994 304,532 88,072 0 0 20,000 0 0
Consumer Energy
Services Group
James W. Durham 1996 289,966 92,695 0 0 20,000 0 0
Senior Vice President 1995 273,992 119,591 0 0 20,000 76,650 0
and General Counsel 1994 262,757 83,712 0 0 20,000 0 0
</TABLE>
8
<PAGE>
OPTION GRANTS IN 1996
GRANT DATE
INDIVIDUAL GRANTS VALUE
-------------------- ----------
NUMBER % OF
OF TOTAL GRANT
SECURITIES OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO OR BASE EXPIRA- PRESENT
OPTIONS EMPLOYEES PRICE TION VALUE
NAME GRANTED(#) IN 1996 ($/SH) DATE ($)(A)
- ---- ---------- ---------- -------- ------- --------
Joseph F. Paquette, Jr. 50,000 6.4% $28.25 2/26/06 $138,985
Chairman of the Board
Corbin A. McNeill, Jr. 50,000 6.4 28.25 2/26/06 138,985
President and Chief
Executive Officer
Dickinson M. Smith 20,000 2.5 28.25 2/26/06 55,594
President,
PECO Nuclear and
Chief Nuclear Officer
William L. Bardeen 20,000 2.5 28.25 2/26/06 55,594
Senior Vice President
and Group Executive,
Consumer Energy
Services Group
James W. Durham 20,000 2.5 28.25 2/26/06 55,594
Senior Vice President
and General Counsel
(A) Values indicated are an estimate based on the Black-Scholes option
pricing model. Although executives face uncertain risks of forfeiture,
these risks are not factored into the calculated values. The actual
value realized will be determined by the excess of the stock price over
the exercise price on the date the option is exercised. There is no
certainty the actual value realized will be at or near the value
estimated by the Black-Scholes option pricing model.
Assumptions used for the Black-Scholes model are as of December 31, 1996
and are as follows:
Risk-free interest rate 5.51%
Volatility .1661
Dividend yield 6.20%
Time of exercise 5 years
9
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AT DECEMBER 31, 1996
SECURITIES
UNDERLYING VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/96 12/31/96(1)
- -----------------------------------------------------------------------------
SHARES
ACQUIRED (#) ($)
ON VALUE EXERCISABLE EXERCISABLE
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------- -------------
Joseph F. Paquette, Jr. 50,000 $315,200 E 190,000 E 0
Chairman of the Board U 50,000 U 0
Corbin A. McNeill, Jr. 0 0 E 248,500 E $414,000
President and Chief U 50,000 U 0
Executive Officer
Dickinson M. Smith 0 0 E 144,753 E 318,279
President, U 20,000 U 0
PECO Nuclear and
Chief Nuclear Officer
William L. Bardeen 20,000 82,500 E 35,000 E 0
Senior Vice President U 20,000 U 0
and Group Executive,
Consumer Energy
Services Group
James W. Durham 0 0 E 90,000 E 0
Senior Vice President U 20,000 U 0
and General Counsel
- ------------
(1) Market value of underlying securities at the year-end price of $25.25
per share, minus the value of underlying securities at the exercise or
base price. All options whose exercise or base price exceeds the
market value are valued at zero.
10
<PAGE>
EXECUTIVE COMPENSATION -- COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's compensation philosophy reflects a commitment to
compensate executives competitively with other companies in the industry
while rewarding executives for achieving levels of operational excellence
and financial returns which insure positive short-term and long-term
business performance and continual growth in shareholder value. The Board
of Directors believes that the Company's overall compensation program must
be competitive in order to attract and retain the qualified individuals
necessary to manage the Company and address the significant challenges
facing the Company and the industry.
The compensation program for executives consists of base salary, annual
incentive and long-term incentive components. The combination of these
elements balances short-term and long-term business performance goals and
aligns executive financial rewards with those of the Company's
shareholders.
Annual incentive awards are earned based on the Company's financial and
operational results in comparison to goals established at the start of the
year. See "Management Incentive Compensation Plan."
Long-term incentive awards in the form of stock options and dividend
equivalents relate directly to increases in shareholder value, which
determines any economic gain for executives. See "Long-Term Incentive
Plan."
The compensation levels of the Company's officers are reviewed each
year by a nationally recognized, independent compensation consulting firm,
and the results are presented to the Compensation Committee of the Board of
Directors. The Compensation Committee makes its decisions on officer
salary levels based upon the consultants' evaluations and other factors,
such as the individual's performance and the Company's financial condition.
These decisions, except for certain decisions under the Long-Term Incentive
Plan, are reviewed by the full Board. The latest comparison continues to
verify that the Company's executive compensation levels are competitive
within the utility industry and are below the levels typically found in
general industry. Currently, the Company compares its executive pay
practices with those of other electric and gas utilities. As the
environment in which the Company competes becomes increasingly competitive,
executive compensation practices and levels will be established using
companies operating in other industries in addition to utilities.
Under the transition rules outlined in the Omnibus Budget
Reconciliation Act of 1993, the Company is currently in compliance with
Section 162(m) governing the deductibility for federal income tax purposes
of the compensation paid to executive officers. Upon approval of Proposals
3 and 4 herein, the Company will remain in compliance with Section 162(m)
of the Internal Revenue Code.
EXECUTIVE SALARIES
Executive salaries are established at competitive levels based upon
survey information from other comparably sized major electric and gas
utility companies, including a majority of the companies in the Dow Jones
Utility Average. Executive salaries correspond to approximately the median
salaries of comparable executives of the companies in the survey. The base
pay levels indicated in the Summary Compensation Table include annual
salary increases granted in 1996 to the officers in the Table. A greater
portion of Messrs. Paquette's and McNeill's compensation is linked to the
performance of the Company. As a result, Messrs. Paquette's and McNeill's
salaries continue to be below competitive levels, i.e., their salaries are
below the median salary level of Chairmen and CEOs of comparably sized
utilities. The salaries of all executive level positions are reviewed by a
nationally recognized, independent compensation consulting firm, to ensure
the comparable salary data is valid and appropriate.
MANAGEMENT INCENTIVE COMPENSATION PLAN
In 1988, the Board of Directors established a Management Incentive
Compensation Plan (Management Plan) for individuals in the upper levels of
management. The Management Plan replaced a previous
11
<PAGE>
incentive compensation plan. The bonuses paid under the Management
Plan are targeted at the 75th percentile of major electric utilities. Each
year, a participant is assigned a base bonus percentage which is directly
related to the participant's position. Each participant's base bonus
percentage is determined by using bonus percentage data of comparably sized
utilities gathered from surveys and by the internal system of valuing PECO
Energy positions. This base bonus percentage is then multiplied by a
Company goals multiplier. This multiplier is a percentage based on the
achievement of corporate goals for the Chairman and CEO and a combination
of corporate, group and business unit or departmental goals for all other
plan participants, established by the Board of Directors. This amount is
then multiplied by an individual performance multiplier based on the
participant's performance during the year. The resulting percentage is
multiplied by the midpoint of the participant's salary range, and the
product equals the participant's bonus.
Corporate, group and business unit or departmental goals are
established based upon critical business factors necessary to achieve
short-term and long-term strategic objectives. Although these measures may
vary from year to year, they have typically included earnings per share,
total expenditures, safety and a measure relating to customer service
objectives. A participant's individual performance is rated on individual
achievement of pre-established goals which include and/or support the key
business objectives.
The goals and weighting used in determining Corporate performance for
the 1996 Management Plan awards were: earnings per share (50%), customer
satisfaction (30%) and diversity (20%). These goals accounted for 100% of
the Corporate performance factor for the Chairman and CEO, and 65% to 75%
of the Corporate performance factor for other executives and Management
Plan participants. The remaining factors, which accounted for 25% to 35%
of the Corporate performance factor for other executives and Management
Plan participants consisted of group specific goals such as total
expenditures and safety. The weighting of these factors for Messrs.
Paquette and McNeill and the other executives listed in the Summary
Compensation Table are as follows:
EXECUTIVE FACTORS WEIGHTING (%)
- --------- ------- -------------
Chairman of the Board, Corporate 100
Chief Executive Officer
President, PECO Nuclear and Corporate 65
Chief Nuclear Officer, Group Specific 35
Senior Vice President and Group
Executive, Consumer Energy
Senior Vice President and Corporate 75
General Counsel Group Specific 25
Consistent with the determination of awards for all participants, the
Chairman's and Chief Executive Officer's 1996 Management Plan award shown
in the Summary Compensation Table was based on a combination of corporate
and individual performance. The Corporate performance for the 1996
Management Incentive Compensation Plan was as follows: diversity exceeded
target levels while earnings per share and customer satisfaction did not
meet target levels. In addition to the financial and operating goals cited
above, the bonus amounts in the Summary Compensation Table incorporate an
evaluation of each officer's individual performance.
In evaluating each of the Chairman's and CEO's individual performance,
the Committee made an assessment of their leadership in achieving the
Company's long-term strategies and business goals. Specific factors taken
into consideration were the Company's strategic planning and
implementation; financial and operational results; succession planning and
organization; communication/external relations; Board relations; and
leadership.
12
<PAGE>
LONG-TERM INCENTIVE PLAN
In 1989, the Board of Directors approved and the Company's shareholders
ratified the Long-Term Incentive Plan (Incentive Plan). The types of
long-term incentive awards which may be granted under the Incentive Plan
are stock options to purchase shares of the Company's Common Stock,
dividend equivalents and shares of restricted Common Stock.
The combined value of stock options and dividend equivalents granted to
the Chairman, CEO and other executives indicated on the Summary
Compensation Table and the Option Grant Table are at levels competitive
with other major utility companies. The value of stock options and
dividend equivalents granted to executives is approximately the average of
grants to comparable executives at other major electric utility companies.
The purpose of stock options is to reward executives for strategic and
operational activities associated with growth in shareholder value, since
the ultimate value to the executive is determined by share price
appreciation. The individual receiving an option is entitled to purchase a
share of the Company's Common Stock at a specified price (option exercise
price) within a specified period of time. The option exercise price is
equal to at least the closing price of the Company's Common Stock on the
New York Stock Exchange as reported on the composite tape on the date of
the grant or the last business day preceding the grant date, when
applicable. Stock options granted under the Incentive Plan may not be
exercised more than ten years after the date of the grant.
Dividend equivalents are granted in conjunction with stock options in
the first year of a three-year cycle; dividend equivalents were granted in
1995 to the Chairman, CEO and other executives in the Summary Compensation
Table. Not all option grants include dividend equivalents. Dividend
equivalents granted under the Incentive Plan provide the opportunity for
the recipient to earn an amount equal to the dividends that would have been
paid had the recipient acquired the shares underlying the options at the
time the options were granted. All or a portion of the dividend
equivalents are paid, as determined by the Compensation Committee, based on
the Company's performance measured over a three-year period. The measure
used to determine dividend equivalents paid is the Company's three-year
total shareholder return measured against the three-year total shareholder
return of a comparison group of companies consisting of the 50 largest
investor-owned electric utilities, including a majority of the companies in
the Dow Jones Utility Average. Total shareholder return (TSR) is defined
as the sum of share price appreciation and dividends paid over the
performance period as follows:
(Average 12/97 Stock Price Minus Average 12/94 Stock Price)
Plus Cumulative 1995 Through 1997 Dividends Paid
-----------------------------------------------------------
Average 12/94 Stock Price
Dividend equivalent unit payouts are based on the following schedule:
THE COMPANY'S THREE-YEAR PERCENT OF ACCUMULATED
TSR QUINTILE RANK DIVIDEND EQUIVALENTS EARNED
------------------------ ---------------------------
1 150%
2 125
3 100
4 50
5 0
Restricted stock awards are shares of Common Stock subject to
limitation on their sale, transfer or pledge until the expiration of a
restriction period of not less than 12 months as determined by the
Compensation Committee at the time of the grant. During the restriction
period, the recipient of an award is entitled to receive dividends and vote
the shares of restricted stock. After the restriction period, the shares
will be distributed to the recipient. Restricted stock has been used
sparingly, awarded only at the conclusion of a highly unusual
accomplishment of major importance.
13
<PAGE>
STOCK OWNERSHIP GUIDELINES
In order to strengthen the alignment of PECO Executives' financial
interests with those of shareholders, the Board of Directors recently
approved stock ownership guidelines for Officers of the Company. Within
the next five years, Officers are expected to achieve the following levels
of stock ownership:
STOCK
POSITION OWNERSHIP LEVEL
-------- ---------------
Chairman of the Board/CEO 4 times salary
Senior Vice Presidents 2 times salary
Other Officers 1 times salary
Stock options, whether vested or unvested, will not be considered stock
owned for purposes of meeting the ownership guidelines
SHAREHOLDER RETURN COMPARISON COMPANIES VERSUS
EXECUTIVE COMPENSATION COMPARISON COMPANIES
Although the companies used for these two purposes are substantially
the same, they do differ slightly. The shareholder return comparison
companies are those included in the Dow Jones Utility Average. Those
companies used for executive pay comparisons are major electric utilities
participating in the Edison Electric Institute compensation surveys, the
most commonly recognized, accepted and reliable source of compensation data
for electric utilities. Performance comparison for the Incentive Plan
purposes is the 50 largest investor owned electric utilities. Seventy
percent of the companies in the Dow Jones Utility Average (excluding PECO
Energy) are used for executive compensation and performance compensation
purposes.
COMPARISON OF CUMULATIVE SHAREHOLDER RETURN
As noted on the graph shown on page 15, an investment of $100 in the
Company's Common Stock on December 31, 1991 would have grown in value to
$129.87 assuming reinvestment of dividends, at December 31, 1996. For the
five-year period ending December 31, 1996, the total cumulative return for
holders of the Company's Common Stock amounted to 30%, or the equivalent of
5.4% per year compounded. That return was slightly below the comparable
Dow Jones Utility Average and both indices were substantially below the
return of the Standard & Poor's 500 Stock Index.
Compensation Committee
R. Subin (Chairman)
N. G. Harris+
J. C. Ladd+
J. M. Palms
R. Rubin
- ------------
+Although Messrs. Harris and Ladd resigned from the Board effective
March 31, 1997, both Directors participated in the decisions reflected in
and the preparation of the Compensation Committee report.
* * *
14
<PAGE>
SHAREHOLDER RETURN COMPARISON
Shown below is a line graph comparing the yearly dollar change in the
cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of the S&P 500 Stock Index and the Dow Jones
Utility Average for the period 1992 through 1996.
ID: GRAPHIC
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
1992-1996
DOLLARS DOLLARS
$250 ID: LINE GRAPH SHOWING $250
$200 PECO ENERGY (as solid rule) $200
$150 S&P 500 (as dashes) $150
$100 DJ UTILITIES (as dot leaders) $100
$ 50 $ 50
$ 0 $ 0
1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------
December 31,
-------------------------------------------------
1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------
PECO Energy Company $100 106.32 129.24 110.99 145.04 129.87
- -----------------------------------------------------------------------------
S&P 500 Stock Index $100 107.62 118.46 120.03 165.14 203.06
- -----------------------------------------------------------------------------
Dow Jones Utility Average $100 104.08 114.10 96.65 127.56 139.17
- -----------------------------------------------------------------------------
Assumptions:
1. $100 invested on December 31, 1991 in PECO Energy Company Common
Stock, S&P 500 Stock Index and Dow Jones Utility Average.
2. All dividends are reinvested.
* * *
15
<PAGE>
RETIREMENT PLANS. The following table shows the estimated annual
retirement benefit payable on a straight-life annuity basis to
participating employees, including officers, in the earnings and year of
service classifications indicated, under the Company's non-contributory
retirement plans. The amounts shown in the table are not subject to any
deduction for Social Security or other offset amounts.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
AVERAGE ---------------------------------------------------------------------
ANNUAL SALARY
FOR HIGHEST YEARS OF SERVICE
CONSECUTIVE ---------------------------------------------------------------------
FIVE YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 19,535 $ 26,802 $ 34,070 $ 41,337 $ 48,605 $ 56,872 $ 63,139
200,000 40,035 55,052 70,070 85,087 100,105 115,122 130,139
300,000 60,535 83,302 106,070 128,837 151,605 174,372 197,139
400,000 81,035 111,552 142,070 172,587 203,105 233,622 264,139
500,000 101,535 139,802 178,070 216,337 254,605 292,872 331,139
600,000 122,035 168,052 214,070 260,087 306,105 352,122 398,139
700,000 142,535 196,302 250,070 303,837 357,605 411,372 465,139
800,000 163,035 224,552 286,070 347,587 409,105 470,622 532,139
900,000 183,535 252,802 322,070 391,337 460,605 529,872 599,139
1,000,000 204,035 281,052 358,070 435,087 512,105 589,122 666,139
</TABLE>
Covered compensation includes salary and bonus which is disclosed in
the Summary Compensation Table on page 8 for the five named executive
officers. The calculation of retirement benefits under the plans is based
upon average earnings for the highest consecutive five-year period.
Messrs. Paquette, McNeill, Bardeen, Durham and Smith have 39, 29, 5,
16, and 18 credited years of service, respectively, under the Company's
pension program. Because Mr. Bardeen has completed five years of
continuous employment with the Company, upon his retirement on March 31,
1997, his service with the Company for purposes of calculating his benefits
under the Company's pension program will be increased by 20 years. Mr.
Durham and Mr. Smith are each being granted one year of additional service,
for purposes of calculating their benefits under the Company's pension
program, for each year of service up to a maximum of 10 additional years.
The Internal Revenue Code of 1986, as amended, limits the annual
benefits which may be paid from a tax-qualified retirement plan. As
permitted by the Employee Retirement Income Security Act of 1974, the
Company has supplemental plans which authorize the payment out of general
funds of the Company of any benefits calculated under provisions of the
applicable retirement plan which may be above these limits.
CHANGE-OF-CONTROL AGREEMENTS. The Company has entered into
change-of-control agreements with most of its executive officers, including
the individuals named in the Summary Compensation Table. The purpose of
the agreements is to assure the objective judgment, and to retain the
loyalties, of key executives when the Company is faced with a potential
change of control by providing for a continuation of compensation (salary
and bonus), health and other benefits for a two-year period, and, for
certain officers, a minimum of twenty years of credited service under the
Company's deferred compensation and supplemental pension benefit plans for
purposes of determining the officer's pension, if an officer's employment
is terminated within three years after a Change of Control.
Change of Control is defined as (a) the purchase or other acquisition
of 20% or more of either the outstanding shares of common stock or the
combined voting power of the Company's then-outstanding voting securities;
(b) the approval by the shareholders of a reorganization, merger, or
consolidation, in which the existing shareholders do not own more than 50%
of the new company; or (c) a change of 25% of the membership of the Board
of Directors within a twelve-month period unless approved by 85% of the
pre-change directors still in office.
16
<PAGE>
In addition, the Company's Long-Term Incentive Compensation Plan
provides that in the event of a change of control, restrictions on
participant stock options and restricted stock grants lapse. The Company
has also entered into two trust agreements to provide for the payment of
retirement benefits and deferred compensation benefits of directors and
officers that include provisions requiring full funding in the event of a
change of control.
* * *
PROPOSAL 2. APPOINTMENT OF AUDITORS FOR 1997
The Board of Directors, subject to the approval of the shareholders,
has appointed Coopers & Lybrand L.L.P., independent certified public
accountants, as the auditors of the Company for the year 1997. Unless
otherwise directed, proxies will be voted "FOR" approval of this
appointment.
Abstentions and broker non-votes will not constitute or be counted as
"votes" cast for purposes of the Meeting.
A representative of Coopers & Lybrand will be present at the Annual
Meeting to respond to appropriate questions and will have the opportunity
to make a statement, if that representative so desires.
* * *
PROPOSAL 3. APPROVAL OF MANAGEMENT INCENTIVE COMPENSATION PLAN
As indicated previously in the Executive Compensation Section, the
Company has had an annual incentive award program since 1988 called the
Management Incentive Compensation Plan (the "Plan"). The Company believes
that the Plan will provide incentives for achievement of key operational,
short-term goals and strategic milestones that will enhance the
productivity and profitability of the Company. The Plan is being amended
and submitted to shareholders to make Awards performance-based, satisfying
the requirements of Section 162(m) of the Internal Revenue Code ("Code")
and to provide the Company flexibility in its executive compensation
practices as the electric utility industry becomes increasingly
competitive.
The material differences between the amended Plan and the existing Plan
are as follows: (a) establishes specific performance-based criteria for
making Awards; (b) establishes a maximum award; and (c) allows Awards to be
made in stock or other currency.
The amended Plan was approved by the Board of Directors on January 27,
1997, subject to shareholder approval. The full text of the amended Plan
is set forth in Appendix A to this proxy statement. If approved by the
shareholders, the amended Plan will become effective on April 9, 1997.
The Plan provides for annual awards of cash, stock, or other currency
("Awards") to key employees (employees so designated by the Committee,
including employees who are officers or directors) based on achievement of
certain preestablished goals. The maximum annual Award payable to any
participant is two million dollars.
The Plan is administered and interpreted by a Committee (the
"Committee") consisting of two or more outside, non-employee Directors.
The Committee has the full power to select the employees who will receive
Awards under the Plan; determine the amounts and forms of Awards; determine
the terms and conditions of Awards in a manner consistent with the Plan;
construe and interpret the Plan and any agreement or instrument entered
into under the Plan; make factual determinations; and establish, amend, or
waive rules and regulations for the Plan's administration.
In order to qualify as performance-based compensation, the Committee
must establish performance goals and the formula for applying such goals in
determining Awards (within 90 days after the commencement of the applicable
performance period or before 25% of the performance period has elapsed, if
shorter than 12 months). During the performance period, the Committee may
modify performance goals or the formula for applying such goals; provided,
however, that the Committee cannot increase the Award
17
<PAGE>
otherwise payable to employees subject to Section 162(m) of the Code
under the goals and formula initially adopted. The Committee may, however,
reduce or eliminate the Award otherwise payable.
The performance goals will be based on business criteria chosen by the
Committee from among the following alternatives, each of which may be based
on absolute standards or peer industry group comparatives and may be
applied at various organizational levels (e.g., corporate, business unit,
division): (a) total shareholder return; (b) stock price increase; (c)
dividend payout as percentage of net income; (d) return on equity; (e)
return on capital; (f) cash flow, including operating cash flows, free cash
flow, discounted cash flow return on investment, and cash flow in excess of
cost of capital; (g) economic value added (income in excess of capital
costs); (h) cost per kilowatt hour; (i) market share; (j) customer/employee
satisfaction as measured by survey instruments; (k) earnings per share; (l)
revenue; (m) workforce diversity; (n) safety; (o) personal performance; (p)
productivity measures; (q) diversification of business opportunities, (r)
price to earnings ratio; (s) expense ratios; (t) total expenditures; and
(u) completion of key projects.
As of February 24, 1997, there were 128 employees eligible for Awards
under the Plan. Because of the similarities between the original Plan and
the amended Plan, the Company believes that if the amended Plan had been in
effect for 1996, the participants would have received the same bonuses they
received under the original Plan.
The affirmative vote of the holders of a majority of the Company's
Common Stock present at the meeting, in person or by proxy, is required for
the adoption of this proposal. Unless otherwise directed, proxies will be
voted "FOR" adoption of this proposal. Abstentions and broker non-votes
will not constitute or be counted as votes cast for purposes of the
Meeting.
* * *
PROPOSAL 4. APPROVAL OF LONG-TERM INCENTIVE PLAN
As indicated previously in the Executive Compensation Section, the
Company has had a long-term incentive award program since 1989 called the
1989 Long-Term Incentive Plan (the "Plan"). The Plan was originally
approved by shareholders on April 12, 1989. The Plan is being amended and
submitted to shareholders to make Grants performance-based, satisfying the
requirements of Section 162(m) of the Internal Revenue Code ("Code") and to
provide the Company flexibility in its executive compensation practices as
the electric industry becomes increasingly competitive.
The material differences between the amended Plan and the existing Plan
are as follows: (a) establishes specific performance-based criteria for
making Grants; (b) establishes a maximum individual Grant; (c) establishes
an aggregate limit on the number of shares that can be issued under the
Plan; (d) allows additional types of Grants in the form of Stock
Appreciation Rights, Performance Units, Performance Shares, Phantom Stock,
Incentive Stock Options, and free-standing Dividend Equivalents; (e)
extends the exercise period after retirement for nonqualified stock options
("NQSOs"), including those outstanding, to three years from 90 days; and
(f) gives the Committee broader authority in administering the Plan,
including the ability to amend certain terms of Grants and to allow the
transferability of certain options.
The amended Plan was approved by the Board of Directors on January 27,
1997, subject to shareholder approval. The full text of the amended Plan
is set forth in Appendix B to this proxy statement. If approved by the
shareholders, the amended Plan will become effective on April 9, 1997 and
will terminate on April 8, 2007, unless terminated earlier by the Committee
or extended by the Committee with approval of the shareholders.
The amended Plan provides for grants of options to purchase the
Company's Common Stock ("Options"), restricted stock ("Restricted Stock"),
dividend equivalents ("Dividend Equivalents"), stock appreciation rights
("SARs"), performance units ("Performance Units"), performance shares
("Performance Shares"), and phantom stock ("Phantom Stock") (collectively,
"Grants") to employees, including employees who are officers and directors
("Grantees"). The Company believes that the amended Plan aligns the
18
<PAGE>
economic interests of the participants with those of the shareholders,
and will be an incentive to the participants to contribute materially to
the growth of the Company, thereby benefiting the Company's shareholders.
The Plan is administered and interpreted by a Committee (the
"Committee") consisting of two or more outside, non-employee Directors.
The Committee has the sole authority to (i) determine the individuals to
whom Grants may be made under the Plan, (ii) determine the type, size and
other terms and conditions of each Grant, (iii) determine the time when the
Grants will be made and the duration of any applicable exercise or
restriction period, including the criteria for exercisability and the
acceleration of exercisability, (iv) amend the terms of any previously
issued Grant, and (iv) deal with any other matters arising under the Plan.
The Committee may amend or terminate the Plan at any time; provided,
however, that the Committee may not amend the Plan without shareholder
approval if such approval is required by section 162(m) of the Code or the
rules of any stock exchange on which the Common Stock is listed.
In order for Grants to qualify as performance-based compensation, the
Committee must establish performance goals (within 90 days after the
commencement of the applicable performance period) and certify that such
goals have actually been met before payment is made. The business criteria
to be used for purposes of establishing performance goals for Grants shall
be selected from among the following alternatives, each of which may be
based on absolute standards or peer industry group comparatives and may be
applied at various organizational levels (e.g., corporate, business unit,
division): (i) total shareholder return, (ii) stock price increase, (iii)
dividend payout as percentage of net income, (iv) return on equity, (v)
return on capital, (vi) cash flow, including operating cash flows, free
cash flow, discounted cash flow return on investment, and cash flow in
excess of cost of capital, (vii) economic value added, (viii) cost per
kilowatt hour, (ix) market share, (x) customer/employee satisfaction as
measured by survey instruments, (xi) earnings per share, (xii) revenue,
(xiii) workforce diversity, (xiv) safety, (xv) personal performance, (xvi)
productivity measures, (xvii) diversification of business opportunities,
(xviii) price to earnings ratio, (xix) expense ratios, (xx) total
expenditures, and (xxi) completion of key projects.
The aggregate number of shares of Common Stock of the Company ("Common
Stock") that may be issued or transferred under the Plan is sixteen
million. Generally, during any calendar year, no individual may be granted
Options or other Grants based on the fair market value of Common Stock
that, in the aggregate, may be settled by delivery of more than 500,000
shares of Common Stock or the equivalent fair market value. With respect
to Grants, the value of which is not based on the fair market value of
Common Stock, no individual may receive during any calendar year cash or
shares of Common Stock with a fair market value that, in the aggregate,
exceeds two million dollars.
The number of individuals currently participating in the Plan is 128.
Because of the similarities between the original Plan and the amended Plan,
the Company believes that if the amended Plan had been in effect for 1996,
the participants would have received the same type and amounts of Grants
they received under the original Plan.
Federal Income Tax Consequences. A Grantee of an option intended to
qualify as an "incentive stock option" ("ISO") under the Code, will not
recognize taxable income upon either the grant or exercise of the ISO. A
Grantee who disposes of the shares of Common Stock acquired upon exercise
of an ISO after two years from the date the ISO was granted and after one
year from the date such shares were transferred will recognize long-term
capital gain or loss in the amount of the difference between the amount
realized on the sale and the option price (or the Grantee's other tax basis
in the shares), and the Company will not be entitled to any tax deduction
by reason of the grant or exercise of the ISO, or the Grantee's disposition
of the shares. As a general rule, if a Grantee disposes of the shares of
Common Stock acquired upon exercise of an ISO before satisfying both
holding period requirements (a "disqualifying disposition"), the gain
recognized on such a disposition will be taxed as ordinary income to the
extent of the difference between the fair market value of such shares on the
date of exercise and the option price, and the Company will be entitled to a
deduction in that amount. The gain, if any, in excess of the amount recog-
19
<PAGE>
nized as ordinary income on such a disqualifying disposition will be
long-term or short-term capital gain, depending upon the length of time the
Grantee held his or her shares of Common Stock prior to the disposition.
There are no federal income tax consequences to Grantees or to the
Company upon the grant of an option intended to qualify as an NQSO under
the Plan. Upon the exercise of NQSOs, a Grantee will recognize ordinary
compensation income in an amount equal to the excess of the fair market
value of the shares of Common Stock at the time of exercise over the
exercise price of the NQSO, and the Company generally will be entitled to a
corresponding federal income tax deduction. Upon the sale of shares of
Common Stock acquired by exercise of an NQSO, a Grantee will have a capital
gain or loss (long-term or short-term depending upon the length of time the
shares of Common Stock were held) in an amount equal to the difference
between the amount realized upon the sale and the Grantee's adjusted tax
basis in the shares of Common Stock (the exercise price plus the amount of
ordinary income recognized by the Grantee at the time of exercise of the
NQSO).
The closing price of the Company's Common Stock on the composite tape
of the New York Stock Exchange, on February 20, 1997 was $22.25 per share.
The affirmative vote of the holders of a majority of the Company's
Common Stock present at the meeting, in person or by proxy, is required for
the adoption of this proposal. Unless otherwise directed, proxies will be
voted "FOR" adoption of this proposal. Abstentions and broker non-votes
will not constitute or be counted as votes cast for purposes of the
Meeting.
* * *
PROPOSAL 5. SHAREHOLDER PROPOSAL A
A shareholder of the Company has advised the Company that he will
submit the proposal set forth below at the Annual Meeting. The name and
address of the proponent and the number of shares held by the proponent
will be furnished by the Company to any person, orally or in writing as
requested, promptly upon the receipt of an oral or written request.
SHAREHOLDER PROPOSAL
Resolved that PECO Energy Company (PECO) adopt the following policy:
That no lawyer shall be selected for the PECO slate of endorsed candidates
for director that either directly or indirectly derives any compensation
from any law firm that provides legal services to PECO.
SHAREHOLDER'S STATEMENT OF SUPPORT Board Members have the duty of
undivided loyalty to PECO. There is an ample pool of candidates qualified
to serve on PECO's Board without conflicts of interest. Lawyer Board
Members that derive compensation from the providing of legal services to
PECO raise questions of conflict of interest including:
1. Can such a director be a vigorous advocate of policies designed to
reduce legal expenses by using internal legal staff to the fullest extent
possible, settling cases instead of litigation, choosing the most cost
effective law firms and strictly monitoring activities and billing when
external counsel must be used?
2. Can such a director be relied on to prudently limit top management's
salaries, stock options and other perquisites, when offending top
management by such limitation could result in an end to income derived from
providing legal services to PECO?
PECO has a history of lawyer directors whose law firms provide legal
services to PECO. The proponent of this resolution has asked the PECO
Board and its Chairman to stop this practice at a number of recent annual
meetings without success. PECO shareholders should vote for this
resolution.
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BOARD OF DIRECTORS' STATEMENT IN
OPPOSITION TO SHAREHOLDER PROPOSAL A:
The Board of Directors recommends that shareholders vote "AGAINST" this
proposal. This proposal seeks to impose what the Board believes to be an
arbitrary and unnecessary policy relating to director selection. An
identical proposal was submitted to shareholders at the prior three Annual
Meetings of Shareholders and was overwhelmingly defeated, with only 12.4%,
13.9% and 12.0%, respectively, of the vote cast in favor. The Corporate
Governance Committee of the Board selects as nominees only those persons
who the Committee believes are well qualified to serve as directors. It
weighs, on a case by case basis, the potential contribution it believes a
potential nominee will make to PECO Energy. This "case-by-case" approach
is consistent with the approach adopted by the New York Stock Exchange.
The Board has a policy that a director shall not enter into
transactions with the Company without first disclosing the individual
transaction and obtaining advance approval by the Board of Directors. The
Board believes that it is in the best interests of the Company and its
shareholders to maintain the ability to utilize the business services of
individual Board members.
The Board believes, as a general matter, that any proposal which, like
this proposal, seeks to impose rigid eligibility requirements for director
nominations is not in the best interests of shareholders because such
requirements restrict, rather than enhance, the Company's ability to
identify the most qualified persons to serve as directors.
For these reasons, the Board recommends a vote "AGAINST" the
shareholder's proposal. The affirmative vote of the holders of a majority
of the Company's Common Stock present at the Meeting in person or by proxy
is required for the adoption of this proposal. Unless otherwise directed,
proxies will be voted "AGAINST" adoption of this shareholder's proposal.
Abstentions and broker non-votes will not constitute or be counted as votes
cast for purposes of the Meeting.
* * *
PROPOSAL 6. SHAREHOLDER PROPOSAL B
A shareholder of the Company has advised the Company that she will
submit the proposal set forth below at the Annual Meeting. The name and
address of the proponent and the number of shares held by the proponent
will be furnished by the Company to any person, orally or in writing as
requested, promptly upon the receipt of an oral or written request.
SHAREHOLDER PROPOSAL
Resolved that PECO Energy Company (PECO) adopt the following policy:
That there shall be term limits for members of the Board of Directors of
PECO and such term limits shall not exceed six years.
SHAREHOLDER'S STATEMENT OF SUPPORT
PECO has a history of having an unlimited term of service for the
members of its Board of Directors. The practice allows Board Members to
continue to serve regardless of the record of performance in directing the
company's affairs.
Limiting the term of service will allow for regular replenishment of
the Board composition with opportunity for new expertise, ideas and
perspectives to help insure the continued viability and growth of the
company.
This resolution is consistent with trends in this country to limit
terms of office of members of the United States Congress and other
governing bodies. The proponent believes that implementation of this
proposal will allow PECO to be guided by a continual infusion of new people
bringing in new ideas and expertise to guide the company in its strategic
planning and financial and business decision making. This should benefit
PECO employees, shareholders and customers by allocating our resources in
the most effective and constructive manner.
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BOARD OF DIRECTORS' STATEMENT IN
OPPOSITION TO SHAREHOLDER PROPOSAL B:
The Board of Directors recommends that shareholders vote "AGAINST" this
proposal. An identical proposal was submitted to shareholders at last
year's Annual Meetings of Shareholders and was overwhelmingly defeated,
with only 7.7% of the vote cast in favor. The Board of Directors believes
that the familiarity with and understanding of the Company achieved through
continuity of service are assets which enhance directors' contributions to
the Company. Arbitrarily limiting directors' service would deprive the
Company of the insights directors have gained into the Company's business,
strategies and policies. It is this insight that is especially vital now
as the electric utility industry faces competition. In addition,
arbitrarily disqualifying those directors who have served for six years
deprives PECO Energy shareholders of the opportunity to evaluate and vote
for or against those directors on the basis of merit.
The Corporate Governance Committee of the Board of Directors, which is
composed entirely of independent directors, reviews and recommends director
nominees for consideration by the full Board of Directors. The Board of
Directors, in turn, recommends for shareholder consideration and approval a
slate of director nominees who are selected because of their experience,
diversity and contribution to the Company. In addition, the Board policy
governing directors' retirement (at age 70) and the Company's Bylaw
provision allowing the number of directors to be varied, assure ample
opportunity to add new directors with new expertise, ideas and
perspectives. In fact, during 1997, three directors retired and two new
directors were elected, and two directors are scheduled to retire in 1998.
The average tenure of the Company's 14 continuing directors is 8.6
years, and 11 of the 14 directors have served six or more years. The Board
of Directors believes that a restriction on the number of years of director
service is unnecessary and would deprive the Company of experienced
oversight, promote needless turnover of directors, and weaken the Company's
present effective system of governance.
For these reasons, the Board recommends a vote "AGAINST" the
shareholder's proposal. The affirmative vote of the holders of a majority
of the Company's Common Stock present at the Meeting in person or by proxy
is required for the adoption of this proposal. Unless otherwise directed,
proxies will be voted "AGAINST" adoption of this shareholder's proposal.
Abstentions and broker non-votes will not constitute or be counted as votes
cast for purposes of the Meeting.
* * *
OTHER MATTERS
Other than the foregoing, the Board of Directors knows of no other
matters which will be presented at the Annual Meeting for action by the
shareholders. Nevertheless, if any other matters properly come before the
Meeting, or any adjournment thereof, it is anticipated that the proxies
will be voted according to the best judgment of the persons acting by
authorization of the proxies.
* * *
DEADLINE FOR FILING SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals intended for inclusion in next year's proxy statement should
be sent to the Corporate Secretary of the Company at 2301 Market Street,
P.O. Box 8699, Philadelphia, PA, 19101-8699, and must be received by
November 3, 1997.
* * *
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APPENDIX A
PECO ENERGY COMPANY
MANAGEMENT INCENTIVE COMPENSATION PLAN
ARTICLE 1. INTRODUCTION, OBJECTIVES AND DURATION
1.1 Introduction: PECO Energy Company (the "Company"), hereby
establishes an incentive compensation plan to be known as the PECO
Management Incentive Compensation Plan (the "Plan"), as set forth below in
this plan document.
The plan permits the payment of annual awards, pursuant to achievement
of certain pre-established goals, in cash, stock or other currency.
Subject to approval by the Company's shareholders, the Plan shall
become effective as of April 9, 1997 (the "Effective Date") and shall
remain in effect as provided in Section 1.3 hereof. The first performance
period, as described in Section 4.1, shall be calendar year 1997.
1.2 Plan Objective: The objective of the plan is to reward achievement
of key operational, short-term goals and strategic milestones that will
enhance the productivity and profitability of the Company.
1.3 Duration: The plan will commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Committee to amend or terminate the Plan at any time.
ARTICLE 2. DEFINITIONS
When used in the plan, the following terms will have the definition set
forth below:
2.1 "AWARD" means individually or collectively, a payment under this
plan of cash, stock, some other currency or some combination.
2.2 "BOARD" or "BOARD OF DIRECTORS" means Board of Directors of the
Company.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.4 "COMMITTEE" means, as specified in Article 3 herein, the
Compensation Committee of the Board or such other Committee as may be
appointed by the Board to administer the Plan.
2.5 "COMPANY" means PECO Energy Company, a corporation, and any
successor thereto as provided in Article 18 herein.
2.6 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.7 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or a successor act thereto.
2.9 "KEY EMPLOYEE" means an officer or other employee so designated for
purposes of this plan by the Board of Directors. Directors who are not
employed by the Company or its Subsidiaries shall not be considered Key
Employees under this Plan.
2.10 "NONEMPLOYEE DIRECTOR" means a Director who satisfies the
requirements for a "nonemployee director" within the meaning of Rule 16b-3
under the Exchange Act.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee,
the members of which (unless otherwise determined by the Board) shall be
Nonemployee Directors and "outside directors" within the meaning of Code
section 162(m), or any successor regulations or provisions. The members of
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the Committee shall be appointed from time to time by, and shall serve
at the discretion of, the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law and subject
to the provisions herein, the Committee shall have full power to select Key
Employees who shall receive Awards under the Plan; determine the amounts
and forms of Awards; determine the terms and conditions of Awards in a
manner consistent with the Plan; construe and interpret the Plan and any
agreement or instrument entered into under the Plan; make factual
determinations; and establish, amend, or waive rules and regulations for
the Plan's administration. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration
of the Plan. As permitted by law and consistent with Section 3.1, the
Committee may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan (a) shall be final,
conclusive and binding on all persons, including the Company, its
shareholders, employees, Key Employees, and their estates and
beneficiaries, (b) shall be in the sole discretion of the Committee, and
(c) need not be uniform as to similarly situated individuals.
ARTICLE 4. MAXIMUM AWARDS, FORM OF AWARDS, TIMING OF AWARDS, PARTIAL
AWARDS, DISABILITY, TERMINATION OF EMPLOYMENT DURING THE PLAN YEAR
4.1 PERFORMANCE PERIOD AND MAXIMUM ANNUAL AWARD. Eligibility for
Awards and amounts payable to eligible Key Employees will be determined by
the Committee for each calendar year (or other fiscal year or partial year
performance period established by the Committee) (the "Performance Period")
based on pre-established performance goals for that Performance Period.
The maximum annual Award payable to any Participant is two million dollars.
4.2 FORM OF AWARDS. Awards may be paid in cash, stock or some other
currency or any combination thereof, as determined by the Committee in its
sole discretion or, to the extent expressly authorized and directed by the
Committee, by each Award recipient.
4.3 TIMING OF AWARDS. After the close of each Performance Period the
Committee will certify in writing, in the form of minutes of a meeting of
the Committee or otherwise, whether and the extent to which each eligible
Key Employee has satisfied applicable pre-established performance goals
for that Performance Period and, as and to the extent appropriate, will
approve management recommendations for Awards. Awards will be paid as soon
as practical thereafter.
4.4 PARTIAL AWARDS. Key Employees entering the Plan during the
Performance Period may be eligible to receive prorated Awards based on the
number of days employed and covered under the Plan during that Performance
Period. Employees hired after the last day of the tenth month of a
Performance Period are ineligible for an Award for that Performance Period.
4.5 DISABILITY. Employees who receive benefits under the Company's
long-term disability (LTD) plan during the Performance Period are eligible
for prorated Awards if they worked at least thirty days during the
Performance Period. Such an Award is prorated based on a fraction the
denominator of which is the number of days in the full Performance Period
otherwise applicable to the eligible Key Employee (e.g., a full or partial
calendar year), and the numerator of which is the denominator reduced by
the number of days for which the eligible Key Employee receives LTD
benefits during the Performance Period. In unusual circumstances the
Committee may determine to pay (i) a full Award or (ii) a partial Award
based on a different formula for proration.
4.6 TERMINATION OF EMPLOYMENT DURING THE PERFORMANCE PERIOD. Eligible
Key Employees who die or retire (under the terms of the Company's
tax-qualified defined benefit plan) during the Performance Period are
eligible for prorated Awards if they worked at least thirty days during the
Performance Period. Such an Award is prorated based on a fraction of the
denominator of which is the number of business days, excluding weekends,
but including holidays, in the full Performance Period
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otherwise applicable to the eligible Key Employee (e.g., the full
calendar year), and the numerator of which is the number of days worked
(including the last day worked but excluding, e.g., any days for which the
LTD benefits are paid) by the eligible Key Employee during the Performance
Period.
An eligible Key Employee whose employment terminates during the
Performance Period for reasons other than death or retirement (under the
terms of the Company's tax-qualified defined benefit pension plan) is
ineligible for an Award for that Performance Period. An eligible Key
Employee whose employment terminates after the Performance Period but prior
to payout is eligible for the full Award otherwise payable for that
Performance Period. Notwithstanding the foregoing provisions, the
Committee or the Chief Executive Officer of the Company, acting on behalf
of the Committee, reserves the right, in its or his sole discretion, to
grant Awards to Key Employees who are otherwise ineligible by reason of
terminating employment during the Performance Period (other than Key
Employees who are "covered employees" within the meaning of the Code
section 162(m)), and to determine the amounts of any such Awards.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Each Performance Period the Committee may select from among all Key
Employees those to whom Awards may be granted in accordance with Article 6
and other applicable provisions of the Plan.
ARTICLE 6. PERFORMANCE CRITERIA AND GOALS
6.1 BUSINESS CRITERIA. An eligible Key Employee's entitlement to an
Award for any Performance Period, and the amount of such Award, shall be
determined based on the eligible Key Employee's satisfaction of performance
goals established by the Committee in accordance with Section 6.2. Such
performance goals shall be based on the business criteria chosen by the
Committee within 90 days after the beginning of each Performance Period
(or, in the case of a Performance Period shorter than 12 months, before 25%
of the Performance Period has elapsed) from among the following
alternatives, each of which may be based on absolute standards or peer
industry group comparatives and may be applied at various organizational
levels (e.g., corporate, business unit, division):
(a) Total shareholder return
(b) Stock price increase
(c) Dividend payout as percentage of net income
(d) Return on equity
(e) Return on capital
(f) Cash flow, including operating cash flows, free cash flow,
discounted cash flow return on investment, and cash flow
in excess of cost of capital
(g) Economic value added
(h) Cost per kilowatt hour
(i) Market share
(j) Customer/employee satisfaction as measured by survey instruments.
(k) Earnings per share
(l) Revenue
(m) Workforce diversity
(n) Safety
(o) Personal performance
(p) Productivity measures
(q) Diversification of business opportunities
(r) Price to earnings ratio
(s) Expense ratios
(t) Total expenditures
(u) Completion of key projects
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The foregoing business criteria may be changed only by disclosure and
approval of such changes by the Company's shareholders; provided, however,
that if Code section 162(m) or other applicable tax and/or securities laws
permit the Committee to change such business criteria without disclosing to
shareholders and obtaining shareholder approval of such changes and without
thereby exposing the Company to potentially adverse tax or other legal
consequences, the Committee shall have sole discretion to make such changes
without obtaining shareholder approval.
6.2 PERFORMANCE GOALS. Within 90 days after the beginning of each
Performance Period (or, in the case of a Performance Period shorter than 12
months, before 25% of the Performance Period has elapsed), the Committee
will establish the performance goals and the formula for applying such
performance goals in determining the Awards for that Performance Period.
In the case of "covered employees" within the meaning of Code section
162(m), the Committee shall also establish within 90 days after the
beginning of the Performance Period (or such shorter period as determined
under the preceding sentence) any criteria or alternatives relating to the
form in which Awards may be paid for that Performance Period. Under no
circumstances will the maximum Award payable to any eligible Key Employee
exceed the amount set forth in Section 4.1. Thereafter during the
Performance Period the Committee may, in its sole discretion, modify
performance goals or the formula for applying such performance goals for
the Performance Period; provided, however, that in no case may the
Committee adopt any such modification that would increase the Award
otherwise payable to any "covered employee," within the meaning of Code
section 162(m), under the performance goals and formula initially adopted
by the Committee for the Performance Period; and provided further, that the
Committee may, in its sole discretion, reduce or eliminate the Award
otherwise payable to any eligible Key Employee. In addition, the Committee
may, in its sole discretion, grant Awards to eligible Key Employees who are
not "covered employees" within the meaning of Code section 162(m), which
Awards need not be determined in accordance with this Article 6 but may be
in such amounts and on such terms as the Committee determines in its sole
discretion.
ARTICLE 7. DEFERRALS
The Committee may permit or require an eligible Key Employee to defer
his or her Award. If any such deferral is permitted or required, the
Committee shall, in its sole discretion, establish rules and procedures for
such deferrals.
ARTICLE 8. RIGHTS OF EMPLOYEES
8.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or any Subsidiary to terminate any Key
Employee's employment at any time, or confer upon any Key Employee any
right to continue in the employ of the Company or such Subsidiary.
8.2 PARTICIPATION. No Key Employee shall have the right to be selected
to receive an Award under this Plan, or, having been so selected in a
particular Performance Period, to be selected to receive an Award in any
future Performance Period.
ARTICLE 9. AMENDMENT, MODIFICATION, AND TERMINATION
9.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Committee may at any
time and from time to time, alter, amend, modify or terminate the Plan in
whole or in part; provided however, that no amendment which requires
shareholder approval will be effective unless and until such approval is
obtained.
9.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any
Award previously granted under the Plan, to the extent such Award has not
yet been paid, without the written consent of the Key Employee to whom such
Award is granted.
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9.3 COMPLIANCE WITH CODE SECTION 162(m). All Awards granted under this
Plan shall comply with the applicable requirements of Code section 162(m),
as in effect from time to time; provided, however, that such compliance
shall not be required if the Committee determines, in its sole discretion,
that the best interests of the Company would be served by such compliance
with respect to any Award or Awards granted under the Plan.
ARTICLE 10. WITHHOLDING
The Company shall deduct or withhold from Awards or other amounts
payable to a Key Employee, or require the Key Employee to remit to the
Company, an amount sufficient to satisfy Federal, state and local taxes,
domestic or foreign, required by law or regulation to be withheld with
respect to any taxable event arising as a result of this Plan.
ARTICLE 11. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against
and from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by him or
her in a settlement approved by the Company, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to defend the same before he or she
undertakes to defend it or his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 12. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase of all or substantially all of the business and/or assets of the
Company, or a merger, consolidation, or otherwise.
ARTICLE 13. LEGAL CONSTRUCTION
13.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine;
the plural shall include the singular and the singular shall include the
plural.
13.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining part of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
13.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
stock and/or cash payouts under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
13.4 SECURITIES LAW COMPLIANCE. Transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 under the
Exchange Act, or any successor rule. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Committee.
13.5 GOVERNING LAW. To the extent not preempted by federal law, the
Plan and all agreements hereunder shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
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APPENDIX B
PECO ENERGY COMPANY
1989 LONG-TERM INCENTIVE PLAN
The purpose of the PECO Energy Company 1989 Long-Term Incentive Plan
(the "Plan") is to encourage designated key employees of PECO Energy
Company (the "Company") and its subsidiaries to contribute materially to
the growth of the Company, thereby benefitting the Company's shareholders,
by aligning the economic interests of the participants with those of the
shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee (the "Committee") appointed by the Board of Directors of the
Company (the "Board"). The Committee shall consist of two or more persons
appointed by the Board, all of whom shall be "outside directors" as defined
under section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and related Treasury regulations, and "non-employee directors" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the
Plan, (ii) determine the type, size and terms of the grants to be made to
each such individual, (iii) determine the time when the grants will be made
and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of
exercisability; (iv) amend the terms of any previously issued Grant, and
(v) deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements
and instruments for implementing the Plan and for the conduct of its
business as it deems necessary or advisable, in its sole discretion. The
Committee's interpretations of the Plan and all determinations made by the
Committee pursuant to the powers vested in it hereunder shall be conclusive
and binding on all persons having any interest in the Plan or in any awards
granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company, not as a fiduciary,
and in keeping with the objectives of the Plan and need not be uniform as
to similarly situated individuals.
2. Grants
Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 ("Nonqualified Stock Options") (Incentive
Stock Options and Nonqualified Stock Options are collectively referred to
as "Options"), restricted stock as described in Section 6 ("Restricted
Stock"), stock appreciation rights as described in Section 7 ("SARs"),
performance units as described in Section 8 ("Performance Units"),
performance shares as described in Section 8 ("Performance Shares"),
phantom stock as described in Section 9 ("Phantom Stock"), and dividend
equivalents as described in Section 10 ("Dividend Equivalents")
(hereinafter collectively referred to as "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to such other
terms and conditions consistent with this Plan as the Committee deems
appropriate and as are specified in writing by the Committee to the
individual in a grant instrument (the "Grant Instrument") or an amendment
to the Grant Instrument. The Committee shall approve the form and
provisions of each Grant Instrument. Grants under a particular Section of
the Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified in Section
3(c) below, the aggregate number of shares of common stock of the Company
("Company Stock") that may be issued or transferred under the Plan is
sixteen million, subject to the adjustment specified in Section 3(c) below.
The shares may be authorized but unissued shares of Company Stock or
reacquired shares of Company Stock,
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including treasury shares and shares purchased by the Company on the
open market for purposes of the Plan. If and to the extent Options or SARs
granted under the Plan terminate, expire, or are canceled, forfeited,
exchanged or surrendered without having been exercised or if any shares of
Restricted Stock, Performance Units, Performance Shares or Phantom Stock
are forfeited, the shares (if any) subject to such Grants shall again be
available for purposes of the Plan.
(b) Individual Limit. During any calendar year, no individual may be
granted Options or other Grants under the Plan that, in the aggregate, may
be settled by delivery of more than five hundred thousand shares of Company
Stock, subject to adjustment as provided in Section 3(c). In addition,
with respect to Grants the value of which is based on the Fair Market Value
of Company Stock and that may be settled in cash (in whole or in part), no
individual may be paid during any calendar year cash amounts relating to
such Grants that exceed the greater of the Fair Market Value (as defined in
Section 5(b)(iii)) of the number of shares of Company Stock set forth in
the preceding sentence either at the date of grant or at the date of
settlement. This provision sets forth two separate limitations, so that
Grants that may be settled solely by delivery of Company Stock will not
operate to reduce the amount or value of cash-only Grants, and vice versa;
nevertheless, Grants that may be settled in Company Stock or cash must not
exceed either limitation.
With respect to Grants, the value of which is not based on the Fair
Market Value of Company Stock, no individual may receive during any
calendar year cash or shares of Company Stock with a Fair Market Value at
date of settlement that, in the aggregate, exceeds two million dollars.
(c) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend,
spinoff, recapitalization, stock split, or combination or exchange of
shares, (ii) by reason of a merger, reorganization or consolidation in
which the Company is the surviving corporation, (iii) by reason of a
reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of
a spinoff or the Company's payment of an extraordinary dividend or
distribution, the maximum number of shares of Company Stock available for
Grants, the maximum number of shares of Company Stock that any individual
participating in the Plan may be granted in any year, the number of shares
covered by outstanding Grants, the kind of shares issued under the Plan,
and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares
of Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated.
Any adjustments determined by the Committee shall be final, binding and
conclusive. If and to the extent that any such change in the number or
kind of shares of Company Stock outstanding is effected solely by
application of a mathematical formula (e.g., a 2-for-1 stock split), the
adjustment described in this Section 3(c) shall be made and shall occur
automatically by application of such formula, without further action by the
Committee.
4. Eligibility for Participation
(a) Eligible Persons. All key employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members
of the Board, shall be eligible to participate in the Plan. Members of the
Board who are not Employees shall not be eligible to participate in the
Plan.
(b) Selection of Grantees. The Committee shall select the Employees to
receive Grants and shall determine the number of shares of Company Stock
subject to a particular Grant, and/or shall establish such other terms and
conditions applicable to such Grant, in such manner as the Committee
determines. Employees who receive Grants under this Plan shall hereinafter
be referred to as "Grantees."
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5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of
section 422 of the Code or Nonqualified Stock Options that are not intended
so to qualify or any combination of Incentive Stock Options and
Nonqualified Stock Options, all in accordance with the terms and conditions
set forth herein.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal
to or greater than the Fair Market Value (as defined below) of a share of
Company Stock on the date the Option is granted; provided, however, that an
Incentive Stock Option may not be granted to an Employee who, at the time
of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, unless the Exercise Price per share is not less
than 110% of the Fair Market Value of Company Stock on the date of grant.
(iii) The Fair Market Value per share shall be the closing sale
price of a share of Company Stock on the composite tape of New York Stock
Exchange, or if there is not such sale on the relevant date, then on the
last previous day on which a sale was reported.
(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee
who, at the time of grant, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company, or
any parent or subsidiary of the Company, may not have a term that exceeds
five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may
be determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any
reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by the Company. In the event that a Grantee ceases
to be so employed for any reason other than a "disability," death,
retirement, or a termination for the convenience of the Company, any Option
held by the Grantee shall terminate at the close of business on the
Grantee's last day of employment.
(ii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled," or the Grantee dies or retires under the
terms of the Company's tax- qualified defined benefit pension plan, any
Nonqualified Stock Option, or any Incentive Stock Option in the case of the
Grantee's death, which is otherwise exercisable by the Grantee shall
terminate unless exercised within three years after the date on which the
Grantee ceases to be employed by the Company (or within such shorter period
of time as may be specified by the Committee), but in any event no later
than the date of expiration of the Option term. Any of the Grantee's
Options which are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such
date.
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled," any Incentive Stock Option that is
otherwise exercisable by the Grantee shall terminate unless exercised
within one year after the date on which the Grantee ceases to be employed
by the Company (or within such shorter period of time as may be specified
by the Committee), but in any event no later than the date of expiration of
the Option term. Any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by
the Company shall terminate as of such date.
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(iv) In the event the Grantee ceases to be employed by the Company
because the Grantee retires under the terms of the Company's tax-qualified
defined benefit pension plan or because the Grantee's employment is
terminated for the convenience of the Company (as determined by the Chief
Executive Officer of the Company in his sole discretion), any Incentive
Stock Option, and any Nonqualified Stock Option in the case of the
Grantee's termination for the convenience of the Company, that is otherwise
exercisable by the Grantee shall terminate unless exercised within 90 days
after the date on which the Grantee ceases to be employed by the Company
(or within such shorter period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by
the Company shall terminate as of such date.
(v) For purposes of this Section 5(e) and Sections 6, 7 and 8:
(A) The term "Company" shall mean the Company and its subsidiary
corporations.
(B) "Disability" or "disabled" shall mean a Grantee's becoming
disabled within the meaning of section 22(e)(3) of the Code.
(vi) The terms of all outstanding Options or other Grants which
were granted prior to the effective date of this Plan as amended and
restated herein, and which, if granted after such date, would be subject to
the provisions of this Section 5(e), are amended automatically to provide
for exercisability during the periods and under the circumstances set forth
in this Section 5(e), determined without regard to any prior specification
by the Committee or its predecessor which may be deemed to be for a shorter
period.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Grantee shall pay
the Exercise Price for an Option as specified by the Committee (x) in cash,
(y) with the approval of the Committee, by delivering shares of Company
Stock owned by the Grantee (including Company Stock acquired in connection
with the exercise of an Option, subject to such restrictions as the
Committee deems appropriate) and having a Fair Market Value on the date of
exercise equal to the Exercise Price or (z) by such other method as the
Committee may approve, including attestation (on a form prescribed by the
Committee) to ownership of shares of Company Stock having a Fair Market
Value on the date of exercise equal to the Exercise Price, or payment
through a broker in accordance with procedures permitted by Regulation T of
the Federal Reserve Board. In addition, the Committee may authorize loans
by the Company to Grantees in connection with the exercise of an Option,
upon such terms and conditions that the Committee, in its sole discretion,
deems appropriate. Shares of Company Stock used to exercise an Option
shall have been held by the Grantee for the requisite period of time to
avoid adverse accounting consequences to the Company with respect to the
Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 11) at the time of exercise.
Shares of the Company Stock shall not be issued upon exercise of an Option
until the Exercise Price is fully paid and any required withholding is
made. In the event that shares of Company Stock are used to exercise an
Option, the terms of such Option may provide for a Grant of additional
Options, or the Committee may grant additional Options, to purchase, at
Fair Market Value as of the date of exercise of the Option or the date of
grant of such additional Options, whichever is later, for a term equal to
the unexpired term of the exercised Option, a number of shares of Company
Stock equal to the sum of the number of whole shares used to exercise the
Option and the number of whole shares, if any, withheld in payment of any
withholding taxes.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the
date of grant with respect to which Incentive Stock Options are exercisable
for the first time by a Grantee during any calendar year, under the Plan or
any other stock option plan of the Company or a parent or subsidiary,
exceeds one hundred thousand dollars, then the Option, as to the excess,
shall be treated as a Nonqualified Stock Option.
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(h) Dividend Equivalents. The Committee may grant dividend equivalents
in connection with Options granted under the Plan. Such dividends may be
paid currently or accrued as contingent cash obligations and may be payable
in cash or shares of Company Stock, upon such terms as the Committee may
establish, including the achievement of specific performance goals.
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to a
Grantee under a Grant of Restricted Stock, upon such terms as the Committee
deems appropriate. The following provisions are applicable to Restricted
Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or
transferred for consideration or for no consideration, as determined by the
Committee. The Committee may establish conditions under which restrictions
on shares of Restricted Stock shall lapse over a period of time or
according to such other criteria as the Committee deems appropriate
including, without limitation, restrictions based upon the achievement of
specific performance goals. The period of time during which the Restricted
Stock will remain subject to restrictions will be designated in the Grant
Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a
Restricted Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company during the Restriction Period, or if other specified conditions
are not met, the Restricted Stock Grant shall terminate as to all shares
covered by the Grant as to which the restrictions have not lapsed at the
close of business on the Grantee's last day of employment, and those shares
of Company Stock must be immediately returned to the Company. The
Committee may, however, accelerate the termination of the restrictions for
all or a portion of such Restricted Stock as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 12(a). Each certificate for a share of Restricted
Stock shall contain a legend giving appropriate notice of the restrictions
in the Grant. The Grantee shall be entitled to have the legend removed
from the stock certificate covering the shares subject to restrictions when
all restrictions on such shares have lapsed. The Committee may determine
that the Company will not issue certificates for shares of Restricted Stock
until all restrictions on such shares have lapsed, or that the Company will
retain possession of certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period the Grantee shall not
have the right to vote shares of Restricted Stock. During the Restriction
Period the Grantee shall have the right to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee. Such dividends may be paid currently,
accrued as contingent cash obligations, or converted into additional shares
of Restricted Stock, upon such terms as the Committee may establish,
including the achievement of specific performance goals.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period
and the satisfaction of all conditions imposed by the Committee. The
Committee may terminate the restrictions, as to any or all Restricted Stock
Grants, without regard to any Restriction Period.
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7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant SARs to a Grantee
separately or in tandem with any Option (for all or a portion of the
applicable Option). Tandem SARs may be granted either at the time the
Option is granted or at any time thereafter while the Option remains
outstanding; provided, however, that, in the case of an Incentive Stock
Option, SARs may be granted only at the time of grant of the Incentive
Stock Option. The Committee shall establish the base amount of the SAR at
the time the SAR is granted. Unless the Committee determines otherwise,
the base amount of each SAR shall be equal to the per share Exercise Price
of the related Option or, if there is no related Option, the Fair Market
Value of a share of Company Stock as of the date of grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period
shall not exceed the number of shares of Company Stock that the Grantee may
purchase upon the exercise of the related Option during such period. Upon
the exercise of an Option, the SARs relating to the Company Stock covered
by such Option shall terminate. Upon the exercise of SARs, the related
Option shall terminate to the extent of an equal number of shares of
Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to
such vesting and other restrictions as may be specified in the Grant
Instrument; provided, however, that the term of the SAR shall not exceed
ten years. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised
while the Grantee is employed by the Company or during the applicable
period after termination of employment as described in Section 5(e) for
Options. For purposes of the preceding sentence, the rules applicable to a
tandem SAR shall be the rules applicable under Section 5(e) to the Option
to which it relates, and the rules applicable to any other SAR shall be the
rules applicable under Section 5(e) and a Nonqualified Stock Option. A
tandem SAR shall be exercisable only during the period when the Option to
which it is related is also exercisable.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash,
Company Stock or a combination thereof. The stock appreciation for an SAR
is the amount by which the Fair Market Value of the underlying Company
Stock on the date of exercise of the SAR exceeds the base amount of the SAR
as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee
deems appropriate. For purposes of calculating the number of shares of
Company Stock to be received, shares of Company Stock shall be valued at
their Fair Market Value on the date of exercise of the SAR. If shares of
Company Stock are to be received upon exercise of an SAR, cash shall be
delivered in lieu of any fractional share.
8. Performance Units and Performance Shares
(a) General Requirements. The Committee may grant Performance Units or
Performance Shares to a Grantee. Each Performance Unit/Share shall
represent the right of the Grantee to receive an amount based on the value
of the Performance Unit/Share, if performance goals established by the
Committee are met. A Performance Unit shall have a value based on such
measurements or criteria as the Committee determines. A Performance Share
shall have a value equal to the Fair Market Value of a share of Company
Stock. The Committee shall determine the number of Performance
Units/Shares to be granted and the requirements applicable to such
Units/Shares.
(b) Performance Period and Performance Goals. When Performance
Units/Shares are granted, the Committee shall establish the performance
period during which performance shall be measured (the "Performance
Period"), performance goals applicable to the Units/Shares ("Performance
Goals") and such other conditions of the Grant as the Committee deems
appropriate.
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(c) Payment with respect to Performance Units/Shares. At the end of
each Performance Period, the Committee shall determine to what extent the
Performance Goals and other conditions of the Performance Units/Shares are
met, the value of the Performance Units (if applicable) and the amount, if
any, to be paid with respect to the number of Performance Units/Shares that
have been earned. Payments with respect to Performance Units/Shares shall
be made in cash, in Company Stock, or in a combination of the two, as
determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed by
the Company during a Performance Period, or if other conditions established
by the Committee are not met, the Grantee's Performance Units/Shares shall
be forfeited at the close of business on the Grantee's last day of
employment. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate. If the Grantee
ceases to be employed by the Company after the expiration of a Performance
Period but prior to payment, payment shall be made to the Grantee or the
Successor Grantee, if applicable.
9. Phantom Stock
(a) General Requirements. The Committee may grant Phantom Stock to a
Grantee in such amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee.
(b) Value of Phantom Stock. The Committee shall establish the initial
value of the Phantom Stock at the time of grant which may be greater than,
equal to or less than the Fair Market Value of a share of Company Stock.
(c) Dividend Equivalents. The Committee may grant dividend equivalents
in connection with Phantom Stock granted under the Plan. Such dividends
may be paid currently or accrued as contingent cash obligations and may be
payable in cash or shares of Company Stock, upon such terms as the
Committee may establish, including the achievement of specific performance
goals.
(d) Form and Timing of Payment. The Committee shall determine whether
the Phantom Stock shall be paid in the form of cash, shares of Company
Stock or a combination of the two, in such proportion as the Committee
deems appropriate. Cash payments shall be in an amount equal to the Fair
Market Value on the payment date of the number of shares of Company Stock
equal to the number of shares of Phantom Stock with respect to which
payment is made. The number of shares of Company Stock distributed in
settlement of a Phantom Stock Grant shall equal the number of shares of
Phantom Stock with respect to which settlement is made. Payment shall be
made in accordance with the terms and at such times as determined by the
Committee at the time of grant.
(e) Requirement of Employment. If the Grantee ceases to be employed by
the Company prior to becoming vested or otherwise entitled to payment, the
Grantee's Phantom Stock shall be forfeited at the close of business on the
Grantee's last day of employment. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
10. Dividend Equivalents.
(a) General Requirements. The Committee may grant Dividend Equivalents
to a Grantee in such number and upon such other terms, including in either
case the achievement of specific performance goals, and at any time and
from time to time, as shall be determined by the Committee. Each Dividend
Equivalent shall represent the right to receive an amount in cash, or
shares of Company Stock having a Fair Market Value, equal to the amount of
dividends paid on one share of Company Stock during such period as may be
established by the Committee.
(b) Form and Timing of Payment. Dividend Equivalents may be paid
currently or accrued as contingent cash obligations, upon such terms as the
Committee may establish. The Committee shall determine whether Dividend
Equivalents shall be paid in the form of cash, shares of Company Stock or a
combination of the two, in such proportion as the Committee deems
appropriate. The number of any shares of
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Common Stock payable in satisfaction of Dividend Equivalents shall be
determined by dividing the amount credited to the Grantee with respect to
such Dividend Equivalents by the Fair Market Value on the day instructions
are given to the Company's Treasurer or transfer agent to issue or purchase
such shares. Cash shall be delivered in lieu of any fractional shares.
Payment shall be made at such times as determined by the Committee at the
time of grant.
(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company prior to becoming entitled to payment, the Grantee's Dividend
Equivalents shall be forfeited at the close of business on the Grantee's
last day of employment. The Committee may, however, provide for complete
or partial exceptions to this requirement as it deems appropriate.
11. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants
paid in cash, or from other wages paid to the Grantee, any federal, state
or local taxes required by law to be withheld with respect to such Grants.
In the case of Options and other Grants paid in Company Stock, the Company
may require the Grantee or other person receiving such shares to pay to the
Company the amount of any such taxes that the Company is required to
withhold with respect to such Grants, or the Company may deduct from other
wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding
obligation with respect to an Option, SAR, Restricted Stock, Performance
Units, Performance Shares, Phantom Stock or Dividend Equivalents, any of
which is paid in Company Stock, by having shares withheld having a Fair
Market Value up to an amount that does not exceed the Grantee's maximum
marginal tax rate for federal (including FICA), state and local tax
liabilities. The election must be in a form and manner prescribed by the
Committee and shall be subject to the prior approval of the Committee.
12. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant
to a domestic relations order (as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder). When a Grantee dies, the personal representative
or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights which have not been
extinguished by the Grantee's death. A Successor Grantee must furnish
proof satisfactory to the Company of his or her right to receive the Grant
under the Grantee's will or under the applicable laws of descent and
distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide in a Grant Instrument that a Grantee
may transfer Nonqualified Stock Options to family members or other persons
or entities according to such terms as the Committee may determine;
provided that the Grantee receives no consideration for the transfer of an
Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before
the transfer.
13. Grants Subject to Code Section 162(m)
(a) Performance Based Grants. Any Grant to a Grantee who is a "covered
employee" within the meaning of Code Section 162(m), the exercisability or
settlement of which is subject to the achievement of performance goals,
shall qualify as "qualified performance-based compensation" within the
meaning of Code Section 162(m) and regulations thereunder. The performance
goals for such a Grant shall consist of
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one or more of the business criteria set forth in Section 13(b), below,
and a targeted level or levels of performance with respect to such
criteria, as specified by the Committee in writing prior to (or within 90
days after commencement of) the applicable performance period. Performance
goals shall be objective and shall otherwise meet the requirements of
Section 162(m)(4)(C) of the Code and regulations thereunder. Performance
goals may differ for such Grants to different Grantees. The Committee
shall specify the weighting to be given to each performance goal for
purposes of determining the final amount payable with respect to any such
Grant. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with such a Grant, but may not exercise
discretion to increase such amount. All determinations by the Committee as
to the achievement of performance goals shall be certified in writing prior
to payment under the Plan, in the form of minutes of a meeting of the
Committee or otherwise.
(b) Business Criteria. Unless and until the Committee proposes for
shareholder approval and the Company's shareholders approve a change in the
general business criteria set forth in this Section, the attainment of
which may determine the amount and/or vesting with respect to Grants, the
business criteria to be used for purposes of establishing performance goals
for such Grants shall be selected from among the following alternatives,
each of which may be based on absolute standards or peer industry group
comparatives and may be applied at various organizational levels (e.g.,
corporate, business unit, division):
(i) Total shareholder return
(ii) Stock price increase
(iii) Dividend payout as percentage of net income
(iv) Return on equity
(v) Return on capital
(vi) Cash flow, including operating cash flows, free cash flow,
discounted cash flow return on investment, and cash flow
in excess of cost of capital
(vii) Economic value added
(viii) Cost per kilowatt hour
(ix) Market share
(x) Customer/employee satisfaction as measured by survey instruments
(xi) Earnings per share
(xii) Revenue
(xiii) Workforce diversity
(xiv) Safety
(xv) Personal performance
(xvi) Productivity measures
(xvii) Diversification of business opportunities
(xviii) Price to earnings ratio
(xix) Expense ratios
(xx) Total expenditures
(xxi) Completion of key projects
In the event that Code Section 162(m) or applicable tax and/or
securities laws change to permit Committee discretion to alter the
governing performance measures without disclosing to shareholders and
obtaining shareholder approval of such changes and without thereby exposing
the Company to potentially adverse tax or other legal consequences, the
Committee shall have sole discretion to make such changes without obtaining
shareholder approval.
14. Deferrals
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due to
such Grantee by virtue of the exercise of any Option or
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SAR, the lapse or waiver of restrictions applicable to Restricted
Stock, the satisfaction of any requirements or objectives with respect to
Performance Units/Shares or the vesting or satisfaction of any terms
applicable to Phantom Stock or Dividend Equivalents. If any such deferral
election is permitted or required, the Committee shall, in its sole
discretion, establish rules and procedures for such deferrals.
15. Requirements for Issuance or Transfer of Shares
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to
condition any Grant made to any Grantee hereunder on such Grantee's
undertaking in writing to comply with such restrictions on his or her
subsequent disposition of such shares of Company Stock as the Committee
shall deem necessary or advisable as a result of any applicable law,
regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred
under the Plan will be subject to such stop-transfer orders and other
restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.
16. Amendment and Termination of the Plan
(a) Amendment. The Committee may amend or terminate the Plan at any
time; provided, however, that the Committee shall not amend the Plan
without shareholder approval if such approval is required by Section 162(m)
of the Code or the rules of any stock exchange on which Company Stock is
listed.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless
the Plan is terminated earlier by the Committee or is extended by the
Committee with the approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not
materially impair the rights of a Grantee unless the Grantee consents or
unless the Committee acts under Section 22(b). The termination of the Plan
shall not impair the power and authority of the Committee with respect to
an outstanding Grant. Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended under Section 22(b) or may
be amended by agreement of the Company and the Grantee consistent with the
Plan.
(d) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples,
oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and
assigns.
17. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event
shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.
18. Rights of Participants
Nothing in this Plan shall entitle any Employee or other person to any
claim or right to be granted a Grant under this Plan, and no Grant shall
entitle any Employee or other person to any future Grant. Neither this
Plan nor any action taken hereunder shall be construed as giving any
individual any rights to be retained by or in the employ of the Company or
any other employment rights.
19. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether
cash, other awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
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20. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section
shall control.
21. Effective Date of the Plan
This Plan was originally effective in 1989, as approved by the
shareholders of the Company April 12, 1989. The Board has approved the
extension of the Plan as amended and restated herein. Subject to the
approval of the Company's shareholders, the Plan shall be effective on
April 9, 1997 as so amended and restated, and such date shall be the
effective date of the Plan for purposes of future Grants of Incentive Stock
Options and other Grants hereunder, and for purposes of termination of the
Plan in accordance with Section 16(b) hereof.
22. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of
the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including
Grants to employees thereof who become Employees of the Company, or for
other proper corporate purposes, or (ii) limit the right of the Company to
grant stock options or make other awards outside of this Plan. Without
limiting the foregoing, the Committee may make a Grant to an employee of
another corporation who becomes an Employee by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company or any of its subsidiaries in
substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary
from the terms and conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe the provisions
of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
and the obligations of the Company to issue or transfer shares of Company
Stock under Grants shall be subject to all applicable laws and to approvals
by any governmental or regulatory agency as may be required. With respect
to persons subject to Section 16 of the Exchange Act, it is the intent of
the Company that the Plan and all transactions under the Plan comply with
all applicable provisions of Rule 16b-3 or its successors under the
Exchange Act. In particular, and without otherwise limiting the provisions
of this Section 21(b), no Grantee subject to section 16 of the Exchange Act
may exercise any Option or SAR except in accordance with applicable
requirements of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a Grant
to bring it into compliance with any valid and mandatory government
regulation. The Committee may also adopt rules regarding the withholding
of taxes on payments to Grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
Commonwealth of Pennsylvania.
[LOGO]
Printed on Recycled Paper
38
<PAGE>
APPENDIX OF
GRAPHIC AND IMAGE MATERIAL
OMITTED FROM ELECTRONIC FORMAT DOCUMENT
PURSUANT TO RULE 304 OF REGULATION S-T
<PAGE>
APPENDIX OF
FORM OF PROXY
PECO ENERGY COMPANY
1997 COMMON STOCK PROXY
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 9, 1997, AT
R 9:30 A.M. IN THE LECTURE HALL OF THE PENNSYLVANIA CONVENTION CENTER,
PHILADELPHIA, PENNSYLVANIA, LOCATED NEAR THE 13TH AND ARCH STREETS
O ENTRANCE.
X SUSAN W. CATHERWOOD, M. WALTER D'ALESSIO and J. BARRY MITCHELL,
or any of them, with power of substitution are hereby appointed
Y proxies to vote as specified all shares of Common Stock which the
Shareholder(s) named on the reverse side is entitled to vote at the
above Annual Meeting or at any adjournment thereof, and in their
- discretion to vote upon all other matters as may properly be brought
- before the Meeting.
-
- First Chicago Trust Company of New York, as Custodian under the
- Dividend Reinvestment and Stock Purchase Plan, and PECO Energy
- Company, as Custodian for the 401(k) Employee Savings Plan, are hereby
- authorized to execute a proxy with identical instructions for any
shares of Common Stock held for the benefit of the Shareholder(s)
named on the reverse side.
Nominees for election to the Board of Directors for Class I terms
expiring in 2000 are:
Richard G. Gilmore, Richard H. Glanton, Joseph J. McLaughlin,
Corbin A. McNeill, Jr., and Robert Subin
Please sign and date on the reverse side and mail promptly in the
enclosed postage-paid envelope or otherwise to P.O. Box 8647, Edison,
New Jersey, 08818-9146.
---------------
| SEE REVERSE |
| SIDE |
---------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
^ FOLD AND DETACH HERE ^
[LOGO] PECO ENERGY(r)
ANNUAL MEETING OF STOCKHOLDERS
APRIL 9, 1997
9:30 A.M.
THE PENNSYLVANIA CONVENTION CENTER
13TH AND ARCH STREETS
PHILADELPHIA, PENNSYLVANIA
<PAGE>
- ------- PLEASE MARK YOUR |
| X | VOTES AS IN THIS | 9172
- ------- EXAMPLE. |--------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF DIRECTORS, FOR PROPOSALS 2, 3, AND 4
AND AGAINST PROPOSALS 5 AND 6.
- ------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
- ------------------------------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Appointment
Directors. of auditors
(see reverse) ___ ___ for 1997 ___ ___ ___
For, except vote withheld 3. Approval of FOR AGAINST ABSTAIN
from the following Management
nominee(s): Incentive
Compensation
Plan. ___ ___ ___
______________________________
FOR AGAINST ABSTAIN
4. Approval of
Long-Term
Incentive
Plan. ___ ___ ___
- ------------------------------------------------------------------------------
| THE BOARD RECOMMENDS A VOTE AGAINST
|----------------------------------------
| FOR AGAINST ABSTAIN
| 5. Shareholder
| Proposal A. ___ ___ ___
|
| 6. Shareholder
| Proposal B. ___ ___ ___
|
|----------------------------------------
SPECIAL ACTION
Discontinue Will
Annual Report Attend
mailing for Annual
this account. ___ Meeting ___
SIGNATURE(S) ______________________________________________ DATE _____________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
^ FOLD AND DETACH HERE ^
[LOGO] PECO ENERGY(r)
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE. THANK YOU FOR YOUR PROMPT REPLY.
A REMINDER
PECO ENERGY COMPANY
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 9, 1997
We previously sent to you proxy material concerning our upcoming Annual
Meeting of Shareholders.
According to our latest records, we have not yet received your
proxy. Whether your holdings are large or small, receiving your
signed proxy as soon as possible before the Meeting will be helpful
and will aid us in avoiding further expense and delay.
The time before the Meeting is short. Due to the possibility of
a delay in the mail, please sign, date and return the enclosed
duplicate proxy immediately, even if your original proxy was mailed.
We appreciate your cooperation.
K. K. Combs
Corporate Secretary
<PAGE>
PLEASE REMEMBER
TO SIGN AND DATE YOUR PROXY
---- --- ----
